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Archive for January, 2013

New Tax Laws Difficult To Navigate

January 23rd

The IRS audits little more than 1% of all personal tax returns annually. The agency doesn’t have enough personnel and resources to examine each and every tax return filed during a year. So the odds are pretty low that your return will be picked for review. But, with many new 2013 tax laws in effect and some still yet to be voted in Congress, the chances of making a filing mistake increases the chance of an audit.

Don’t Put Your Return At Risk

Facing pressure from a Congress dealing with a growing federal deficit, the IRS has made it clear it takes the enforcement of tax audit seriously. But the rich aren’t the only targets. Recent tax law changes, particularly when it comes to confusing tax breaks such as the first-time homebuyer credit, always prompt closer looks at returns. And if you’re a small-business person, either as a partnership or a Schedule C filer reporting self-employment income, you’ll want to take extra care with your deductions. And those with lower incomes eligible for the complicated earned income tax credit also face added scrutiny. Nearly 30 percent of audited returns had this claimed as a tax credit.

A few of the common mistakes made are failing to report all income or a mis-match of information from a W2. If your charitable deductions are disproportionately large compared with your income, it raises a red flag. Also, taking higher than average deductions or not having proper receipts may pull your return for review. And, if you sold stock you will need the exact dates of sale and prices. There’s no sure way to avoid an IRS audit, but by being aware of red flags, your chances of drawing unwanted attention from the IRS are decreased. In the event of an audit, a tax debt attorney will work on your behalf with the IRS towards a positive resolution.

 

Payroll Tax Increase Affects Household Budgets

January 9th

On Jan. 1, 2013, Congress approved the American Taxpayer Relief Act of 2012 which was signed by President Obama the next day. While the Holiday season is now over, so is the payroll tax break that expired along with the new agreement in Congress. As a result, Americans this week are seeing a tax on their paychecks rise from 4.2 percent to 6.2 percent.

Planning For Less To Spend

The 2 percent hike means that a person earning $30,000 will receive nearly $600 less this year, someone making $50,000 will receive about  $1,000 less, and someone earning $113,000 will take a $2,200 hit. Economists predict as the year moves forward, and although many saw small salary increases in 2011, disposable income for most households will shrink. There is bright news though that can help you anticipate your 2013 tax debt and offset some of the increase.

As part of the new tax act, the Alternative Minimum Tax patch has been permanently extended, which means 34 million middle-income families can still celebrate the New Year with a $3,700 credit. Other “Tax Extenders” have been approved allowing certain credits to remain in place like:  If you are a teacher, you can still claim up to $250 of classroom expenses for supplies, materials, books and software. College students or parents can once again deduct education expenses related to schooling, including tuition, books and other supplies, up to $4,000.

Previously, taxpayers who had mortgage debt canceled or forgiven after 2012 would be required to pay taxes on that amount.  Under the new law, up to $2 million of forgiven debt is eligible to be excluded from income in 2013.  Increased dependent care credits remain in place that allow you to claim up to $2,100 of your eligible dependent care cost for two or more children. However, if the new tax laws put you in a position of owing more than anticipated, the IRS has several tax debt payment plans to help.

 
 
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