Saturday, December 24, 2011

Payroll Tax Cut Temporarily Extended into 2012



WASHINGTON — Nearly 160 million workers will benefit from the extension of the reduced payroll tax rate that has been in effect for 2011. The Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extends the two percentage point payroll tax cut for employees, continuing the reduction of their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through Feb. 29, 2012. This reduced Social Security withholding will have no effect on employees’ future Social Security benefits.


Employers should implement the new payroll tax rate as soon as possible in 2012 but not later than Jan. 31, 2012. For any Social Security tax over-withheld
during January, employers should make an offsetting adjustment in workers’ pay as soon as possible but not later than March 31, 2012.


Employers and payroll companies will handle the withholding changes, so workers should not need to take any additional action.


Under the terms negotiated by Congress, the law also includes a new “recapture” provision, which applies only to those employees who receive more than $18,350 in wages during the two-month period (the Social Security wage base for 2012 is $110,100, and $18,350 represents two months of the full-year  amount). This provision imposes an additional income tax on these higher-income employees in an amount equal to 2 percent of the amount of wages they receive during the two-month period in excess of $18,350 (and not greater than $110,100).    


This additional recapture tax is an add-on to income tax liability that the employee would otherwise pay for 2012 and is not subject to reduction by credits or deductions.  The recapture tax would be payable in 2013 when the employee files his or her income tax return for the 2012 tax year. With the possibility of a full-year extension of the payroll tax cut being discussed for 2012, the IRS will closely monitor the situation in case future legislation changes the recapture provision.


The IRS will issue additional guidance as needed to implement the provisions of this new two-month extension, including revised employment tax forms and instructions and information for employees who may be subject to the new “recapture” provision.  For most employers, the quarterly employment tax return for the quarter ending March 31, 2012 is due April 30, 2012.


IRS Issue Number:    IR-2011-124

Wednesday, December 21, 2011

Six Year-End Tips to Reduce 2011 Taxes


The Accu-Tax wants to remind all taxpayers that with the New Year fast approaching, there is still time for you to take steps that can lower your 2011 taxes. However, you usually need to take action no later than Dec. 31 in order to claim certain tax benefits.
Here are six tax-saving tips for you to consider before the calendar turns to 2012:
1. Make Charitable Contributions – If you itemize deductions, your donations must be made to qualified charities no later than Dec. 31 to be deductible for 2011. You must have a canceled check, a bank statement, credit card statement or a written statement from the charity, showing the name of the charity and the date and amount of the contribution for all cash donations. Donations charged to a credit card by Dec. 31 are deductible for 2011, even if the bill isn't paid until 2012. If you donate clothing or household items, they must be in good used condition or better to be deductible.
2. Install Energy-Efficient Home Improvements – You still have time this year to make energy-saving and green-energy home improvements and qualify for either of two home energy credits. Installing energy efficient improvements such as insulation, new windows and water heaters to your main home can provide up to $500 in tax savings. Homeowners going green should also check out the Residential Energy Efficient Property Credit, designed to spur investment in alternative energy equipment. The credit equals 30 percent of the cost of qualifying solar, wind, geothermal, or heat pump property. For details see Special Edition Tax Tip 2011-08, Home Energy Credits Still Available for 2011 on the IRS.gov website.
3. Consider a Portfolio Adjustment – Check your investments for gains and losses and consider sales by Dec. 31. You may normally deduct capital losses up to the amount of capital gains, plus $3,000 from other income. If your net capital losses are more than $3,000, the excess can be carried forward and deducted in future years.
4. Contribute the Maximum to Retirement Accounts – Elective deferrals you make to employer-sponsored 401(k) plans or similar workplace retirement programs for 2011 must be made by Dec. 31. However, you have until April 17, 2012, to set up a new IRA or add money to an existing IRA and still have it count for 2011. You normally can contribute up to $5,000 to a traditional or Roth IRA, and up to $6,000 if age 50 or over. The Saver’s Credit, also known as the Retirement Savings Contribution Credit, is also available to low- and moderate-income workers who voluntarily contribute to an IRA or workplace retirement plan. The maximum Saver’s Credit is $1,000, and $2,000 for married couples, but the amount allowed could be reduced or eliminated for some taxpayers in part because of the impact of other deductions and credits.
5. Make a Qualified Charitable Distribution – If you are age 70½ or over, the qualified charitable distribution (QCD) allows you to make a distribution paid directly from your individual retirement account to a qualified charity, and exclude the amount from gross income. The maximum annual exclusion for QCDs is $100,000. The excluded amount can be used to satisfy any required minimum distributions that the individual must otherwise receive from their IRAs in 2011. This benefit is available even if you do not itemize deductions.
6. Don't Overlook the Small Business Health Care Tax Credit – If you are a small employer who pays at least half of your employee health insurance premiums, you may qualify for a tax credit of up to 35 percent of the premiums paid. An employer with fewer than 25 full-time employees who pays an average wage of less than $50,000 a year may qualify. For more information see the Small Business Health Care Tax Credit page on IRS.gov.
And here is one final tip to remember: you should always save receipts and records related to your taxes. Good recordkeeping is a must because you need records to prepare your tax return, and it will help you to file quickly and accurately next year.

Sunday, December 18, 2011

Tax code explained in Beer


Suppose that every day, ten men go out for beer and the bill for all ten comes to $100...

If they paid their bill the way we pay our taxes, it would go something like this...

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7..
The eighth would pay $12..
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, that's what they decided to do..

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20". Drinks for the ten men would now cost just $80.

The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free. But what about the other six men ? How could they divide the $20 windfall so that everyone would get his fair share?


They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer.

So, the bar owner suggested that it would be fair to reduce each man's bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

And so the fifth man, like the first four, now paid nothing (100% saving).
The sixth now paid $2 instead of $3 (33% saving).
The seventh now paid $5 instead of $7 (28% saving).
The eighth now paid $9 instead of $12 (25% saving).
The ninth now paid $14 instead of $18 (22% saving).
The tenth now paid $49 instead of $59 (16% saving).

Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.

"I only got a dollar out of the $20 saving," declared the sixth man. He pointed to the tenth man,"but he got $10!"

"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar too. It's unfair that he got ten times more benefit than me!"

"That's true!" shouted the seventh man. "Why should he get $10 back, when I got only $2? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison, "we didn't get anything at all. This new tax system exploits the poor!"

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and government ministers, is how our tax system works. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.

David R. Kamerschen, Ph.D.
Professor of Economics.

