Archive for February, 2010
Chris Blach, QuickBooks ProAdvisor
|The New Year’s here, the Christmas bills are rolling in, and income taxes loom. Maybe you can’t save money just now, but how about an easy way to save time and keystrokes? If you use Microsoft Outlook 2002, 2003, or 2007 for contact management and QuickBooks Pro, Premier, or Enterprise 2005 and up for financial management, you can synchronize data to avoid entering the same contact information twice. It’s easy, but you need to take care to follow instructions precisely anytime you’re integrating multiple databases: you can’t unring that bell. (more…)|
|Review Your Savings Plan Establish or review your savings plan to begin accumulating assets for your life goals. Professional guidance will be helpful in reviewing investment alternatives.
Review Your Retirement Plan
Establish or review your retirement plan. Explore the availability of deferred compensation programs through your employer, such as 401(k) and 403(b) plans. Begin contributing as soon as you are eligible.
Review January’s Budget vs. Actuals
Compare January income and expenditures with your budget. Make adjustments as appropriate to your February expenditures. Make sure you have invested your planned savings amount for January.
Collect Your Tax Information
Verify that you have received all necessary forms W-2 and 1099 and a statement showing the year-end balance of IRA and Keogh plans. Contact the appropriate company for any that have not been received. For those that have been received, make certain that the amounts agree with your records.
Although taxes for personal returns are not due until April 15, it is best to get an early start since additional follow-up may be necessary.
For years, higher-income taxpayers have worried about their itemized deductions and personal exemption write-offs being phased out. This means that they didn’t get the full benefit of the most popular itemized deductions such as
mortgage interest, state and local taxes, charitable contributions, and miscellaneous deductions. Thankfully, these “phase-out” rules have been getting phased out since 2006, as part of the “Bush tax cuts.”
The good news: For 2010, the phase-out rules are gone. The bad news: It’s only a one-year reprieve. The rules are scheduled to reappear in 2011 with sharper teeth as the Bush tax cuts expire.
These rules can be complicated to understand so below is a detailed explanation of how they have worked in the past and how they will work over the next couple years — providing Congress does not change them.
Tax Planning Implications for this Year
What could this mean for you? For 2010, if your income is high enough, you can actually write off all of your itemized deductions and personal exemptions.
One significant planning opportunity involves donations to IRS-approved charities, where contributing this year could produce a much bigger tax-saving benefit than if you donate the same amount next year.
In addition to charitable donations, you might be able to benefit elsewhere on your tax return. Prepaying your January 2011 house payment in December could allow you to fully deduct some mortgage interest that would not be fully deductible if it is paid next year. You might also be able to benefit more by prepaying miscellaneous expenses such as safe deposit rental costs, tax preparation fees, and other expenditures.
For the same reason, prepaying some 2011 state and local income and property taxes could be helpful. However, if you will be subject to the dreaded alternative minimum tax (AMT) this year, prepaying those taxes may do you little or no good (deductions for those taxes are disallowed under the AMT rules).
Your tax adviser can help you plan ahead to minimize (or eliminate) the AMT.
Special Rules for Haiti Donations
As you may know, taxpayers can receive a special tax break for making charitable donations to qualified organizations providing aid to the victims of the massive earthquake in Haiti.
People who give to qualified charities after January 11 and before March 1, 2010, can claim these donations on their 2009 tax returns. (Only cash contributions made on behalf of Haitian victims are eligible. This includes contributions made by text message, check, credit card or debit card.)
However, if you are going to be hit by the itemized deduction phase-out rules, it would be better not to claim your donation to Haitian victims last year, but to claim it this year.
Keep Additional Limitations in Mind
However, no matter when you take the write-off, beware of other limitations on charitable donations. Many taxpayers don’t know that all charities aren’t created equal. You donate to “50 percent charities,” which include religious groups, schools, hospitals, and public charities. There are also “30 percent charities,” such as veterans’ organizations, domestic fraternal societies and some private foundations.
Donations of cash are generally limited to 50 percent of AGI, but there are several exceptions (both favorable and unfavorable) to this general rule.
Although the IRS calls them 50 percent charities, you can deduct only as much as 30 percent of your AGI in the year of the gift when you contribute appreciated securities. If your AGI is $100,000 and you give $40,000 in stock to your alma mater, you can only deduct $30,000. The remaining $10,000 must be carried forward to another year.
With a 30 percent charity, you can give as much as 30 percent of your AGI in cash, but only 20 percent in appreciated assets.
