Last Minute Tax Tips

Even though the deadline for filing taxes has passed, many taxpayers have not filed their taxes. If you are getting a refund you have to file within 3 years from the current tax year but you do not need to file an extension. After that, the penalty for not filing your taxes is forfeiture of your tax refund.

If you don’t file and you are getting a refund will receive a letter from the IRS reminding you to file your tax return, especially if W-2 or 1099 forms were reported to the IRS by your employer.  If you owe taxes and don’t file you will get a letter from the IRS reminding you to pay.

To determine if you have to file taxes 3 things are considered:  your filing status, your age and your income.  Once you reach a certain income level, the law requires you to file. Older individuals and blind individuals must determine if they need to file a Form 1040.

Children file when taxes when: they earned income as a salary, wages or tips or earned a taxable scholarship or fellowship grant; or earned income from investment interest or dividends, capital gains, unemployment benefits and some distribution of a trust fund.

For 2011, if you are under 65: single and earned $9,500, head of household and earned $12,200, married filing jointly and earned $19,000, widow/widower and earned $15,300 or married filing separately and earned $3,700, sold your home or are self-employed you have to file taxes. For more information review the 2011 IRS Publication 17.

Here are 3 tips if you can’t pay your taxes:

1. You can setup an installment agreement and pay the amount owed in 3 years. 
2. Request an extension and request the maximum extension time of 6 months.
3. Request an Offer in Compromise.  An offer in compromise allows you to settle your tax debt for less than the full amount if you meet certain requirements.

Here are 4 ways to file your taxes for free:

1. Free Software.  If your adjusted gross income is $57,000 or less you can use free tax software such as:  Turbo Tax, Free TaxAct, Tax Slayer or H&R Block’s Free File.
2. Use Free Forms.  Anyone can use free file fillable forms from freefilefillableforms.com.  The site provides online versions of paper federal tax forms.
3. File Electronically. Efile (electronically) your tax return for free by using direct deposit or pay your taxes online for free.
4. Paper forms.  Use paper tax forms to file your taxes and mail them to the IRS.  The only cost is postage.

 Legal action can be taken against you by the IRS if you owe taxes and don’t pay: it will be reported on your credit report, you can receive a tax lien, garnishment, judgment, lose your property at a tax auction or other means. Therefore, it is best file your taxes every year.

End of Year Tax Deductions

On December 23, 2011, President Obama signed the Social Security Payroll Tax Holiday extension through February 29, 2012. The payroll tax temporarily extends the 2% payroll tax cut for employees, reducing their Social Security tax withholding rate from 6.2% to 4.2% of wages paid through February 29, 2012 for those who make $110,100 or less. This also prevents many Americans from losing their unemployment benefits.

Medicare will continue paying doctors at the current rate through February 29, 2012. The reduced Social Security withholding will have no effect on employees’ future Social Security benefits. Congress reconvenes in January 2012 to determine if the payroll tax holiday will be extended. If not, employees will pay the 6.2% social security tax for the remainder of 2012.

Some people dread the end of the year because it is a reminder that you have to file your taxes. However, if you file taxes you are one of the lucky ones who has a job whether you like it or not or whether it pays enough, you have one. That is a blessing. Over 9 million people are still unemployed.

Before you prepare to file your taxes gather all of your receipts and write down all of your expenses for the year. This will be difficult if you can’t find your receipts or don’t have all of them. If that is the case then estimate your expenses. If you hire a tax preparer having receipts and documentation will be very helpful and will reduce your chances or getting audited because you have proof of your spending.

If you know you will owe taxes for 2011 request an extension no later than April 16, 2012 or setup a payment plan. There are tons of tax credits and deductions you can claim for 2011. Here are 33 ways to reduce your taxable income and increase your chances of getting a refund.

1. Uniforms, job supplies.
2. Tax preparation fees.
3. Job related training.
4. Job search expenses.
5. Home office business expenses.
6. Mortgage refinance fees.
7. Charitable donations (cash and non-cash).
8. State Sales Tax.
9. Property and estate tax deductions.
10. Foreclosure tax relief.
11. Casualty Loss (Disaster Area).
12. Reinvested Dividends (DRIP).
13. Mileage Deduction.
14. Earned Income Tax Credit (EITC).
15. Energy Credit.
16. Car Credit.
17. Home Buyer Credit for Military Personnel.
18. Capital Gains.
19. Child Tax Credit.
20. American Opportunity Tax Credit.
21. Personal Exemption Phase Out.
22. Increases in Standard Deductions.
23. Marriage Penalty Relief.
24. Dependent Care Credit.
25. Adoption Tax Credit and Adoption Assistance Programs.
26. Coverdell Account.
27. Student Loan Interest Deduction.
28. Above the Line Deductions for School Teachers.
29. Business Incentives and Credits.

Standard Mileage Rates Changes

The IRS revised the standard mileage rates for 2011 that apply to all employees, self-employed individuals and other taxpayers who use the figure to calculate deductible costs of operating a car for charitable purposes, business, medical or moving purposes. The rates for business, medical and moving purposes increased, however the rates for charitable purposes did not change from 2010.

