Taxes (Photo credit: Tax Credits) If your income, or part of your income, is from a source other than an employer who provides you with a W2 and therefore withholds taxes on your behalf through the year, you may need to make estimated tax payments. There are ways around this, such as having tax withheld from your pension or Social Security payments. But for some folks, estimated tax payments are the way to get your tax paid through the year. If your only income for the year is from withdrawals from an IRA, you don’t need to make quarterly payments, you can wait until the end of the year to withdraw the amount you need to pay in tax. Otherwise, for most other types of income you need to pay tax as you receive it during the year. You will make one payment in mid-April for your income through March […]
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Can’t Pay Your Taxes On Time? Here’s What to Do
Buffington Pockets, Valley of Fire area, southern Nevada (Photo credit: Wikipedia) It happens. You do your best to prepare for the tax you’ll owe, but here it is, time to pay your taxes and you just don’t have the money. The IRS recently published their Tax Tip 2012-64, which relates five tips when you’re faced with just this situation. Below is the text of the Tip. Tips for Taxpayers Who Can’t Pay Their Taxes on Time If you owe tax with your federal tax return, but can’t afford to pay it all when you file, the IRS wants you to know your options and help you keep interest and penalties to a minimum. Here are five tips: File your return on time and pay as much as you can with the return. These steps will eliminate the late filing penalty, reduce the late payment penalty and cut down on interest […]
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Errors to Avoid When Preparing Your Tax Return
Error (Photo credit: pastorbuhro) If you’re deep in the throes of preparing your tax return (as many are) you want to make sure that you avoid errors where possible. The IRS recently published their Tax Tip 2012-58, which details some of the tax preparation errors often seen. Following is the actual text of the Tip. Eight Tax-Time Errors to Avoid If you make a mistake on your tax return, it can take longer to process, which in turn, may delay your refund. Here are eight common errors to avoid: Incorrect or missing Social Security numbers. When entering SSNs for anyone listed on your tax return, be sure to enter them exactly as they appear on the Social Security cards. Incorrect or misspelling of dependent’s last name. When entering a dependent’s last name on your tax return, make sure to enter it exactly as it appears on their Social Security card. […]
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What Charitable Contributions Are Deductible?
Walk for Cancer – it’s raining! (Photo credit: miamism) As you prepare your income tax return, you may find yourself asking the question – how do I determine if a charitable contribution is deductible? In addition, you may have questions about just how to file for the various deductions – such as non-cash deductions, like contributions to Goodwill for example. The IRS recently published their Tax Tip 2012-57, which lists eight tips regarding charitable contributions that you may find useful. The text of the Tax Tip is included here: Deducting Charitable Contributions: Eight Essentials Donations made to qualified organizations may help reduce the amount of tax you pay. The IRS has eight essential tips to help ensure your contributions pay off on your tax return. If your goal is a legitimate tax deduction, then you must be giving to a qualified organization. Also, you cannot deduct contributions made to specific […]
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A Tax-Free Roth Conversion Question of Timing
Fern Overgrowth (Photo credit: MightyBoyBrian) We’ve discussed here in the past about how it is (at least under present law) a perfectly legal maneuver to make a non-deductible contribution to a traditional IRA and then at some point later convert the same contribution to your Roth IRA (see Is it Really Allowed? for more). If you have no other IRA accounts, this conversion to Roth can be a tax-free event, especially if there has been no growth or gains in the investments in the account. However (and there’s always a however in life) I recently came across a situation that was sent to me by a reader, where he wanted to do such a conversion, but he also wanted to rollover some money from his 401(k) plan into an IRA. The question is in the timing – understandably, if he does the conversion from the traditional IRA to the Roth […]
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Mortgage Debt Forgiveness and Taxes
Image via Wikipedia When you have a debt canceled, the IRS considers the canceled debt to be be income for you, taxable just like a paycheck. There are cases where you don’t have to include all of it though, and mortgage debt forgiven between 2007 and 2012 may be partly excepted from being included as income. The IRS recently issued their Tax Tip 2012-39, which lists 10 Key Points regarding mortgage debt forgiveness. Below is the actual text of the Tip. Mortgage Debt Forgiveness: 10 Key Points Canceled debt is normally taxable to you, but there are exceptions. One of those exceptions is available to homeowners whose mortgage debt is partly or entirely forgiven during tax years 2007 through 2012. The IRS would like you to know these 10 facts about Mortgage Debt Forgiveness: 1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act […]
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Avoid Email Scammers Claiming to be IRS
Image via Wikipedia The IRS recently produced Tax Tip 2012-08, which talks about scams you need to be aware of, really heinous contacts where the scammers pretend to be the IRS. But here’s the key: the IRS doesn’t use email as the regular communication to deliver notices of deficiency, requests for additional information, and the like. The IRS is big about the paper notice – you’ll recognize it immediately, with the official IRS seal and all. The information that the IRS presents is good to know, you should be familiar with what they have to say. Here is the text of the tax tip: Don’t be Scammed by Cyber Criminals The Internal Revenue Service receives thousands of reports each year from taxpayers who receive suspicious emails, phone calls, faxes or notices claiming to be from the IRS. Many of these scams fraudulently use the IRS name or logo as a […]
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Expiring Tax Provisions for 2011
Image by polapix via Flickr There are quite a few tax provisions that will be expiring at the end of 2011 – nowhere near the number of provisions that were set to expire at the end of 2010 (many of which were subsequently extended), but still there are quite a few sun-setting this year. Listed below are some of the major provisions that will expire at the end of 2011 that will affect individual taxpayers. Charitable Contributions from IRA The provision that allows an IRA owner, subject to Required Minimum Distributions (RMDs) and over age 70½ to make a Qualified Charitable Distribution (QCD) directly to a charity from his IRA will expire as of 12/31/2011. This provision allows the IRA owner to make this charitable contribution without having to recognize the income – which could have a profound effect on the taxpayer’s return. Remember, this one expired once before, at […]
