Getting Your Financial Ducks In A Row Rotating Header Image

tax

Free Tax Help!

Mar 14th, 2011
by jblankenship.
No comments yet
IRS building on Constitution Avenue in Washing...

Image via Wikipedia

 

As difficult as preparing your income taxes can be, and as daunting as the penalties are for getting it wrong, it’s good to know that there are a few resources available (besides this blog) to help you as you navigate preparing your forms.

The IRS has recently published their list of ways (through the Service) that you can get free help – in IRS Tax Tip 2011-41.  Here’s the list:

  1. IRS Website – The IRS website is a one-stop shop for a wide array of tax information.  You can even prepare and file your federal tax return – for free – through Free File, a service offered by IRS and its partners who make available free tax preparation software and free electronic filing.  But you must go through IRS.gov to use Free File.  Have some tax questions?  Check out 1040 Central on the Individuals page for the lates news.  You can even track your refund with Where’s My Refund?.
  2. Taxpayer Assistance Centers – When you believe your tax issue cannot be handled online or by phone and you want face-to-face assistance, you can find help at a local IRS Taxpayer Assistance Center.  Locations, business hours and an overview of services are available at IRS.gov.  Just go to the Individuals tab and click on the link for Contact My Local Office in the left tool bar section under IRS Resources.
  3. Community Resources – Free tax preparation is available through the Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs in many communities.  Volunteer return preparation programs provided through IRS and its partners offer free help in preparing simple tax returns for low-to-moderate-income taxpayers.  For a list of the 2011 VITA sites you can visit IRS.gov, or call 800-906-9887.  You may also call AARP – the largest TCE participant – at 888-227-7669 (888-AARPNOW) or access www.aarp.org to find the nearest AARP Tax-Aide site.
  4. Telephone – Call the IRS Tax Help Line for Individuals, 800-829-1040, to get answers to your federal tax questions.  To hear pre-recorded messages covering various tax topics or check on the status of your refund, call 800-829-4477. TTY/TDD users may call 800-829-4059 to ask tax questions or to order forms and publications.  To order free forms, instructions and publications call 800-829-3676.

In addition to all of these resources, as always you can toss your questions to me and I’ll do my best to answer in a timely fashion.  Just bear in mind that if it’s a common question that the IRS deals with very well (such as eligibility for Earned Income Tax Credit), I’ll likely point you to the appropriate resources at the IRS.

Enhanced by Zemanta
Be Sociable, Share!

Proposed Social Security Wage Base Increases

Mar 4th, 2011
by jblankenship.
2 comments

chicken on the way by runran

October 19, 2011 update: the expected wage base increase has been confirmed as $110,100 for 2012.  For more information, see this article.

The Social Security Administration has released the proposed figures for the increase in the wage base for taxation for 2012 and projected some figures for the years up to 2015.  This is the limited amount of income against which Social Security withholding tax is applied.

For 2009 through 2011, the wage base has been static – at $106,800 for each year.  The amount did not increase for these years since the average wage index (AWI) actually decreased from 2008 to 2009, and the modest increase in the index from 2009 to 2010 did not make up for the decrease in the prior year.  For 2011, the AWI is expected to increase once again, by 3.08%.  This sets the projected wage base for 2012 at $110,100, up a total of $3,300.

Future wage bases have been projected for the years up to 2015 as well:  for 2013, the base is projected at $113,100; for 2014, $117,600; and for 2015, $122,700.

Keep in mind that these are, at present, only projections.  The actual figures will be set in the fall, typically in October or November.

Also – in 2012, the temporary 2% reduction in the Social Security withholding tax will expire, so if the projected wage base of $110,100 does go into play, then the maximum amount of Social Security withholding that you can be assessed for the 2012 tax year will be $6,826.20, up from $4,485.60 in 2011.

For more information, see this article at Social Security Owner’s Manual.

Photo by runran
Be Sociable, Share!

Tax Benefits For Parents

Feb 21st, 2011
by jblankenship.
1 comment

As parents, we spend a lot of money raising our children – from basic needs such as food, housing, doctor bills, and clothing, to education, daycare, soccer teams and lessons on the clarinet – it seems like the list is endless.

