Did Mom File Her Tax Return? | by James Sulivan, CPA, PFS

A parent’s diminished financial capacity often leaves adult children scrambling to determine if tax returns were filed on time. 

Snakes Released in Taxman's Office

Indian farmers protest alleged bribery demands by letting cobras out of the bag.

GE Filed 57,000-Page Tax Return, Paid No Taxes on $14 Billion in Profits | The Weekly Standard

GE Filed 57,000-Page Tax Return, Paid No Taxes on $14 Billion in Profits The Weekly Standard

Do You Qualify for a Home Office Deduction?

This is a great article that unpacks the details of the "home office deduction" for your small business.  Click here to read >>

Tweet from Conan O'Brien

"Just taught my kids about taxes by eating 38% of their ice cream."

Seven Tax Tips for Recently Married Taxpayers

This article was published by the IRS on their website on August 19, 2011.  If you changed your marital status this year and have any questions about your income taxes or have any other financial questions, please contact me at jtpalmiero@windstream.net or call 814-720-2493.  Thank you.

Seven Tax Tips for Recently Married Taxpayers


With the summer wedding season in full swing, the Internal Revenue Service advises the soon-to-be married and the just married to review their changing tax status. If you recently got married or are planning a wedding, the last thing on your mind is taxes. However, there are some important steps you need to take to avoid stress at tax time. Here are seven tips for newlyweds.

1. Notify the Social Security Administration Report any name change to the Social Security Administration so your name and Social Security number will match when you file your next tax return. File a Form SS-5, Application for a Social Security Card, at your local SSA office. The form is available on SSA’s website at www.ssa.gov, by calling 800-772-1213 or at local offices.

2. Notify the IRS if you move If you have a new address you should notify the IRS by sending Form 8822, Change of Address. You may download Form 8822 from www.IRS.gov or order it by calling 800–TAX–FORM (800–829–3676).

3. Notify the U.S. Postal Service You should also notify the U.S. Postal Service when you move so it can forward any IRS correspondence or refunds.

4. Notify your employer Report any name and address changes to your employer(s) to make sure you receive your Form W-2, Wage and Tax Statement, after the end of the year.

5. Check your withholding If both you and your spouse work, your combined income may place you in a higher tax bracket. You can use the IRS Withholding Calculator available on www.irs.gov to assist you in determining the correct amount of withholding needed for your new filing status. The IRS Withholding Calculator will give you the information you need to complete a new Form W-4, Employee's Withholding Allowance Certificate. You can fill it out and print it online and then give the form to your employer(s) so they withhold the correct amount from your pay.

6. Select the right tax form Choosing the right individual income tax form can help save money. Newly married taxpayers may find that they now have enough deductions to itemize on their tax returns. Itemized deductions must be claimed on a Form 1040, not a 1040A or 1040EZ.

7. Choose the best filing status A person’s marital status on Dec. 31 determines whether the person is considered married for that year. Generally, the tax law allows married couples to choose to file their federal income tax return either jointly or separately in any given year. Figuring the tax both ways can determine which filing status will result in the lowest tax, but usually filing jointly is more beneficial.

For more information about changing your name, address and income tax withholding visit www.irs.gov. IRS forms and publications can be obtained from www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

15 Silliest Uses of Taxpayer Money from Forbes.com

Click here to read why you should hire a CPA to make sure you are only paying your fair share of income taxes.

Ten Facts from the IRS about Amending Your Tax Return

Here is ten facts from the IRS about amending your tax return.  If you have any questions about amending your own return, please contact me at jtpalmiero@windstream.net or 814-720-2493.

Military Tax Tips from the IRS

Ten Tips for Taxpayers Who Owe Money to the IRS (From the IRS Website)

Issue Number: IRS Summertime Tax Tip 2011-14


Inside This Issue

________________________________________

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 tax liabilities. The goal of this effort is to help individuals and small business meet their tax obligations, without adding unnecessary burden. Specifically, the IRS has announced new policies and programs to help taxpayers pay back taxes and avoid tax liens.

Here are ten tips for taxpayers who owe money to the IRS.

1. Tax bill payments If you get a bill this summer for late taxes, you are expected to promptly pay the tax owed including any penalties and interest. If you are unable to pay the amount due, it is often in your best interest to get a loan to pay the bill in full rather than to make installment payments to the IRS.

2. 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 www.irs.gov or by calling 800-829-1040.