For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible

Thursday, December 15, 2011

Tips for Year-End Giving


WASHINGTON — Individuals and businesses making contributions to charity should keep in mind several important tax law provisions that have taken effect in recent years. Some of these changes include the following:
Special Charitable Contributions for Certain IRA Owners
This provision, currently scheduled to expire at the end of 2011, offers older owners of individual retirement accounts (IRAs) a different way to give to charity. An IRA owner, age 70½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charity. This option, created in 2006, is available for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.
To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity. Amounts so transferred are not taxable and no deduction is available for the transfer.
Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.
Amounts transferred to a charity from an IRA are counted in determining whether the owner has met the IRA’s required minimum distribution. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats transferred amounts as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions. See Publication 590, Individual Retirement Arrangements (IRAs), for more information on qualified charitable distributions.
Rules for Clothing and Household Items
To be deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances and linens.
Guidelines for Monetary Donations
To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.
Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.
Reminders
To help taxpayers plan their holiday-season and year-end giving, the IRS offers the following additional reminders:
  • Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2011 count for 2011. This is true even if the credit card bill isn’t paid until 2012. Also, checks count for 2011 as long as they are mailed in 2011.
  • Check that the organization is qualified. Only donations to qualified organizations are tax-deductible. IRS Publication 78, searchable and available online, lists most organizations that are qualified to receive deductible contributions. It can be found at IRS.gov under Search for Charities. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in Publication 78.
  • For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction, including anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2011 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.
  • For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
  • The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.
  • If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.
  • And, as always it’s important to keep good records and receipt

Tuesday, December 13, 2011

Tax Changes for 2011


Whether you file as an individual, a corporation, a small business owner, or are self-employed, as the end of the year draws near, you're probably thinking ahead to tax season and filing your taxes.
Most tax provisions of course, remain the same (IRA contribution limits for example), but a few such as personal exemptions have been adjusted for inflation and others have been extended due to legislation and are set to expire at the end of 2012.
From tax credits, exemptions and deductions for individuals and Section 179 expensing for small businesses, here's what you need to know about tax changes for 2011.

Individuals

From personal deductions to tax credits and educational expenses, many of the tax changes relating to individuals remain in effect through 2012 and are the result of tax provisions that were either modified or extended by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that became law on December 17, 2010.
Personal Exemptions
The personal and dependent exemption for tax year 2011 is $3,700, up $50 from 2010.
Standard Deductions
In 2011 the standard deduction for married couples filing a joint return is $11,600, up $200 from 2010 and for singles and married individuals filing separately it's $5,800, up $100. For heads of household the deduction is $8,500, also up $100 from 2010.
The additional standard deduction for blind people and senior citizens is $1,150 for married individuals, up $50, and $1,450 for singles and heads of household, also up $50.
Income Tax Rates
Due to inflation, tax-bracket thresholds will increase for every filing status. For example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $69,000 for a married couple filing a joint return, up from $68,000 in 2010.
Estate and Gift Taxes
The recent overhaul of estate and gift taxes means that there is an exemption of $5 million per individual for estate, gift and generation-skipping taxes, with a top rate of 35%. For married couples the exemption is $10 million.
Alternative Minimum Tax (AMT)
AMT exemption amounts for 2011 are slightly higher than those in 2010 at $48,450 for single and head of household fliers, $74,450 for married people filing jointly and for qualifying widows or widowers, and $37,225 for married people filing separately.
Marriage Penalty Relief
For 2011, the basic standard deduction for a married couple filing jointly is $11,600, up $200 from 2010.
Pease and PEP (Personal Exemption Phaseout)
Pease (limitations on itemized deductions) and PEP (personal exemption phase-out) limitations do not apply for 2011, but these are set to expire at the end of 2012.
Flexible Spending Accounts (FSA)
The Affordable Care Act, enacted in March, established a new uniform standard, effective January 1, 2011, that applies to FSAs and health reimbursement arrangements (HRAs).
Under the new standard, the cost of an over-the-counter medicine or drug cannot be reimbursed from the account unless a prescription is obtained. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles.
The new standard applies only to purchases made on or after Jan. 1, 2011, so claims for medicines or drugs purchased without a prescription in 2010 can still be reimbursed in 2011, if allowed by the employer's plan.
A similar rule went into effect on Jan. 1, 2011 for Health Savings Accounts (HSAs), and Archer Medical Savings Accounts (Archer MSAs).
Long Term Capital Gains
In 2011, long-term gains for assets held at least one year are taxed at a flat rate of 15% for taxpayers above the 25% tax bracket. For taxpayers in lower tax brackets, the long-term capital gains rate is 0%.

Individuals - Tax Credits


Adoption Credit
A refundable credit of up to $13,360 for 2011 is available for qualified adoption expenses for each eligible child.
Child and Dependent Care Credit
If you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) in order to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses.
For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher income earners the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income.
Child Tax Credit
The $1,000 child tax credit has been extended through 2012. A portion of the credit may be refundable, which means that you can claim the amount you are owed, even if you have no tax liability for the year. The credit is phased out for those with higher incomes.
Energy Tax Credits for Homeowners
Energy tax credits for homeowners expire at the end of 2011 and are not as generous as in previous years. In addition, a taxpayer who has claimed an amount of $500 in any previous year is not eligible for this tax credit.
Homeowners can claim an Energy Star window tax credit of up to $200 maximum as well as a water heater tax credit, which includes electric, natural gas, propane, or oil, up to a maximum of $300. The same maximum ($300) applies to air conditioners, but insulation, doors, and roof credits are capped at $500. The furnace tax credit (includes natural gas, propane, oil, or hot water) and is capped at $150 maximum and efficiency must be at 95%.
Earned Income Tax Credit (EITC)
The maximum EITC for low and moderate income workers and working families is $5,751, up from $5,666 in 2010. The maximum income limit for the EITC has increased to $49,078, up from $48,362 in 2010. The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children.

Individuals - Education Expenses

Coverdell Education Savings Account
For two more years, you can contribute up to $2,000 a year to Coverdell savings accounts. These accounts can be used to offset the cost of elementary and secondary education, as well as post-secondary education.
American Opportunity Tax Credit (Higher Education)
The expansion of the Hope Scholarship Credit by the American Opportunity Tax Credit has been extended through 2012. For 2011, the maximum Hope Scholarship Credit that can be used to offset certain higher education expenses is $2,500, although it is phased out beginning at $160,000 adjusted gross income for joint filers and $80,000 for other filers.
Employer Provided Educational Assistance
Through 2012, you, as an employee, can exclude up to $5,250 of qualifying post-secondary and graduate education expenses that are reimbursed by your employer.
Lifetime Learning Credit
A credit of up to $2,000 is available for an unlimited number of years for certain costs of post-secondary or graduate courses or courses to acquire or improve your job skills. For 2011, the credit is fully phased out at $122,000 adjusted gross income for joint filers and $61,000 for others.
Student Loan Interest
For 2011 and 2012, the $2,500 maximum student loan interest deduction for interest paid on student loans is not limited to interest paid during the first 60 months of repayment. The deduction begins to phase out for higher-income taxpayers.
Tuition and Related Expenses Deduction
For 2010 and 2011, there is an above-the-line deduction of up to $4,000 for qualified tuition expenses. This means that qualified tuition payments can directly reduce the amount of taxable income, and you don't have to itemize to claim this deduction. However, this option can't be used with other education tax breaks, such as the American Opportunity Tax Credit, and the amount available is phased out for higher-income taxpayers.

Individuals - Retirement

Roth IRA Conversions
There is no longer an income limit for taxpayers who want to convert regular IRAs into Roth IRAs. The difference is that taxpayers who convert to Roth IRAs in tax year 2011 must pay taxes on the conversion income now instead of deferring it in later years as was the case in 2010.