Effective January 1, 2011, the standard mileage rate for using a car, pickup truck or van will be $.51 per mile. The rate for using a car for charitable purposes is $.14 per mile. The rate for using a car for medical or moving purposes is $.19 per mile.

The standard mileage rate cannot be used for: cars that are used for hire such as taxicabs, cars that claim a Section 179 deduction, for more than 4 cars simultaneously, or cars that use a depreciation method under the Modified Accelerated Cost Recovery System (MACRS).

Refer to the IRS website for more information on the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate and the maximum standard car cost for cars under a Fixed and Variable Rate (FAVR) allowance.

The IRS is requesting public comments on whether taxpayers should be allowed to use the business standard mileage rate.

Tax Cuts and How They Affect You

President Bush implemented tax cuts several years ago and some of those tax cuts you have enjoyed in the past will end this year.

Currently the standard deduction in 2010 for married couples is $11,400 which is twice that for single filers, $5,700. In 2011, the standard deduction for married tax filers will be reduced to approximately $10,000 which may cause higher taxes for lower and middle income couples.

There are currently 6 tax rate brackets as defined by the IRS: 10%, 15%, 25%, 28%, 33%, and 35%. A proposal is set in place to reduce the rate brackets to five: 15%, 28%, 31%, 36%, and 39.6% which will cause all Americans to pay more in taxes in 2011 if implemented.

The current federal rate on long-term capital gains (an increase in the value of an investment or real estate that gives it a higher worth than the purchase price and the gain is not realized until the asset is sold. A capital gain may be short-term or long-term and must be claimed on your taxes) is 15%.

In 2011, a phase-out rule could eliminate up to 80% of income for itemized deductions for charitable donations, state and local taxes and mortgage interest for those in the higher income brackets. The phase-out rules begin for those filers who have adjusted income over $170,000.

In 2011, another phase-out rule will cause some filers to lose out on personal exemption deductions if your adjusted gross income exceeds $250,000 for joint filers; $168,000 for single filers or $210,000 for head of household.

In 2011, the maximum rate on gains will increase to 20%. The maximum rate on dividends (a distribution of a portion of a company's earnings to its shareholders) will increase to 39.6%.

Filers in the 10% and 15% tax bracket get a break this year and get a 0% rate on long-term gains and dividends. However in 2011, they will pay 10% on long-term gains and 15% and 28% on dividends.

Be sure to visit the IRS website to learn about all the tax cuts and how they will affect you and your family to be sure you don't owe money at the end of the year and are not missing out on some deductions.

2009 Tax Tips

It's seems as though 2009 has flown by. It just seemed like New Year's Day now we are approaching 2010. Unfortunately we are also approaching tax season. A lot of the laws from last year have changed so be sure to read the instructions when filing your 2009 taxes.

Many Americans miss out on deductions because they take the easy route and just use the standard deductions. If you do your taxes yourself or hire a tax professional to do your taxes use the standard deduction and itemize to see which method gives you a bigger return. Last year many Americans had refunds they did not receive including some who had an incorrect address on file. The IRS setup a section on their website for unclaimed tax refunds.

Here are 7 Tips to Save Money on Your Taxes.

1. Charity. If you buy food, drinks or supplies for a fundraiser or charitable event you can write-off the money you spent including the mileage costs. You can deduct $.14 per mile.

2. State Sales Tax. If you live in a state that does not charge state taxes you can either deduct state and local sales taxes or state and local income taxes but you cannot deduct both. If you choose sales tax remember to include all items eligible for sales tax. Check the IRS website sales tax tables for your state.

3. Refinance. Don't forget to include your refinance costs in your taxes this year. When you refinance you have to deduct the mortgage points over the life of the loan so it's better to refinance for less time than your original loan. If you previously had a 30 year loan refinance to 20 years or less. This equals to deducting 1/20th of the points a year if it’s a 20-year mortgage. It equals out to $20 a year for each $1,000 of mortgage points you paid.

4. Reinvested Dividends (DRIP). Reinvested dividends cannot be deducted on your taxes but you can subtract the amount from your total taxable income which can save you money because it reduces your taxable capital gains.

5. Property Tax. In 2009 property tax laws changes. Now homeowners who take the standard deduction can include up to $500 for single filers and up to $1,000 for married filers towards property taxes. You have to file a Schedule L to claim the property tax.

6. Casualty Loss. If you claim the standard deduction you can add casualty loss to your standard deduction amount if the loss occurred in an area that was declared as a disaster area by the President. You will have to file a Schedule L with your tax return to include the loss.

7. Estate Tax. If you inherited an Individual Retirement Account (IRA) from an estate that was subject to estate taxes you can get an income tax deduction for the amount of estate tax paid on the IRA you received, i.e. if you inherited a $100,000 IRA, and the money included in the estate added $45,000 to the estate tax bill – you can deduct the $45,000 on your tax returns as you withdraw the money from the IRA. If you withdraw $50,000 in one year, you can claim a $22,500 itemized deduction on Schedule A which saves you money.