Since the kids don’t generally pay you back (at least in dollars), the IRS steps in to help out.  There are several tax benefits that you may be eligible for just because the little urchins are in your care… and here’s a list of ten tax benefits that the IRS has put together (taken from IRS Tax Tip 2011-18):

  1. Dependents In most cases, a child can be claimed as a dependent in the year they were born.  For more information see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.
  2. Child Tax Credit You may be able to take this credit on your tax return for each of your children under age 17.  If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit.  For more information see IRS Publication 972, Child Tax Credit.
  3. Child and Dependent Care Credit You may be able to claim the credit if you pay someone to care for your child under age 13 so that you can work or look for work.  For more information see IRS Publication 503, Child and Dependent Care Expenses.
  4. Earned Income Tax Credit The EITC is a benefit for certain people who work and have earned income from wages, self-employment of farming.  EITC reduces the amount of tax you owe and may also give you a refund.  For more information see IRS Publication 596, Earned Income Credit.
  5. Adoption Credit You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child.  Taxpayers claiming the adoption credit must file a paper tax return because adoption-related documentation must be included.  For more information see the instructions for IRS Form 8839, Qualified Adoption Expenses.
  6. mill children by pingnews.comChildren with Earned Income If your child has income earned from working they may be required to file a tax return.  For more information see IRS Publication 501.
  7. Children with Investment Income Under certain circumstances a child’s investment income may be taxed at the parent’s tax rate.  For more information see IRS Publication 929, Tax Rules for Children and Dependents.
  8. Higher Education Credits Education tax credits can help offset the costs of education.  The American Opportunity and the Lifetime Learning Credit are education credits that reduce your federal income tax dollar-for-dollar, unlike a deduction, which reduces your taxable income.  For more information see IRS Publication 970, Tax Benefits for Education.
  9. Student Loan Interest You may be able to deduct interest you pay on a qualified student loan.  The deduction is claimed as an adjustment to income so you do not need to itemize your deductions.  For more information see IRS Publication 970.
  10. Self-employed Health Insurance Deduction If you were self-employed and paid for health insurance, you may be able to deduct any premiums you paid for coverage after March 29, 2010, for any child of yours who was under age 27 at the end of 2010, even if the child was not your dependent.  For more information see the IRS website.
Photo by pingnews.com
Be Sociable, Share!

The Roth Recharacterization

Feb 16th, 2011
by jblankenship.
1 comment

420px-Fruchos_character_at_Norwood_Christmas_Pageant_2008After all the hoopla around Roth conversions in 2010, now is the time to consider whether or not a recharacterization is in your future.  So what is a recharacterization, and how does it work?

Recharacterization is the “backing out” of your Roth conversion.  In other words, you can literally make the conversion as if it had never been done at all, with your money back in the traditional IRA where it started.

Why would you want to do that?  Here’s an example: let’s say you converted $100,000 to a Roth IRA in 2010 and you are ready to pay the tax on your 2010 return (you elected out of the spread to 2011 and 2012).  Except that now, your investment in the Roth IRA has dropped in value to only $50,000 – and you still owe tax on the conversion of $100,000!  Yikes – that’s just totally wrong!

Recharacterization can help to save you in this situation.  As long as you act before the due date of your return (including extensions), you can put recharacterization to work for you, moving the $50,000 back to the traditional IRA.  It will be as if nothing was done at all, and no taxes are owed.

Actually, as far as the IRS is concerned you are not moving $50,000 back, you’re moving the original $100,000 and the gains or losses on that original $100,000, which happens to equal $50,000.

Recharacterization Strategy

One way to use this to your advantage is to split your Roth conversions up into separate accounts by specific types of assets, so that if one of the asset types (or more) happens to drop significantly in value, you can recharacterize the conversion on only that account, leaving the other account(s) intact.

This would help with your record-keeping, since any amount that you recharacterize from a Roth to a traditional IRA must include the gains or losses that are attributable to the recharacterized amount.  Of course, you wouldn’t likely recharacterize unless you had net losses in the Roth account – although you might find that recharacterization is a good option if you came up short of cash to pay the tax on the original conversion.

Photo by Wikimedia
Be Sociable, Share!

Why Your Paycheck is Changing in 2011

Feb 14th, 2011
by jblankenship.
1 comment

paycheck by mandibergAfter the passage of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (2010 Tax Act) late last year, there were certain changes that will impact your take-home pay in 2011, versus what you were seeing in 2010.

For starters, although the 2010 Tax Act extended the tax rates to be the same as they were in 2010, as always there are increases in the tax tables which have a minor impact on your take-home pay.  Typically, this change will increase your tax withheld, reducing your take-home pay.

