Things About the IRS You Shouldn’t Believe: IRS Publication 6209

When it comes to the IRS, everyone loves to hate.  That’s why there is no shortage of IRS-related conspiracy theories, lies, and myths bouncing around the internet.  Here’s your guide to what you should not believe about the IRS.

Myth #1:  IRS Document (Publication) 6209 States That the IRS is Not a Government Agency

False False False!!  There are people writing that something called Document 6209 (a true IRS publication, yes) states that the US does not own the IRS, that the IRS reports to the UK.  Not only that, but that this proves we’re still slaves!!!!

Are these people high?  Well yes possibly if you look at their writing.  Purposely convoluted and misleading, the ramblings of these people are barely intelligible.  OK get this one: in IRS Publication 6209 the IMF is mentioned.  Document 6209 is basically a list of codes used by the IRS to keep tax data on file.  Every taxpayer has a file, and it’s in code.  This file is called the Individual Master File.  The initials are IMF.

IMF also stands for International Monetary Fund.  So these misguided writers out there are taking this to say that we are sending out tax dollars to the IMF!!  What a drastic leap!  It’s actually not really a leap because a leap implies a jump from one thing to another.  This is more like a jump off a cliff.  There’s no connection whatsoever!!!

Myth #2: You Don’t Have to File Income Taxes Because They are Illegal

This is a really popular one lately.  It’s also convenient to believe this myth because it means you get out of paying thousands of dollars in federal income taxes.  Some claim that paying income tax is voluntary.  Whoa nellie!  Some of us pay but others get to opt out of taxes?  Don’t think so!  Do those same people also opt out of government services?  Opt out of driving on highways?  Opt out of living in the US?

The arguments for the whole income tax is illegal/voluntary bit are weak and irrelevant.  They never hold up in court so don’t believe the myths, please.



Shop Owner

IRS Publication 915: Is Social Security Taxable?

Unless you’re Warren Buffet or Bill Gates, your Social Security checks aren’t going to finance a luxurious retirement lifestyle.  In fact, they’re going to be just enough to get by…if you’re lucky.  On top of that, if you make over a certain amount in retirement, your Social Security money may be taxable.  IRS Publication 915 is the ultimate guide to how your Social Security benefits are taxable, if at all.

If Social Security is All You Have…

If you are lucky or wise, or a good combination of both, you’ll have all sorts of income during retirement.  We all hope that Social Security won’t be our only source after we retire.  However, if this does turn out to be your only source of income, it probably won’t get taxed by the IRS.  That’s because you pay income tax on Social Security only if it reaches a certain dollar amount.  If half your Social Security income totals more than $25,000 you might still get taxed.  Otherwise, you’re good, provided you don’t have other sources of income.

That $25,000 mark is called the base amount.  That can change any year, and it’s for an individual.  If you are married filing jointly then the amount is $32,000.  Again, if half your Social Security wages are less than the base amount, and that’s all you take in, you not only won’t have to pay taxes on it (probably) but you might not have to file a return, either.

If You Have Other Sources of Income Too…

If you have other sources of income, add them to half your Social Security income and see if it tops the base amount.  You can still squeak by and not have to pay income tax if it’s less than the base amount.  However, you will have to file a return if you have retirement income other than Social Security.

In my experience almost everyone has something lined up in addition to Social Security, even those who didn’t plan at all and even those who didn’t save a dime.  These “other” sources of income would be…

  • a part-time job
  • money from a forgotten pension fund
  • Certificates of Deposit that come due
  • actually if you have nothing lined up then part time job is your best bet…

And that’s why you see people who are 70+ bagging groceries at the supermarket.  For one reason or another Social Security is all they’ve got.  But that’s another lesson!

IRS Publication 915 is the ultimate guide to how the IRS treats your Social Security benefits when you start drawing on them.  For a look at all 30 pages go here to the IRS website.



Busy females

IRS Publication 936: Why I Choose to Itemize Deductions

My husband and I bought a house last year…and like so many before us we got a mortgage to pay for it.  And also like so many before us, we pay thousands of dollars each year in mortgage interest.  It takes a lot of money to borrow money but the good news is, you can get a tax break.  IRS Publication 936 isn’t exactly light reading but it is  the end-all reference to the home mortgage deduction.

Now, the first thing to know about this deduction is that it’s only good if you choose to itemize your deductions.  What’s the choice?  The IRS grants every taxpayer a standard deduction…that’s a lump sum you can subtract from your taxable income.   Consider it a gift of tax-free money each year.  For 2014 it’s $6200 for an individual.  It’s easy to just subtract that standard deduction from your taxable income and be done with it.

Try and Beat the Standard Deduction

But if you think you can come up with a list of allowed deductions that totals more than the standard than by all means you should probably use that…that’s called itemizing your deductions.

