May 20, 2013

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Money Saving Tips with Your Taxes

April 30, 2013 By

Taxes can be burdensome, especially if you are unable to pay. You can trim down taxes using a number of tax strategies, which can best be realized with high levels of tax knowledge. Some of the strategies to lower or even evade paying taxes are discussed below:

Contribute to an IRA: Your retirement should be secured at all times, and when you invest in a 401k, you can tremendously bring down your taxable Adjusted Gross Income. This means that the more you invest into your 401K, the more likely you can cut on the taxes you owe the IRS. The deposited amount in the IRA grows year after year for which you don’t have to pay taxes. Ultimately, upon your retirement, you will be eligible to withdraw the net amount in the IRA at a lower income tax bracket.

Don’t Pay Your Student Loans Too Quickly: Do you have an education loan? Not paying it off immediately may benefit your taxes. Yes, conventional loans like credit card debts with no tax benefits must be paid off as soon as possible. But in this case, paying the interest of the student loan reduces the gross income that is taxable by the IRS.

Purchasing A House: Everyone wants a home and the IRS is willing to support you in realizing this dream. An investment made on a house can help you deduct taxes payable to the government. The loan interests paid for the house is considered as mortgage interest, which is tax exempt. Every year you pay interest, a large chunk of tax may be evaded. The amount paid for points are also charged on mortgage and is completely beneficial for mortgage related deductions.

Selection of Marital Status: If you are married, you have 2 options while filing tax returns; either married filing jointly or married filing separately. Single parents can file as head of households. The marital status plays a major role in determining the tax rate and standard deduction rate, which is higher for a single parent compared to couples.

Take Classes: College classes qualify you for the Lifetime Learning Credit. And if your income is beyond the range for the credit, you may have to opt for deductions in tuition and other fees.

Philanthropy: Each time you make a donation, save the receipts if you plan to claim a tax deduction. Also, you may keep records of health-related expenses and work related expenses.

Old Paid Tax Returns: In case you missed out of tax refunds from missed deductions, you have up to three years to amend your 1040 and claim a redund by filing a Form 1040X.

Talk to a Tax Pro: A professional will help you with right suggestion and offer best deals for maximum tax deductions, lessen tax fees, and also help you if you intend to claim tax deductions.

Ensure you choose a right tax attorney to do your taxes or use right tax prep software to prepare the taxes and e-file the tax returns. The IRS allows online filing of tax returns at no extra cost. Note that your economical progress will impact on your taxes. You may end up paying more taxes than you should if you don’t try to identify all possible tax saving options.

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The Elderly and their Need for Tax Assistance

October 19, 2012 By

Any living human being will at some point in future, get the dreadful grey hair. Yes, you might choose to cheat time by dying your hair in whatever color you prefer, but the there is little anyone can do to the physical and mental exhaustion that comes with old age. Most mistakes on tax returns that the IRS deals with annually are from the seniors, who gradually begin forgetting basic tax requirements like filing the 1099Rs. Even with the help of a tax pro, it takes a lot of time and effort to have all the documents and details in place before filing returns.

Tax preparers are always advised to observe extra caution when dealing with aging taxpayers. Some of the most common tax issues most of them bump into include missing or unpaid dues, failure to collect the IRA’s minimum distributions, some sell or buy stocks but by the time of filing the federal tax returns, forget how much they paid for or received from the stocks.

Tax preparers and the IRS might not have a lot of control on the tax returns that are provided by the seniors and decisions that they make which affect their taxes. Tax return preparers mainly concentrate on the returns and it is the responsibility of the family or caregiver of the elderly taxpayer to take control of their loved ones’ taxes. This is far much better than sitting back and waiting for a mistake to be reported or the IRS to reject the returns.

The seniors have to be assured not only that they have control over their taxes, but also that their tax returns can still be filed correctly and in time to avoid any IRS penalties. It therefore calls for understanding their returns, what has to be paid or filed. If you are at a loss, then accompany them to see a tax pro and if necessary, get a tax power of attorney.

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Boost your Refund with these Four Tax Credits

July 20, 2012 By

Many taxpayers glance at the amount they pay in taxes and frown, cursing Uncle Sam for being insensitive. However, aggressive complaints can never help, as the government cannot operate without your taxes. To help you pay your taxes without feeling the “pinch,” the IRS has an array of tax relief options that taxpayers can turn to, one of which being tax credits.

A tax credit is simply a dollar-for-dollar lessening of the actual amount of taxes you owe the IRS. The IRS has made some of the tax credits refundable where eligible taxpayers who claim one of the credits can get the rest as a tax refund regardless of the status of the liability, even if it has been grounded to zero.

You can increase your refund by taking advantage of the following tax credits;

1. The Earned Income Tax Credit: If your earnings from wages, farming or self-employment are less than $49,078, then this is the tax credit for you. If you have been earning more than this amount in the past, but you saw your income come down last year, you might qualify for the very first time. The amount of credit is set based on your age, the number of eligible kids and income, with the maximum set at $5,751. If you don’t have kids, you might still qualify; see the IRS Publication 596-Earned Income Credit.

2. The Child and Dependent Care Credit: Taxpayers who work or search for work but have kids aged below 13, have a disabled spouse or dependent can benefit from this credit. Review Publication 503-Child and Dependent Care Expenses for more information.

3. The Child Tax Credit: This credit has a maximum of $1,000 for every eligible child and can be claimed on top of the Child and Dependent Care Credit. Read IRS Publication 972, Child Tax Credit.

