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Why You Must Ask Your Tax Preparer Questions

June 29, 2012 By

Taxes are complex, which is why many taxpayers cannot do without the aid of a tax preparer when filing their returns. It is however, not wise to assume that the preparer can handle everything for you; you should ask questions and seek clarification on tax related matters that might appear unclear.

Asking your tax preparer tax related questions can help avert later complications that might arise with your taxes. They can be simple informative questions or inquiries on the coming year’s returns. A serious tax preparer must always have the time and ability to answers all the burning questions with ease.

To begin, ask general questions to get a broader picture on your taxes and future. You can later ask more specific questions. Listed below are some questions that any serious taxpayer will seek answers for from his or her tax preparer:

Retirement Related Inquiries: Are there are any proposed changes on your retirement plans for the following year? When do you think you will start drawing your securities? Generally, find out if retirement is in the following year’s tax plans from the preparer.

Divorce, Marriage and Children: Divorce or marriage can affect any anticipated refunds; find out how by asking your preparer. Are you planning to have a baby? What effect will a baby have on your taxes? What if your child eventually goes off to college or finds employment? These are issues that will alter your tax filing the following year and must be clarified.

Any Plans to Start a Business? – If you have plans to set up a business, what tax-related records are essential for the preparation? Further information can always be sought later during the implementation of the business idea.

Tax Consequences of 401K or IRA withdrawals: Do you plan to make any of these withdrawals the following year or taking a loan from your 401K? If yes, then you obviously would like to know how your taxes will be affected.

Any Credits and Deductions You Qualify For? – Have you seen any tax credits in the news and you want to know whether you qualify for any? Ask whether you qualify or not. Remember any tax credit helps bring down your overall taxes.

Your Tax Return Questions: Read through your returns and seek clarification on issues that are not well projected as they should, or appear complex to you.

Paying Any Penalties? – A penalty can be triggered by a huge balance due. Do you have to alter withholdings or make any estimates?

The only way to stay informed about your taxes is by asking your tax preparer any questions that you have. As much as good tax preparers try to clarify issues they deem important without being asked to, there is no way one can read what is in your mind. Make your tax preparer’s work easier by asking questions.

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6 Facts about the Retirement Savings Contribution Credits

June 28, 2012 By

Do you contribute to an individual retirement plan or one sponsored by the employer? If you do, then you might qualify for a tax credit which is given according to a person’s age or income levels. Explained below are six tips you should know about the savers credit.

1. Income Limits: Initially referred to as the Retirement Savings Contributions Credit, savers credit was introduced and applied to taxpayers who had filing statuses and a 2011 income of; $28,250 for the qualified widow(er)s, single taxpayers, or married ones but who file separately. Married filers who file joint returns with an up to $56,500 income and household heads with an over $42,375 income are also eligible.

2. Eligibility Criterion: Only those who are 18 years or older, not full-students in the calendar year, and aren’t claimed as dependents on another’s returns qualify for the credit.

3. Credit Value: One can take home to a maximum of $1,000 or ($2,000 for joint filers) if they make legitimate IRA, 401 (k) contributions, as well as other specific retirement plans. This credit is a fraction of the eligible amount you contribute towards these plans with taxpayers with the least income getting the highest rate.

4. Subtraction of Distribution: While determining this credit, you have to deduct any allocation you receive from the retirement plans you contributed to. This rule is however, applicable to received distributions within the 2 years; the year when you claim the credit, the year when the credit claim is paid and duration before the due date, plus extensions for filing any tax returns, and after the credit year has ended.

5. Other Benefits: The Retirement Savings Contributions Credits only add to other tax receivable benefits for contributions made towards retirement. Many employees in the set income brackets may decide to subtract if not all, part of their conventional IRA contributions. Any contributions made to the normal 401 (k) plan are not taxable until their withdrawal from the plan.

6. Forms to Use to Apply: The main form used to claim this credit is the Form 8880 called the Credit for Qualified Retirement Savings Contributions.

Tax credits are introduced by the IRS to help relieve deserving and struggling taxpayers their tax burden. Therefore, qualified individuals must be fast in claiming them appropriately.

For additional and more detailed information about this credit, read the IRS Publication 4703- Retirement Savings Contributions Credit, Publication 590-Individual Retirement Arrangements (IRAs), and Form 8880. All the relevant forms and publications are downloadable from the IRS website. They can also be ordered via phone by calling 800-TAX-FORM (800-829-3676).