Businesses

Standard Mileage Rates
The standard mileage rate increases to 51 cents per business mile driven (19 cents per mile driven for medical or moving purposes and 14 cents per mile driven in service of charitable organizations) for the first half of 2011. From July 1, 2011 to December 31, 2011 however, the rate increases to 55.5 cents per business mile. This increase is a special adjustment by the IRS and reflects higher gasoline prices.
Health Care Tax Credit for Small Businesses
Small business employers who pay at least half the premiums for single health insurance coverage for their employees may be eligible for the Small Business Health Care Tax Credit as long as they employ fewer than the equivalent of 25 full-time workers and average annual wages do not exceed $50,000. The credit can be claimed in tax years 2010 through 2013 and for any two years after that. The maximum credit that can be claimed is an amount equal to 35% of premiums paid by eligible small businesses.
Section 179 Expensing
In 2011 (as well as 2010), the maximum Section 179 expense deduction for equipment purchases is $500,000 ($535,000 for qualified enterprise zone property) of the first $2 million of certain business property placed in service during the year. The bonus depreciation increases to 100% for qualified property. If the cost of all section 179 property placed in service by the taxpayer during the tax year exceeds $2 million, the $500,000 amount is reduced, but not below zero.
Please contact us if you need help understanding which deductions and tax credits you may be qualify for. 865-984-6329 

Sunday, December 11, 2011

Eight Tips for Deducting Charitable Contributions

 

Charitable contributions made to qualified organizations may help lower your tax bill. The IRS has put together the following eight tips to help ensure your contributions pay off on your tax return.
   1. If your goal is a legitimate tax deduction, then you must be giving to a qualified organization. Also, you cannot deduct contributions made to specific individuals, political organizations and candidates. See IRS Publication 526, Charitable Contributions, for rules on what constitutes a qualified organization.

     2. To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A.

     3. If you receive a benefit because of your contribution such as merchandise, tickets to a ball game or other goods and services, then you can deduct only the amount that exceeds the fair market value of the benefit received.

     4. Donations of stock or other non-cash property are usually valued at the fair market value of the property. Clothing and household items must generally be in good used condition or better to be deductible. Special rules apply to vehicle donations.

     5. Fair market value is generally the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts.

     6. Regardless of the amount, to deduct a contribution of cash, check, or other monetary gift, you must maintain a bank record, payroll deduction records or a written communication from the organization containing the name of the organization, the date of the contribution and amount of the contribution. For text message donations, a telephone bill will meet the record-keeping requirement if it shows the name of the receiving organization, the date of the contribution, and the amount given.

     7. To claim a deduction for contributions of cash or property equaling $250 or more you must have a bank record, payroll deduction records or a written acknowledgment from the qualified organization showing the amount of the cash and a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift. One document may satisfy both the written communication requirement for monetary gifts and the written acknowledgement requirement for all contributions of $250 or more. If your total deduction for all noncash contributions for the year is over $500, you must complete and attach IRS Form 8283, Noncash Charitable Contributions, to your return.

     8. Taxpayers donating an item or a group of similar items valued at more than $5,000 must also complete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser.
For more information on charitable contributions, refer to Form 8283 and its instructions, as well as Publication 526, Charitable Contributions. For information on determining value, refer to Publication 561, Determining the Value of Donated Property. These forms and publications are available at http://www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

Wednesday, December 7, 2011

IRS Identity Protection PIN


Later this month, the IRS will be sending letters out to approximately 250,000 taxpayers that contains their 6-digit “Identity Protection PIN.” Taxpayers will receive this letter because they have informed the IRS that they were the victims of identity theft which the IRS has confirmed after reviewing documentation provided by the taxpayer.
The Identity Protection PIN must be entered on the affected taxpayer’s Federal return in order to avoid a delay in processing the return and receipt of their refund.
If you have been a victim of identity theft, and received a letter from the IRS make sure you tell your tax preparer and bring the letter with you when you have your tax return prepared. .
Things to know about the Identity Protection PIN:
  • If the taxpayer received an Identity Protection PIN and it is not entered on their return, the IRS will reject the return if it is filed electronically.
  • The Identity Protection PIN received by the taxpayer this month is only valid for use on their TY 2011 return.
  • For an affected taxpayer, if the Identity Protection PIN is entered incorrectly, the processing of their return will be delayed.
  • If the taxpayer misplaces their letter and cannot remember their Identity Protection PIN, they cannot obtain a new one from the IRS. In this case, they will have to file their return on paper and the processing of their return will be delayed while the IRS validates that the return filed is the taxpayer’s.
  • If both the taxpayer and spouse receive an Identity Protection PIN, only the taxpayer’s should be entered on the return.
  • When the Identity Protection PIN is entered in the CrossLink program, the PIN will be transmitted to the IRS as part of Form 1040. It will also print on Form 1040 in the area designated for this purpose in the signature area of Form 1040.
  • An affected taxpayer will receive a unique 6-digit PIN each year for 3 years following verification by the IRS.
  • The Identity Protection PIN should not be confused with the 5-digit taxpayer/spouse electronic self-select PIN.
Read more about the IRS Identity Protection PIN program.
If one of your customers informs you that they have been a victim of identity theft and they have not contacted the IRS you should do one of the following:
  • See the IRS Identity Theft website.
    This site contains information such as what documents the IRS requires the taxpayer to submit for the IRS to validate their claim, where to send the information, and how the taxpayer can contact the IRS Identity Protection unit; or
  • Have the taxpayer contact the IRS Identity Protection Unit at 1-800-908-4490. Their hours of operation are Monday – Friday
    8:00 am – 8:00 pm your local time.

Wednesday, November 30, 2011

IRS Seeks to Return $153 Million in Undelivered Checks to Taxpayers

Recommends e-file, Direct Deposit to Avoid Future Delivery Problems 

WASHINGTON — In an annual reminder to taxpayers, the Internal Revenue Service announced today that it is looking to return $153.3 million in undelivered tax refund checks. In all, 99,123 taxpayers are due refund checks this year that could not be delivered because of mailing address errors.
Undelivered refund checks average $1,547 this year.
Taxpayers who believe their refund check may have been returned to the IRS as undelivered should use the “Where’s My Refund?” tool on IRS.gov. The tool will provide the status of their refund and, in some cases, instructions on how to resolve delivery problems.
Taxpayers checking on a refund over the phone will receive instructions on how to update their addresses. Taxpayers can access a telephone version of “Where’s My Refund?” by calling 1-800-829-1954.
While only a small percentage of checks mailed out by the IRS are returned as undelivered, taxpayers can put an end to lost, stolen or undelivered checks by choosing direct deposit when they file either paper or electronic returns. Last year, more than 78.4 million taxpayers chose to receive their refund through direct deposit. Taxpayers can receive refunds directly into their bank account, split a tax refund into two or three financial accounts or even buy a savings bond.
The IRS also recommends that taxpayers file their tax returns electronically, because e-file eliminates the risk of lost paper returns. E-file also reduces errors on tax returns and speeds up refunds. Nearly 8 out of 10 taxpayers chose e-file last year. E-file combined with direct deposit is the best option for taxpayers to avoid refund problems; it’s easy, fast and safe.
The public should be aware that the IRS does not contact taxpayers by e-mail to alert them of pending refunds and does not ask for personal or financial information through email.  Such messages are common phishing scams.  The agency urges taxpayers receiving such messages not to release any personal information, reply, open any attachments or click on any links to avoid malicious code that can infect their computers.  The best way for an individual to verify if she or he has a pending refund is going directly to IRS.gov and using the “Where’s My Refund?” tool. 

Thursday, November 17, 2011

I GOT A 1099-A NOW WHAT?


