Estimated Tax Payments

February 10, 2008 at 3:57 pm (Deductions, IRS, tax advocacy, tax debt help, tax help) (, , , )

What are estimated taxes?

You’re required to pay estimated taxes if you receive income from which taxes aren’t withheld , including money from self-employment, investments and alimony, and your tax (after subtracting credits and withholding) is expected to be $1,000 or more. Here are a few good things to know about estimated tax payments:

  • The payments are due April 15, June 16, Sept. 15 and Jan. 15.
  • If you fail to pay enough on each installment due date, you may be subject to the penalty for underpayment of estimated tax even if your return shows a refund.
  • If you pay in as much as your tax liability for the previous year, you can pay your balance due without penalty when you file your return, regardless of the amount. See below if your prior-year income was high.

How much do I pay?

As part of your year-end planning, compare your projected year-end tax payments with your expected tax liability. If your payments are expected to be less than 90% of current-year tax, you generally will have to increase your withholding or estimated tax payments. However, if your payments are made timely and will be at least as much as your prior-year tax liability, you’re probably safe from the penalty. But if your prior-year adjusted gross income was more than $150,000 ($75,000 if Married Filing Separately), you’ll have to pay 110% of your prior year tax liability. Figure your estimated tax with Form 1040-ES – Estimated Tax for Individuals.

Overwitholding Taxes

Tax withheld from your paycheck is considered to be paid evenly throughout the year, which means overwithholding in November and December can make up for earlier underpayments. If you have a job, arrange with your employer to withhold extra amounts from the final paychecks of the year so you’re not subject to the penalty when you file your return.

Underpayment of Estimated Taxes

If you do not make enough estimated tax payments and are subject to the penalty, don’t automatically pay it. There are several exceptions to the penalty. Information can be found in the instructions for Form 2210.Use our Withholding Calculator to determine the withholding amount that’s right for you.

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Job Deductions

February 10, 2008 at 3:53 pm (Deductions, tax advocacy, tax debt help, tax help, Tax Preparation) (, , , )

The following are some job related deductions that you need to consider for filing your tax return.

  • Common employment deductions include your computer, mobile phone, work uniforms, union dues and professional or trade association dues.
  • Although the cost of driving to and from work isn’t deductible, travel to secondary or temporary job locations could be.
  • The expenses of using an area of your home for business may be deductible if the area is used exclusively and regularly for work and the use is for your employer’s convenience.

If your employer doesn’t reimburse you for ordinary and necessary expenses you pay, you may be able to deduct the cost as a miscellaneous itemized deduction subject to the 2% adjusted gross income floor. You can’t deduct the cost of any item for which you would have been reimbursed if you’d asked for the reimbursement.

Which deductions qualify and why?

If you do end up paying out-of-pocket for job-related expenses, you may be able to deduct them on your return. In general, deductible expenses must be ordinary and necessary. An expense is ordinary if it is common and accepted in your trade, business or profession. An expense is necessary if it is appropriate and helpful to your business. An expense does not have to be required to be considered necessary.

Deductible expenses include the following:

  • bonding
  • physical examinations
  • office supplies not provided by your employer
  • professional or trade association dues
  • research, lecture and writing expenses
  • safety clothes and equipment
  • union dues
  • personal tools and equipment
  • travel, meal and entertainment expenses (see Publication 463)
  • computers and mobile phones (see Publication 946)

You must report these and other unreimbursed business expenses on line 20, Schedule A or on Form 2106.

Business Travel

The expense of your daily commute to work isn’t deductible. However, if you find that you must travel to secondary or temporary locations — even within your metropolitan area — as part of your job and your employer does not reimburse you for that travel, those expenses may be deductible. Also, travel to and from a second job may be deductible.

Unreimbursed expenses for business travel outside of your metropolitan area may also be deductible. And you generally can deduct 50% of the cost of qualifying meals and entertainment expenses. You must complete Form 2106 to claim these deductions.

Home Office

If you use a portion of your home regularly and exclusively for business, you may be able to deduct expenses for that portion of the home, including interest, taxes, rent, insurance and utilities. You can deduct business expenses for the use of your home only if the use is for your employer’s convenience. Special rules apply if your employer pays you rent for the portion of the home you use for business.

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Tax Debt Help – Do You Owe the IRS?

February 10, 2008 at 3:05 pm (IRS, Payment Options, tax advocacy, tax debt help, tax help) (, , , , )

From direct debits to installment plans, there are a variety of ways to pay the IRS should you owe taxes this year.

Credit Card

American Express®, MasterCard®, Visa® or Discover® can be used to charge taxes due by calling either Link2Gov Inc. at 888-PAY1040 (or using the Web at www.pay1040.com) or Official Payments Inc. at 800-2PAY-TAX (or using the Web at www.officalpayments.com). A convenience fee is applied at the time of payment.

Direct Debit

If you’re e-filing your return, direct debit may be the solution. The IRS will debit a checking or savings account for your balance due. The plus side to direct debit is that you can specify the date of this debit, which means you can file early in February and still not pay until April 15.

Personal Check or Money Order

This is the traditional method of paying when mailing a paper return. Be sure to write your social security number in the memo field and make your check payable to the U.S. Treasury.

Installment Agreement

This method of payment has to be approved by the IRS. To request an agreement, file Form 9465. Following approval, the IRS agrees to let you make monthly payments for your debt instead of payment in full. In return, you agree to make timely monthly payments and pay all future tax liabilities. This means you must plan ahead. You must have adequate future withholdings or estimated tax payments so that future tax liabilities are paid in full when you file your returns. The IRS must let you use an installment agreement if you meet the following conditions:

  • Your total liability does not exceed $10,000.
  • You’ve filed all required returns on time and haven’t had an installment plan in the past 5 years.
  • The IRS determines you can’t pay the tax in full when it’s due and you furnish the IRS with all the information needed to make this determination.
  • You agree to pay the bill within 3 years.

Interest, late payment penalties and a processing fee apply. The IRS processing fee is $105 for new agreements, $52 for new direct debit agreements and $45 for restructured or reinstated agreements. However, if you have an income at or below established poverty levels, you may qualify to pay a reduced fee of $43 for new installment agreements. Other requirements may also apply. See if you qualify for the reduced installment agreement user fee. To limit the amount of penalties and interest, pay as much of your tax bill as possible with your return. The IRS recommends considering other less costly alternatives, such as a bank loan, before considering an installment agreement.

Online Payment Agreement

The IRS has an Online Payment Agreement (OPA) application, allowing taxpayers to apply for installment agreements online. Now you can set up an agreement and arrange for payment without ever having to call or write the IRS. You must have already filed all required tax returns to use the OPA application. When you apply online, 3 payment options are available:

  • pay in full
  • short-term extension
  • monthly payment plan

Choosing a Payment Method

When considering which payment method best suits your situation, remember to carefully consider the interest rate on a credit card. An IRS installment agreement charges 7% plus a late penalty of one-half percent (one-quarter percent for taxpayers who filed returns on time). Compare this to credit card rates of possibly 18% or higher.

If you know you’ll have a balance due this year, it pays to know your options. It will save you money, worries and penalties.

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