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End Of Year Tax Tips

December 5th

Holiday season is a busy time of year; it’s easy to get distracted. But now is also a time to start thinking about your finances – specifically, what steps you can take before December 31 to help save you money on your 2012 tax return. Some strategies could help reduce your tax debts come next April. Any one of them could be especially helpful if lawmakers don’t act to extend the many popular tax credits set to expire at the end of 2012.

5 Tax Steps To Take Now

Make a donation. Consider moving charitable donations normally made in early 2013 to the end of 2012. Donors can get a full deduction if the taxpayer has proper documentation. For cash contributions of less than $250, you must retain either a bank record that supports the donation, such as cancelled checks or credit card receipts or a written statement from a qualified charity.

Accelerate medical expenses. The threshold for deducting these expenses, now 7.5% of adjusted gross income, rises to 10% next year for most taxpayers. If your out of pocket 2012 medical expenses are close to the 7.5 percent floor this year, you may want to take advantage and schedule appointments not covered by insurance before end of the year.

Set up a health savings account for 2012. Qualified taxpayers can make 2012 contributions to HSAs as late as April 15, 2013, but the account has to exist by year end.

Make an extra mortgage payment, or pay down principal. Usually taxpayers can’t pay more than one month of mortgage interest, but if you can, it will help if you think the mortgage-interest deduction will be curbed next year.

Write next semester’s tuition checks before year end. The American Opportunity Tax Credit allows qualified taxpayers to get a benefit this year for next spring’s tuition if the payment is made before year end—even though the credit is set to expire for 2013. For more information, see IRS Publication 970.

If you have any questions about how to further reduce your tax liabilities, consult with a tax debt attorney today.


The Future Of Mortgage Interest Tax Deduction

November 16th

Now that the election is over the White House has some pressing matters to attend to, one of which is the fate of the mortgage interest tax deduction. Although each political party holds different ideas as to how to proceed with the deduction  in the coming years, the good news is that it will live to see another day.

 Program Revisions

One thing has been clear for politicians of all sides, the mortgage interest deduction is extremely important for the health of the housing market and economy. Accounting for nearly 35% of total itemized deductions among most home owning Americans, losing such an important piece of tax benefit could have been detrimental. Not only does the deduction help reduce the tax bill for many taxpayers, it keeps tax debt problems at bay when people can depend on such benefit.

Although no decisions have been made as to exactly what the revised mortgage interest deduction could look like in the coming year(s), a few ideas are being tossed around. Some of the proposed plans for revision include:

  • A cap of $500,000 home value
  • Limiting the deduction to primary residences only
  • An overall  limit of $25,000 in savings
  • Disqualifying taxpayers who earn more than $250,000 annually from eligibility to claim the deduction



Tax Deduction Dependency

October 10th

tax deductionMany of us count on certain tax deductions to lower our tax liability bill each year. While many of these deductions are in place to do just that, depending on them each year to produce a refund or keep us out of owing the IRS is not a good strategy.

Future Fallout

Some of the most notable tax deductions come from policies designed to help the economy flourish, or spur recovery in today’s market. The mortgage interest deduction and mortgage debt forgiveness relief are two examples. Many homeowners count on being able to lower their taxable income by the amount paid towards their mortgage loan in interest. For many people, this saves the hundreds of dollars each tax season.

Similarly, those struggling with mortgage debt and forced to engage in a short sale or foreclosure may have been given a waiver of the delinquency balance on the home once sold. Set to expire at the end of this year, the IRS may soon require people to claim this balance waiver as income on their 2013 tax return. Further, many people could be facing steep tax bills if these deductions aren’t renewed soon.

There are a handful of other deductions that people tend to rely on each year to help make tax time less of a financial burden. However, leaning on such volatile crutches could lead to serious tax debt problems if we aren’t careful. Instead, people should be reviewing their withholding levels and saving money, in the event they owe at the end of the year.



Missed Tax Deductions

March 28th

Taking the standard deduction at tax time is the easiest way to complete your taxes, but it isn’t always the best way. There are many individual deductions that are missed each year that could have saved you hundreds in tax liabilities and even boosted your refund significantly. Lower your tax debt bill by checking to see if these commonly missed tax deductions apply to you.

1. Environmentally Friendly Home Upgrades — With so many people going “green” around their home, many people are missing out on good savings through valuable tax credits. There are numerous deductions for installing new products, replacing old products and making certain improvements around the home. Products that are “energy star” rated, carry an energy efficient status or are considered “green energy” systems can all be reported on your tax return as a credit. Check the manufacturers certification statement that comes with the purchased product to be sure and attach it to IRS Form 5695.

2. Moving or Relocating For A Job– Although some employers pay for relocation expenses, there are many people who have to pay for relocating for a job out of pocket. The IRS allows for expenses related to a move of 50 miles or more to be claimed as a tax deduction on the return for that year. In order to qualify for this deduction, you must also be able to demonstrate that you (a) relocated solely because of the job and (b) work full time for at least 12 months following the move.