When a house is foreclosed upon by the bank, the owners typically receive Form 1099-A from the lender showing several pieces of relevant information. The information on Form 1099-A will likely be needed to report the foreclosure on your tax return. A foreclosure is treated as the sale of property, and the former property owner will need to calculate their gain or loss on the property. But unlike a normal sale, there's no "selling price," and this is where the Form 1099-A comes into play. 
Taxpayers will need to report the foreclosure just like it were a sale of the property. And to properly report this, you'll need to know the selling date and selling price of the property. Form 1099-A provides you with the date of sale and the "selling price" of the property, which is half the information you need to report the sale of the foreclosed property on your tax return. The other half of the information you need is the purchase date and purchase price; and that information will be found in your escrow statements from when the property was purchased.
Figuring out the "selling price" of the property is a bit complicated. The answer depends on the type of loan. Taxpayers will utilize either the fair market value of the property or the outstanding loan balance on the property for the selling price. Both of these figures are reported on Form 1099-A. The outstanding loan balance is found in Box 2; the property's fair market value is found in Box 4. The date of the foreclosure is indicated in Box 1, and this will be used as the date the property was disposed of (that is, the "sale date"). Taxpayers will also need to know if the loan was a recourse or a non-recourse loan; the loan was a recourse loan if the bank has checked Box 5 which states "If checked, the borrower was personally liable for repayment of the debt?"
People might receive multiple Forms 1099-A (one from each lender) for a single property. People might also receive Form 1099-C instead of Form 1099-A if the lender both foreclosed on the property and canceled any mortgage debt for which the borrower was personally liable.
Gain or loss is reported on Schedule D for homes that were personal residences. As a reminder, the IRS does not allow people to claim a loss on personal residences. Any gain (and I have seen situations where a foreclosure results in gain being reported) on personal residences can be offset by the capital gains exclusion for a main home.
So what do you do with Form 1099-A, exactly? First, if the foreclosed property was your personal residence, the foreclosure will be reported on Schedule D. You'll use the date of the foreclosure (found in box 1 of the 1099-A) as your date of sale. You'll need to indicate the selling price. This will be either the amount in box 2 or the amount in box 4. Which figure you'll use depends if you are liable to repay the loan, recourse loan. If box 5 is checked on the 1099-A, the sale price is the lesser of box 2 or box 5. If box 5 is not checked, the sale price is box 2.  You'll also need to indicate your purchase price or cost basis in the property. That information you should have in your records, usually from the HUD-1 closing statement from when you purchased the property. The difference between the selling price and your cost basis will result in your gain or loss. Gains are taxable, losses personal residences are not tax-deductible.
If the property was  a rental, you'll report the same information as above, but you'll use Form 4797. I advise people who have foreclosed rental properties to seek assistance as there are additional factors to take into consideration, such as recapture of depreciation deductions, passive activity loss carryovers, and reporting any final rental income and expenses.

 IRS CIRCULAR 230 Disclosure:
Under U.S. Treasury Department regulations, we are required to inform you that, unless expressly indicated, any tax advice contained in this post, or any attachment hereto, is not intended or written, to be used, and may not be used to (a)avoid penalties imposed under the Internal Revenue Code (or applicable state or local tax law provisions) or (b)promote, market, or recommend to another party any tax-related matters addressed herein.


Tuesday, November 15, 2011

I GOT A 1099-C NOW WHAT?


The IRS form 1099 is used by various entities to report income that they have perceived you have earned. Example: Big Bank issues you a credit card. You run up $2,000 and never pay. After some time Big Bank will issue a 1099 to you. They are also reporting the $2000 as income you have earned, to the IRS. A 1099 can be a blessing because no one else can come after you for the $2,000, the bad side is that now you may have to pay income tax on the $2000.
The IRS requires financial institutions to report to them the amount of principal they charge-off for individual borrowers. It is only to be filed after you have stopped collection activity and there has been no payment activity on the account for three years. This is not a way for financial institutions to try and collect further. It is an added burden on them to track these conditions and find the records when they meet the criteria for filling. The financial institution had written the debt off years earlier.
 
More information for consumers
If you're receiving one of these, the most common reason is consumer debt, credit cards--banks may also issue 1099-c forms for mortgages,
1.) You have a debt that was never paid, or partially paid, sold to a collection agency who still couldn't collect, etc. Whatever the point is, whoever owns the debt is writing it off as a loss. This is not very common because unless you file for bankruptcy, most collection agencies or banks won't simply "give up" on you. If anything, they'll file for a judgment against you for the debt, interest, collection costs, capitalization fees, etc. It is very unlikely that you're receiving a 1099-C simply because the bank said "ah, lets write this one off." With the problems lenders are having these days, no bank is going to surrender debt as a loss. or,
2.) You had a collection agency or bank hounding you for money. Hopefully you were smart enough to pay them off with a lump sum instead of making payments that merely cover the interest. Anyway, if you were even smarter, you realized that the principal of the original debt (say it was a $5,000 credit card) was like 33% of the amount they were now demanding, and you cut a "deal" to close the case. Well, say it was a $5,000 credit card, they were demanding $13,500, and you gave them $10,000 to call it even. Well, the difference between the "demand" and your "settlement" is considered taxable income by the government. You have to pay income taxes on that $3,500 that you "gained."
Please note--some exceptions do apply. Most commonly, if you were insolvent at the time of the settlement (not bankrupt, insolvent) meaning your current liabilities (loans, debts, bills, etc.) outweighed your assets (income, savings/checking accounts, other assets like house, car etc.) you do not have to pay the tax---the theory being that the debt was written off because you couldn't pay. You must file Form 982 and complete an insolvency worksheet. Be prepared to prove that you are in fact insolvent.
IRS may ask for it. 



IRS CIRCULAR 230 Disclosure:
Under U.S. Treasury Department regulations, we are required to inform you that, unless expressly indicated, any tax advice contained in this email, or any attachment hereto, is not intended or written, to be used, and may not be used to (a)avoid penalties imposed under the Internal Revenue Code (or applicable state or local tax law provisions) or (b)promote, market, or recommend to another party any tax-related matters addressed herein.


Four Facts About Bartering

In today’s economy, small business owners sometimes look to the oldest form of commerce – the exchange of goods and services, or bartering. The fair market value of property or services received through barter is taxable income.

Bartering is the trading of one product or service for another. Usually there is no exchange of cash. However, the fair market value of the goods and services exchanged must be reported as income by both parties.

Here are four facts about bartering that small business owners should be aware of:


1. Barter Exchange A barter exchange functions primarily as the organizer of a marketplace where members buy and sell products and services among themselves. Whether this activity operates out of a physical office or is internet based, a barter exchange is generally required to issue Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, annually to their clients or members and to the IRS.

2. Barter Income Barter dollars or trade dollars are identical to real dollars for tax reporting. If you conduct any direct barter - barter for another’s products or services - you will have to report the fair market value of the products or services you received on your tax return.

3. Taxes Income from bartering is taxable in the year it is performed. Bartering may result in liabilities for income tax, self-employment tax, employment tax, or excise tax. Your barter activities may result in ordinary business income, capital gains or capital losses, or you may have a nondeductible personal loss.

4. Reporting The rules for reporting barter transactions may vary depending on which form of bartering takes place. Generally, you report this type of business income on Form 1040, Schedule C Profit or Loss from Business, or other business returns such as Form 1065 for Partnerships, Form 1120 for Corporations, or Form 1120-S for Small Business Corporations.

