Posted by taxdrz on Tuesday, December 27th, 2011 , Posted in Tips , No Comments »
The Small Business Jobs Act of 2010 permits employers to amend their §401(k) or §403(b) plans to allow participants to transfer an eligible rollover distribution (ERD) into their designated Roth account in the plan if the transfer is of an ERD:
1. made after September 27, 2010;v
2. from a non-designated Roth account in the same plan;
3. because of an event that triggers an ERD from the plan; and
4. otherwise meets the rollover requirements.
The new law also permits sponsors of governmental §457(b) plans to add designated Roth accounts to their plans in taxable years beginning after 2010, and then these plans can be amended to allow in-plan ERD transfers to participants’ designated Roth accounts if the ERD meets conditions 2 through 4 above.
If a participant rolls over an ERD into a designated Roth account, he or she must include any previously untaxed portion of the ERD in gross income. However, the rolled over amount is not subject to the additional 10% early withdrawal tax.
For 2010 only, if a participant rolls over an ERD into a designated Roth account in a §401(k) or §403(b) plan, he or she can include:
1. half of the taxable amount of the rollover in 2011 gross income and half in 2012 gross income; or
2. the entire taxable amount of the rollover in 2010 gross income.
A participant that elects to include the rolled over amount in his or her 2010 gross income may not revoke that election after the due date, including extensions, of his or her 2010 federal income tax return. The participant may also owe estimated taxes on the taxable amount of the rollover for the year or years it is included in gross income or may incur an underpayment penalty.
Posted by taxdrz on Saturday, December 24th, 2011 , Posted in Tips , No Comments »
WASHINGTON—The Internal Revenue Service and Treasury Department today published in the Federal Register temporary regulations that provide guidance to taxpayers on the treatment of amounts paid to acquire, produce or improve tangible property and regarding the accounting for, and dispositions of, property subject to depreciation. These regulations provide objective standards and bright-line rules intended to simplify compliance with the capitalization provisions contained in section 263(a) of the Internal Revenue Code.
The temporary regulations generally are effective for expenditures made on or after Jan. 1, 2012, and therefore these regulations do not affect taxpayers’ 2011 tax returns. The IRS and Treasury Department anticipate publishing additional guidance that will advise taxpayers regarding how to obtain automatic consent to change to a method of accounting provided in the temporary regulations for taxable years beginning on or after Jan. 1, 2012. These automatic consent requests may be filed beginning with taxpayers’ 2012 tax returns. Taxpayers may not request a change to a method described in the temporary regulations on their 2011 tax returns.
The temporary regulations also were released as a notice of proposed rulemaking, offering taxpayers the opportunity to comment on the rules. Written comments are requested by March 26, 2012, and a public hearing on the regulations is scheduled for April 4, 2012.
Posted by taxdrz on Tuesday, December 20th, 2011 , Posted in Tips , No Comments »
The United States Internal Revenue Service (IRS) is encouraging low- and moderate-income workers to take steps to save for retirement and earn a special tax credit in 2011 and the years ahead.
The savers’ credit helps offset part of the first USD2,000 workers voluntarily contribute to individual retirement accounts and plans. The IRS has pointed out that, also known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply.
It has confirmed that eligible workers still have time to make qualifying retirement contributions and get the saver’s credit on their 2011 tax return. People have until April 17, 2012, to set up a new individual retirement arrangement, or add money to an existing plan, and still get credit for 2011.
However, elective deferrals must be made by the end of the year to a 401(k) plan or similar workplace programme, such as a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state or local government employees, and the Thrift Savings Plan for federal employees.
Furthermore, employees who are unable to set aside money for this year may want to schedule their 2012 contributions soon, so their employer can begin withholding them in January.
The saver’s credit can be claimed by married couples filing jointly with incomes up to USD56,500 in 2011 or USD57,500 in 2012; heads of household with incomes up to USD42,375 in 2011 or USD43,125 in 2012; and married individuals filing separately and single persons with incomes up to USD28,250 in 2011 or USD28,750 in 2012.
In tax year 2009, the most recent year for which complete figures are available, saver’s credits totalling just over USD1bn were claimed on just over 6.25m individual income tax returns. Savers’ credits claimed on these returns averaged USD202 for joint filers, USD159 for heads of household and USD121 for single filers.
-Mike Godfrey
Posted by taxdrz on Tuesday, December 13th, 2011 , Posted in General Knowledge, Tax News , No Comments »
Giving a donation to a charity is a Christmas tradition many businesses follow. Another welcome gift during Christmas is volunteering. Many shelters, food banks and other non-profit organizations appreciate extra volunteers during the colder seasons. Both these gifts can help reduce your tax bill as well.
