Estimated Taxes are due January 15, 2010...

Individuals- Estimated tax is the method used to pay tax on income that is not subject to withholding. This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes and awards. You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough.

If you do not pay enough by the due date of each payment period you may be charged a penalty even if you are due a refund when you file your tax return.

Corporations - You generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return.

Estimated tax requirements are different for farmers and fishermen.

You want to estimate your income as close as you can to avoid penalties. You must make adjustments both for changes in your own situation and for recent changes in the tax law.

When To Pay Estimated Taxes

For estimated tax purposes, the year is divided into four payment periods. Each period has a specific payment due date. If you do not pay enough tax by the due date of each of the payment periods, you may be charged a penalty even if you are due a refund when you file your income tax return.

If it is easier to pay your estimated taxes weekly, bi-weekly, monthly, etc. you can, as long as you have paid enough in by the end of the quarter.
(SOurce: IRS)

Consult your license professional.

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Do you file electronically?

Advantages of filing electronically.

Last year, 2 out of 3 tax returns were filed electronically. Approximately 95 million already file electronically.

1. It’s fast. Your tax return will get processed more quickly if you use e-file. E-file software reduces the chance of making errors when you prepare your return. These are typically identified before filing is completed.

2. If you choose to have your tax refund deposited directly into your bank account, you will have your money in as few as 10 days, from the time it gets accepted by the IRS.

3. When you file a tax return electronically, the IRS is fully committed to protecting your information on our tax processing systems.

4. If you owe money to the IRS, e-file also allows you to file your tax return early and delay payment up until the due date. I suggest few days before the due date to make sure.

For a modest fee, you can have your tax return filed by your favorite license tax preparer.

(Source: IRS)

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About Dependents and Exemptions

Who can qualify as a dependent ...exemptions...

Consider these;
1. If someone else claims you as a dependent, you may still be required to file your own tax return. Things to consider are; Earnings or gross income, marital status, any special taxes you owe and, any advance Earned Income Tax Credit payments you received.

2. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,650 on your 2009 tax return. Exemption amounts are reduced for taxpayers whose adjusted gross income is above certain levels, depending on your filing status.

3. If you are a dependent, you may not claim an exemption.

4. Your spouse is never considered your dependent. If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.

5. Some people cannot be claimed as your dependent. To claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children.

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Recently Married... or Divorce?

Filing Facts for Recently Married or Divorced Taxpayers

Following these steps will help avoid problems when you file your tax return.

1. If you took your spouse’s last name or if both spouses hyphenate their last names, you may run into complications if you don’t notify the SSA. The IRS computers can’t match the new name with their Social Security Number.

2. If you were recently divorced and changed back to your previous last name, you’ll also need to notify the SSA of this name change.

3. If you adopted your spouse’s children after getting married, you’ll want to make sure the children have an SSN. For adopted children without SSNs, the parents can apply for an Adoption Taxpayer Identification Number – or ATIN. The ATIN is a temporary number used in place of an SSN on the tax return.
(Source: IRS)

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Tax tip- January 3, 2010

Dividends
Dividends received from qualified domestic corporations can be tax free for certain taxpayers that qualify. Normally dividens are taxed as ordinary income. Ordinary income are usually wages and most compensations. So, if you want to reduce the taxes you paid, you may want to consider moving capital assets where you have more favorable tax rates. For some taxpayer that tax rate could be 0%. However, this preferential treatment expires this year, but you still have time.

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Owe money to the IRS, consider these tax payment options.

E-options?
These options offer taxpayers the easiest and fastest way to make a full or partial payments. You can either pay by phone, online or using your credit card.
A short-term extension gives a taxpayer up to 120 days to pay without processing fee, but the late payment penalty and interest still apply.
A monthly payment plan or installment agreement gives the taxpayer more time to pay. Under this method the interest still apply but the late payment penalty is cut in half to 0.25 percent for any month an installment agreement is in effect.
Penalties for filing or paying taxes late.
Filing late. You must pay a failure- to-file penalty. The penalty is usually 5% per month for each month that a return is late, not to exceed 25%. The penalty is based on the tax not paid by the due date.
Paying tax late. The penalty is 0.5% of your unpaid taxes for each month that the tax is due. This could increase to 1 percent per month after a notice of deficiency is received.
Combined Penalties. The penalty for filing late is reduced by the penalty for paying late for that month, unless the minimum penalty for filing late is charged.
Accuracy related penalties. If due to understatement could reach 20 percent. (Source: IRS)

RS Speeds Lien Relief for Homeowners Trying to Refinance, Sell

The Internal Revenue Service an expedited process that will make it easier for financially distressed homeowners to avoid having a federal tax lien block refinancing of mortgages or the sale of a home.

If taxpayers are looking to refinance or sell a home and there is a federal tax lien filed, there are options. Taxpayers or their representatives, such as their lenders, may request that the IRS make a tax lien secondary to the lien by the lending institution that is refinancing or restructuring a loan. (Source: IRS)

IRS Speeds Lien Relief for Homeowners

The Internal Revenue Service an expedited process that will make it easier for financially distressed homeowners to avoid having a federal tax lien block refinancing of mortgages or the sale of a home.

If taxpayers are looking to refinance or sell a home and there is a federal tax lien filed, there are options. Taxpayers or their representatives, such as their lenders, may request that the IRS make a tax lien secondary to the lien by the lending institution that is refinancing or restructuring a loan. (Source: IRS)

Interest Rates Drop for the First Quarter of 2009

WASHINGTON – The Internal Revenue Service today announced in Revenue Ruling 2008-54 that interest rates for the calendar quarter beginning Jan. 1, 2009 will drop by one percentage point. The new rates will be:

• Five (5) percent for overpayments [four (4) percent in the case of a corporation];
• Five (5) percent for underpayments;
• Seven (7) percent for large corporate underpayments; and

Two and one-half (2.5) percent for the portion of a corporate overpayment exceeding $10,000.
(Source: IRS)

Facts to know regarding the First-Time Homebuyer Credit

Here are the some of the provisions you should know:

1. You must entered into a binding contract to buy a principal residence on or before April 30, 2010. It got extended to 2010!
2. If you meet provision number 1, above; then, you must close on or before June 30, 2010.
3. For purchases made in 2010, you had the choice to claim the deduction in either 2009 or 2010.
4. You qualify for a reduced long time credit if you have lived in the same principal residence for five of the last eight years that ended on the date the new home is purchased and the settlement date is after November 6, 2009.
5. The max credit for long time credit is $6,500. However, for MFS is $3,250.
6. The income limits for purchases after November 6, 2009 is $125,000 for singles and $225,000 for MFJ.
7. No credit is available if the purchase price of the home exceeds $800,000.
8. You must be 18 years old on the date of purchase; only one spouse must meet this requirement.
9. Dependents are not elegible for this credit.
Source: IRS

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