3. Credit card payments You can pay your bill with a credit card. The interest rate on a credit card may be lower than the combination of interest and penalties imposed by the Internal Revenue Code. To pay by credit card contact one of the following processing companies: Link2Gov at 888-PAY-1040 (or www.pay1040.com), RBS WorldPay, Inc. at 888-9PAY-TAX (or www.payUSAtax.com), or Official Payments Corporation at 888-UPAY-TAX (or www.officialpayments.com/fed).

4. Electronic Funds Transfer You can pay the balance by electronic funds transfer, check, money order, cashier’s check or cash. To pay using electronic funds transfer, use the Electronic Federal Tax Payment System by either calling 800-555-4477 or using the online access at www.eftps.gov.

5. Installment Agreement You may request an installment agreement if you cannot pay the liability in full. This is an agreement between you and the IRS to pay the amount due in monthly installment payments. You must first file all required returns and be current with estimated tax payments.

6. Online Payment Agreement If you owe $25,000 or less in combined tax, penalties and interest, you can request an installment agreement using the Online Payment Agreement application at www.irs.gov.

7. Form 9465 You can complete and mail an IRS Form 9465, Installment Agreement Request, along with your bill in the envelope you received from the IRS. The IRS will inform you (usually within 30 days) whether your request is approved, denied, or if additional information is needed.

8. Collection Information Statement You may still qualify for an installment agreement if you owe more than $25,000, but you are required to complete a Form 433F, Collection Information Statement, before the IRS will consider an installment agreement.

9. User fees If an installment agreement is approved, a one-time user fee will be charged. The user fee for a new agreement is $105 or $52 for agreements where payments are deducted directly from your bank account. For eligible individuals with lower incomes, the fee can be reduced to $43.

10. Check withholding Taxpayers who have a balance due may want to consider changing their W-4, Employee’s Withholding Allowance Certificate, with their employer. A withholding calculator at www.irs.gov can help taxpayers determine the amount that should be withheld.

For more information about the Fresh Start initiative, installment agreements and other payment options visit www.irs.gov. IRS Publications 594, The IRS Collection Process, and 966, Electronic Choices to Pay All Your Federal Taxes, also provide additional information regarding your payment options. These publications and Form 9465 can be obtained from www.irs.gov or by calling 800-TAX-FORM (800-829-3676).



Links:

• Publication 594, The IRS Collection Process (PDF)

• Publication 966, Electronic Choices to Pay All Your Federal Taxes (PDF)

• Form 9465, Installment Agreement (PDF)

5 summer tax tips for working teens

Read about them here at Reuters Wealth.

Don't Miss These Small Business Tax Changes

Don't miss these small business tax changes from entrepreneur.com.

Shifting Income in a Family Business

If you’re a sole proprietor, you can shift income by hiring your minor children to help in your business. In addition to providing valuable work experience for your child, this arrangement offers significant tax savings to the business. As long as the work your children do is legitimate and you follow all the rules and they receive reasonable wages, you can deduct their wages as a business expense and shift the money to your children in lower tax brackets.

As an added bonus, if your son or daughter is under age 18, you don’t have to pay Social Security or Medicare taxes on the wages you pay. Because of the standard deduction, in 2010, the first $5,700 earned by each child is not taxed. Also, since it’s earned income, it is not subject to the Kiddie Tax. Just be sure to file W-2 forms and other necessary tax forms for the child. A child claimed as a dependent cannot claim the standard deduction. They can claim a $950 deduction against earned income.

New Energy Incentives

In 2010, homeowners can again claim tax credits for making certain energy-saving improvements to their home. These credits include the (1) Qualified Energy Efficiency Improvements and Residential Energy Property Expenditures Credit and (2) Residential Energy Efficiency Property Credit.

Under the Qualified Energy Efficiency Improvements and Residential Energy Property Expenditures Credit, homeowners can receive a credit of 30% of the costs of qualified energy-efficient property or improvements. Improvements include insulated walls or ceilings; energy-efficient exterior doors and windows, including skylights; specially treated metal or asphalt roofs; and a high-efficiency furnace, water heater or central air conditioning system. The improvements must have been made to the principal residence in the United States and the maximum credit is $1,500. 

The 30% Residential Energy Efficiency Property Credit applies to costs for qualified residential solar panels, a geothermal heat pump, solar water-heating equipment, qualified solar electric property costs and small wind-energy property. This credit has no dollar limit or principal-residence requirement. A second 30% credit for qualified fuel-cell plants has principal-residence and kilowatt-capacity requirements, and cannot be greater than $500 for each 0.5 kilowatt of capacity.  