If your home mortgage interest paid in one tax year equals more than the standard deduction then you already have a giant hint that you should be itemizing.  And very often with mortgage interest…it’s easy to beat the standard deduction!

What Counts?

Mortgage interest you paid on your main home is of course valid.  You can even count mortgage interest you paid on a second home…even if you never stayed on night in it!  Now, in order for that unused vacation home to qualify for this tax deduction, you cannot have rented it out to someone else.  It only counts if it stood there TOTALLY empty.

Now, if you rented your second home out to someone else, you can still deduct the interest on the mortgage but you also must have stayed there part of the year as well.  How long must you stay in your vacation home (if it’s also rented out part of the year) in order to use the mortgage interest on your itemized deductions?  Here’s the formula:

take 10% of the  # of days rented out.  you must stay in your vacation home more than this number of days.  If this number of days is less than 14, then you must stay in your home 14 days.

There are lots of scenarios for people who own more than one home or who have a home office…refer to IRS Publication 936 for those details.  In general, this is an easy tax deduction that usually beats the standard deduction.


Group of golden buddha

IRS Publication 557: So, You Wanna be Tax-Exempt?

Is your organization somehow helping the Greater Good and you feel it deserves to be tax-exempt?  Use IRS Publication 557 to apply for recognition by the IRS of tax-exempt status.  Here’s how to determine if your organization qualifies to be exempt from paying federal income taxes.  Listed below are the main categories of tax-exempt organizations according to Pub 557.  Find yours and read on.

1.  Charitable Organizations

This is the most obvious type of tax-exempt organization.  Let’s say you form a group that take old suits, revamps them and sells them at super-cheap prices to poor people who need them for work or looking for work.  The money you make goes towards paying staff and the rest goes back into the business…upkeep, building rent, etc.  Any extra and it pays for seminars held at your office, for career-minded people to gain skills.  Totally non-profit and a fine example of an organization that would qualify for tax-exempt status according to IRS Publication 557.  It’s a charitable organization.

2.  Education Organizations

OK now you form an organization and the main goal is to get the word out about nutrition so we don’t have so many obese people in our country.  You hold seminars, do one-on-one counseling with anyone who’d like to re-do their diet plan, and even rent your space out to the local chapter of Weight Watchers.  Your purpose is to educate the public on  nutrition.  Get out Pub 557 and start applying for tax-exempt status because you qualify.

3.  Literary Organizations

You have a book club that’s gone viral…people are lining up to get in, and you have a reputation for recommending the most fabulous books.  You also have an agenda…to promote the works of female authors.  You organization is called Femme Fiction, and you promote only female authors.  You get paid to go to schools and talk about great books that happen to be written by women.  You can see about applying for tax-exempt status because you may qualify.

4.  Scientific Organizations

You have a lab and your sole purpose is to find a cure for skin cancer.  You need donations, and all your profits go toward the research.  Tax-exempt status for you, just read IRS Publication 557 very closely and submit all the required documents as outlined in the publication.

5.  Protecting Animals and Children

Lots of work to be done in these areas, of course.  Pub 557 tells you exactly how to become tax-exempt if your organization fits into this category.

6.  Public Safety

Formed a corporation that takes on local governments who don’t build pedestrian and bicycle laws into code?  Well you can also apply to become tax-exempt.  If you’ve got public safety in mind, from clean water to safer highways, you may fit the bill.


IRS Publication 575: Pay Income Tax on Your Annuity

If you have an annuity, the payments you get are considered income by the IRS.  An annuity is any financial setup where you receive regular payments for the lifetime of the annuity, which is often the lifetime of the beneficiary.  There’s a lifetime annuity where you just give an insurance company a huge sum of money, and they agree to dole out regular payments for the rest of your life.  It’s safe but if you think if the missed opportunity then it’s not for those who think they can get better returns a different way.

Anyhoo…once you’re receiving those regular annuity payments, it’s rather nice because it’s like getting a regular paycheck.  Guess what else is like getting a regular paycheck: you have to pay income tax on it.  That’s what IRS Publication 575 is about: how to correctly report and pay income tax on annuity income, plus pension income falls within the same category so is treated in this Publication as well.

There are also variable rate annuities, whose regular payments will depend on results of investments made by the administrator of the annuity plan.  Some annuities go for lifetime and others go for a fixed period.

Also covered in IRS Publication 575 is disability payments you get after retiring on disability.  If your disability payments are through your former employer, then you have to pay income tax on those payments.  These payments are called “Disability Pensions”.

Retired public safety officers who buy insurance can exclude from income the amount of their insurance premiums if those premiums are paid for out of the pension they receive.  There is a limit on this: up to $3000.  Also, if you take this option of excluding from income your health or accident insurance or insurance for long term care, you cannot take a medical deduction for the medical costs covered by this money.