Thoughts, Ideas, and Concepts by Sandra Parks

Posts tagged ‘Income Taxes’

Should you file your taxes???

You must file a tax return if your income is above a certain level. The amount varies depending on filing status, age and the type of income you receive.

Check the Individuals section of IRS.gov or consult the instructions for Form 1040, 1040A, or 1040EZ for specific details that may affect your need to file a tax return with the IRS this year.

Even if you don’t have to file, here are eight reasons why you may want to file:

  1. Federal Income Tax Withheld If you are not required to file, you should file to get money back if Federal Income Tax was withheld from your pay, you made estimated tax payments, or had a prior year overpayment applied to this year’s tax.
  2. Making Work Pay Credit You may be able to take this credit if you have earned income from work. The maximum credit for a married couple filing a joint return is $800 and $400 for other taxpayers.
  3. Government Retiree Credit You may be eligible for this credit if you received a government pension or annuity payment in 2009. However, the amount of this credit reduces any making work pay credit you receive.
  4. Earned Income Tax Credit You may qualify for EITC if you worked, but did not earn a lot of money. EITC is a refundable tax credit; which means you could qualify for a tax refund.
  5. Additional Child Tax Credit This credit may be available to you if you have at least one qualifying child and you did not get the full amount of the Child Tax Credit.
  6. Refundable American Opportunity Credit This education tax credit is available for 2009 and 2010. The maximum credit per student is $2,500 and the first four years of postsecondary education qualify.
  7. First-Time Homebuyer Credit The credit is a maximum of $8,000 or $4,000 if your filing status is married filing separately. The credit applies to homes bought anytime in 2009 and on or before April 30, 2010. However, you have until on or before June 30, 2010, if you entered into a written binding contract before May 1, 2010. If you bought a home after November 6, 2009, you may be able to qualify and claim the credit even if you already owned a home. In this case, the maximum credit for long-time residents is $6,500, or $3,250 if your filing status is married filing separately.
  8. Health Coverage Tax Credit Certain individuals, who are receiving Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance, or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a Health Coverage Tax Credit worth 80 percent of monthly health insurance premiums when you file your 2009 tax return.

For more information about filing requirements and your eligibility to receive tax credits, SAP Taxes at 972.569.7938

IF THIS CONFUSES YOU PLEASE CONTACT ME

More forms to file. New and expanded credits and deductions.

When taxpayers sit down to file their 2009 returns, they will find plenty new — some the result of adjusting for inflation, and others changes passed by Congress last year to try to bring the country out of recession.

“Depending on their individual situation, there could be good news and there could be bad news,” said Amy McAnarney, executive director of the Tax Institute at H&R Block.

Some things affect all taxpayers. The personal exemption, for example, has increased, to $3,650 each for the taxpayer and dependents, up $150 from 2008.

And tax brackets have been adjusted upward by about 5 percent since 2008, said Greg Rosica, tax partner at Ernst & Young and a contributing author to the “Ernst & Young Tax Guide 2010.” That means you might not jump to a higher tax bracket if you earned more.

“Certainly there are benefits there for all taxpayers,” said Rosica. “There are ones that span the entire income spectrum out there.”

Others revisions are more likely to affect low- and moderate-income workers. Income limits for the earned income tax credit have been raised and there’s a new category — families with three or more children. The Internal Revenue Service says one in six taxpayers claim the credit.

Still other changes affect those at higher income levels. The exemption for the alternative minimum tax has been increased once again, this time to $70,950 for joint returns and $46,700 for individuals. If your income is higher than these amounts, you could be subject to the AMT tax.

These changes are among those that happen every year, to keep taxes in line with inflation. But there are a host of other revisions, new for 2009, that will make filing your tax return this year a little more complicated.

For one thing, the standard deduction for taxpayers who don’t itemize has become a little less standard.

The standard deduction itself has increased, to $11,400 for married couples filing jointly, $5,700 for individuals and $8,350 for heads of household. As before, it is even bigger if you are blind or 65 or over.

But new this year, you can take more of a standard deduction if you paid state or local real estate taxes, bought a new car and paid sales or excise taxes and met the income limits, or were a victim of a federally declared disaster.

If you choose to increase your standard deduction by one or more of these items, you’ll have to file a new form Schedule L. Otherwise, you can just enter the standard deduction on Form 1040.

The three deductions — for state or local real estate taxes, sales or excise taxes on new car purchases or net disaster losses — also can be taken by people who itemize.

There are expanded tax credits for home purchases and education. And a tax credit for making your home more energy efficient has been reinstated.

Tax experts caution people to be careful that they’re claiming every deduction and credit to which they’re entitled. A credit reduces the amount of tax you owe; a deduction reduces the income on which taxes are assessed.

