Tax Debt Help – Making Those Estimated Tax Payments

February 25, 2008 at 6:52 pm (tax debt help) (, , , )

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  • 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.

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Tax Help – Take Advantage of Job Search Expense Deductions

February 25, 2008 at 6:47 pm (tax debt help) (, , , , )

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.

  1. 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.
  2. Resume preparation: typing and printing, postage, long-distance charges, advertising, and photographs required for your resume.
  3. Travel: airfare, mileage (some automobile expenses have been approved), lodging and meals (based on either actual expenses or standard federal per diem rates).
  4. 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.

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Tax Help – Utilizing the Saver’s Credit

February 25, 2008 at 6:42 pm (tax debt help) (, , , )

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.

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Tax Help – The Tax Advantages of Adoption

February 25, 2008 at 6:39 pm (tax debt help) (, , , )

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

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Tax Debt Help – With a Personal Touch

February 25, 2008 at 6:32 pm (tax debt help)

Effectur Becomes National Customer Satisfaction Leader

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S. Raines, Sr. Financial Advisor/Tax Preparer

http://www.effectur.com

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Tax Debt Help – Let Your “Ex” Pay for Their Mistakes

February 25, 2008 at 6:19 pm (Innocent Spouse, IRS, irs levy, Levies, Offer in Compromise, Payment Options, tax advocacy, tax debt help, tax help, Tax Lien) (, , , , )

This year more than ever, I have assisted married and separated taxpayers with filing innocent/injured spouse forms so that at least one spouse in the household can get a refund without the IRS taking everything. And that everything can be from failure to pay back taxes, student loans and child support. And in some cases, the ex-spouse has deliberately failed to report income or even gone so far as to defraud the government.

Relieving one spouse from the mistakes of another seems to have escalated within the last couple of years and more and more folks are trying to find ways to opt out of meeting their responsibilities not realizing that sooner or late, those responsibilities will catch up with you….and his name is “Uncle Sam”.

I have written previous articles on this topic but now that we are midway through the tax filing season, this is one of the areas that I feel needs to be in the spotlight.

Generally, we trust our spouses with our many financial assets and responsibilities: bank accounts, credit accounts, and mortgages.

A joint tax return, though, can cause more headaches and heartaches than any other shared financial responsibility. This is because the IRS can hold you liable for costly mistakes made by your spouse on a joint return.So what happens when you discover you owe taxes even though it wasn’t you who made the mistake in the first place? If your ex-spouse under-reported income or over-reported exemptions, should you have to pay the price? Rest assured, the IRS does offer a way out for taxpayers in this situation.If you find yourself in this unfair and unfortunate situation, you have the following choices:1) pay;2) do nothing;

or

3) seek relief from the IRS.
I love them, so I’ll pay for their mistake?

If your ex-spouse is unable or unwilling to help and you can easily afford to pay the past-due amount, this is probably the best way to get out of the situation.

It is the quickest and easiest way to stop having to deal with the IRS. Another benefit is that your compliance will be put down on record, which can be helpful if you ever run into federal tax troubles in the future.

However, you will be paying money that you may not actually owe, so you will need to use your own judgment, consider the amount of the debt, and weigh other factors (such as your relationship with your ex-spouse) before making your decision.

Think about what happens if you don’t pay?

Unfortunately, your ex-spouse may not be available or held accountable for the past joint return, so you must take action before the IRS does.

If a tax account is delinquent, the IRS is authorized to take severe measures to collect the debt. It can order a federal levy of your bank accounts, wages, or other valuable assets to satisfy the tax debt.

The IRS can also place a lien on your home. This means the IRS will be the first to receive payment if you sell your house. Liens are typically reported to the credit reporting agencies and can be damaging to a person’s credit rating.

Wage garnishment is another possible consequence of tax delinquency. The IRS may contact your employer and a portion of your earnings could be collected by the IRS until your tax debt is fully paid.

In addition to these actions, the IRS may add to your tax debt by charging penalty fees and interest, which can add up quickly and will only make it more difficult to satisfy your tax debt.

Can anyone provide me with solutions?

In some cases, you may feel that you should not be held accountable for the back taxes at all and that the responsibility falls entirely on your ex-spouse. You may be able to file for Injured Spouse Relief or Innocent Spouse Relief, depending on your circumstances. These tax relief options are offered by the IRS for people who find themselves in this and similar situations.

If your ex made false reports or mistakes on your joint return, and if you can prove you had no knowledge of the error, you may qualify for Innocent Spouse Relief. In this case, you may obtain Form 8857 from the IRS website, complete the form, and send it to the IRS.

You are typically required to prove that you filed a joint return with your spouse and that you were not aware at the time of signing the return that your spouse was misreporting income or deduction items.

You may be eligible for Injured Spouse Relief if you are denied a refund because your joint return’s refund was held back to pay your ex’s back taxes or other federal or state debt, such as child support, spousal support, or student loans. In this case, acquire Form 8379, also found on the IRS website, and allocate income, adjustments, deductions, and credits between yourself and your spouse in Part 2. Send the IRS an individual tax return with the form to receive credit.

These relief procedures are provided by the IRS to recognize that, in some cases, you may not be held accountable for a spouse’s mistakes or personal obligations. You can fill out the paperwork and file for these measures yourself, or you can get help from CPA’s and other authorized tax professionals. If you are seeking help to remedy a situation after divorce, however, you may want to contact a tax resolution company. These agencies aim to assist clients in mitigating or absolving tax liabilities and typically have much more experience in settling these types of problems (as opposed to a tax preparation company, which mainly helps taxpayers file returns).

Taxes are often complicated, and running into difficult situations just adds to the problem. But one thing is certain: if you wait too long, the IRS can enforce collections with levies, wage garnishment, and other methods. You can stop these actions by working with the IRS to resolve the problem – and the sooner, the better.

S. Raines, Sr. Financial Advisor/Tax Preparer

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