Choosing a Charity
When selecting a charity ensure you pick a group that is tax-exempt under section 501(c)(3) of the Internal Revenue Code. Any donations made to individuals or political candidates will not be considered as deductible donations. Pick a charity either a popular charity or one in your local community. This way when you say you donated to this charity, the people you are speaking to know of the charity as well.
Record Everything
When including donations in your taxes, you will need to itemize each deduction on Form 1040, Schedule A. When giving your donations throughout the year and during the Christmas season, ensure you record the organization, contact name and number at the organization, date of the donation, amount of the donation and any special notes. Special notes could include information about what the donation was going to be used for or any special permissions or gifts resulting from the donation.
Don’t Claim What You Get
To determine how much of your donations you can claim there is a bit of math involved. If you gave a donation of $200 and received a thank you gift in return, you can’t claim the full $200 for the donation. For example, if you received a gift basked for your donation, you can only claim $170, because the gift basket would could as $30 you received back from your donation.
As well, if you donate an item worth $100 and it is auctioned off for $50, you can only claim the $50 the charity received for the item. If you purchase an item for $50 and the charity auctions it off for $100, you can still only claim $50.
Get & Keep Receipt
With tax deductions, if you don’t have a record of the transaction, you can’t claim it. You can get a bank statement, pay check statement, or written confirmation from the charity, but all must clearly state the amount you donated.
If you donate anything worth $5,000 or more you will need to complete Form 8283, Section B in your taxes. You may also be required to get an appraisal from a qualified appraiser.
When To Give
Consider which tax bracket you are in before giving your donation. For example, if you expect that you will make more in 2011 than in 2012, you will want to donate and claim the donations in 2011 because it will make a larger impact on your taxes.
Volunteering
When volunteering or working with a qualified tax-deductible charity there are other items you can deduct for your taxes. For example if you work at an organization as a clerk, you can deduct the cost of your transportation back and forth, but you can’t deduct the time they pay you to be a clerk. You can also deduct uniforms and other expenses occurred while completing volunteer work, anything except for time.
Post Recognition
If you receive a letter stating a thank you for the donation, or a certificate thanking you for your donation, take a photocopy of this and frame it. Post the recognition of your donation in your office or store. Having those around notice you donate to local or popular charities changes their perception of you. This can increase your reputation with business associates.
Research Charities
When you are planning on giving any kind of donation to a charity, look them up on the Better Business Bureau website. This website will show you any complaints or problems a charity has had in the past. It can help guide you in which charities are well respected and which should be avoided during this giving season.
It is the season of giving. Know all the facts about deductions available on your taxes as a result of donations. Giving a donation feels good to begin with, but getting deductions on your taxes for it as well is an added bonus that can help small businesses.
Posted by taxdrz on Saturday, December 10th, 2011 , Posted in Tips , No Comments »
Can you believe it, the year is almost over. Now it’s time to consider some last minute tax tips which could help you reduce your tax liability this year.
Be Charitable – Clothing and Household items donated to charity are tax deductible. Just be sure that the Check organization is qualified. Only donations to qualified organizations are tax-deductible. You can visit the IRS website to check the list of qualified organizations. Household items can include furniture, furnishings, electronics and appliances. However, the IRS guideline is that the donated items must be in good used condition or better to qualify for a tax deduction. This prevents people from just getting rid of junk. If you donate cash you must have a written receipt or bank record. This can include cancelled checks, bank statements,or credit card statements. Remember,the donation is counted in the year it was made so if you have a donation that is on your credit card statement in December (which will be paid in January) it will count as a donation made in December.
Do an estimated return – You can estimate what your return for 2011 might look like by assembling all your current year tax information. Get a copy of your year to date pay stub and get any other tax information together and do an estimated return. If your estimated return shows that your going to get a refund you know that come January you will probably want to file your return sooner than later. If your estimated return shows you will owe, then you will at least have some time to take some steps to reduce the tax liability come April 15th. If you can’t reduce the tax liability, at least you will know how much money you will need to come up with so you can start planning on how to get it now.
Property Taxes – If you own a home you will need to pay property taxes which are deductible. Instead of paying in two installments, you can pay both installments by Dec 31st and deduct all the property tax paid in this current year.
Self-Employed? Set up a SEP
If you are self-employed you can set up a Simplified Employee Pension (SEP) or IRA. If you set one up this year and set the money into it by the deadline you can deduct the contribution. In 2010 the contribution limit is $ 49,000. For sole proprietors the contribution can be up to 20% of your adjusted gross income. If you have an incorporated business, you can contribute up to 25% of your W-2 wages.
