Tax Planning the need to keep up with tax law changes

Background

It is imperative that you keep up with the tax law changes that affect your finances and the best way to do that is to partner with your CPA or tax professional or your choice. Lets take for example the extended provisions that had been approved the last minute by congress and close to year end.  To mention a few these are:  the increased Alternative Minimum Tax (AMT) exemption amounts, the State/Local Sales Tax  deduction, the Mortgage Insurance Premiums deductions, School Teacher Expenses, and the Qualified Charitable Distributions from IRAs.  Lets discuss each one of them in detail here.

• 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 state income tax. You must itemize deductions to take advantage of this deduction.
• The Mortgage Insurance Premium deduction applied to homeowners who made down payment of less than 20% of their homes' value and were required to carry PMI.  These premiums were deductible similar to mortgage interest. 
• The 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 age over 70 1/2 to make a direct charitable gift from their IRA in lieu of taking a required minimum deduction.

These provisions expired at the end of 2011. 

How can your CPA do for you?

Your CPA can be able to monitor regularly, at least quarterly, your financial situation to see if you are going to be affected by any tax-law changes.  He can also help cope with life-changing events such as marriage, divorce, parenthood or new business launch. 

BY taking the necessary steps as soon as the need arises, rather than delaying action until the end of the year, you can better protect your financial interest. 

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Employment taxes

TAX NEWS for Employers:

Today is the due date to deposit payroll tax payments on May 5-8 if the semiweekly deposit rule applies.

Source IRS.gov

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2013 Inflation Adjusted deductions

Cost-of-Living adjustments that will be in effect starting in 2013.

Health Savings accounts:

1. Annual contributions made to a health savings account for an individual with self-only coverage under a high deductible health plan is $3,250.
2. For an individual with family coverage under a high deductible health plan is $6,450.

SOurce IRS.gov.  (Sec 223)

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TAX NEWS for Employers:

Employers due date today:

Employers are required to report tips of $20 or more earned during April 2012.  

What filing is required?  May report these amounts on Form 941.

For what reporting period? ... We will like to hear from you.

(Source: IRS.gov)

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TAX Due Date May 9, 2012

Deposit payroll tax for payments on May 2-4 if the semiweekly deposit rule applies.
Source: IRS.gov


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Tax, Accounting, and Auditing: Tax due date

Tax, Accounting, and Auditing: Tax due date: On Penalties   Today's the last day to file your taxes and pay your tax liability.  The IRS have increased the number of electron...

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Tax due date

On Penalties

 

Today's the last day to file your taxes and pay your tax liability.  The IRS have increased the number of electronic filing and payment options for you, reducing your burden and improving the timeliness and accuracy of tax returns. The IRS can assess a penalty if you fail to file, fail to pay or both by the due date.

They are two different penalties you may face if you file or pay late.

• If you do not file by the deadline, you might face a; 
• Failure-to-file penalty- So if you cannot pay all the taxes you owe, you should still file your tax return on time and pay as much as you can. 
• 
  The failure-to-file penalty ($) is generally more than the failure-to-pay penalty.
• The penalty is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes.
• If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
• If you do not pay by the due date, you could face a failure-to-pay penalty.
• Generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes. 

• On a Valid Extension: 
• If you request an extension of time to file by the tax deadline and you paid at least 90 percent of your actual tax liability by the original due date, you will not face a failure-to-pay penalty if the remaining balance is paid by the extended due date. 

• If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty. However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.  Interest are added to all penalties due.

• Can you avoid these penalties?
• You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.

 Ask your tax consultant for more details and information.

 

Source: http://www.irs.gov/

 

 

 

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When do I receive my Tax Refund?

Tools to use:

There is two ways to check your refund status in the IRS website.  Using a phone application or the internet, that simple.  You may not need to call the IRS.

Information Needed:

• Your Social Security Number or Individual Taxpayer Identification Number;
• Your filing status (Single, MFJ, MFS, HOH, or Qualifying Widow(er); and
• Exact whole dollar refund amount shown on your tax return.