Retirement Savings Contributions (Saver’s) Credit

The tax law recognizes that paying bills while saving for retirement can be one of the greatest challenges for Americans today, especially for those earning lower incomes. The Saver’s Credit offers some relief.

Qualified taxpayers who make contributions to a retirement plan, including traditional IRAs or Roth IRAs, by April 15, 2011 are eligible for this nonrefundable tax credit. The 10%, 20% or 50% credit is based on adjusted gross income and applies to the first $2,000 of contributions, bringing the top credit to $1,000.

To claim the credit, adjusted gross income must be less than $55,500 if married filing jointly, $41,625 if head of household or $27,750 if single, married filing separately or a qualifying widow(er).

Adoption Credit

There is good news for people who are planning to adopt a child. Two tax benefits offset the escalating expenses of adopting an eligible child.

In 2010, the adoption credit, which is fully refundable, rose to a maximum of $13,170 per child. Parents who work for companies with an Adoption Assistance Program can receive up to a $13,170 reimbursement from their employer for qualified adoption expenses without paying taxes on that benefit.

This benefit phases out for modified AGIs between $182,520 and $222,520. The credit or exclusion can be fully claimed if modified AGI is less than $182,520 and it cannot be claimed if modified AGI is equal to $222,520.

When you adopt a child with special needs, you are allowed to claim these benefits regardless of actual expenses paid or incurred in the year the adoption becomes final. You are assumed to have incurred the maximum amount of qualifying expenses and may claim the full credit.

When adopting a child from within the United States, the family is permitted to take the credit in the year following the year where the actual expense was incurred. These expenses are deductible even if the adoption ultimately is not completed. This is different from how adoption expenses are treated if the child is from outside the United States.  

Where a foreign adoption is involved, the family may not deduct any expenses until the adoption is final, which considering the time and uncertainty of a foreign adoption, places an added burden on the family financing the cost of the adoption. Clearly, in this situation, the longer the adoption process, the more expenses are incurred, none of which are deductible until the adoption is finalized.

American Opportunity Tax Credit

For tax years 2009 through 2012, the American Opportunity Tax Credit is available to each eligible student and for the first four years of college or other postsecondary school that leads to a degree, certificate or other recognized educational credential. It does not apply to graduate-level courses. The maximum credit is $2,500 per student for each year and 40% of the credit is refundable (it can reduce the taxpayer's liability below zero). This means you can receive up to $1,000 even if you owe no taxes.

Costs include tuition, student-activity fees required for enrollment and attendance as well as books, supplies and equipment needed for a course of study that must be purchased from the educational institution as a condition of enrollment or attendance. However, course materials qualify for the credit even if not required as a condition of employment.

The credit applies to 100% of the first $2,000 of costs and 25% of the next $2,000 of costs. It phases out at modified AGI levels between $160,000 and $180,000 (married filing jointly), and $80,000 and $90,000 (other filers).

If modified AGI is less than the $160,000 and $80,000 thresholds, the full credit can be claimed. However, if it is equal to or greater than the $180,000 and $90,000 thresholds, the credit is not available.

Keep in mind that none of the credit is refundable if the taxpayer claiming the credit is a child with investment income subject to the Kiddie Tax.

This credit is allowed against the AMT and is no longer available after December 31, 2010.

IRS ends mailing booklets for paper tax returns

Mortgage Debt Forgiveness

The last two years have created financial difficulties for many families, and this has led to an historic level of home foreclosures. In many cases, the sale of a foreclosed home does not yield enough money to pay off the mortgage. Before 2008, any debt forgiven by the mortgage holder would generally result in ordinary income to the borrower. However, relief is now available in these circumstances.

If you still have mortgage liability after foreclosure, any amount forgiven by the lender is generally ordinary income. However, for debt discharged on or after January 1, 2007 and before January 1, 2013, the debt forgiveness is treated as tax-free if the property is your primary residence. The limit on qualifying debt is $2 million ($1 million if married filing separately).

This provision also applies when mortgage debt for a primary residence is forgiven as part of a refinance or other loan modification.

From IRS e-News IRS to Start Processing Delayed Returns on Feb. 14; Most People Unaffected and Can File Now

IR-2011-7, Jan. 20, 2011




WASHINGTON — The Internal Revenue Service plans a Feb. 14 start date for processing tax returns delayed by last month’s tax law changes. The IRS reminded taxpayers affected by the delay they can begin preparing their tax returns immediately because many software providers are ready now to accept these returns.



