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income tax

Retrieving a Prior-Year Tax Return Copy

Sometimes you need access to a previous year tax return copy, and dadgummit you just pitched the box of tax copies from 2011, thinking you couldn’t possibly need it again!  There are ways to get this information – some easier than others. First of all, if you prepared and filed your own return using one of the commercial programs, and you’ve maintained your access to the program over the years, you should be able to go back and re-print a copy of the return from that year.  This is the quick and simple method. If you had a tax professional prepare and file the return for you, she should have a copy of your return – if not the fileable copy, then at least a client’s or preparer’s copy, which should be adequate for fulfilling most requirements.  Many preparers retain these copies, with supporting documentation, for many years for just […]

Starting a new job in the middle of the year? Use the part year withholding method to avoid excess tax withheld

When you file your W4 form with a new employer, this instructs the employer how much tax to withhold from your pay, based on a full year’s pay rate.  There is a strategy you can employ that will reduce the amount of tax withheld from your pay – known as the part year withholding method.  This method of tax withholding calculation takes into account that you are only working and earning for a part of the year, so your overall income will be less, and there would be less tax required. If you start working in the middle of the year (or worse, late in the year) the normal rate of withholding would result in significant over-payment of tax withheld.  The standard tables used to calculate withholding make the assumption on each pay that you are earning at this rate over the entire period.

A Quick Trick to Reduce Your Tax Liability

Now that most folks are recovering from tax time there may be some individuals that paid an excessive amount of tax to Uncle Sam and are looking for ways to reduce their tax liability for next year. This post will be short and sweet, but hopefully it will drive a few points home. The best way to explain this is through an example. Let’s say that Mary and her husband Paul both work and file their taxes jointly. Their tax liability for 2013 was $4,000 – meaning that’s the amount of the check they wrote to the IRS. Needless to say, they are both looking for a potential way to reduce that liability – at least in the here and now. In this case, their marginal tax rate is 25%. The quick trick in this example is to take their tax rate which is 25% and divide it into their […]

Obamacare and Your 2013 Tax Return

So – you’re considering your income tax return (or maybe you’ve already filed) and you’re wondering if there are things you need to know with regard to Obamacare.  Fortunately, it’s not much (for most folks), for your 2013 return anyhow.  Next year will be a different story. The IRS recently produced their Health Care Tax Tip HCTT-2014-10 which lists some tips about how the health care law impacts your 2013 tax return.  The actual text of the Tip is below: What do I need to know about the Health Care Law for my 2013 Tax Return? For most people, the Affordable Care Act has no effect on their 2013 federal income tax return.  For example, you will not report health care coverage under the individual shared responsibility provision or claim the premium tax credit until you file your 2014 return in 2015. However, for some people, a few provisions may […]

Avoiding Mistakes on Your Tax Return

When filing your tax return you want to make sure that you don’t make mistakes.  Mistakes can be costly in terms of additional tax and penalties, as well as the extra time and grief they can cause you.  Most of the time using e-filing software can help you to avoid these mistakes, but you should check over the return anyhow to make certain you haven’t fat-fingered something or if something didn’t go wrong with the software. The IRS recently issued their Tax Tip 2014-46, which lists out 8 common mistakes that folks make on their tax return, and how to avoid them where possible.  The actual text of the Tip follows below: Eight Common Tax Mistakes to Avoid We all make mistakes.  But if you make a mistake on your tax return, the IRS may need to contact you to correct it.  That will delay your refund. You can avoid […]

Capital Gains and Losses and Your Tax Return

When you own certain kinds of assets and you sell them, you may incur a capital gain or loss that is applicable to your income tax preparation.  If the original purchase price plus applicable expenses associated with the asset (known as the basis) is less than the proceeds that you receive from the sale of the asset, you have incurred a capital gain.  On the other hand, if the basis of your asset is greater than the proceeds from the sale, you have incurred a capital loss. Capital gains are taxable to you, using a separate tax rate – and capital losses can be deducted from your capital gains for the year.  Excess capital losses (above your capital gains for the year) can be used to reduce your income by up to $3,000 per year, carried forward until used up (or for your lifetime). The IRS recently produced their Tax […]

Simplified Home-Office Deduction Available

Beginning with your 2013 tax return you have a new option available for calculating the Home-Office deduction – based solely on the square footage of the dedicated space used for the home office. Instead of having to maintain records that are directly and indirectly associated with your home office, you can use the simplified method, which applies a flat $5 rate per square foot to the home office space, up to a maximum of $1,500. The record-keeping and tax preparation simplification is very beneficial: Form 8829 (the usual home-office deduction form) can cause a lot of headaches to prepare, especially if you have more than one home office and you itemize your home mortgage interest and real estate taxes.  For a single home office your tax preparation software will do much of the work for you, but complications like a second home office (not that uncommon in these days of […]

Can You Itemize? Or, Should You Itemize?