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2012 Income Tax by the Numbers
Recently, the IRS released the updated figures as they apply to 2012 income tax rates and schedules, via Revenue Procedure 2011-52. Below is a summary of the key information from this procedure document. Adoption Assistance The credit for adoption expenses was changed by the Patient Protection and Affordable Care Act of 2010 (and others) such that this credit was increased to $13,170, and the credit became refundable. This provision will expire at the end of calendar year 2011, which will cause the credit to fall back to an amount of $10,000. This amount is then adjusted for inflation, such that the limit for 2012 is $12,650, and remains non-refundable. The limit for adopting a special needs child is the same at $12,650 for 2012. We’ll see if any changes come through to make any changes to the refundability. The modified AGI limits for the phase-out of adoption credit assistance is […]
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Earned Income Credit and Due Diligence
Image via Wikipedia For those familiar with the Earned Income Tax Credit (EITC), you (hopefully) are familiar with the preparer’s due diligence checklist. This is a checklist that the preparer uses to help determine if the taxpayer’s circumstances are in keeping with the conditions that are required to be met in order to be eligible for the credit. In the past, this checklist has been filled out by the preparer and kept in the preparer’s files. Recently this fact has changed a bit – the IRS changed the requirements, such that now the due diligence checklist must be filed along with the return. This filing requirement is the only thing that has changed, the due diligence is the same as before. The checklist Here’s what the checklist asks: Is the taxpayer’s status Married Filing Separately? (if this question is answered “Yes”, the taxpayer is not allowed to file for EITC) […]
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What to Expect If You Owe Money to the IRS
Image via Wikipedia Often we find ourselves in situations that we never dreamed of – like owing the IRS a considerable amount of money. Maybe you earned a lot more than you expected, perhaps you had a filing status change that dramatically changed your tax rate, or maybe there was a change to your deductions. It doesn’t matter, you’ve found yourself in the situation – what should you expect? The IRS recently issued Tax Tip 2011-14, which provides Ten Tips for Taxpayers Who Owe Money to the IRS. While the majority of Americans get a tax refund from the Internal Revenue Service each year, there are many taxpayers who owe and some who can’t pay the tax all at once. The IRS has a number of ways for people to pay their tax bill. The IRS has announced an effort to help struggling taxpayers get a fresh start with their […]
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Is It Really Allowed – Making a Non-Deductible IRA Contribution Followed By a Roth Conversion?
I occasionally receive this question: Can I make a non-deductible IRA contribution, and then shortly after convert the IRA into a Roth IRA? My income is too high for me to make a contribution directly to a Roth IRA. Image by Plbmak via Flickr According to the rules in place today, you can do this. Here are the applicable rules: There is no income limit for an individual to make a non-deductible IRA contribution. There is no income limit for an individual to make a Roth Conversion. There is no time limit on how long a contribution must be in a traditional IRA before converting it to a Roth IRA. Essentially this situation provides the individual with an income above the limits to contribute to a Roth IRA with an avenue to accomplish the funding of a Roth IRA. It seems too good to be true. And even though you […]
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Expanded Adoption Tax Credit
Image via Wikipedia Recently the IRS published their Summertime Tax Tip 2011-10, which lists out six facts about the expanded adoption tax credit. The credit is considered “expanded” due to the changes made by the Affordable Care Act of 2010, which increased the amount of the credit, while also making the credit refundable. Refundable credits are such that, even if your tax on your tax return is less than the credit, whatever amount of your credit surpasses the tax can be refunded to you (much like the Earned Income Tax credit). Six Expanded Adoption Credit Facts Here are the six facts that the IRS lists: The adoption tax credit, which is as much as $13,170, offsets qualified adoption expenses making adoption possible for some families who could not otherwise afford it. Taxpayers who adopt a child in 2010 or 2011 may qualify if you adopted or attempted to adopt a […]
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The “Tax on Sale of Your Home” Email Myth
Image by Sean MacEntee via Flickr If you have an email address (and let’s face it, who doesn’t?), you’ve likely received this email. In case you haven’t received it, there’s an email that is being forwarded around the internet about a new tax on selling your home – I get at least one of these a month it seems. I’ve copied the text of one of the emails below. This article is to help you understand why the email is a misguided myth, partly grounded in truth but not applicable for most folks. The email is usually forwarded at least a half-dozen times by the time you receive it, making it difficult to know where it started from. In addition, the text of the email is often in large, bold, red font in places, such that you can almost feel the spittle coming off the page at you. Here’s the […]
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A Restriction on the Home Buyer Credit
Here is a case where, even though the IRS documentation did not state it directly, the real rule of the law makes an explicit statement, and therefore the Code is where the final rules are taken from. In this particular case, there is a situation where the home buyer credit is not available: if the home is purchased from a parent or another close relative (and vice versa). And the taxpayer who relied only on an IRS publication found out the hard way that the Internal Revenue Code is the final word on the subject. There was a recent Tax Court case (Nievinski, TC Summary Opinion 2011-10) that challenged the limitation, and the Tax Court ruled in favor of the Service. The argument was that, in a particular document, IRS Publication 4819 “Important Information About the First-Time Homebuyer Credit”, there was no express explanation of this limitation. Image via The […]
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Tax Benefits For Parents
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): 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. Child Tax Credit You may be able to take this credit on your tax return for each of your […]
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