Extensions

The April 15 tax-filing deadline is fast approaching. Some taxpayers may find that they need more time to file their tax returns. If you need extra time, you can get an automatic six-month extension from the IRS.

Extension:  

• You can file an extension for your personal income taxes resulting in an additional six (6) months to complete your return.  
• The new due date would be Oct 15th.
• The extension is for FILING only.
• There is no extension for any balance due.  
• Balance Due Payment is still required by April 15th.

Failure to File:  

• IRS will assess a Failure to File penalty.  
• Therefore, even if you owe you can avoid this penalty by filing.

Failure to Pay.  

• IRS will assess a Failure to Pay penalty.  
• A payment plan request with your return normally eliminates this penalty.

Tax Advantages for College Cash – Series 1 of 2

Educational 529 Plan contributions are not deductible on your federal return, but the money invested in the plan accumulates tax-free.  When you withdraw account funds to pay for qualified education costs, those distributions are not taxed.  There is a named beneficiary, so anyone can contribute to the plan. The plan can be rollover to another immediate family member for unused funds. 

All 529 Plans are administered by states, and every state now has at least one. You don't, however, have to limit yourself to your state's options. There may be an additional tax advantages for establishing a plan in your home state.

Coverdell Education Savings Accounts, or ESAs, were once known as education IRAs because the accounts operate much the same way.  Contributions are not tax deductible, but they and subsequent earnings can be withdrawn tax-free as long as they are used to pay eligible schooling costs.  They operate similar to the Educational 529 Plans, but there are contribution restrictions.  However, their distribution rules are flexible and can cover kindergarten to college.

Understanding your Tax Return – Series 2 of 2

Taxable Income is your overall, or gross, income reduced by all allowable adjustments, deductions and exemptions.  As the US Tax system uses progressive taxation with tax brackets starting at 10 percent and raising to 39.6 percent for the wealthiest taxpayers, the lower your taxable income the better.

Tax Liability is how much you owe in taxes.

Tax Credits are used to reduce Tax Liability.  Tax credits are more valuable than tax deductions because they directly cut the amount of tax you owe, rather than reducing the amount of taxed income.  However, once your tax liability is $0, they cannot be used.

Refundable Credits are the same as tax credits, except they are still eligible for refund when your tax liability is $0.  Meaning you will still get a refund, even if you owe no tax.

Withholding is the amount withheld for each time you are paid, paid in from previous year, or paid in as an estimate for current year.  It is the most common of all Refundable Credits.

-         If you are NOT required to file, but had Federal and/or State withholding, the only way to get a refund is to file a return.

Understanding your Tax Return – Series 1 of 2

Gross Income is all the income you receive over the course of the year, including wages, interest, dividends and capital gains.

Adjustments are items eligible taxpayers may deduct from Gross Income.  Some examples:  Contributions to a qualified IRA, Student Loan Interest, Tuition and Fees, Some Business Expenses, Moving Costs and Alimony Payments. 

Adjusted Gross Income, or AGI, takes Gross Income and subtracts any eligible adjustment.

Deductions are subtractions from AGI.

• The Standard Deduction is a fixed dollar amount determined by your filing status.  It is adjusted each year for inflation.
• Itemized Deductions include eligible medical, dental, and vision expenses; state, local and property taxes; mortgage interest; charitable contributions; casualty and theft losses; unreimbursed employee expenses; and other miscellaneous deductions such as gambling losses.  Some of these deductions must meet IRS limitation and all must meet IRS criteria.  An additional form is required for filing.

Exemptions are the amount you are allowed to subtract from your income to reflect your filing status and eligible dependent.

How do find affordable Income Tax Preparation?

It depends on your definition of affordable. 

There are many generalizations in regards to taxes, but in reality, one answer does not fit all.  There is no cookie cutter to use, as each individual has a unique tax situation specific to them.  Therefore, you should make your decision on who will prepare your returns based on your needs. 

So how does one get the best results at an affordable price? 

Well, you could do them yourself.  However, you may need to take valuable time to research the mandatory forms necessary.  Of course, you may also want to research eligible elective forms.   Do you have that much extra time?  Yet, if you only worry about the mandatory forms required by the IRS, you may not receive the best value.  Mandatory forms usually result in the best case scenario for the IRS.  Thus, it is not so affordable when you pay extra in tax.