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Should You Connect with the IRS in Social Networking Sites?

June 27, 2012 By

Let’s face it, very many tax-paying citizens don’t like the IRS. People pay taxes to Uncle Sam mainly because it is a requirement of the law and they fear facing its long and threatening arm. It is for this reason that very few will view the IRS as their “friends” and would do anything to avoid any contact with them, even in online interactions.

The IRS now uses social media to boost its tax collection methods. Would you be comfortable liking their Facebook page? Following their Twitter Account and/or even take time to watch YouTube videos? Many people frown whenever they receive snail mail from the taxman, fearing for the worst as these letters are less likely to be carrying any good news. However, you might in real sense find it beneficial to share some technological platform with the perceived enemy.

In 2011, the IRS introduced the IRS2GO, a Smartphone application whose first edition was downloaded 350,000 times. This was not so appealing considering the number of taxpayers with Smartphones who didn’t bother downloading this app. The IRS remains up beaten over its plans to digitize and modernize its works. According to Shulman, IRS’s commissioner, taxpayers can easily access useful information regarding their taxes using this application. Shulman believes that there is need to embrace digitization for major practices in the ever changing world tech world.

The IRS2GI 2.0 uses and contains very useful information. It has the following channels;

1. YouTube: There are several IRS YouTube videos with over 2.2 million collective views. The app also contain major links to other helpful tax tips videos on issues like taxable and non-taxable income, small business healthcare credit, getting refunds and free help on how to prepare your tax returns.

2. Get My Tax Record: Personal tax records can be accessed with ease by simply filling in your Social Security Number plus other identifying details.

3. News: You can view the IRS’s news releases that are often produced on your Android or iPhones

4. Get My Refund Status: This application makes it possible to find the statuses of your tax returns.

5. Follow the IRS: Do you want to follow the IRS in twitter? It is just a click away on their application.

Is the IRS2GO good for you? The answer depends on your personal preferences. However, tech savvy people can find this application ideal. Whether you appreciate and use the application or not, one obvious fact is that the IRS is doing a commendable job by embracing technology. Collection of taxes is a tough occupation and the more avenues the URS utilizes in the process, the better.

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Have a Fresh Start With the IRS’s more Flexible Offer-in-Compromise

June 26, 2012 By

 

Many taxpayers struggle to pay and clear their tax dues. An Offer in Compromise is one of the best and quickest ways to clear IRS tax debts without getting into trouble. Taxpayers who owe the IRS can now benefit from the “Fresh Start” initiative that alters the Offer in Compromise program’s terms to accommodate more taxpayers.

An Offer in Compromise (OIC) is basically a contract between the IRS and the taxpayer to have the debt settled for a less value than the actual amount owed. The sum payable is usually agreed upon between the IRS and the taxpayer after sufficiently proving the inability of the taxpayer to clear all the debt in a single payment or an alternative payment agreement. To determine the suitability of the OIC applicants as well as an appropriate collection value, the assets and incomes of the taxpayer are closed reviewed and assessed by the IRS.

Different financial reviews used to determine the eligibility of the taxpayer for an OIC have been revised. Some of the revisions include;

  1. Initial calculation of a taxpayer’s anticipated income was done based on four years for offers paid in five months or less. The IRS revised this to just one year, and two years instead of the previous five for those offers whose payment is done within six and 24 months. The maximum payment period of all OICs is 24 months after the date of accepting the offer.
  2.  Taxpayers can now repay their student loans with Federal government guaranteeing the loan’s minimum payments allowed for the post-high school learning of the taxpayer. Presentation of proof of payment is mandatory.
  3. Taxpayers who owe delinquent state, local or federal taxes but lack the capacity to pay for the liabilities fully are allowed to make monthly payments within their respective states to the state’s taxing bodies. However, this is limited to some circumstances.
  4.  Citizens in a similar geographical area have an expanded and common Allowable Living Expense allowance calculation criteria. The uniform allowances include average costs for basic needs. The standards apply during the evaluation of the requests for installment agreement and offer-in-compromise. With the expansion of the National Standard allowances for miscellaneous, more taxpayers have their credit cards payments and bank fees and other charges covered.