You’re likely already receiving the benefit of the Making Work Pay credit under the stimulus bill that Congress passed last year. However, you may have to pay a portion back if you’re a married couple and both spouses work, or if you have more than one job. If you’re a low- or moderate-income worker, you might have some money due to you. A new form, Schedule M, will have to be filed to claim the credit.

“Each year carries with it changes in the tax law. It’s important that people understand what has changed in their personal situation,” Rosica said.

Did you get married or have a baby? Did you buy or sell stock? Did you inherit money, property or other goods?

Jeff Schnepper, MSN Money tax expert, recommends that people sit down with a tax professional at least once every three years to review their life changes and financial situation.

“First of all, it’s deductible,” he said. “Second of all, if you’re not a professional, you don’t know the minutiae. You don’t know all the things you can do right and you don’t know all the things you’re about to do wrong.”

Experts point to common mistakes that people make, which could delay a refund.

According to the Ernst & Young tax guide, some of these errors are mathematical. Others involve omission — like failing to include your Social Security number or those of your dependents. Make sure you pick the correct filing status — head of household or surviving spouse vs. single, for example. And don’t forget to sign your return.

Last year, the IRS received more than 141 million tax returns. Of those, about 70 percent were filed electronically. More than 110 million filers were due refunds, averaging $2,753 each.

The IRS encourages people to file electronically, saying it reduces errors and enables people to get their refunds more quickly. People who file electronically and use direct deposit can get their refunds as soon as 10 days after they file.

This year, the agency estimates that it will take taxpayers using form 1040 an average 21.4 hours to complete their taxes. That includes record keeping, tax planning, and completing and filing the return. The more complicated your return, the more time it will take to complete it.

One major thing that taxpayers will find different this year is the homebuyer tax credit.

“It’s already gone through three iterations,” said Mark Luscombe, principal analyst for CCH’s tax and accounting group.

In 2008, the credit was actually an interest-free, long-term loan. For people who purchased a home in 2009, the credit is a true credit — it only has to be paid back if you stop using the home as your principal residence within three years of purchase. The credit is $8,000 for first-time homebuyers, defined as those who haven’t owned a home in the last three years.

Congress also added a credit for long-time homeowners who purchase a new principal residence — $6,500. To qualify, a homebuyer would have had to live at least five years in a previously owned home.

There are income limitations for both.

There also is an expanded credit for college education.

The new American opportunity credit provides a maximum annual credit of $2,500 per student for each of the first four years of college. The Hope credit that the new credit replaces temporarily covered only the first two years and for most people was smaller. To be eligible, taxpayers would have to pay $4,000 or more in tuition, fees and course materials.

The credit, which phases out at higher incomes, is 40 percent refundable. “This means that even people who owe no tax can get an annual payment of the credit up to $1,000 for each eligible student,” the IRS said.

What about those students who take more than four years to finish college? “If you’re in your fifth year, you’re out of luck,” Luscombe said.

However, there is another credit — the lifetime learning credit — that may be available for students in their fifth or sixth year of college, or in graduate school.

Other changes include the reinstatement of the credit for making your home more energy efficient. The maximum credit has increased, to $1,500 for $5,000 in expenditures on things like insulation, storm windows or an energy efficient furnace.

For people who lost jobs, the first $2,400 in unemployment benefits is not taxable.

To benefit from most of the tax breaks, you would have had to take action before the end of 2009. But there are a couple of exceptions.

You still might be able to claim the homebuyer credit if you have a signed contract by April 30.

And, if at the end of the day you find you owe the IRS money or want a bigger refund, you may be able to contribute to an individual retirement account until April 15 and take a deduction on your 2009 taxes.

If you’re covered by a plan at work, you may be able to deduct a contribution of $5,000 — $6,000 if you’re at least 50 — if your modified adjusted gross income is less than $65,000 if you’re filing as an individual, or $109,000 if you’re married filing jointly

SAP TAXES, www.saptaxes.net, 972.569.7938

TREASURY OFFSET PROGRAM

Please let me know if you are in need of a tax professional.  Visit us at www.saptaxes.net or call at 972.569.7938.  Thanks!

If you call the treasury offset program call center, (1800-304-3107),you can put in your social security number and the automated voice will tell you if you have been “flagged” and if your income tax refund will be offset.Has anyone called this number before, and does anyone know if the information provided is accurate.Also, can anyone tell me when (what month) DOE submits defaulted student loans to the treasury offset program.

8 Facts about Filing Status

Eight Facts About Filing Status 

Everyone who files a federal tax return must determine which filing status applies to them. It’s important you choose your correct filing status as it determines your standard deduction, the amount of tax you owe and ultimately, any refund owed to you.