 IRS CIRCULAR 230 Disclosure:
Under U.S. Treasury Department regulations, we are required to inform you that, unless expressly indicated, any tax advice contained in this post, or any attachment hereto, is not intended or written, to be used, and may not be used to (a)avoid penalties imposed under the Internal Revenue Code (or applicable state or local tax law provisions) or (b)promote, market, or recommend to another party any tax-related matters addressed herein.

Friday, November 11, 2011

Thursday, November 10, 2011

Tax Benefits Expiring in 2011 & 2012

It's almost the holiday season. Thanksgiving, then Christmas and finally the New Year.  With a New Year we will be getting tax law changes. Unless Congress extends these benefits, they are known to do that, look for your tax bill to go up in 2012 and 2013. 

Major Individual Income Tax Benefits Expiring 12/31/2011:
• Personal tax credits applied against income tax no longer apply
• Higher alternative minimum tax exemptions revert back to extraordinarily-low thresholds
• $250 school teacher expense deduction ends
• Mortgage insurance premium deduction expires
• State and local sales tax deductions expire
• Tuition and related fees deduction end
• IRA to charity tax-free transfers stop
• 2% Social Security tax reduction ends
Major Individual Income Tax Benefits Expiring 12/31/2012:
• Marriage penalty equalization ends
• Dividends taxed at capital gains rates removed, taxed at regular rates now
• Capital gains low tax rates expires
• Removal of itemized deduction phase out for higher income Americans
• Removal of personal exemption phase out for higher income Americans
• Child care deduction limit of $3,000 reverts to $2,400
• Child credit reduces from $1,000 per child to $500 per child
• Low 10% tax bracket for low income Americans is eliminated
• Lower income tax rates and smaller brackets expires
• Refundable adoption credit and reduced deduction
• American Opportunity college education credit expires
• Major reduction in earned income credits and refunds
• Income tax exemption for debt forgiven on home foreclosures and repossessions
• Deduction for student loan interest ends
• Education IRA limit drops from $2,000 to $500

Here's How to Tell the Deals From the Duds at a Dollar Store

Despite their name, 99-cent stores can offer great deals on items like coloring books, notepads, stocking stuffers, baby clothes, soap, and so on.
"The biggest misconception about dollar stores is that they only have junk that no one needs and everything is low quality," says Andrew Schrage of MoneyCrashers, an investment website.
There's too much competition for them not to offer similar products to general stores.
But watch out: Some products should only be bought at a general store. Read through to see if you can guess what's a deal and a dud at the 99-cent store.
DEAL: Pet Toys
Pet toys can stand to get beaten (and eaten) up since they're so cheap, and the store usually has a great selection.
NO DEAL: Batteries and Other Electronics
Some stores sell "gray goods," or products made for a foreign market. Oftentimes they fail to comply with U.S. regulations and as a result, they can be dangerous.
Batteries can be prone to leakage and fail to last as long as name-brand batteries. This means you'll spend more on replacements.
Also be forewarned that some UL labels on electronics and extension cords may say they're U.S. approved when they aren't.
NO DEAL: Domestic Fire Products
Lighters, tiki torches, barbecue makers, and outdoor candles should never be bought from a dollar store. If you do, you might find your house go up in flames like a Hawaiian-themed barbecue.
DEAL: Cookware
Dollar stores stock lots of basic cooking supplies, including pots, pans, spatulas, ice cream scoopers, cheese graters and oven mitts.
You'll save 50 to 90 percent on items, compared to prices at Target, but sometimes these kits will be really dirty, missing pieces, or just flat-out broken. Check to make sure.
NO DEAL: Groceries
Whatever amount you might save isn't worth the risk of eating counterfeit products or food made for international destinations that haven't been U.S. approved.
The merchandise may be also expired: Food-carrying containers sit outside for long periods of time, and temperature changes spoils the food, Terri Gault, founder of TheGroceryGame.com, tells MainStreet.
In terms of pricing, grocery stores offer better deals, especially with pre-packaged baking goods and generics. The big box stores are even cheaper when they're having a sale or giving out coupons.
DEAL: Cleaning Supplies
Buy these, especially items like mops, rubber gloves, or sponges. They're the same as what you'd get at the grocery store, just cheaper.
You can also go for liquid cleaners, says Schrage, but oftentimes their formula is diluted and leaves residue.
Also think about buying disposable clean-up items like toilet paper and paper towels. Keep in mind, however, that you may want to buy these toiletries in bulk.
DEAL: Greeting Cards
Dollar stores stock up on lots of good, quality cards, which they sell for cheap. A drugstore like Duane Reade will charge $1.40, but the 99-cent store price comes in at about 50 cents.
DEAL: Party Supplies
As with greeting cards, dollar stores always restock party supplies.
Their merchandise tends to be fun and lively, and most importantly, cheap. They carry everything you need, from hats to plastic plates, cups, and utensils.
NO DEAL: Children's Toys
DO NOT buy these at a 99 cents store. 99-cent store toys are made cheaply so you won't want to risk having a piece breaking off in your kid's throat. Same goes for baby products—avoid them.
Items sold in the dollar stores sometimes bypass U.S. approval, which as we pointed out earlier, could mean high levels of lead and other chemicals. Remember those Chinese Mattel dolls?
NO DEAL: Over-the-Counter Medications
Stay away from vitamins, as the amount of nutrients the label claims is probably faulty. Cheap vitamins also don't dissolve quickly enough for your body to absorb them.
Similarly avoid buying aspirin, ibuprofen, and other over-the-counter meds at a 99 cent store. Independently-owned 99-cent stores have been known to counterfeit these products.
"Suppliers digitally alter a label and scan it into a generic bottle or package," Greg Guila, a lawyer specializing in patent law at the firm Duane Morris, tells MainStreet.
 
 This article is part of a series related to being Financially Fit.

Tuesday, November 8, 2011

How to Feed a Family for $15 a Day


The average family of four spends upwards of $1,200 a month on food, or roughly $40 a day. But with smart planning and key ingredients, you can learn to bring that expense down to less than $15 a day. Cooking Light contributing editor and host of Yahoo's Blue Ribbon Hunter Allison Fishman stopped by my kitchen recently to show us exactly how, without sacrificing health or taste.
She says it mainly starts with some important prep work. "You can definitely feed a family of four for under $15 a day. The trick is you've got to plan for it. It's called 'intentional shopping,' which means make a menu, make a shopping list and stick to it," says Fishman. "Mapping out your meals can actually save you about 20 percent."
Next, she says, you want to rethink meat since it's the most expensive food item on most grocery bills. "Try vegetarian options once or twice a week," says Fishman. "That can make a big dent in your grocery bill." Or, another option is to stretch your beef, poultry and fish a little further in your cooking. For example, instead of making it the feature food of your meal, use it sparingly for flavor and texture, almost like a condiment. Fishman suggests tossing a small amount of sirloin into a vegetable stir-fry, or throwing a few ounces of shrimp in with a larger pasta recipe. A pound of beef, which costs about $5.99 per pound, can provide dinner for a family of four when sliced up and cooked along with vegetables.
And remember while it's more convenient to buy boneless, skinless chicken breast for $5 per pound, you can save a significant amount when you buy whole chicken and cut it up yourself. This way it only costs a little more than $1 per pound.
Repurposing leftovers is also a great way to save. For breakfast, Fishman likes to mix leftover dinner vegetables with eggs and shredded cheese for a family-sized breakfast scramble, all for just $1.12. For lunch, you can refresh leftover rice and take-out with a little onion and tofu to make a whole new homemade vegetable fried rice for a grand total of $3.13.
Next, opt for cheap, bulk ingredients as the base of your meal from whole grain pasta to long-grain brown rice. Dried beans and legumes are a frugal cook's superstars, says Fishman. "They're great in a variety of recipes and provide tons of protein and fiber. They're also cheap when you buy them in bulk. You'll get five times more beans for your buck compared to canned," she says. "The trick is you'll have to rehydrate them by either cooking them over the stove or in a slow cooker." Once they're ready for cooking, you can make chili, soups, baked beans and all kinds of healthy meals for very little cost. Best part about beans and legumes is that they're filled with protein and fiber so you'll stay full for a longer period of time.
Another bargain food staple is seasonal produce. In the fall, grocers carry tons of squash, citrus and robust greens like kale and chard. When there's an abundance, you'll find them at rock bottom prices, usually about a $1 less per pound.
Finally, one of Fishman's favorite dinner recipes for families, which costs just over $2 per serving: rotini with white beans and escarole. "It exemplifies what eating on a budget is all about. It's vegetarian, it's got pasta, it's got plenty of beans for protein, and it includes seasonal fall vegetables."
This article is part of a series related to being financially fit.

