kNOwTaxes - Part 11

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Two IRA deadlines coming up

Mar 15th 2011

By: kNOw TAXES

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Do either of these IRA deadlines apply to you or your family?

Deadline #1 – April 1, 2011, is the final date by which you must take your first IRA distribution if you turned 70½ last year. If you fail to take your distribution by this deadline, you face a 50% penalty tax on the amount you should have withdrawn. The requirement doesn’t apply to Roth IRAs, but unless you’re still working, it does apply to your other retirement plans.

Deadline #2 – April 18, 2011, is the last day you can make an IRA contribution for the year 2010. Remember, the 2010 contribution limit is $5,000 if you’re under age 50 and $6,000 if you’re 50 or older.

If you need more information or assistance, contact our office.

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Tax Alert

Individual Retirement Account, IRA deadline, Roth IRA, Traditional IRA
Early investment planning can save taxes

Mar 11th 2011

By: kNOw TAXES

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Capital gain rates will remain at a maximum of 15% (and a minimum of 0%) through December 31, 2012. The rates apply to qualified dividends and long-term gains from investments you sell. That makes 2011 a good time to implement strategies for potential tax savings.

One example: You may be able to manage your income to stay within the 10% or 15% income tax brackets, which would allow you to take advantage of the 0% capital gain rate.

Alternatively, you could gift appreciated stock to family members in those brackets. For 2011, the cutoff for the 15% bracket is $69,000 of taxable income when you’re married filing jointly ($34,500 for singles).

It might be time to “harvest” some of your investment gains in case tax rates rise again in the future. Also a tax-savvy way to completely eliminate your capital gains tax might be to donate appreciated stock to charity and receive a deduction equal to the security’s current market value. Special rules apply to noncash donations, so check with us before you move forward on this strategy.

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Tax Advice

Capital gain, Investment, Tax bracket, tax preparation, Tax rate
Don’t overlook tax-saving deductions

Mar 8th 2011

By: kNOw TAXES

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If you itemize deductions on your tax return, every additional deduction you find will save you money. In the past, higher-income taxpayers had their itemized deductions limited. Effective for 2010, 2011, and 2012 tax returns, there is no income-based reduction in total itemized deductions. That may give higher-income taxpayers another reason to track their deductions carefully.

Here’s a sampling of often-missed deductions:
- Disaster losses not reimbursed by insurance.
- Job-hunting travel and telephone expenses.
- Employment agency and job counseling fees.
- Costs for resume preparation.
- Union or professional association dues.
- Specialized work clothing or small tools used at work.
- Points paid by you on a new home loan.
- Home mortgage points paid by a seller on your behalf.
- Points paid on refinancing your home mortgage (deductible pro rata over the life of the loan).
- Remaining undeducted points on a prior refinancing when you refinance again.
- Your actual expenses or 14¢ a mile for driving in doing charitable work.
- Gambling losses, but only to the extent of your winnings.
- Fees paid for the preparation of your tax return.
For assistance in identifying all the deductions to which you are entitled, contact our office. We are here to help you pay the lowest tax allowed under the law.

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Tax Advice
Corporate filing deadline is March 15

Mar 3rd 2011

By: kNOw TAXES

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The deadline for calendar-year corporations to file 2010 tax returns is March 15, 2011. Is that date arriving faster than you expected? If you’re not ready to file your corporate tax return for calendar year 2010 – and in some cases, even if you are – you may want to request a six-month extension of time.

Here are four tips that will help make your corporate filing easier:
1. File the extension by the due date of your return. You can mail Form 7004 to the IRS or file it electronically. Either way, be sure to submit it before this year’s due date of Tuesday, March 15 (for calendar-year corporations). Remember to send in a separate form for each corporation you own.
2. The extension is for filing only. That means you’ll have to estimate and pay any tax due by March 15 in order to avoid penalty and interest charges.
3. The six-month extension is automatic. An approved extension postpones your filing due date to September 15, 2011. You don’t have to sign Form 7004, and the IRS no longer sends approval notifications.
4. Check your state requirements. Some states recognize an approved federal extension of time to file; some grant extensions automatically and some require separate forms. In most cases, to avoid penalties and interest, you’ll need to estimate and pay the state tax by the original due date of your return.
Besides giving you additional time to gather your records, a corporate filing extension can offer other benefits. For example, you may be able to delay making contributions to your retirement plan. Certain elections can also be extended. Contact our office if you need more information.

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Tax Alert

Corporation, Internal Revenue Service, tax preparation
Don’t overlook these deductions

Mar 1st 2011

By: kNOw TAXES

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Don’t overlook these deductions; they’re available even if you don’t itemize:

You’re probably familiar with the deduction choice you must make when you file your tax return. You either have enough deductions (such as mortgage interest, charitable contributions, and medical expenses) to itemize, or you take the standard deduction, a set amount that doesn’t require you to list specific deductible items.

What you may not be as familiar with are those deductions that you are allowed to take “above the line”; that is, deductions that you can take in addition to your itemized deductions or the standard deduction.

Here’s a quick rundown of above-the-line deductions you shouldn’t overlook when you prepare your 2010 tax return.
- A deduction of up to $250 for classroom supplies purchased by teachers for use in their classrooms.
- A deduction of up to $5,000 for individual retirement account contributions if you’re under age 50. If you’re 50 or older, you can deduct up to $6,000.
- A deduction of up to $2,500 for interest paid on student loans.
- A deduction of up to $2,000 or $4,000 for college tuition and fees, depending on your income level.
- A deduction for the expenses connected with a job-related move.
- A deduction for 50% of the self-employment tax paid if you are self-employed.
- A deduction for alimony paid. (Note that child support is not deductible.)
- A deduction for contributions to health savings accounts.
Most of these deductions have qualification requirements or income limitations. Don’t overlook above-the-line tax deductions. An added benefit: These deductions decrease your “adjusted gross income,” an important number on your tax return. The lower your adjusted gross income, the more likely you are to qualify for credits and deductions subject to income thresholds. For details or assistance in finding all the deductions you’re entitled to, give us a call.