Tax Credit for High Efficiency Energy Purchases
The federal tax credits for Energy Efficient purchases or improvements ends this year. The tax credit can be as high as $ 1500. High Efficiency items include Refrigerators, roofing, insulation, stoves, heaters, HVAC, windows, etc. If you have previously purchased a qualified high efficiency item than be sure to include this in your taxes or provide this info to your accountant. If you are thinking of purchasing a high efficiency item then you might want to consider doing so before Dec 31st. If you need to make the purchase, why not do so by Dec 31st so you can claim the credit?
Increase your 401/k contribution
Another great way to lower your tax burden is to increase your 401/k contribution. The maximum contribution limit for 2010 is $ 16,500. If you are over 50 the catch-up contribution is $ 5,500.
Posted by taxdrz on Friday, December 9th, 2011 , Posted in General Knowledge, Tax News , No Comments »
You have several options for receiving your federal income tax refund. You can:
-Split your refund with direct deposits into two or three checking or savings accounts
-Direct deposit your refund into one checking or savings account
-Receive your refund as a paper check in the mail
-Buy up to $5,000 in U.S. Series I Savings Bonds with your refund
Splitting your refund is easy. Use IRS’ Form 8888, Allocation of Refund (Including Savings Bond Purchases). Just follow the instructions on the form. If you want IRS to deposit your refund into just one account, use the direct deposit line on your tax form.
With split refunds, you have a convenient option for managing your money — sending some of your refund to an account for immediate use and some for future savings — teamed with the speed and safety of direct deposit.
Whether you file electronically or on paper, direct deposit gives you access to your refund faster than a paper check.
Direct deposit also avoids the possibility that your check could be lost or stolen or returned to IRS as undeliverable.
Speed, safety and choice — with direct deposit you can have it all.
Posted by taxdrz on Wednesday, December 7th, 2011 , Posted in Tax News, Tips , No Comments »
If you owe taxes but can’t pay the full amount by the April 18 deadline you should still file your return on time and pay as much as you can to avoid penalties and interest. You should also contact the IRS to ask about alternative payment options. Here are three alternative payment options you may want to consider:
1.
Additional Time to Pay Based on your circumstances, you may be granted a short additional time to pay your tax in full. A brief additional amount of time to pay can be requested through the Online Payment Agreement application at http:www.IRS.gov or by calling 800-829-1040. Taxpayers who request and are granted an additional 60 to 120 days to pay the tax in full generally will pay less in penalties and interest than if the debt were repaid through an installment agreement over a greater period of time.
2.
Installment Agreement You can apply for an IRS installment agreement using the Web-based Online Payment Agreement application on IRS.gov. This Web-based application allows taxpayers who owe $25,000 or less in combined tax, penalties and interest to self-qualify, apply for, and receive immediate notification of approval. You can also request an installment agreement before your current tax liabilities are actually assessed by using OPA. The OPA option provides you with a simple and convenient way to establish an installment agreement and eliminates the need for personal interaction with IRS and reduces paper processing. You may also complete and submit a Form 9465, Installment Agreement Request, make your request in writing, or call 1-800-829-1040 to make your request. For balances over $25,000, you are required to complete a financial statement to determine the monthly payment amount for an installment plan. For more complete information see Tax Topic 202, Tax Payment Options on http.www.IRS.gov.
3.
Pay by Credit or Debit Card To pay your Federal taxes by credit or debit card, you can use all major cards (American Express, Discover, MasterCard, or Visa). For information on paying your taxes electronically, including by credit or debit card, go to www.irs.gov/e-pay and contact one of the service providers at its telephone number or Web site listed below and follow the instructions. There is no IRS fee for credit or debit card payments, but the processing companies charge a convenience fee or flat fee. If you are paying by credit card, the service providers charge a convenience fee based on the amount you are paying. If you are paying by debit card, the service providers charge a flat fee of $3.89 to $3.95. Do not add the convenience fee or flat fee to your tax payment.
Posted by taxdrz on Sunday, December 4th, 2011 , Posted in Tips , No Comments »
The Internal Revenue Service (IRS) rules recognize several types of employer-sponsored and individual retirement funds. These plans give the owner tax deferrals or exemptions only if IRS rules are followed. IRS pension plan penalties may be levied unless specific conditions are met, so you should know the rules before withdrawing any money.
Types
There are several types of pension plans, each with its own set of rules. 401(k) plans and traditional IRAs do not allow withdrawal of funds before age 59 1/2 except under special circumstances. A Roth IRA allows withdrawal of contributions at any time. Earnings must normally stay in the account until after the 5th year of the plan or age 59 1/2, whichever comes first. SEP (Simplified Employee Pensions) and SIMPLE (Savings Incentive Match Plans for Employees) essentially follow the rules for traditional IRAs.