Check the link on this blog to get there online or go to http://www/IRS.gov

 Source: IRS

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I am missing a W-2

What to Do? 

Most of the time you get all your documents, but there is that one time when you don't.  There is no reason to panic but you should take proactive measures to get all the documents to file your 2011 tax return.  Generally, you should receive an IRS Form W-2, Wage and Tax Statement, from each of your employers by Jan. 31, 2012, but you are in February 2012 and you are mising one or two W-2s. It happens.

The IRS suggest you do the following steps:
1. Contact your employer ASP.

• Inquire if and when the W-2 was mailed.
• If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address.
• Update your address with your employer and allow a reasonable amount of time for them to resend or issue a corrected W-2.

2. Contact the IRS If you do not receive your W-2 by Feb. 14, 2012.

• Call the IRS for assistance at 800-829-1040.
• Have your name, address, Social Security number, phone number with you when you are ready to call.
• Also, provide the IRS with the following information:
• Employer’s name,
• Employers address
• Employer phone number
• Dates of employment
• Provide an estimate of the wages you earned,
• The federal income tax withheld, 
• The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.

3. File an extension your return (3.1) or File a return along with Form 4852 (3.2) Even with the missing W-2, you must either file your tax return or request an extension to file. However, all taxes due should be paid if you do not want to pay a possible penalty.

1. Request an extension (Form 4868) to file by April 17, 2012.  (Personal Preference not an advise- I would do all calculations to see if I owe any additional taxes, paid them, and file an automatic extension. You must consult your tax advisor.)  
2. Alternatively to the step above, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible. In this scenario, there may be a delay in any refund due while the information is verified. 
1. If your estimated tax information provided was not accurate, then you must File a Form 1040X (i.e, Amended U.S. Individual Income Tax Return) to correct the previously file tax return. 
2. On occasion, you may receive your missing W-2 after you file your return using Form 4852, and the information may be different from what you reported on step 3.2, above. 

Source: http://www.irs.gov/  Form 4852, Form 1040X and instructions are available on this website or by calling 800-TAX-FORM (800-829-3676).

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IRS Tax Tips for Self Employed individuals

Key points the IRS would like you to know about self-employment and self- employment taxes:

Who is considered to be Self-employed
If you work for yourself, as an independent contractor, or you carry on a trade or business as a sole proprietor, you are generally considered to be self-employed.

Part-time or Full-time work

Self-employment can include work in addition to your regular full-time business activities, such as part-time work you do at home or in addition to your regular job.

Self-Employment Tax

If you are self-employed you generally have to pay self-employment tax as well as income tax. Self-employment tax is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. You figure self-employment tax using a Form 1040 Schedule SE. Also, you can deduct half of your self-employment tax in figuring your adjusted gross income.

Where you are required to report your Income and expenses?

You file an IRS Schedule C, Profit or Loss from Business, or C-EZ, Net Profit from Business, with your Form 1040.

Estimated Tax PaymentsIf you are self-employed you may have to make estimated tax payments. This applies even if you also have a full-time or part-time job and your employer withholds taxes from your wages. Estimated tax is the method used to pay tax on net income that is not subject to withholding. If you fail to make quarterly payments you may be penalized for underpayment at the end of the tax year.

Cost of running your Business

You can deduct the costs of running your business. Some cost will be capitalized, others deducted in its entirety depending on many factors.  Some business expenses are clasiffyed as part of the cost of goods sold, report as inventory and/or as an asset and portion of these could be expensed in the current year.

What determine its deductibility?

For a cost of running a business be deductible, the business expense must be both ordinary and necessary in carry on a business. An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be indispensable to be considered necessary.

Source of additonal information:

Contact your CPA, and/or the Self-employment Tax Center, IRS Publication 334, Tax Guide for Small Business, IRS Publication 535, Business Expenses and Publication 505, Tax Withholding and Estimated Tax, available at www.irs.gov or by calling the IRS forms and publications order line at 800-TAX-FORM (800-829-3676).

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