You can get additional information about the “Fresh Start” initiative from the IRS website. Also, read the booklet on Offer in Compromise, Form 656-B as well as Form 656. You can also order additional information by calling 1-800-TAX-FORM (800-829-3676).

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Are My Gym and Health Club Membership Fees Deductible?

June 25, 2012 By

Millions of Americans belong to various health clubs and gyms. Since exercising is healthy and recommended, many would like gym and health club membership costs taken care of by Uncle Sam. This is possible in some situations and not in others.

Expenses paid to a health club to improve one’s health or get relief from mental or physical distress that has no connection with a specific medical situation cannot be considered as medical costs according to the IRS. Therefore, such costs are not deductable.

However, over the years, there have been numerous alterations by the IRS that have singled out different circumstances when gym and health club membership expenses are deductable, the main one being on a doctor’s recommendation. If you are diagnosed with a certain medical complication by a doctor, who prescribes gym exercises or recommends that you participate on a weight-loss program to either alleviate or treat the medical condition, these costs might be deductable.

Some of the obvious conditions that usually call for a doctor’s prescription of a gym work out and weight-loss program include cases of obesity, high blood pressure and heart diseases. There are some specific mental or physical illnesses and defects that are also exempted and qualify for deductions.

Do you find your health club and gym membership expenses unbearable and would like to have them deducted? There are three major rules that if followed closely, you can have the costs deducted from your taxes.

1. Get a Doctor’s Diagnosis: This is the first and most important thing to do. You have to be diagnosed by a medical doctor with a particular medical condition, some mental or physical problems or disease, and the main or one of the remedies is gym or health club membership. The diagnosis and recommendations have to be well documented in writing.

2. Use the Facility to Treat the Condition: Health club facilities must be used for the treatment of the doctor’s recommended health conditions, illness or defects and not any other. If the gym has spa parlor which you frequent to relax your bones and muscles after a busy day, don’t expect any deductions.

3. Previous Membership: Were you a member of a health club or gym long before the diagnosis? If you were, you automatically don’t qualify.

Golf is a healthy game and a doctor can recommend that you take it up to help get rid of back pain by strengthening back muscles. Enjoy the game knowing that the criterion listed above still applies.

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Crucial Facts about Capital Gains and Losses

June 22, 2012 By

A capital asset is what you posses and use; be it for commercial or private purposes. Homes, household furniture, bonds and stocks in personal accounts are all considered as capital assets. On opting to sell them, you either incur a capital gain or loss, depending on the purchasing and selling price differences.

Capital assets can have an effect on your income tax returns in various ways. Listed below are some specifics about capital losses and profits from the IRS’s perspective and how your returns are affected by them.

To begin with, anything you own and use for private reasons, investment or even pleasure is considered as a capital asset, which when sold can result in a loss or a gain. Please note that all profits realized have to be reported to the IRS. Capital losses are only deductable on venture assets and not any other assets held solely for private use.

Depending on the length of time capital investments are held before they are sold for cash, the capital gains and losses are either categorized as long or short-term. When you hold assets for over a year before selling, the profits are long-term profits or losses while short-term profits or losses being when the asset is held for 12 months or less or less. When long-term losses are exceeded by gains, a net capital gain is recorded to the amount which the net long-term capital profit exceeds your short-term capital loss, that is, if you have any.

The tax rates that apply to other incomes are lower than those on net capital gains. In 2010 for example, most people had a 15% maximum capital profits rate. Furthermore, some lower-income people can have a 0% rate or their total capital profits. Furthermore, there are some net capital gains taxed that are taxed at a 28% or 25% rate.

Individuals whose capital losses surpass gains can have the extra subtracted from their tax returns and used to reduce other expenses like wages. This is however limited to a $3,000 annually or $1,500 for married individuals who file their returns separately.

In case a taxpayer’s net capital loss is more than the limit for capital loss deductions, the value that is not consumed can be moved forward to the following year and handled as if it was incurred in that very year. The capital loss and gains are documented on Schedule D and line 13 of Form 1040.

For additional information on how to report capital gains and losses, read instructions on Schedule D. Alternatively, read Publication 17 titled “Your Federal Income Tax” or Investment Income and Expenses as described in Publication 550.