Of course, you can buy a tax preparation package to use, but until Artificial Intelligence becomes main-stream, this software is limited by the data you entered into it.  Even expert advice can lead to problems as misunderstandings and misinterpretations are possible.   The more complicated your return, the more you increase your chance of error.  A wrong yes or no may cost you lost deductions.  Just ask any of us who have accidently deleted a document by choosing yes when we should have chosen no J

Which leads us to professional preparation.  In many traditional tax offices, you schedule an appointment or walk in.  You may have to wait, hopefully with well-behaved children.  Privacy might become an issue when only a small particle board separates you from the desk next to you.  Unfortunately, this might allow your paperwork to be seen or your conversation to be overheard by others.  It might not be very convenient either as you may have scheduling conflict because you need to take time off from work.  Maybe you can drop your private information off during your lunch hour if you don’t desire food.  Plus, if you work the 2nd or 3rd shift, finding an appointment time convenient for you is even more difficult.  Your preparation fees for expert help balance out in paying less tax, hopefully generating a bigger refund.  Unfortunately, you save time by not having to research, but lose it with the inconvenience of catering your schedule to the offices. 

So how do you get the ease of self-preparation with professional tax services at an affordable price?  By taking advantage of modern technology. 

This is the premise behind Easy Web Taxes.  It takes the convenience of doing them yourself, and combines it with the expertise of a professional.  IRS Registered Tax Return Preparers take the time to research tax code and apply it to your specific situation.  Plus, there is no office visits, so no sitting and waiting; no one to overhear your personal information; no loose paperwork for others to see; no need for return trips.  All work is done by telephone, email, or through the website itself.  There is no need to even leave your house! 

The benefit of accessibility with the knowledge of skilled professionals makes Easy Web Taxes an affordable source for income tax preparation.

Common Adjustments to Lower your Taxable Income

Adjustments are the amount deducted from your Gross income to create your Adjusted Gross Income

You must meet IRS criteria to claim any of these adjustments

Public & private school system employees can subtract up to $250 for items they purchased for their classroom(s).

Military Reservists, Performing Artists & Fee-Based Government Officials qualify to claim unreimbursed work-related or business expenses.  NOTE:  Requires additional form

For those who put “after tax” money into an eligible Health Savings Account (HSA), you can include the contribution amount here. 

For those who changed employment, moving expenses may be deductible.  NOTE:  Requires additional form

For the self-employed, half of the Social Security & Medicare taxes paid can be subtracted here. 

As an entrepreneur, you now can deduct all or part of your health insurance premiums and long-term care policies payments.  

Alimony paid to former spouse.  NOTE:  Must include name and tax ID number of recipient

Up to $2,500 of the qualified student loan interest is eligible for deduction.

Higher-education tuition and fees also provides an adjustment for up to $ 4,000.  NOTE:  Requires additional form

Common Tax filing mistakes - Series 2 of 2

Make sure your charitable contributions follow donation tax rules.  They must have tax-exempt status and your donation must have been in good or better condition.  It is always good to keep a receipt or record of your donations.

Do not forget to pay the 2nd half of your Roth conversion taxes.  If you converted a traditional individual retirement account to a Roth IRA in 2010, a special provision allowed you to spread the taxes due on converted amounts equally over the 2011 and 2012 tax years.  You should have already included the 1st half amount with your 2011 return, and now must include the 2nd half with your 2012 return.

The first-time homebuyer credit started as a $7,500 interest-free loan, changed into a true tax credit of up to $8,000 for a first-time buyer and then added a $6,500 tax credit for a previous homeowner moving up to another house.  There are eligible buyer guidelines, purchase time frames, income thresholds, home price restrictions and payback requirements.  A mistake here could end up costing you the credit or at least slowing down the processing of your return.

Sign and date your return, both you and your spouse if applicable.  This includes electronically filing as well.  The IRS won't process it if this information is missing.

The tax deadline is April 17th this year.  You can file an extension for completing the return, but you there are no provisions to file an extension for any amount OWED. There is a Failure to File and a Failure to Pay penalty in these cases.  It would be better to file your taxes and take steps to arrangement payment with the IRS which will allow avoidance of these additional amounts.