Here are eight facts about the five filing status options the IRS wants you to know in order to choose the correct filing status for your situation.

  1. Your marital status on the last day of the year determines your marital status for the entire year.
  2. If more than one filing status applies to you, choose the one that gives you the lowest tax obligation.
  3. Single filing status generally applies to anyone who is unmarried, divorced or legally separated according to state law.
  4. A married couple may file a joint return together. The couple’s filing status would be Married Filing Jointly.
  5. If your spouse died during the year and you did not remarry during 2009, you may still file a joint return with that spouse for the year of death, provided the joint return election is not revoked by a personal representative for the deceased spouse.
  6. A married couple may elect to file their returns separately. Each person’s filing status would generally be Married Filing Separately.
  7. Head of Household generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.
  8. You may be able to choose Qualifying Widow(er) with Dependent Child as your filing status if your spouse died during 2007 or 2008, you have a dependent child and you meet certain other conditions.

For more information please contact me at sandra@saptaxes.net

Being Audited by the IRS – DON’T BELIEVE THIS!!!!

 Want to keep IRS auditors away? Keep your earnings under $200,000 and they won’t bother you 99 percent of the time.

IRS enforcement numbers, released Tuesday, show that returns under that amount have a 1 percent chance of getting audited.

Returns showing income of $200,000 and above have a nearly 3 percent audit chance. The percentage jumps to more than 6 percent for returns showing earnings of $1 million or more.

The percentages apply to both individual and joint returns.

The number of audits jumped 11 percent from 2008 to 2009 for returns with earnings of $200,000 or more, but rose 30 percent for returns showing earnings of $1 million or more. For those under $200,000 the number of audits remained steady.

The IRS conducted 1.4 million audits of individual returns in the financial year ended Sept. 30, with more than 1 million conducted through correspondence with the taxpayer. The others were conducted through face-to-face meetings with IRS auditors.

The IRS does not do random audits, but does conduct “research audits” that will test compliance in business tax categories. In 2010, the target will be payroll taxes, according to Steve Miller, deputy commissioner for enforcement.

What happens if you’re audited while unemployed? The IRS may give you a break.

“While our assessments were up, the ability to pay went down drastically” due to the economy, Miller said. “We have a series of tools. We can have them pay partially, over time. If the money is not collectible, it’s treated as non-collectible. It’s going to depend on each case.

“We have to ensure there’s a balance between our responsibility to collect taxes with economic realities. We give people more time and determine how fast they can pay and whether they can pay.”

The total revenue collected from IRS enforcement actions, $48.9 billion in 2009, is a drop from $56.4 billion in 2008 and $59.2 billion in 2007.

Miller said the higher numbers in 2007 and 2008 reflect collections from settlements of several major tax shelter cases.

The IRS has stepped up its examination of tax-exempt organizations, checking the books of more than 10,000 groups in 2009 compared to 7,800 the previous year.

The number of business tax returns examined was down slightly in 2009 from the previous year.

Be Careful EROs

I tell my clients this everyone year.  However I always get one that says “So and So did it last year” well here is what the IRS says about it:

Authorized IRS e-file Providers are prohibited from submitting electronic returns to the IRS prior to the receipt of all Forms W-2, W-2G, and 1099-R from the taxpayer.

If the taxpayer is unable to secure and provide a correct Form W-2, W-2G, or 1099-R, the return may be electronically filed after Form 4852 is completed in accordance with the use of that form. This is the only time information from Pay stubs or Leave and Earning Statements (LES) is allowed.

For further information see Publication 1345 Chapter3 ” Submitting the Electronic Return to the IRS” and Chapter 6 ” IRS e-file Rules and Requirements”.

QUARTERLY FILING

Generally, you will file Form 941 (PDF), Employer’s QUARTERLY Federal Tax Return, or Form 944, Employer’s ANNUAL Federal Tax Return, to report wages you have paid, tips your employees have reported to you, federal income tax withheld, social security and Medicare taxes withheld, your share of social security and Medicare taxes, and advance earned income credit payments. Form 944 may be filed only by small business employers who have been notified to file that form. To report wages and taxes for farm employees, you will file Form 943, Employer’s Annual Tax Return for Agricultural Employees.

A separate Form 941 is filed for each quarter. The first quarter is January through March. The second quarter is April through June. The third quarter is July through September. The fourth quarter is October through December. Form 941 is due by the last day of the month following the end of the quarter. For example, wages you pay during the first quarter, January through March, must generally be reported on Form 941 by April 30th.

If the due date for filing a return falls on a Saturday, Sunday or legal holiday, you may file the return on the next business day.