Saturday, November 5, 2011

IRS Gets Better at Catching Fraudulent Tax Refunds


The Internal Revenue Service increased the number of fraudulent tax refund claims it detected and stopped during the 2011 tax-filing season by 171 percent over the previous year.
As of April 30, 2011, the IRS had identified 775,723 tax returns with $4.6 billion claimed in fraudulent refunds and prevented the issuance of $4.4 billion, or roughly 96 percent, of those fraudulent tax refunds, according to a new government report by the Treasury Inspector General for Tax Administration. That represents a 171 percent increase in the number of fraudulent returns identified during the same period in 2010.
“We are working diligently to identify and stop all fraudulent returns and achieved an increase of 171 percent over last year in the number of fraudulent returns identified,” wrote Richard Byrd Jr., the commissioner of the IRS’s Wage and Investment Division, in response to the report. “This was accomplished, in part, by improved identification and screening of prisoner tax returns. We anticipate that our expanded efforts in this area will have a long-lasting and significant impact in preventing the payment of erroneous or fraudulent refund claims.”
The IRS selected 199,854 tax returns filed by prisoners for fraud screening, representing a 256 percent increase compared to last year.
However, the IRS was unable to identify 140,596 taxpayers who erroneously claimed $140.2 million in tax credits due to processing errors. TIGTA identified several problematic credits, including the First-Time Homebuyer Credit, the Adoption Credit, the Nonbusiness Energy Property Credit, and the Plug-in Electric and Alternative Motor Vehicle Credit. In addition, 26,649 taxpayers had their Homebuyer Credit inaccurately processed, $5.8 million in repayment amounts was not assessed, and $675,063 in repayment amounts was erroneously assessed.
The findings were part of TIGTA’s review of the IRS’s performance during the 2011 filing season. The report noted that the IRS received 130.7 million individual income tax returns and issued approximately 98.2 million refunds totaling $277.1 billion during tax season this year.
“Overall, the IRS’s performance during the 2011 filing season has been successful,” said TIGTA Inspector General J. Russell George in a statement. However, he added, “The IRS continues to face challenges relating to First-Time Homebuyer Credit repayments, verification of the Adoption Credit, and several energy-efficiency tax credits.”
TIGTA made 14 recommendations to the IRS. The most significant recommendations were that the IRS ensure that taxpayers TIGTA has identified as erroneously claiming the credits and deductions are entitled to claim them, initiate a recovery program for erroneously paid claims, revise the programming for First-Time Homebuyer Credit repayments, and seek math-error authority for certain credits detailed in the report.
Byrd said that expanded math error authority could enable the IRS to respond more efficiently to fraudulent refund claims, and the IRS and the Office of the Chief Counsel would discuss the merits of obtaining it with the Treasury Department’s Office of Tax Policy. George said he was pleased that the IRS plans to seek math-error authority for several credits that TIGTA found to be problematic.
The IRS disagreed with only two of TIGTA’s recommendations involving the First-Time Homebuyer Credit. For the two disagreed recommendations, TIGTA said it continues to believe the IRS needs to take action related to its recommendation to establish a Homebuyer Credit Entity Section for each taxpayer who received the Homebuyer Credit rather than grouping information by primary and secondary Social Security Number. The report said the lack of IRS action could result in continued problems, with delays in refunds to some taxpayers.
On another issue involving installment repayments, the IRS also disagreed. TIGTA recommended that programming changes be made to prevent tax examiners from increasing an installment repayment amount without increasing the associated tax liability. The IRS disagreed, contending that systemically preventing tax examiners from increasing the installment repayment amount was undesirable because taxpayers may pay more than the required amount. However, TIGTA contended that the issuance of an alert would ensure that tax examiners accurately allocate installment repayments.