Consult your tax adviser if you want more information about planning for tax-smart charitable donations.
Below is a detailed rundown of how the phase-out rules have been applied in recent years, as well as how they will work in 2010 and 2011.
|February 1||Employers – Federal unemployment tax. File Form 940 for 2009. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it is more than $500, you must deposit it. However, if you already deposited the tax for the year in full and on time, you have until February 10 to file the return.Employers – Social security, Medicare, and withheld income tax. File Form 941 for the fourth quarter of 2009. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until February 10 to file the return.
Employers – Nonpayroll taxes. File Form 945 to report income tax withheld for 2009 on all nonpayroll items, including backup withholding and withholding on pensions, annuities, IRAs, gambling winnings, and payments of Indian gaming profits to tribal members. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the year in full and on time, you have until February 10 to file the return.
Employers – Give your employees their copies of Form W-2 for 2009. If an employee agreed to receive Form W-2 electronically, post it on a website accessible to the employee and notify the employee of the posting by February 1.
Individuals – who must make estimated tax payments. If you did not pay your last installment of estimated tax by January 15, you may choose (but are not required) to file your income tax return (Form 1040) for 2009. Filing your return and paying any tax due by February 1 prevents any penalty for late payment of last installment.
Businesses – Give annual information statements to recipients of 1099 payments made during 2009.
Payers of Gambling Winnings – If you either paid reportable gambling winnings or withheld income tax from gambling winnings, give the winners their copies of From W-2G.
Certain Small Employers – File Form 944 to report social security and Medicare taxes and withheld income tax for 2009. Deposit or pay any undeposited tax under the accuracy of deposit rules. If your tax liability is $2,500 or more from 2009 but less than $2,500 for the fourth quarter, deposit any undeposited tax or pay it in full with a timely filed return.
|February 10||Employers – Federal unemployment tax. File Form 940 for 2009. This due date applies only if you deposited the tax for the year in full and on time.Employers – Social security, Medicare, and withheld income tax. File Form 941 for the fourth quarter of 2009. This due date applies only if you deposited the tax for the quarter in full and on time.
Small Employers – File Form 944 to report social security and Medicare taxes and withheld income tax for 2009. This due date applies only if you deposited the tax for the year in full and on time.
Farm Employers – File Form 943 to report social security and Medicare taxes and withheld income tax for 2009. This due date applies only if you deposited the tax for the year in full and on time.
Certain Small Employers – File Form 944 to report social security and Medicare taxes and withheld income tax for 2009. This tax due date applies only if you deposited the tax for the year in full and on time.
Employers – Nonpayroll taxes. File Form 945 to report income tax withheld for 2009 on all nonpayroll items. This due date applies only if you deposited the tax for the year in full and on time.
Employees – who work for tips. If you received $20 or more in tips during January, report them to your employer. You can use Form 4070.
|February 15||Employers – Social security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in January.Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in January.
Individuals – If you claimed exemption from income tax withholding last year on the Form W-4 you gave your employer, you must file a new Form W-4 by this date to continue your exemption for another year.
Employers – Begin withholding income tax from the pay of any employee who claimed exemption from withholding in 2009, but did not give you a new Form W-4 to continue the exemption this year.
|March 1||Businesses – File information returns (Form 1099) for certain payments you made during 2009. These payments are described under February 1. There are different forms for different types of payments. Use a separate Form 1096 to summarize and transmit the forms for each type of payment. See the 2009 Instructions for Forms 1099, 1098, 5498, and W-2G for information on what payments are covered, how much the payment must be before a return is required, what form to use, and extensions of time to file.If you file Forms 1098, 1099, or W-2G electronically (not by magnetic media), your due date for filing them with the IRS will be extended to March 31. The due date for giving the recipient these forms will still be February 1.
Payers of Gambling Winnings – File Form 1096, Annual Summary and transmittal of U.S. Information Returns, along with Copy A of all the Forms W-G2 you issued for 2009. If you file Forms W-G2 electronically (not by magnetic tape), your due date for filing them with the IRS will be extended to March 31. The due date for giving the recipient these forms remains February 1.
Employers – File Form W-3, Transmittal of Wage and Tax Statements, along with Copy A of all the Forms W-2 you issued for 2009.
If you file Forms W-2 electronically (not by magnetic media), your due date for filing them with the SSA will be extended to March 31. The due date for giving the recipient these forms will still be February 1.