When you prepare your taxes each year, you’re faced with a decision – itemize deductions or take the standard deduction?  Most of the time it’s not a question of whether you can itemize, but rather should you itemize. Most Anyone Can Itemize… This is due to the fact that most anyone can itemize.  If you’ve paid state and/or local income or sales taxes, real estate taxes, or paid mortgage interest, you have deductions to itemize.  Same goes for charitable contributions.  All of these items that you’ve paid out are eligible to be deducted on Schedule A of your tax return, without a lower limit. If you have medical expenses, these can be deductible if the total of your medical expenses are more than 10% of your Adjusted Gross Income (AGI).  For 2013 tax returns, if you’re 65 years of age or older, your medical expenses that are more than 7.5% […]

Use Direct Deposit for Your Tax Refund

When filing your tax returns this year, consider using direct deposit for your refund.  By doing this, you don’t have to worry about the mail “making the trip”, and also you won’t have to make a visit to the bank to cash or deposit the refund. On top of that, direct deposit refunds usually are deposited more quickly than a check is delivered by mail, getting you the money faster.  Among the many alternatives for the places you can have the money deposited to are virtually any bank account, as long as you have the routing and account information, as well as transferring your funds to your TreasuryDirect account to purchase US Treasury marketable securities and savings bonds.  You can also split your refund to be deposited in two or three different accounts – the account(s) need to be title in your name, your spouse’s name, or both, not someone […]

Your Social Security Benefits: Are They Taxable?

If you’re receiving Social Security benefits, either for disability, retirement, or survivor’s benefits, when you file your tax return you will need to figure out if the benefits you’ve received during the prior year are taxable to you. You’ll receive a Form SSA-1099 from Social Security sometime in the first months of the year, showing what your benefits were in the prior year, as well as any deductions that were made throughout the year – including Medicare premiums (Part B and/or Part D) if applicable, and federal income taxes withheld. But are the benefits taxable to you?  At most, 85% of your benefit might be taxed – and it’s possible that none of your benefit is taxable, all dependent upon your total income for the year.  See this article for a detailed explanation of How Taxation of Social Security Benefits Works.  The IRS recently published their Tax Tip 2014-23, which […]

The Alternative Minimum Tax

You may not be aware of this, since income taxes are so complicated that not a lot of folks do much digging into the nuances, but there is another income tax rate that could affect you in certain circumstances. This other income tax is called the Alternative Minimum Tax, or AMT.  This “alternative” tax applies when you have income above certain thresholds. Essentially it ensures that you pay a certain minimum amount of income tax if your deductions reduce your income so much that your ordinary income tax falls below the minimum applied by the AMT.  It gets pretty complicated, but I’ll go over the high points below. Alternative Minimum Tax (AMT) AMT has a separate set of rules for definitions of income and expenses, rules for accounting and timing, and exemptions and tax rates.  AMT limits the tax benefit of certain types of income and deductions, otherwise available to […]

Looking for free tax preparation? IRS provides some tips

For lots of people, the option of free tax preparation is an excellent way to go.  There are quite a few providers who will allow you to prepare a simple return for free (more complexity equals more cost, of course).  It’s a good idea to go through the process if you have the aptitude, because it’s helpful to understand the ins and outs of a tax return.  Knowing about how your tax return works can help you to have a better understanding of ways to reduce your taxes in the future. When using a commercial organization to prepare your return for free, beware of the “add-ons” that make a free process extremely costly.  Among these are – add-on state filing (sometimes more costly than federal preparation!), refund anticipation loans (like a payday loan, only more expensive!), and payment via your refund (another type of refund anticipation loan, with the associated […]

Penalty for Having No Health Insurance

As you may already be aware, individuals are required to carry health insurance on themselves and their dependents, as of January 1, 2014.  This is the mandate set forth in the Affordable Care Act – and of course it’s an important part of making the whole Act work.  Small businesses (less than 50 employees) have a similar mandate to provide coverage for employees beginning in 2015, or face penalties themselves. Without mandating insurance coverage for everyone, the system can’t sustain the lower-cost options for folks who desperately need the medical coverage. This includes folks who are not covered by any other means (employer, Medicare, Medicaid or individually-purchased policies) and who have medical problems that require costly care.  With the mandate, healthier individuals will also have to pony up and purchase health insurance, so that the overall cost is spread among both healthy and not-as-healthy individuals. There are a few ways […]