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Planning for Your Child’s Summer Made Easier with the IRS Child and Dependent Care Tax Credit

June 21, 2012 By

Summer comes with several challenges to different people. To parents, their main concern is usually how best to juggle between their work and the kids. However, it doesn’t have to be so complex, as the IRS stresses that it remains committed with tax credits that can help ease some of the day-camp expenses for the kids.

Any day-camp costs during the summer and all through the year may qualify for the Child and Dependent Care Tax Credit. However, just like other IRS’s tax credits, there are some basic considerations put in place to guide in the implementation of this credit. Taxpayers must bear in mind these factors to benefit.

The Kids Ages: Not all kids of all ages who attend day-camp qualify for the Child and Dependent Care Tax Credit. The kids have to be below 13 years old to qualify. This might disappoint those parents with older kids, but to the eligible ones, lucky for them.

Childcare Facility: The tax credit has no limitation on the venue for the childcare provider. The IRS understands that there are childcare providers who babysit at home while others run daycare facilities away from their homes. If you take your kid to either of these, you are still eligible for the tax credit.

Amount: The IRS set the maximum reimbursed expenses at $3,000 payable within a year for any eligible taxpayer. For two or more eligible individuals, the amount is set at $6,000. Please note that the credit doesn’t cover all the qualifying expenses. Depending on an individual’s income, it can go up to 35% of all the legitimate expenses in a year.

What Doesn’t Count: There are limitations on activities that qualify as well. The IRS excludes costs suffered in an overnight camp or attendance fee for any summer lessons/schooling. If you plan to have your kids take extra lessons in summer, be prepared to shoulder these expenses with no hopes for deductions.

Please ensure that that you get official receipts for any expenses, you will need them when filing your tax returns. Don’t forget the location of the camp and the Employer Identification Number (EIN). Also of great significance are the dates when the kids attended the camp.

Take a look at the Child and Dependent Care Expenses contained in the IRS Publication 503, which can be downloaded from the IRS website.

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Major Tax Rules that Govern Deduction of Weight Loss Expenses

June 20, 2012 By

 

Uncle Sam is committed to promoting a healthier nation. Since weight loss is a major issue to many Americans, you can get help during a weight loss program. This is however, only possible if your diet is in line with the numerous tax deduction conditions, as discussed below.

On a Doctor’s Recommendation

The key tax rule that can make it possible for you to write off any expenses incurred in a weight loss program is when a doctor recommends as being medically essential. Your own self-diagnosis is insufficient as the physician has to agree with you on the need to trim some pounds for health reasons.

Doctors will recommend weight loss in cases like hypertension, obesity, an upsurge in cholesterol and heart diseases. The moment your physician gives the nod, you can consider some membership charges and related costs to weight-loss groups covered. Also deductable are bariatric surgery, hospital-based and physician programs, weight loss drugs approved by FDA, nutritionists and dietitians as well as behavioral counseling costs. All these must however, be on a doctor’s recommendation.

However, some health club or spa and gym membership expenses may also qualify. If you are charged extra by your gym for any weight-loss activities that your doctor prescribes, the extra costs are deductable.

Deduction Limits for Diet Food

If a weight loss group which you belong to and whose costs are deductable, recommends that you purchase some of its weight loss food, the foods don’t qualify for deductions. Expenses for buying diet food and beverages are not considered as medical costs because they stand-in for your normal consumption for satisfying nutritional needs.

However, if the special diet helps treat or alleviate an illness, or a physician validates the need for food and normal nutritional dietary needs are not satisfied by the food, then it can be considered as medical expenses and therefore, deductable.

Itemization Requirements

Since qualified weight-loss costs are considered components of the overall medical deductions as outlined in Schedule A, they have to be itemized. What this means is, the total of your medical, including dental costs has to exceed your Adjusted Gross Income (AGI) by up to 7.5%. Only the amount past the income threshold can be deducted.

Example: If you have a $40,000 AGI, you have to build up over $3,000 medical costs before you can start enjoying the weight-loss deductions. Furthermore, note that only the amount that exceeds the $3,000 is deductable. This means that if the medical cost is $3,050, then only $50 can be claimed.

Furthermore, if your major objection and motivation for a weight-loss program is to improve on your appearance and beauty, don’t count on the credit. The IRS clearly warns against reasons of vanity for these deductions.