Beginning with returns for calendar year 2006, some employers with small payrolls, including government employers, have filed an annual return Form 944, Employer’s ANNUAL Employment Tax Return, instead of Form 941 each quarter. Form 944 generally is due on January 31st of the following year (e.g., January 31, 2009 for the 2008 tax year). The purpose of Form 944 is to reduce burden on small business taxpayers by allowing certain employers to file one employment tax return per year to report social security, Medicare, and withheld federal income taxes, and in most cases pay the employment tax with the return. Form 944 is designed for employers with an annual liability of $1,000 or less for social security, Medicare, and withheld federal income taxes.

If you qualify for Form 944, you will be notified by the IRS. Employers cannot file Form 944 unless they are notified by the IRS that they qualify to file this form. Beginning in 2009, the IRS will only send eligibility to file Form 944 upon request by the qualified employer and in 2010 filing of Form 944 will be voluntary. For further information, see the Instructions for Form 944 and/or Form 941.

Employers notified to file Form 944 whose businesses grow during the year and exceed the $1,000 eligibility threshold should still file Form 944 for the year. Employers who exceed the eligibility threshold will be notified by the IRS that their filing requirement has been changed to Form 941 for a particular year.

Some employers are required to deposit their employment taxes before the Form 941 and Form 944 are filed. For the rules for making deposits, refer to Topic 757. If you have deposited all your tax on time, you have ten additional days to file.

The total social security and Medicare taxes on Form 941 and Form 944 may differ by a small amount from the total on your payroll records due to fractions of cents that you gained or lost when computing separate amounts for individual employees. You may add or subtract this difference on the line for tax adjustments. Generally, this should not be more than a few cents. You may also use this adjustment line to correct the social security and Medicare taxes you were unable to collect on employees’ tips, or for sick pay wages you report but for which social security and Medicare taxes were withheld by a third party, such as an insurance company. If you wish to correct an error on a previously filed Form 941 or Form 944, you will use Form 941X (PDF), Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund, or Form 944X (PDF), Adjusted Employer’s ANNUAL Federal Tax Return or Claim for Refund, respectively. These forms will be used to make adjustments to previously filed Forms 941 or Forms 944 and to claim refunds of overpaid employment taxes. You will not attach Form 941X to Form 941 or attach Form 944X to Form 944. Forms 941X and 944X must be filed separately. Form 941c will no longer be used. For more information, see Publication 15, (Circular E), Employer’s Tax Guide, Section 13.

The federal income tax withheld and social security and Medicare taxes are added together on Form 941 and Form 944. If you made advance earned income credit payments to employees during the quarter, these payments are subtracted from your total taxes. Refer to Topic 754 for more information on the advance earned income credit.

The resulting net tax is the amount of employment taxes you owe for the quarter (Form 941) or the year (Form 944). If this amount is $2,500 or more, complete the Tax liability for each month in Part 2 of Form 941 and Form 944, if you are a monthly schedule depositor. If you file Form 941 and are a semiweekly depositor, then report your tax liability on Form 941, Schedule B (PDF), Report of Tax Liability for Semiweekly Schedule Depositors. If you file Form 944 and are a semiweekly depositor, then report your tax liability on Form 945-A, Annual Record of Federal Tax Liability. The purpose of Part 2 of Form 941, Part 2 of Form 944, Schedule B (Form 941), and Form 945-A is to show the IRS when you paid your employees and the liability for that pay. IRS uses this information to determine if you deposited your employment taxes on time.

For monthly depositors you must show the combined amount of social security, Medicare, and withheld federal income tax owed for each month in Part 2 of Form 941 or Part 2 of Form 944. For semiweekly depositors, you must show the combined amount of social security, Medicare, and withheld federal income tax owed for each day on Schedule B (Form 941) or Form 945–A. Your liability for employment taxes occurs when you actually pay the employees their wages, not when the pay period ends. For example, if your pay period ends September 24th, but you do not pay the employees until October 1st, their wages would be reported in the fourth quarter, when you actually became liable for the tax, not the third quarter when the pay period ended.

It is very important that you complete Part 2 of Form 941 and Form 944, Schedule B of Form 941, or Form 945-A correctly, or it may appear that you did not deposit your taxes when due. There is a late deposit penalty ranging from 2% to 15%, depending on the length of time the deposit is late.

Generally, if your tax liability for the quarter is $2,500 or more and you have made the proper deposits, you should not have a balance due with Form 941 and Form 944. Generally, only taxpayers with a tax liability of less than $2,500 may pay with the tax return. If you pay taxes with your tax return that should have been deposited, you may be subject to a penalty. Be sure Form 941 and Form 944 is signed and dated before mailing it to your service center.

You may find Publication 15, (Circular E), Employer’s Tax Guide, helpful. It explains all the deposit rules and filing requirements for Form 941 and Form 944.

SAP Taxes, Sandra Parks, 972.569.7938

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