Penalties
IRS pension plan penalties apply anytime a prohibited withdrawal is made. The funds withdrawn immediately become subject to regular tax rates. In addition, a 10% tax is levied as a penalty. This is particularly expensive for Roth IRAs, since funds withdrawn after the five year/age 59 1/2 point are exempt from taxes entirely.
401(k) Plan
Exceptions allow withdrawals from a 401(k) plan in some situations. If an employer terminates a plan, you may withdraw the funds without penalty, although you must pay regular taxes. Alternatively, you can roll over the money into an IRA as long as you do so within 60 days. The same applies if you change jobs and your new employer doesn’t have a 401(k). The IRS will not impose the 10% penalty in the event of disability, severe economic hardship or if you are faced with large medical expenses. Check with the IRS to see if a particular situation qualifies as economic hardship (see Resources).
Traditional IRA
Like 401(k)s, traditional IRAs defer taxes on contributions and earnings until you withdraw the funds. You must pay regular taxes on any early withdrawals, but the penalty is waived if you are disabled or inherit the IRA. You may withdraw funds for qualified education expenses or to help pay for a first home. Withdrawals used to pay for unreimbursed medical expenses if they exceed 7.5% of gross income are also permitted.
Roth IRA
Because there is no tax deferral on a Roth IRA, contributed funds can be withdrawn at any time. Earnings can be withdrawn early without penalty if you are disabled or inherit the IRA. A lifetime limit of up to $10,000 can be taken out early for buying or building a first home (including repairs).
Considerations
You may borrow funds from a 401(k) or other retirement plan, but you must return the funds (normally within 60 days) or they will be considered an early withdrawal subject to tax and penalty. 401(k)s and some IRAs are managed plans, but f you have a self-directed IRA, make sure you know what investments are allowed. A prohibited investment (such as collectibles) is considered an early withdrawal.
Posted by taxdrz on Thursday, December 1st, 2011 , Posted in Tips , No Comments »
For tax year 2012, personal exemptions and standard deductions will rise and tax brackets will widen due to inflation, the Internal Revenue Service announced today.
By law, the dollar amounts for a variety of tax provisions, affecting virtually every taxpayer, must be revised each year to keep pace with inflation. New dollar amounts affecting 2012 returns, filed by most taxpayers in early 2013, include the following:
- The value of each personal and dependent exemption, available to most taxpayers, is $3,800, up $100 from 2011.
- The new standard deduction is $11,900 for married couples filing a joint return, up $300, $5,950 for singles and married individuals filing separately, up $150, and $8,700 for heads of household, up $200. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
- Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $70,700, up from $69,000 in 2011.
Credits, deductions, and related phase outs.
- For tax year 2012, the maximum earned income tax credit (EITC) for low- and moderate- income workers and working families rises to $5,891, up from $5,751 in 2011. The maximum income limit for the EITC rises to $50,270, up from $49,078 in 2011.The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children.
- The foreign earned income deduction rises to $95,100, an increase of $2,200 from the maximum deduction for tax year 2011.
- The modified adjusted gross income threshold at which the lifetime learning credit begins to phase out is $104,000 for joint filers, up from $102,000, and $52,000 for singles and heads of household, up from $51,000.
- For 2012, annual deductible amounts for Medical Savings Accounts (MSAs) increased from the tax year 2011 amounts; please see the table below.
The $2,500 maximum deduction for interest paid on student loans begins to phase out for a married taxpayers filing a joint returns at $125,000 and phases out completely at $155,000, an increase of $5,000 from the phase out limits for tax year 2011. For single taxpayers, the phase out ranges remain at the 2011 levels.
Estate and Gift
For an estate of any decedent dying during calendar year 2012, the basic exclusion from estate tax amount is $5,120,000, up from $5,000,000 for calendar year 2011. Also, if the executor chooses to use the special use valuation method for qualified real property, the aggregate decrease in the value of the property resulting from the choice cannot exceed $1,040,000, up from $1,020,000 for 2011.
The annual exclusion for gifts remains at $13,000.
Other Items
- The monthly limit on the value of qualified transportation benefits exclusion for qualified parking provided by an employer to its employees for 2012 rises to $240, up $10 from the limit in 2011. However, the temporary increase in the monthly limit on the value of the qualified transportation benefits exclusion for transportation in a commuter highway vehicle and transit pass provided by an employer to its employees expires and reverts to $125 for 2012.
- Several tax benefits are unchanged in 2012. For example, the additional standard deduction for blind people and senior citizens remains $1,150 for married individuals and $1,450 for singles and heads of household.