4. The Retirement Savings Contribution Credit: Also known as the Saver’s Credit, it seeks to enable low-to-moderate income earners put away some funds for their retirement. To qualify, your income has to be below a specific limit and you making contributions to an IRA or a workplace retirement plan like a 401 (k). You can get this credit on top of other applicable tax savings. See the IRS Publication 590-Individual Retirement Arrangements (IRAs) for more information.

Depending on your personal circumstances and facts, there is an array of other tax credits that might be applicable to you. Read carefully the instructions contained on tax forms to see if you are eligible. Check out the IRS website for any other additional information on these tax credits. You can also get phone support on 800-TAX-FORM (800-829-3676).

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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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Conversion and Re-classifying IRA Accounts

October 28, 2011 By

IRA accounts are retirement savings accounts that have a tax savings element. There are two types of IRA accounts- Traditional IRA accounts are accounts that allow a taxpayer to save for their retirement tax free subject to a maximum. Once the taxpayer retires, the distributions are taxes. Roth IRA accounts work in the opposite way. Contributions to a Roth IRA account are after tax but the growth and withdrawals of the funds is tax free. A taxpayer can choose to invest in either of the two IRA accounts. People with a high tax rate are advised to go for traditional IRA so that they can pay tax on retirement when their tax rate lowers. On the other hand, those who have a low tax rate such as those who are starting out on their career are advised to take a Roth IRA as they pay tax upfront when their tax rate is low in exchange for tax free distributions on retirement.

Conversion of IRA Account

The tax code also allows for a taxpayer to convert a traditional IRA into a Roth IRA. In this case, the taxpayer pays income tax on the balance of the traditional IRA at the highest of his or her income tax rate so as to convert to a Roth IRA. This move is ideal when the market comes down and the balance in the accounts is low. Many investment advisers advised their clients to transfer their traditional IRAs into Roth IRA in 2010 as the markets were low and therefore their IRA account balances were low. By making the a conversion when the balances were low, their tax liability was also low. They could then continue saving up in their Roth IRA to enjoy tax free funds on retirement. Those who converted traditional IRAs to Roth IRA in 2010 can take advantage of the 2-year-reporting tax break available only in 2010. This means that taxpayers who made the switch to Roth IRAs can pay the taxes due from this conversion in 2010 and in 2012. The taxpayer can also decided to pay the whole tax amount in 2010 by electing to do in the Form 8606, Part II.

Re-characterization of IRA Accounts

If you make a conversion from a traditional IRA into a Roth IRA, you still have an opportunity to convert it back to a traditional IRA within a given time period. The converting back into a traditional IRA is called re-characterization. For many people who opted for a conversion in 2010 had  the opportunity for re-characterization as long as it was done before October 17th 2011. If they re-characterized, they simply reversed the move they made to a Roth account and therefore, will not pay the taxes that were due. This window allows taxpayers who change their mind to revert back to their traditional IRAs. Taxpayers who decide to go for a re-characterization after filing the 2010 tax return will need to file a tax amendment to finalize the reversal.

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Tax Help: Retirement Account Options for the Self-Employed

September 29, 2011 By

The appetite for business ownership is highest now than it has ever been in the United States. According to statistics from the Kauffman Foundation, every month in 2010, there were about 565,000 Americans who made the bold move of becoming their own bosses. In fact, there were more businesses set up in 2010 that there have been in the last 15 years. The business boom has been brought about by many reasons. From reduced job security, high unemployment, low interest rates on loans, stimulus package opportunities, to success stories of overnight internet billionaires, there are many reasons that are pushing more individuals to venture in the world of self employment.

Running your own business can be very rewarding – you are your own boss and you can finally do what you really love. However, there is a downside to becoming self-employed. Some of the things you took for granted while employed are no longer automatically available. Many people who leave employment to start out their own businesses either ignore or procrastinate in setting up some of these important things, such as a retirement account. People in business put all their energy and finances into their business in a bid to have it grow towards success. However, it is important to be prudent and set aside money for retirement – no matter how hard it is. This way, you will have a fall-back when you retire from business, no matter how the business goes. There are also tax saving retirement options available for business people and you can invest in one of these to save on taxes.

SEP IRA

The SEP IRA account is a flexible retirement account that allows you to save funds, depending on your business performance. In the years that you perform well, you can save up more. For bad years, you can save little to no retirement funds. This account enables you to save up to 25% of your net self employment income with a cap of $49,000.00 for the 2011 tax year. You can therefore, wait until year end after making your final accounts so as to determine the amount to put into your retirement account. This account is ideal for start-ups and businesses that run without employees, but may be limiting for businesses with employees. This is because for businesses that have employees, you will need to put aside a similar percentage for all your permanent employees.

SIMPLE IRA

The savings incentive match plan for employees (SIMPLE) is an ideal retirement account to run for businesses that have few employees. The account is only available for businesses with less than 100 employees. For the 2011 tax year, this account allows for a tax-free contribution of $11,500.00 for those below 50 and $14,000.00 for those who are 50 years and above. The contributions and the growth of the retirement account is tax-free while the withdrawals are taxed on retirement.

Solo 401k

This product is only available to self-employed individuals and their spouses and not employees. It has higher caps as compared to IRA accounts and therefore, ideal for a businessperson who is able to save a larger percentage of their incomes towards retirement. The total tax-free contribution for this account is $54,500.00. The account also allows for flexible saving. Thus, one can save more in a successful year as compared to the leaner years. This account also enables those who leave employment to go into business to change their employment 401k account into a Solo 401k. Another advantage of this account over IRA accounts is that there are options for Roth accounts that allow you to save after tax and withdraw your funds tax-free on retirement.

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