Employers – with employees who work for tips. File Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips. Use Form 8027-T, Transmittal of Employer’s Annual Information Return of Tip Income and Allocated Tips, to summarize and transmit Forms 8027 if you have more than one establishment. If you file Forms 8027 electronically (not by magnetic tape), your due date for filing them with the IRS will be extended to March 31.
|Each year, many taxpayers overlook tax credits, even though they often qualify for one or more of them. Though both tax deductions and credits save you money, they do it in different ways. A deduction lowers the income on which tax is figured. The tax credit is even better because it lowers the tax itself. Take time now to review your records and see if you qualify for one of these tax credits; many are new or expanded for the 2009 tax filing year.
First-time Homebuyer’s Credit
A credit limit of $8,000 for qualified first-time homebuyers is available in 2009. Further, long-time residents who owned and used the same principal residence for any 5 consecutive years of the last 8 years prior to purchasing a subsequent new principal residence, may now qualify for a tax credit of up to $6,500. Contact us for further information regarding this credit.
Energy Improvements Qualify for Expanded Tax Credits
People who weatherize their homes or purchase alternative energy equipment may qualify for either of two expanded home energy tax credits: the Residential Energy Property Credit and the Residential Energy Efficient Property Credit.
American Opportunity Credit Helps Pay for First Four Years of College
More parents and students can use a federal education credit to offset part of the cost of college under the new American Opportunity Credit. This credit modifies the existing Hope credit for tax years 2009 and 2010, making it available to a broader range of taxpayers. Income guidelines are expanded and required course materials are added to the list of qualified expenses. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.
New Vehicle Purchase Incentive
New car buyers can deduct the state or local sales or excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles. There is no limit on the number of vehicles that may be purchased, and eligible taxpayers may claim the deduction for taxes paid on multiple purchases. However, the deduction is limited to the tax on up to $49,500 of the purchase price of each qualifying new vehicle. Qualifying new vehicles must be purchased, not leased, after Feb. 16, 2009, and before Jan. 1, 2010.
Earned Income Tax Credit (EITC)
The Earned Income Tax Credit (EITC) helps low- and moderate-income workers and working families. Working families with incomes below $48,279 (married filing jointly in 2009) and childless workers with incomes under $18,440 often qualify. Ordinarily, you must have earned income as an employee, independent contractor, farmer or business owner. Some disability retirees are also eligible. There is only a slight increase in these income levels for 2010; for example, working families with incomes below $48,362 (married filing jointly) and childless workers with incomes under $18,470, may quality in 2010.
Child Tax Credit
If you have a dependent child under age 17 at the end of 2009, you probably qualify for the child tax credit. This credit, which can be as much as $1,000 for each qualifying child, is in addition to the regular $3,650 personal exemption for 2009 you can claim for each dependent. A change in the way the credit is figured means that more low- and moderate-income families will qualify for the full credit on their 2009 returns. Don’t confuse the child tax credit with the child care credit.
Credit for Child and Dependent Care Expenses
If you pay someone to care for your child so you can work or look for work, you probably qualify for this credit. Normally, your child must be your dependent and under age 13. Though often referred to as the child care credit, this credit is also available if you pay someone to care for a spouse or dependent, regardless of age, who is unable to care for himself or herself. In most cases, you need to obtain the care provider’s social security number or taxpayer identification number and enter it on your return.
The saver’s credit helps low-and moderate-income workers save for retirement. You probably qualify if your income is below certain limits and you contribute to an IRA or workplace retirement plan, such as a 401(k). Income limits for 2009 are $27,750 for singles and married filing separately, $41,625 for heads of household and $55,500 for joint filers. These income limits are adjusted annually for inflation, however, will remain unchanged for 2010.
The credit, up to $1,000, is based on a percentage (10-50%) of each dollar placed into a retirement plan, up to the first $2,000. The lower the adjusted gross income, the higher the credit percentage; resulting in the maximum credit of $1,000 (50% of $2,000).
A taxpayer’s credit amount is based on his or her filing status, adjusted gross income, tax liability and amount contributed to qualifying retirement programs. Form 8880 is used to claim the saver’s credit, and its instructions have details on figuring the credit correctly.
Other Credits Available
IRS.gov has information on these additional credits:
Tax Credits Can Save You Money
These credits can increase your refund or reduce the tax you owe. Usually, credits can only lower your tax to zero. But some credits, such as the EITC and the child tax credit, can actually exceed your tax. Though some credits are available to people at all income levels, others have income restrictions. These include the EITC, saver’s credit, education credits and child tax credit.
Tax credits help you pay part of the cost of raising a family, going to college, savings for retirement, or getting daycare so you can work or go to school.