The 2010 Tax Act also included a provision to reduce the withholding requirement for Social Security from 6.2% to 4.2%, which will have the effect of increasing your take-home pay by 2%.

One other change to your paycheck came about because of a provision that was not included to be extended as a part of the 2010 Tax Act – the Making Work Pay credit, which provided a $400 credit for most all wage earners.  This will have the effect of reducing your take-home pay.

Another item that may have impacted your take-home pay for 2011 is the Advance Earned Income Credit payment.  In the past (through the end of 2010), you could request and receive a portion of the Earned Income Credit with each paycheck instead of waiting until you file your tax return.  This provision was eliminated at the end of 2010.

Lastly, if you happen to live in one of the states that has increased the state income tax for individuals – say, for example, Illinois, where I live.  In Illinois, your state income tax withholding has increased from 3% to 5%, taking away another 2% of your income in withholding.

Photo by mandiberg
Be Sociable, Share!

The Making Work Pay Credit

Feb 2nd, 2011
by jblankenship.
1 comment

red and green holiday chocolate candies by Rainbow PhotosMany (or most) working taxpayers will be eligible to receive a special credit on their 2010 tax return, called the Making Work Pay Credit.  The IRS has recently produced their Tax Tip 2011-15 which explains five important provisions about the Making Work Pay Credit:

  1. The Making Work Pay Credit provides a refundable tax credit of up to $400 for individuals and up to $800 for married taxpayers filing joint returns.
  2. Most workers received the benefit of the Making Work Pay Credit through larger paychecks, reflecting reduced federal income tax withholding during 2010.
  3. Taxpayers who file Form 1040 or 1040A will use Schedule M to figure the Making Work Pay Tax Credit.  Completing Schedule M will help taxpayers determine whether they have already received the full credit in their paycheck or are due more money as a result of the credit.
  4. Taxpayers who file Form 1040-EZ should use the worksheet for Line 8 on the back of the 1040-EZ to figure their Making Work Pay Credit.
  5. You cannot take the credit if your modified adjusted gross income is $95,000 for individuals or $190,000 if married filing jointly or more, you can be claimed as a dependent on someone else’s return, you do not have a valid Social Security number or if you are a nonresident alien.

Be on the lookout for this important provision as you prepare your return for 2010.

Photo by Rainbow Photos!
Be Sociable, Share!

Over-The-Counter Drugs via Your Flex-Spending Account

Jan 24th, 2011
by jblankenship.
No comments yet

sookiepose by 416styleIn case you missed it when I wrote about Guidance from the IRS on Flex Spending Plans – one of the changes you’ll have to deal with beginning with 2011 is that you can no longer use your Flex-Spending Account (FSA) to reimburse yourself for over-the-counter drugs like you’ve been able to do in the past.

However, there is a way to get the over-the-counter (OTC) drugs that your physician recommends and use your FSA funds to pay for it… if your physician gives you a prescription for it.  Even though the IRS has disallowed the use of FSA funds for OTC drugs, if your physician gives you a prescription for the OTC drug, your FSA can be used to pay for the drug.

There are some rules though:  first, the prescription has to provided to the pharmacist prior to the purchase, and the pharmacist must dispense the drug just as if it were a regular prescription, with a Rx number assigned to the prescription.  The records must be maintained by the pharmacy and the taxpayer and available to the IRS if necessary.  FSA debit cards (and HSA debit cards) can also be used for this purpose, as long as all of the requirements are met.

Photo by 416style
Be Sociable, Share!

Date Set for Processing Delayed Returns

Jan 21st, 2011
by jblankenship.
1 comment

go wild by hillary h The IRS announced on January 20, 2011, that the delayed returns – those that have itemized deductions on Schedule A, include higher education tuition and fees deductions on Form 8917, and/or that include the educator expenses deduction, can begin processing on February 14.

Many processors (commercial software) will accept these returns now and send them to the IRS beginning on February 14, so there is no reason to delay.  And if your processor (or tax guy or gal) doesn’t allow for the early acceptance, you can still get your information in to them and they’ll submit it when the time is right.

This delay was explained in the article that I wrote earlier about how some returns would be delayed this year due to the late passage of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

Photo by hillary h
Be Sociable, Share!
← Earlier Posts Newer Posts →