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Get Free Tax Help from Tax Volunteers

June 19, 2012 By

The internet is full of no-cost tax resources that taxpayers often turn to for snap tax filing solutions. Some of these free or low-cost sites and centers are run by dedicated IRS certified tax professionals and volunteers. Listed below are 4 major tax help resources that taxpayers can utilize for quick tax and free solutions.

1. Volunteer Income Tax Assistance (VITA): This free plan is targeted at moderate and low-earning taxpayers. VITA runs several community-based centers, schools, shopping malls and libraries sites. Eligible taxpayers can be helped by IRS-certified tax volunteers. VITA also offers a free e-filing help for taxpayers. The IRS partners with VITA and has set up free self-serve e-filing booths in 500 of VITA sites. To locate a nearby site, check out their directory or call 1-800-906-9887 for help.

2. Tax Counseling for the Elderly (TCE): Taxpayers aged 60 years or older can have their basic tax returns prepared for them by not-for-profit volunteers, as well as counseled on tax issues at no cost. You can get additional information about TCE by calling 1-800-906-9887 or call 1-888-227-7669 to find an AARP Tax-Aide site near you. You will be asked for some documentation when you visit any VITA or TCE sites for help, ensure that you are well prepared and find out which documents are required.

3. Military Personnel Tax Assistance: Members of the armed forces can file their returns online plus a maximum of three state returns at no cost. This was made possible through a partnership between H&R Block and the Military OneSource program pioneered by the Department of Defense. The military personnel can also get uniformed VITA help at several sites run by trained military-specific tax volunteers for free. Some of the tax issues that are specific to the military include Earned Income Tax Credit guide and combat zone tax remuneration.

4. Low-Income Taxpayer Clinics (LITC): LITC tax volunteers mainly help low income individuals usually in problems with the taxman like audits, collection disagreements, and problems with their appeals. Even though the LITC is partially funded by the IRS through an exceptional grant plan, they are self-regulating and operated by business or law schools or nonprofits. You can find the nearest LITC center near you by checking their directory map.

Each of these committed free tax help programs requires that you meet specific conditions. Take your time and review their websites, make phone calls and find out if you are eligible. You will always be required to present some relevant tax-related documents, ensure that you are well armed when visiting any of the centers for help.

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7 Major Expanded Adoption Credit Facts You Must Know

June 18, 2012 By

It is possible for a taxpayer to claim a tax credit to a maximum of $13,170 for eligible expenses paid in the adoption process of an eligible kid. The credit amount was increased and made refundable with the enactment of the Affordable Care Act. This means that the amount of your refund can be increased as well.

Taxpayers must however, understand the following seven facts about the expanded adoption credit.

  1. The expanded adoption credit came into effect in the 2010 tax year and even people who didn’t owe the IRS any taxes could get it.
  2.  To enjoy the credit, you have to file a paper tax return as well as Form 8839, eligible expenses and attach all relevant adoption supporting documents.
  3.  The main documents required might include: the concluding adoption verdict and the agreement of placement from relevant adoption agency. Those adopting kids with special needs should produce court documents plus a determination by the state.
  4. The adoption expenses that one incurs in the process include; court costs, legal/attorney costs, travel costs and most importantly, the adoption fees paid. Eligible adoption costs are reasonable and required expenses that directly relate to the lawful adoption of the child and must be paid as stipulated by the law.
  5.  A qualified and adoptable child must not exceed 18 years of age. Also, the child can be physically or mentally incapable of caring for himself or herself. The idea behind adoption is helping those kids who might otherwise lack someone to look over them.
  6.  A taxpayer’s credit is cut if his/her modified adjusted gross income exceeds $182,520. However, those with a modified AGI of over $222,520 don’t qualify for the credit.
  7.  Those taxpayers claiming the expanded adoption credit can still prepare their returns using the IRS Free File. However, these returns have to be printed and posted to the IRS, together with any other documents that are required.

 Taxpayers interested in this credit should bear in mind the above factors. You can access further information about the Adoption Credit from the “Guides to the IRS Form 8839, Qualified Adoption Expenses.” This document is available for download from the IRS website. You can also call 800-TAX-FORM (800-829-3676) and place an order, as well as have your questions answered.

 With taxes eating up many people’s revenues, you have to be smart and enjoy any tax relief that you qualify for.

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