Your goal for 2010 should be to get out of debt and improve your financial life. Good luck!

2009 Tax Organizing Tips

There are great tax estimator tools to help you estimate if you will get a refund or owe money on your taxes. Some great tools are on the IRS, H&R Block, Turbo Tax and Quicken websites. The IRS website also has several tools such as the withholding calculator to determine if you are taking too much or too little out of your paycheck.

If you owe money on your taxes you can make payment arrangements via email, by phone or online at the irs.gov website. One of the reasons many Americans end up owing taxes is because they are not organized – they throw away or misplace receipts and miss out on eligible deductions and tax credits. This year start preparing early to file your taxes, don't wait until the last minute. Here are 7 tips to help you get organized to file your taxes.

1. Gather all receipts, monthly and quarterly statements, medical bills, student loans, credit card statements, etc. and store in one easy to find location.

2. Use a software package like Quicken or Quick Books to record all of your deductions. If you don't have this software then you can use an Excel spreadsheet with these basic column headings: Item, Date Purchased or Sold, Cost, Quantity, Total Cost. If you don't have the Excel software program just use a plain old pencil and paper.

3. Identify all items that can be used as itemized deductions and put them in one pile. Determine if the standard deduction for your tax bracket is greater than your itemized deductions. (The list of items you gathered in step 2 and verified against the IRS tax form instruction manual as items that can be itemized). Check to see if the standard deduction is greater than using the itemized deduction, if not (standard deduction is less than itemized deduction), use the worksheet included with your tax booklet to calculate your itemized deductions.

4. To save money file your taxes electronically. You will receive your refund in approximately two weeks from the date of filing.

5. Don't get a tax refund loan (rapid refund) or refund anticipation loan. This is a waste of time and money. You have to pay a fee to get the refund loan which usually has high interest rates and associated fees.

6. If you salary is less than $52,000 or less you can file your taxes electronically for free.

7. Be cautious when purchasing a tax preparation software. Research the credibility of the company and verify if the software provides automatic updates to the IRS tax laws contained in the software. Go to the Better Business Bureau website to check out the company's history and see if anyone has filed a compliant against the company.

I Can't Pay My Taxes - What Should I Do?

The deadline for filing your taxes has passed but there is still hope for those who didn't file their taxes on April 15, 2008. Here are some options:

1. Request an extension and request the maximum extension time of 6 months
2. Setup an installment agreement

If you owe taxes this year and don't have the money to pay the taxes owed to either federal or state here are some options:

1. Pay by credit card
2. Apply for a bank loan to cover the entire amount of taxes owed
3. Using savings accounts, savings bonds, stocks, etc.
4. Take out a loan from your life insurance policy
5. Take out a home equity loan
6. Borrow money from family or friends
7. Consider getting a part-time job or work overtime at your existing job to earn money to pay back your income taxes
8. Request an Offer in Compromise based on economic hardship

Tips to Prepare For Filing Your 2006 Taxes

It's that time again. The dreaded tax year. A lot of the laws from last year have changed so please be sure to read the instructions when filing your 2006 taxes. Also here are 7 tips to help you get organized to file your taxes. Thanks.

1. Gather all receipts, monthly/quarterly statements, medical bills, student loans, credit card debt, etc.

2. Use a software package like Quicken or Quick Books to record all of your deductions. If you don't have this software then you can use an Excel spreadsheet with these basic column headings, Item, Date Purchased or Sold, Cost, Quantity, Total Cost. If you don't have the Excel software program just use plain old pencil and paper.

3. Identify all items that can be used as itemized deductions and put them in one pile. Determine if the standard deduction for your tax bracket is greater than your itemized deductions. (The list of items you gathered in step 2 and verified against the tax form instruction manual as items that can be itemized). If your standard deduction is greater than use the standard deduction, if not, use the worksheet included with your taxes to calculate your itemized deductions.

4. To save money file your taxes electronically. You will receive your refund in approximately two weeks from the date of filing.

5. Don't get a tax refund loan or refund anticipation loan. This is a waste of time and of money. You usually have to pay a fee to get the refund loan which usually have high interest rates and associated fees. See the article discussing this issue.

6. If you salary is less than $52,000 or less you can file your taxes electronically for free.

7. Be cautious when purchasing a tax preparation software. Research the credibility of the company and verify if the software provides automatic updates to tax laws contained in the software. Go to Better Business Bureau website to check out a company's history. Click on the Business Link under the Check It Out section.

Bonus Tip. File your taxes on time. If you are owed taxes this year and are unable to pay your taxes by April 15, 2007, file an extension no later than April 15, 2007 or setup a payment plan. If is never wise to owe taxes because the interest and penalties fees that accrue each day will put you further into debt.
Your goal for this year is to get out of debt and be on your way to be debt free life. Good luck!

For more tips and information purchase my book, How to Get Out of Debt: Get an "A" Credit Rating For Free, ISBN 1933949430 at Walden Books, Borders, Barnes & Noble, Amazon.com, Books A Million, Overstock.com, Target and Walmart.