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Tax Advice

Itemized deduction, Standard deduction, Tax deduction
It’s time to pay back the first-time homebuyer credit

Feb 25th 2011

By: kNOw TAXES

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Did you buy your current home between April and December of 2008 and claim the then-new federal tax credit for first-time homebuyers?

If so, repayment of the credit begins this year, and the first installment is due with your 2010 tax return.

You might already have received a letter from the IRS summarizing how much you received and what amount you need to repay. Generally, your installments will be spread in equal amounts over the next fifteen years.

Example: Say you received the maximum credit of $7,500. Since $7,500 divided by 15 is $500, that’s how much you’d add to your tax liability, beginning with your 2010 return.

In some cases – such as if you sell your home or convert it to a rental – you may have to pay back some or all of the credit before the end of the 15-year “recapture” period. The repayment is due in the tax year that the ownership or use of your home changes.

In other situations, including when you move due to military or certain other government service orders, your repayment could be reduced or eliminated.

Other exceptions may apply. Please call if you have questions about how the payback requirements affect you.

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Tax Advice

federal tax credit for first time buyers, IRS Form 5405, Tax credit
Choose the right filing status

Feb 23rd 2011

By: kNOw TAXES

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While gathering information to complete your income tax return, you may give little thought to your filing status. But there’s a reason “filing status” choices appear at the beginning of tax forms: They’re important.

Why? Because filing status can impact exemptions, reportable income, deductions, credits, tax rates, liability, the type of form you file, and whether you need to file at all. In addition, some states require that you use the status reported on your federal return, which can affect the amount of state tax you pay.

Here are facts to consider when determining filing status.
1. Your status generally depends on whether you’re married or single on the last day of your taxable year (typically December 31). In cases of divorce or separate maintenance decrees, the laws of your state determine whether you’re considered married or single. Same-sex marriages are not recognized for federal income tax purposes.
2. As a married couple, you can choose joint or separate returns. When you file separately, you can change your mind later and amend your return to file jointly. However, you can’t switch from joint status to married filing separately after the due date of the original return.
3. If you were widowed during the year and have not remarried, you have the option of filing jointly with your late spouse. When you’re widowed and have dependent children, you can continue to use joint tax rates for two additional years following the year your spouse died.
4. Head of household status is intended for single taxpayers with dependent children. It may also be available when you’re single and maintaining a separate household for a parent – including one living in a nursing home.
Questions about your filing status? Please contact us if you need more information.

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Tax Advice

Filing Status (federal income tax), Internal Revenue Service, tax preparation, Tax return (United States)
Qualifying a Dependent

Feb 19th 2011

By: kNOw TAXES

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Who qualifies as your dependent? Here’s the tax answer:

Who depends on you? When the people counting on you for support are qualifying children or relatives, you may be eligible for a dependency exemption of $3,650 on your 2010 federal income tax return ($3,700 on 2011 returns).

Not sure who meets the definition? Consider these facts.
- Dependents cannot have dependents. The “dependent taxpayer” test prevents you from claiming a dependent when someone else claims you on their return. Put another way, you can only claim a dependent if you yourself are not one.
- The tax code gives a definition of a qualifying child. Generally, a qualifying child must not have filed a joint return. In addition, the child must be younger than you are.
- Divorced or separated parents need a signed release to claim an exemption. If you’re a noncustodial parent who wants to claim a dependency deduction for your child in 2010, you must attach Form 8332 to your federal income tax return. As a general rule, copies of divorce decrees or separation agreements are no longer acceptable.
- Qualifying relatives can include family members who do not live with you. Do you support a parent in a nursing home or another state? You may be able to claim a dependency exemption as long as your loved one’s gross income is less than $3,650 for 2010 ($3,700 for 2011), and you provide more than half the total support.
If other family members pitch in to help but no one individually furnishes more than half of your loved one’s total support, you can still benefit. A “Multiple Support Declaration” (Form 2120) lets you decide who claims the exemption.

Contact us if you need more information.

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Tax Advice

Dependant, Noncustodial parent, Tax, tax preparation, Tax return (United States)
IRS raises nonprofit filing threshold

Feb 15th 2011

By: kNOw TAXES

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Tax-exempt organizations are required to file annual reports with the IRS. Those with gross receipts below a certain threshold amount can file an E-postcard rather than a longer version of Form 990.

The IRS has just raised that threshold amount to $50,000, an increase over the previous filing threshold of $25,000. The deadline for nonprofit filings is the 15th day of the fifth month after their year-end. For calendar-year organizations, that filing deadline for 2010 reports is May 16, 2011.

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Tax Advice, Tax Alert

Form 990, Internal Revenue Service, IRS tax forms
IRS announces more savings bond options for your tax refund

Feb 12th 2011

By: kNOw TAXES

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Image by Thomas Hawk via Flickr

Last year, you could use your tax refund to purchase U.S. Series I Savings Bonds in your name. This year, there are some new options for purchasing savings bonds with your income tax refund.

You can buy savings bonds for yourself and up to two other individuals. Form 8888 is used to designate the person or persons in whose name the bonds are to be issued. The savings bonds will then be mailed to those individuals.

Up to $5,000 in bonds can be purchased, and they must be bought in $50 increments. This year, you no longer need to use direct deposit for any remaining refund amount; you may request a paper check for the balance if you prefer.

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Internal Revenue Service, Savings Bonds, United States Treasury security
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