3. Business Expenses or Debts– Many people track their mileage and business related purchases to be used as a deduction at tax time. The IRS requires fairly extensive documentation of both mileage and receipts for purchases that are to be considered for deduction on your tax bill. Items eligible for deduction are gas, office supplies, computer and software equipment, home office, travel and meal expenses, as well as insurance costs. Bad business debts can also be included, but are limited to debts that are owed to you that were legally extended and had good faith collection efforts made. If you are owed money on a business debt, you may be eligible to include this amount as a loss on your taxes.




Adoption Tax Credit Can Help Cover Costs

September 26th

As costly as raising a family can be under traditional circumstances, adopting can be even pricier. For some families, the cost of adoption is actually prohibitively expensive. However, if you are considering adoption, don’t be dissuaded by costs, as there are ways to defray certain expenses. The IRS’s Adoption Tax Credit is a great means of reducing adoption-related expenses.

Parents may claim the Adoption Tax Credit to cover certain adoption expenses. At the moment, the credit could amount to as much as $13,170. In addition, for the 2010 and 2011 tax years, a provision in the recent health care reform act makes the Adoption Tax Credit refundable. This means that even if you owe no taxes to the IRS, you are still eligible to receive this credit as a tax refund.

Qualifying for the Adoption Tax Credit

Families may qualify if they adopted or attempted to adopt a child in the 2010 or 2011 tax years, and paid qualifying expenses related to that adoption. Taxpayers with a modified gross income of more than $182,520 in 2010 may not qualify for the full tax credit amount. The tax credit begins to phase out entirely for taxpayers with gross incomes in excess of $222,520.

The credit may be available to families who began proceedings, but the adoption never became final. Likewise, families who adopt a special-needs child are usually eligible for the full tax credit amount, even if the actual adoption expenses are minimal. A tax attorney can assist in determining if your case qualifies for a tax credit, as well as the amount you can expect.

“Qualified adoption expenses” are those that may be considered reasonable and necessary expenses. They must be directly related to the legal adoption of a child under 18 years of age, or incapable of caring for his or herself either physically or mentally. Such expenses may include adoption fees, court costs, travel expenses, or even attorney fees.


Deducting Dependents #2: Claiming Elderly Dependents

September 16th

As American taxpayers get older, many find themselves acting as sole caregiver for aging parents. Caring for an elderly relative can be challenging, both emotionally and financially. While the difficulties may seem insurmountable, the IRS has programs available to help ameliorate the financial burden.

So long as your family meets the criteria, tax laws offer several kinds of financial help. The following are a few of the requirements you must meet in order to claim the dependency exemption on your income tax return. While these are some of the hurdles you must overcome, there are others.

It is generally a good idea to consult with a qualified tax attorney before filing to gain some certainty as to whether or not you and your relative qualify.

1. Dependent Income. The first, and most significant, obstacle encountered by many families wishing to claim a tax deduction for an elderly dependent is the amount of income earned by the older relative. A dependent parent cannot earn more than the exemption amount, if your family is to qualify. Though Social Security is typically excludable, other forms of income such as stocks and dividends are often taxable.

2. Pay More than Half the Cost. In order for your family to qualify, you must pay more than half of the support costs of your elderly relative. This means paying over 50 percent of care home costs, nursing fees, food, or medicine. When considering costs, look at whether or not your relative is using their Social Security to contribute funds, and how much.

While this may seem like a steep requirement, it does mean that your parent does not need to live with you in order to qualify as a dependent for tax purposes. However, be aware that the IRS may not agree with every expense you consider a support cost. IRS guidelines in this matter can be difficult to make sense of. Consult IRS Publication 501, Exemptions, Standard Deduction, and Filing Information, or a qualified tax attorney for more details.


Deducting Dependents #1: Claiming Your Child Tax Credit

September 15th

child tax creditThere is good news for American parents. The Internal Revenue Service have announced that the child tax credit is due to remain at the $1,000-per-child level through the 2012 tax year. Parents do not even have to file any additional forms; the only requirement is that the correct amount is entered directly on the Form 1040 or 1040A.

However, parents must still fill out a work sheet beforehand to determine the correct amount owed and to avoid potential tax audits. For parents seeking to claim the additional child tax credit, there will be more paperwork required.


Qualifying for the Child Tax Credit

First and foremost, children must be below the age of 16 at the end of the tax year in order to qualify for the child tax credit.

The IRS will also consider the income made by all adults in the household when deciding if you are eligible. The most money is available to married couples who make less than $110,000, or to those who file as the head of household and make less than $75,000. At these levels and above, the tax credit amount begins to fall.