Source Accounting Today

Friday, November 4, 2011

What's on Sale in November

Practically speaking, November is the first full month of the holiday season.
What commences with candy and costumes on the last night of October concludes with confetti and champagne corks on New Year's Eve.
No coincidence, then, that November also marks the beginning of serious holiday sales and specials.
"Half of the world of retail is on sale in November, whether it's a 20 percent markdown or 40 percent," says Daniel Butler, vice president of retail operations for the National Retail Federation. "It's a very heavy promotional month."
And November also hosts two of the most highly anticipated shopping days on the annual calendar: Black Friday and Cyber Monday.
This year, small and independent retailers are focusing on the weekend in between the two -- offering special sales, deals and buys. "And I think you'll see that trend grow," Butler says.
Want to get a good deal in November? Here are seven items where you're likely to find some good buys.
TVs and DVDs
If you're in the market for a TV or DVDs, November might just be your month, says Augie Grant, professor at the University of South Carolina and editor of "Communication Technology and Fundamentals."
There are going to be big specials coming on televisions, especially large screens and 3-D TVs, which have not been selling as well as expected, says Grant.
"As we get closer to Christmas, the prices are going to get better and better," he says.
You could save at least 10 percent to 20 percent, Grant says. Look for items such as a fairly simple 32-inch TV (without Internet capabilities or a half-dozen HDMI connections) for less than $250 during November.
"The cheapest time to buy a TV is November and December," Grant says.
You'll find some deals on DVDs, too. With the surging popularity of Blu-ray, movie companies are discounting their traditional-format DVDs to entice buyers and collectors, Grant says.
Look for a lot of popular movies for $5 to $10 during November, with some after-Thanksgiving sales with prices as low as $2 or $3, he says.
Also on the sale table this month: electronic tablets.
As a host of them are introduced to the market, their prices are how they fight for space on the shelves, says Grant. So prices drop.
With the exception of Apple, you can expect to find a selection of tablets in the $200 to $400 range in the stores this month, he says.
Winter Clothing and 2011 Collectibles
Look for markdowns on winter clothing staples such as gloves, hats and sleepwear, says Butler. "These are big items that are promoted in November," he says.
You can save 25 percent to 40 percent. "And that's in all size ranges," he says.
Also on sale: collectible items with the year "2011" on them, Butler says. With two months of the year left, retailers want to move them -- but discounts won't be as deep as what you'll see in December or January, he says.
"You get markdowns of about 20 percent, and you'll find more selection," Butler says.
Holiday ornaments, baby's first Christmas items, and "collectible china or anything with the year on it" are on sale, he says.
Halloween Costumes, Decorations and Candy
Small and independent retailers typically put holiday items on sale after the holidays -- which means anything targeted to October or Halloween will likely carry a deep discount in those stores during the first few days of November, says Carol Schroeder, co-owner of Orange Tree Imports in Madison, Wis., and author of "Specialty Shop Retailing: Everything You Need to Know to Run Your Own Store."
Look for deals on October and Halloween "home decor and things for the dress-up box," Schroeder says.
"Even if the kids don't know what they want to be next Halloween, you can always use some capes and hats for the dressing up in between," she says.
You can expect savings of 40 percent to 50 percent, Schroeder says.
But you have to move fast. Often independent shops can keep this stuff on the shelves only for a few days to the first week of the month, she says.
Halloween candy is on sale at retailers big and small. So if you can use Halloween candy in your holiday baking or for lunchbox treats, it's a good time to buy. And candy corn is just as appropriate for Thanksgiving festivities, she says.
You stand to save "60 percent off, at least," because stores aren't going to carry it over for next year, Schroeder says.
Outdoor Living Items
Remember that fire pit or outdoor living set you really wanted a few months ago? Pick it up now, and you can really get a bargain, says P. Allen Smith, author of "Living in the Garden Home" and host of "P. Allen Smith Gardens."
On items like fire pits and chimeneas (those short, freestanding pottery chimneys with bulbous bases), you could see prices slashed 30 percent to 50 percent, he says.
And other items, such as sling furniture, patio umbrellas, tiki torches, grills and grilling equipment, retailers will "just keep marking them down until they're gone," Smith says.
Big-box retailers are clearing out the summer merchandise and making room for the holiday items, he says. So when it comes to summer merchandise, "they want it gone."
Flower bulbs are another find. Look for discounts of up to 50 percent off, says Smith.
The Stars of the T-Day Table: Turkey and Potatoes
If you're serving turkey for any of your winter holiday festivities, November could well be the best time to buy it, says Chef Frank Terranova, associate instructor at Johnson & Wales University.
This month, look for brand-name frozen birds to sport price tags averaging from 59 cents to 66 cents a pound, he says. For special varieties and heritage birds, you could pay up to $3 a pound, he says.
But after Thanksgiving, expect to see the price of turkey increase 20 cents to 25 cents per pound, Terranova says. So if you plan turkey for any December celebrations or inexpensive meals, it might be "smart to buy that turkey now," he says.
Potatoes and sweet potatoes are another good buy. "They had a good crop this year," Terranova says. And sweet potatoes and Yukon Gold, in particular, "are going to be an exceptional buy," he says.
For both potatoes and sweet potatoes, look for prices that average about $2.40 for a 5-pound bag, Terranova says.
Apples and Squash
Good harvests for some of the root vegetables mean great prices for consumers this month, Terranova says.
Above the ground, apples are a popular pick. "Apples are off the hook," he says.
While Terranova's picking them up for $15 for 15 pounds, not everyone wants to buy bulk.
In smaller quantities, prices are averaging around $1.20 to $1.30 a pound for domestic varieties of apples, while Galas and imports sell for closer to $2 per pound, he says.
And that's a cut of 10 cents to 15 cents a pound from last year, Terranova says.
Another great buy this month is squash.
"One of the biggest things today and most flavorful: butternut squash," Terranova says. "And it's an economical buy." Acorn squash is tasty and affordable, too.
Squash is in season, popular at the Thanksgiving table and about 15 cents per pound cheaper this month, he says.
Don't be afraid to get creative with some of the traditional fall favorites, Terranova says.
With a recent abundance of pumpkins, his students found a great way to prepare them: cut up and broiled, then tossed with heavy cream and some sage to serve over pasta.
The result, says Terranova, was something unconventional and delicious.

This article is part of a series related to being Financially Fit.

Thursday, November 3, 2011

Year-End Tax-Saving Strategies

With the end of 2011 rapidly approaching, it's now officially time to consider making some moves that will lower this year's tax bill. However you don't want to take actions that would increase your 2012 tax bill by more than you would save this year.
In this regard, the key question is whether you will make as much or more money next year. The answer will determine your 2012 marginal federal income tax bracket, which you will need to know to do the best job of planning for the rest of this year.
Sell Loser Stocks Held in Taxable Accounts
Selling loser investments (currently worth less than you paid for them) held in taxable brokerage firm accounts can lower your 2011 tax bill because you can deduct the resulting capital losses against any capital gains from earlier in the year. Plus you can deduct up to another $3,000 of net capital loss (or $1,500 if you are married and file separately) against ordinary income from salary, bonus payments, self-employment activities, alimony, or whatever.
Any excess net capital loss is carried forward to future years and puts you in position for tax savings in 2012 and beyond.
Set Up Loved Ones to Pay 0% Tax Rate on Investment Income
For 2011, the federal income tax rate on long-term capital gains and qualified dividends is 0% for gains and dividends that fall inside the 10% or 15% rate brackets.
While your tax bracket may be too high to take advantage of the 0% rate, you probably have loved ones or family members who are in the bottom two brackets. Consider giving these folks appreciated stock or mutual fund shares. They can sell the shares and 0% tax on the resulting long-term gains. Remember: their gains will be long-term as long as your ownership period plus the gift recipient's ownership period equals at least a year and a day.
Giving away dividend-paying stocks that pay dividends is another tax-smart idea. As long as the dividends fall within the gift recipient's 10% or 15% rate bracket, they will qualify for the 0% federal income tax rate. However be aware that if you give away assets worth over $13,000 during 2011 to an individual gift recipient, it will cut into your $5 million unified federal gift and estate tax exemption ($5.12 million for 2012). However, you and your spouse can together give away up to $26,000 without any adverse effects on your respective exemptions.
Warning: If your gift recipient is under age 24, the dreaded Kiddie Tax rules could potentially cause some of his or her capital gains and dividends to be taxed at the parent's higher rates. That would defeat the purpose.
Convert Traditional IRA into Roth IRA
The best scenario for this strategy is when: (1) your traditional IRA is (or was) loaded with equities and got shellacked by the 2008 stock market meltdown and/or this year's stock market volatility and (2) you expect to be in the same or higher tax bracket during retirement.
If your traditional IRA is worth substantially less than it once was, the tax hit from converting it into a Roth account is also substantially less. That's because a Roth conversion is treated as a taxable liquidation of your traditional IRA followed by a non-deductible contribution to the new Roth account.
After the conversion, all the income and gains that accumulate in the Roth account, and all withdrawals, will be federal-income-tax-free, assuming you meet the requirements for tax-free withdrawals. So you avoid having pay high tax rates on withdrawals taken during your retirement years.
As was the case last year, there is no longer any income restriction on Roth conversions. Even billionaires can do them!
Warning: The special deal for 2010 conversions that allowed you to spread the resulting taxable income over two years (50% in 2011 and the remaining 50% in 2012) is not available for 2011 conversions. You must report all the conversion income on your 2011 return. So if you did a conversion last year and are considering doing another one this year, remember that you would have a double helping of conversion income on this year's return. That could push you into a higher tax bracket and make the idea of a 2011 conversion less attractive.
Give to Charities
For those whose charitable instincts are stronger than the economy, here are two suggestions:
Donate Appreciated Stock to Charity; Sell Losers and Donate Cash
If by some miracle, you have appreciated stock shares (meaning they're currently worth more than you paid for them) that you've owned for more than a year, consider donating them to IRS-approved charities. You can generally claim an itemized charitable contribution deduction for the full market value at the time of the donation and avoid any capital gains tax hit. On the other hand, don't donate loser stocks. Sell them, book the resulting capital loss, and give away the cash sales proceeds. That way, you can generally write off the full amount of the cash donation while keeping the tax-saving capital loss for yourself.
Warning: You must itemize deductions to gain any tax-saving benefit from charitable donations, unless you make them out of IRAs.
Make Charitable Donations Out of Your IRA
Congress restored a provision that allows you to make up to $100,000 in charitable cash donations directly out of your IRA for 2011 — if you'll be age 70 or older by year-end. Such direct-from-IRA donations are called qualified charitable distributions, or QCDs. Donations made in this fashion don't directly affect your tax bill, because QCDs are tax-free and no deductions are allowed for them. However, QCDs count as withdrawals for purposes of meeting the required minimum distribution (RMD) rules that apply to traditional IRAs. Therefore, taxes can be avoided by arranging for tax-free QCDs in place of taxable RMDs, and this advantage is available whether you itemize deductions or not. If your spouse owns IRAs and is over age 70 , he or she is entitled to a separate $100,000 QCD for 2011.