Beginning Feb. 14, the IRS will start processing both paper and e-filed returns claiming itemized deductions on Schedule A, the higher education tuition and fees deduction on Form 8917 and the educator expenses deduction. Based on filings last year, about nine million tax returns claimed any of these deductions on returns received by the IRS before Feb. 14.



People using e-file for these delayed forms can get a head start because many major software providers have announced they will accept these impacted returns immediately. The software providers will hold onto the returns and then electronically submit them after the IRS systems open on Feb. 14 for the delayed forms.



Taxpayers using commercial software can check with their providers for specific instructions. Those who use a paid tax preparer should check with their preparer, who also may be holding returns until the updates are complete.





Most other returns, including those claiming the Earned Income Tax Credit (EITC), education tax credits, child tax credit and other popular tax breaks, can be filed as normal, immediately.



The IRS needed the extra time to update its systems to accommodate the tax law changes without disrupting other operations tied to the filing season. The delay followed the Dec. 17 enactment of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, which extended a number of expiring provisions including the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction.

This country needs more Leonard McCrackens!

He never made more than $10,000 a year and is still living on his nest egg at age 107.  We can learn some powerful financial lessons from this 107-year-old.  Click here to read the story.

First-Time Homebuyer Credit

Owning a home has always been part of the American dream. Congress has consistently provided tax deductions and other benefits to homeowners, and 2010 was no exception.

For 2010, the First-Time Homebuyer Credit is available for buyers of homes under the following circumstances:

• You must have a contract in place by April 30, 2010.
• You must complete the purchase or close by September 30, 2010.
• If you are a first-time homebuyer, the credit can reach $8,000 ($4,000 if married filing separately) or if lower, 10% of the purchase price.
• Long-time residents can qualify for a credit up to $6,250 ($3,250 if married filing separately) or if lower, 10% of the purchase price.
• The home must be a principal residence.
• Income limitations and documentation rules apply.

For purchases made in 2010, you can choose to use the credit on your 2009 or 2010 return.

The credit does not apply if the purchase price is greater than $800,000, the home was purchased from a “related person,” another taxpayer can claim the purchaser as a dependent, or the home was acquired through gift or inheritance.

A first-time homebuyer is someone who has not owned a principal residence in the three years before the new home’s purchase date, and a long-time resident has owned and used the same home as the principal residence for any five-consecutive-year period during the eight years before the new home’s purchase date.

The credit, which is refundable, phases out at modified adjusted gross income (AGI) between $225,000 and $245,000 for married taxpayers filing jointly and $125,000 and $145,000 for all other taxpayers.

The credit can be fully claimed if modified AGI is equal to or less than the $225,000 and $125,000 thresholds and is not available when modified AGI is greater than the $245,000 and $145,000 thresholds.

In addition, the credit’s availability is expanded for any individual or spouse who serves on qualified official extended duty for at least 90 days during the period beginning after December 31, 2008 and ending before May 1, 2010. In this case, the deadline to purchase is April 30, 2011 and if by then the buyer enters a binding contract to close by June 30, 2011, he or she has until June 30, 2011 to finalize the purchase.

The credit only needs to be repaid if the home is sold within 36 months of the purchase date.

If you purchased your home in 2008 under the original first-time homebuyer’s rules, you generally must repay the credit over a 15-year period, which begins in 2010. The minimum payment is 1/15 of the original credit received. For homes purchased in 2009, you must repay the credit only if the home is no longer your principal residence within the 36-month period beginning on the purchase date.

The IRS has issued specific guidance on how to claim the credit for all years.

Tax Changes for 2011: A Checklist

Tax Season Starts on Time for Most Taxpayers; Those Affected by Late Tax Breaks Can File in Mid- to Late February

Expiring Provisions

The following tax incentives expired at the end of 2011. These incentives include the State/Local Sales Tax deduction, the Mortgage Insurance Premiums deduction, School Teacher Expenses and Qualified Charitable Distributions from IRAs.


· The State/Local Sales Tax deduction is an election in lieu of deducting state income taxes. It is mostly used by taxpayers residing in Washington, Texas, Nevada, Florida and other states where there is no income tax. Also, it only applies to taxpayers who itemize.

· The Mortgage Insurance Premiums deduction applied to homeowners who made down payments of less than 20% of their homes’ value and were required to carry private mortgage insurance (PMI). These premiums were deductible similar to mortgage interest.

· School Teacher Expenses provision provided a $250 deduction for teachers, counselors, principals and aids for books, supplies and other materials.

· Qualified Charitable Distributions provision was very popular among taxpayers. It allows individuals who are over age 70½ to make a direct charitable gift from their IRA in lieu of taking a required minimum deduction.