Also, those who already claim other tax credits may not be eligible for as much of the child tax credit. If you are unsure regarding your eligibility, contact a qualified tax lawyer for assistance. You can also consult IRS Publication 972, Child Tax Credit.

Potential Drawbacks

Unfortunately, while the tax credit may be used to erase your tax bill, it cannot be used to get you a refund. This means that it is useful for alleviating the tax burden, but for those who already owe back taxes, it is not the most efficient means of recouping losses.

Parents with more than one child under the age of 16, however, are eligible for further potential credits. Additional child tax credits typically amount to 15 percent of your total taxable income over $3,000.



Deducting Your Vacation

September 13th

While holiday budgets are decreasing, companies are cutting back on employee vacation benefits. However, it is still possible to take that dream vacation without committing tax fraud or falling victim to any IRS audits.

Tax Deduction Rules

The rules for declaring business expenses during a combined personal and business trip are complicated. It takes close attention and possibly the assistance of a qualified tax lawyer, but the deductions can be made. By following these simple tips, you can ensure that your business deductions fall within legal limits so that you won’t end up paying back taxes with interest.

1. Transportation Guidelines. If the trip is primarily for business purposes, domestic U.S. transportation costs are fully deductible, both ways. However, for international journeys, the trip must be a minimum of 75 percent business in order to qualify for travel deductions.

2. Family Expenses. Unfortunately, you may not deduct expenses for anyone who is not directly involved in the business portion of the trip. In order to deduct family expenses, look for places where family needs coincide with business-related needs. For example, if you need to rent a car for both your business tasks and for the family vacation, it may be deducted from your taxes.

3. Meals. While on a business trip, the meals of you and your business associates are tax deductible at a rate of 50 cents to the dollar. However, this tax deduction does not extend to any meals enjoyed exclusively by the family.

4. Document Everything Very Carefully. The IRS has been cracking down on incidences of tax fraud, with a particular focus on itemized tax deduction claims. In order to avoid audit or charged with a bill for back taxes, including penalties and interest, be certain to keep meticulous records of your expenses. This means keeping track of not just receipts, but official itineraries, agendas, or anything else that shows a record of your business-related activities.


How to Manage Your Taxes When Stock Investments Fail

September 9th

stock market taxesSince 2008, it has become a commonplace occurrence to see companies failing and stocks crashing. For many investors, the past couple years have seen substantial losses. But what does this mean for your taxes?

In most cases, if a taxpayer invests in a company that fails, the stock loss can be taken as a tax deduction. It is generally considered a ‘capital loss,’ and is therefore subject to any of the standard rules governing this area of tax law.

However, here are a few other tips to help you navigate this uncomfortable situation:

1. Worthless Securities

To qualify as a “worthless” security, shares but be actually worth nothing, not just trading for pennies on the dollar.

2. Documenting a Stock Loss

Many taxpayers suffer confusion as to how to document a stock loss of this magnitude. However, with this kind of loss, it is generally a bit simpler to manage than with other kinds of capital losses. In some cases, the brokerage will supply a letter documenting the stock’s lack of value. In other instances, the brokerage might, for a fee, buy back the stock for a nominal amount.

3. When to Claim Stock Loss

Stocks that became totally worthless during the course of the year are typically treated as having been sold on the last day of the tax year. However, if an individual neglects to claim a worthless-security loss on the appropriate return, there is still time to rectify the problem. By filing an “amended” return using IRS Form 1040X within seven years from the date the original return was due, taxpayers can rectify past oversights.

Check with a tax lawyer for more information on navigating the details of an “amended” return. It is also helpful to review IRS Publication 550, which discusses declaration of stock loss.


Managing the Taxes on your Charitable Donations

September 6th

tax deductionAs the summer comes to a close, and we begin to approach the fall season, many individuals might be considering making charitable donations. While this is very honorable, it can greatly complicate your tax returns. It is therefore important to keep a number of rules in mind when making donations in preparation for the 2011 tax season, especially if you might want to pursue a charitable tax deduction.


1. Ensure that the organization qualifies for a charitable tax deduction. Contributions made to qualifying organizations are considered to be tax deductible. When considering making a donation, check first with the organization to determine if it qualifies for this tax deduction. If you still have concerns, a list of qualifying nonprofit organizations is available from the IRS, entitled Publication 78, Cumulative list of Organizations.

2. Itemize deductions. Charitable donations are deductible only if they are itemized using a Form 1040, Schedule A.

3. What Items are Deductible? Cash contributions, as well as the fair market value of property given to a qualified organization, can usually be deducted from your taxes. However, special rules do apply to several kinds of property donations, so be sure to consult with a tax lawyer or with www.irs.gov before filing your returns.

4. Keep a Good Record. Be sure to keep comprehensive records of any contribution you make, regardless of the amount. In particular, for cash contributions, you must keep record of the donation such as a bank or credit card statement, payroll deduction record, or a written statement from the charity.



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