Don’t Forget the Saver’s Credit on Your Tax Return

Did you realize that there is a tax credit available to you for your contributions to retirement plans?  There are income limits, but if you fit the limits, this type of credit can be exactly what you need to get you started on your retirement savings activities. Recently the IRS published IR-2013-93, which provides information about this valuable credit.  The actual text of the bulletin follows. Plan Now to Get Full Benefit of Saver’s Credit; Tax Credit Helps Low- and Moderate-Income Workers Save for Retirement WASHINGTON – Low- and moderate-income workers can take steps now to save for retirement and earn a special tax credit in 2013 and the years ahead, according to the Internal Revenue Service. The saver’s credit helps offset part of the first $2,000 workers voluntarily contribute to IRAs and to 401(k) plans and similar workplace retirement programs. Also known as the retirement savings contributions credit, the […]

Flex Spending “Use it or Lose it” is a Thing of the Past

If you have a Flex Spending Account (FSA) for healthcare expenses through your employer, you are familiar with the “use it or lose it” concept.  Each year during December, it’s a mad dash to get that last-minute eye exam, or fill prescriptions, or what-have-you to use up the Flex Spending money before the end of the year.  That tradition will, for many folks, be a thing of the past if their employers adopt the carryover rule now allowed by IRS. Traditionally, with a Flex Spending Account (FSA) for healthcare expenses you arrange with your employer to withhold a certain amount of money out of each paycheck and then as you incur expenses for healthcare throughout the year, you can be reimbursed for those expenses up to the amount of your annual withholding for FSA.  The money withheld for the FSA is pre-tax, so it’s to your advantage to take part […]

… And now that they’re back?

Now that the government is back “in action”, the IRS has issued some notices about how the shutdown is affecting operations. All of the systems that we mentioned that were not working during the shutdown are back up and running, so you can once again call in and get a live person, order transcripts, and the like. On the other hand, IRS is pointing out that the shutdown came during the time when they were working on testing systems for return processing for the 2013 filing season – and the testing is running behind as a result.  Given that the systems are running behind in testing, the IRS says that the beginning of the filing season will be delayed by a couple of weeks.  This will only impact those folks that file ASAP in mid-January – you’ll have to wait until early February to file.  The final filing date of […]

So, What’s Going on at the IRS During the Shutdown?

While the government is in hiatus, what’s going on at the IRS? Well, not a lot.  As I understand it, none of the phone lines are being manned, so if you call in for any reason you wind up with the automatons handling your questions.  The website is still in operation as well (at least partly).  So, you may be able to do a few things, but you’re limited. For example, if you need a transcript of a prior year’s return, I understand that you can request this for yourself – but you can’t ask your accountant or anyone else operating as POA for you to request a transcript.  I’ve experienced this myself in attempting to get a transcript for a client – I was shut down.  (The same individual had trouble getting a transcript for himself, as the IRS records of his address didn’t match what he was entering […]

Selling Your Home? Be Aware of These Half-Truths

Since selling a home is one of those events that many folks only do a few times in their lives, there is much uncertainty about what kinds of potential rules and laws may trip you up.  Recent data suggests that the average American will buy and sell their primary home something like 10 times in their lifetimes – for many that number will be far less.  There is a lot of information about the tax impacts of selling a home out there flying about on the internet, and some of it is mostly bunk.  And much of what’s not bunk is limited in applicability. Below are a few half-truths about home sales that you want to understand before you sell your home, along with the explanation of the facts behind them, including how they may apply to your situation if at all. 1. If I sell my house I need […]

Increase Your Income Tax Knowledge

If you find yourself stymied by the Income Tax Code (more power to you if you don’t!) and you’d like to get a better understanding of this very important area of your financial life, the IRS has many resources to help you improve your knowledge of taxes.  At the risk of sounding churlish, I suggest that if you’re an incurable insomniac these resources can also be used in lieu of the strongest over-the-counter sleep aid drug with satisfactory results and few (if any) side-effects. The IRS recently published their Summertime Tax Tip 2013-21, which describes several of the resources available to help you gain a better understanding of income taxes.  The text of the Tip follows, in its entirety: Explore a Quick and Simple Way of Understanding Taxes If you’re a student or teacher, the summer months may be a nice break from class, but they’re also a good time […]

Same-Sex Joint Filing

One result of the strike-down of DOMA is that legally-married same-sex couples will now be required to file federal tax returns as marrieds – either married-filing-jointly or married-filing-separately.  This ruling takes effect on September 16, 2013.  This means that, regardless of how the members of the couple filed their returns in the past, they only have the MFJ or MFS filing statuses to choose from for returns filed on or after September 16, 2013. For couples who have not filed a return for 2012, now is the time to review whether filing as Single status provides a superior result (lower overall taxes) versus the MFS or MFJ option.  If filing Single or Head of Household works out better for the couple, the (presumably) extended 2012 tax return must be filed before September 16, 2013 in order to utilize a Single or Head of Household filing status.  After that date, the […]