Tax Debt Help – Making Those Estimated Tax Payments
- If you received income where taxes weren’t withheld — such as money from self-employment, investments or alimony — you’re generally required to pay estimated taxes.
- Use Form 1040-ES – Estimated Tax for Individuals to figure your estimated tax payments.
- If you underpay your estimated taxes, you might be subject to a penalty.
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.
Tax Help – Take Advantage of Job Search Expense Deductions
With the unemployment rising on a daily basis, here is another deduction that you should consider………………..
Job search expenses can be deducted as miscellaneous itemized deductions if you look for a job in the same field at the same level as the one you left. The expenses are deductible — even if you don’t get the job.
You can claim job-seeking expenses as long as the amount of all miscellaneous itemized deductions is more than 2% of your adjusted gross income (AGI). Job seeking deductions are also subject to the overall limitation on itemized deductions based on income threshold amounts. To figure your deduction, subtract 2% of your AGI from the total amount of these expenses.
Allowable Deductions
You may be eligible for the following deductions while you’re searching for a job.
- Employment agency fees: If in a later year your new employer repays your agency fees, you must include the amount in your income up to the amount of the deduction you claimed earlier. If your employer pays fees directly to the agency, you don’t have to include them in your income.
- Resume preparation: typing and printing, postage, long-distance charges, advertising, and photographs required for your resume.
- Travel: airfare, mileage (some automobile expenses have been approved), lodging and meals (based on either actual expenses or standard federal per diem rates).
- Legal fees protecting employment status.
Qualifications
To qualify for a deduction, your job search must be for a job in your current, or most recent, trade or business and should be at a similar level of responsibility with duties similar to those of your most recent job.
- If you haven’t held a job in that trade or business for an extended length of time, your job search will be considered for a new trade or business, and your deductions may not be allowed.
- If you held a college internship or valid job while in college and your search is for a job in the same trade or business, you will be able to take the job search deductions.
- If you’re just out of school and had no paying jobs while in school that were related to your trade or business, your deductions won’t be allowed.
To learn more about job-hunting deductions, contact a tax professional.
Tax Help – Utilizing the Saver’s Credit
The Retirement Savings Contribution Credit, known as the Saver’s Credit, allows you to get a credit for up to half of what you contribute to your IRA or other qualified retirement plan. Up to $2,000 of your annual contribution is eligible for the credit.
If you are Married Filing Jointly and you and your spouse make eligible contributions, both of you may claim the credit. Note: If you received a distribution from an IRA or other plan with contributions eligible for the credit, the distribution reduces the amount of your 2007 contributions that are eligible for the credit. For 2007, this applies to distributions you received during 2005, 2006 and 2007, and to distributions you will receive in 2008.
Saver’s Credit Requirements
You qualify for the Saver’s Credit if you are:
- 18 or older
- not a full-time student
- not claimed as a dependent on someone else’s return, and
- have an AGI that does not exceed $52,000 if Married Filing Jointly, $39,000 if Head of Household and $26,000 if Single or Married Filing Separately.
Your Maximum Saver’s Credit Amount
The Saver’s Credit is equal to a percentage of your eligible contributions. AGI and filing status determine the percentage — 10%, 20% or 50%. When calculating the Saver’s Credit, AGI includes excluded foreign income. Here’s how the income limitations break down according to filing status.
Married Filing Jointly
- $0–$31,000, 50%
- $31,001–$34,000, 20%
- $34,001–$52,000, 10%
Head of Household
- $0–$23,250, 50%
- $23,251–$25,500, 20%
- $25,501–$39,000, 10%
Single or Married Filing Separately
- $0–$15,500, 50%
- $15,501–$17,000, 20%
- $17,001–$26,000, 10%
IRA Contribution Deadline
You have until April 15, 2008, to start or contribute to an IRA to claim the Saver’s Credit on your 2007 tax return.
Tax Help – The Tax Advantages of Adoption
You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child.
First, check with your employer about assistance, because some companies offer a program to get back a portion of adoption expenses. The Adoption Credit is not available for any reimbursed expense, but certain amounts reimbursed by your employer for qualifying adoption expenses may be excluded from your gross income.
How does it work?
The Adoption Credit could reduce your tax liability by as much as $11,390 for any type of adoption. You may claim both a credit and an exclusion for the expenses of adopting an eligible child. In other words, you may be able to claim a credit of up to $11,390 and also exclude up to $11,390 from your income. However, you can’t claim both a credit and an exclusion for the same expense.
To qualify for the full credit:
- Your adjusted gross income must be less than $170,820.
- The Adoption Credit or exclusion must be taken for a child who is a U.S. citizen or resident, unless the adoption of a foreign non-resident child becomes final.
- You must adopt an eligible child.
Or
- The child must have special needs.
- The child must be a U.S. citizen or resident.
- A state has determined that the child can’t or shouldn’t be returned to their parents’ home and probably won’t be adopted unless assistance is provided.
The credit and exclusion are reduced if your modified adjusted gross income is between $170,820 and $210,820. You can’t claim either the credit or the exclusion if your modified adjusted gross income is $210,820 or more.
If you’re adopting a special needs child, you can claim the full credit regardless of the amount spent on adoption expenses.
Is my child eligible?
An eligible child is one who is either younger than 18 or physically or mentally incapable of self care. A special needs child must have been a U.S. citizen or resident at the time the adoption procedure began, a state must have determined that the child shouldn’t be returned to his or her parents’ home, and the state must have determined that the child will not be adopted without assistance from the state. States make this determination based on a variety of factors that include:
- the child’s ethnic background
- the child’s age
- the child’s minority status
- whether the child has siblings
- whether the child has a chronic medical condition
- whether the child has an emotional or physical handicap
Which adoption expenses qualify?
Adoption expenses covered by the credit include:
- all adoption fees
- court costs
- attorney fees
- travel expenses (including meals and lodging while away from home)
- other expenses directly related to the legal adoption of an eligible child
What expenses don’t qualify?
There are several adoption-related expenses that are not eligible for the credit. Some of these include:
- expenses that violate state or federal law
- expenses associated with surrogate parenting arrangements
- expenses associated with the adoption of your spouse’s child
- expenses paid with funds received from any government program
- expenses allowed as a credit or deduction under any other federal income tax provision
- expenses paid or reimbursed by an employer or someone else
When do I claim this credit?
If you’re adopting a U.S. child, you claim the tax credit in the year after you incur the expense or the year the adoption becomes final, whichever comes first. For example, if you pay for a home study in 2006 but your adoption isn’t finalized until 2007, you claim the Adoption Credit in 2007. The credit for expenses you pay in a year after the adoption is final is claimed in the year the expenses were paid.
In the case of a U.S. child, you can claim the credit even if your adoption of the child fails. However, if your adoption involves a foreign child, you can take the credit only if the adoption is completed.
You may claim the credit for more than 1 year. For example, assume you spent $500 in 2005 for a home study to adopt a U.S. child, then an additional $3,000 in court costs and adoption agency fees in 2006. If the adoption wasn’t finalized until 2007, you would claim a $500 credit in 2006 and a $3,000 Adoption Credit in 2007. If the adoption became final in 2006, you would have taken the entire $3,500 credit in 2006. But again, for foreign children, no credit may be taken until, and only if, the adoption is finalized
Tax Debt Help – With a Personal Touch
Effectur Becomes National Customer Satisfaction Leader
S. Raines, Sr. Financial Advisor/Tax Preparer