IRS CIRCULAR 230 Disclosure:

Under U.S. Treasury Department regulations, we are required to inform you that, unless expressly indicated, any tax advice contained in this post, or any attachment hereto, is not intended or written, to be used, and may not be used to (a)avoid penalties imposed under the Internal Revenue Code (or applicable state or local tax law provisions) or (b)promote, market, or recommend to another party any tax-related matters addressed herein.

Friday, October 28, 2011

Identity Theft and Your Tax Records

 
The IRS does not initiate communication with taxpayers through e-mail. Before identity theft happens, safeguard your information.
What do I do if the IRS contacts me because of a tax issue that may have been created by an identity theft?
If you receive a notice or letter in the mail from the IRS that leads you to believe someone may have used your Social Security number fraudulently, please respond immediately to the name, address, and/or number printed on the IRS notice.
  
Be alert to possible identity theft if the IRS issued notice or letter:
  • states more than one tax return was filed for you, or
  • indicates you received wages from an employer unknown to you.
An identity thief might also use your Social Security number to file a tax return in order to receive a refund. If the thief files the tax return before you do, the IRS will believe you already filed and received your refund if eligible.
If your Social Security number is stolen, it may be used by another individual to get a job. That person’s employer would report income earned to the IRS using your Social Security number, making it appear that you did not report all of your income on your tax return.
If you have previously been in contact with the IRS and have not achieved a resolution, please contact the IRS Identity Protection Specialized Unit, toll-free at 1-800-908-4490.
What do I do if I have not been contacted by IRS for a tax issue but believe I am a victim of identity theft?
If your tax records are not currently affected by identity theft, but you believe your IRS records may be at risk due to a lost/stolen purse or wallet, questionable credit card activity, credit report, or other activity, you need to provide the IRS with proof of your identity.
You should submit a copy, not the original documents, of your valid Federal or State issued identification, such as a social security card, driver's license, or passport, etc, along with a copy of a police report and/or a completed IRS Identity Theft Affidavit - Form 14039. Please send these documents using one of the following options:
Mailing address:
Internal Revenue Service
P.O. Box 9039
Andover, MA 01810-0939
FAX: Note that this is not a toll-free FAX number
1-978-247-9965
You may also contact the IRS Identity Protection Specialized Unit, toll-free 1-800-908-4490 for resource information and guidance.
Hours of Operation: Monday – Friday, 8:00 a.m. – 8:00 p.m. your local time (Alaska & Hawaii follow Pacific Time).

What do you do if you receive a paper letter or notice via mail claiming to be the IRS but you suspect it is a scam?
  1. Contact the IRS to determine if it is a legitimate IRS notice or letter.
  2. If it is a legitimate IRS notice or letter, reply if needed.
  3. If caller or party that sent the paper letter is not legitimate, contact the Treasury Inspector General for Tax Administration at 1-800-366-4484. You may also fax the notice/letter you received plus any related or supporting information to TIGTA. Note that this is not a toll-free FAX number 1-202-927-7018.

Thursday, October 20, 2011

In 2012, Many Tax Benefits Increase Due to Inflation Adjustments



WASHINGTON — For tax year 2012, personal exemptions and standard deductions will rise and tax brackets will widen due to inflation, the Internal Revenue Service announced today.
By law, the dollar amounts for a variety of tax provisions, affecting virtually every taxpayer, must be revised each year to keep pace with inflation. New dollar amounts affecting 2012 returns, filed by most taxpayers in early 2013, include the following:
  • The value of each personal and dependent exemption, available to most taxpayers, is $3,800, up $100 from 2011.
  • The new standard deduction is $11,900 for married couples filing a joint return, up $300, $5,950 for singles and married individuals filing separately, up $150, and $8,700 for heads of household, up $200. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
  • Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $70,700, up from $69,000 in 2011.
Credits, deductions, and related phase outs.
  • For tax year 2012, the maximum earned income tax credit (EITC) for low- and moderate- income workers and working families rises to $5,891, up from $5,751 in 2011. The maximum income limit for the EITC rises to $50,270, up from $49,078 in 2011.The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children.
  • The foreign earned income deduction rises to $95,100, an increase of $2,200 from the maximum deduction for tax year 2011.
  • The modified adjusted gross income threshold at which the lifetime learning credit begins to phase out is $104,000 for joint filers, up from $102,000, and $52,000 for singles and heads of household, up from $51,000.
  • For 2012, annual deductible amounts for Medical Savings Accounts (MSAs) increased  from the tax year 2011 amounts; please see the table below.
Medical Savings Accounts (MSAs)
Self-only coverage
Family coverage
Minimum annual deductible
$2,100
$4,200
Maximum annual deductible
$3,150
$6,300
Maximum annual out-of-pocket expenses
$4,200
$7,650
The $2,500 maximum deduction for interest paid on student loans begins to phase out for a married taxpayers filing a joint returns at $125,000 and phases out completely at $155,000, an increase of $5,000 from the phase out limits for tax year 2011. For single taxpayers, the phase out ranges remain at the 2011 levels.
Estate and Gift
For an estate of any decedent dying during calendar year 2012, the basic exclusion from estate tax amount is $5,120,000, up from $5,000,000 for calendar year 2011. Also, if the executor chooses to use the special use valuation method for qualified real property, the aggregate decrease in the value of the property resulting from the choice cannot exceed $1,040,000, up from $1,020,000 for 2011.
The annual exclusion for gifts remains at $13,000.
Other Items
  • The monthly limit on the value of qualified transportation benefits exclusion for qualified parking provided by an employer to its employees for 2012 rises to $240, up $10 from the limit in 2011. However, the temporary increase in the monthly limit on the value of the qualified transportation benefits exclusion for transportation in a commuter highway vehicle and transit pass provided by an employer to its employees expires and reverts to $125 for 2012.
  • Several tax benefits are unchanged in 2012. For example, the additional standard deduction for blind people and senior citizens remains $1,150 for married individuals and $1,450 for singles and heads of household.