Tax deadline: one week away

For those filed Form 4868 Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, now is the time to make plans to finalize your tax return. The due date is October 17, 2011.

Federal Income Tax Brackets from 2009-2012

2012 Federal Income Tax Brackets

Income Tax	Single		Married Filing Jointly / Qualifying Widower		Married Filing Separately		Head of Household		Long-Term Capital Gains and Qualified Dividends
Rate	over	up to	over	up to	over	up to	over	up to	Rate
10%	0	8,700	0	17,400	0	8,700	0	12,400	0%
15%	8,700	35,350	17,400	70,700	8,700	35,350	12,400	47,350	0%
25%	35,350	85,650	70,700	142,700	35,350	71,350	47,350	122,300	15%
28%	85,650	178,650	142,700	217,450	71,350	108,725	122,300	198,050	15%
33%	178,650	388,350	217,450	388,350	108,725	194,175	198,050	388,350	15%
35%	388,350		388,350		194,175		388,350		15%

Tax Refund Withholdings and Offsets

If you owe money because of certain delinquent debts, the IRS or the Department of Treasury's Financial Management Service (FMS), which issues IRS tax refunds, can offset or reduce your federal tax refund or withhold the entire amount to satisfy the debt.

FMS
Outstanding debts include past–due child support, federal agency nontax debts such as student loans, or state income tax obligations.

IRS Increases Mileage Rate to 55.5 Cents per Mile

The IRS today announced the increase of the standard mileage rates for the last six months of 2011 due to the increase in gasoline prices - action similar to 2008, the last time gasoline reached $4 per gallon.

The standard mileage rates are the following:

	Business	Medical/Moving	Charitable
July 1, 2011 - Dec. 31, 2011	55.5	23.5	14
Jan. 1, 2011 - June 30, 2011	51	19	14
2010	50	16.5	14
2009	55	24	14
July 1, 2008 - Dec. 31, 2008	58.5	27	14
Jan. 1, 2008 - June 30, 2008	50.5	19	14

Where's My Refund?

Taxpayers can check the status of their tax refund 24 hours a day, 7 days a week, worldwide, with a web browser and a few pieces of information.

• Navigate to IRS.gov and click the Where My Refund button,
• Next enter the social security number of the primary taxpayer. This information can be pulled from the upper right corner of Form 1040.
• Select the filing status from Boxes 1 through 5
• Finally, enter the exact amount of your refund from line 74a of Form 1040.

Generally, if the taxpayer e-filed, the refund information will available 72 hours after the acknowledgment saying the IRS received the tax return – allow three to four weeks if filing a paper tax return.

Pay your Medical Expenses with an HSA

A health savings account (HSA), is a tax-advantaged medical savings account available to taxpayers who are enrolled in a High Deductible Health Plan (HDHP). Contributions to these plans made on an employer reduces the taxpayer’s taxable income and are reported on Form W-2, box 12, code W. Taxpayers who make contributions directly to their HSA will receive Form 5498-SA and can deduct the contribution on Form 1040, line 25 of their tax return.

Let's play the "What if?" game

The Internal Revenue Service can assist taxpayers experiencing difficult financial times including what it means to your income taxes when experiencing major life events.

Can't File Your Tax Return or Make Your Tax Payments on Time?

If you can't meet the April 15 filing deadline, here's what you need to know:

• An extension allows you extra time to file but is not an extension of time to pay a balance due.
• File a Form 4868 by April 15 to extend the filing deadline to Oct. 15. You should also estimate your tax liability and pay as much of it as you can before April 15. If done electronically, the IRS will acknowledge receipt of the extension request.
• If the return is done but you do not have funds to pay a balance due, do not request an extension. File your return on time and pay as much as you can. By paying as much as possible now, the amount of penalties and interest owed will be less. You will be billed for the remainder of the amount you owe. 
• To request a payment plan, include a Form 9465 with your return. This arrangement allows you to make monthly payments after a one-time fee of $105 (reduced to $52 if you make payments through Direct Debit from your bank account). If you already have an installment agreement from a previous tax debt and your financial situation has changed, the IRS may be able to modify or restructure your installment agreement to include additional amounts owed into one agreement. Additionally, a Collection Information Statement may have to be completed to further illustrate your financial situation. If an installment agreement is modified, reinstated or restructured, a $45 user fee may be charged.

Don't Panic

If you can't meet the April 18 filing deadline, here's what you need to know:

• An extension allows you extra time to file but is not an extension of time to pay a balance due. If you have not paid at least 90 percent of the total tax due by April 18 you may also be subject to an Estimated Tax Penalty.
• File a Form 4868 by April 18 to extend the filing deadline to Oct. 18. You should also estimate your tax liability and pay as much of it as you can before April 18. You can file an extension online and the IRS will acknowledge receipt of the extension request.
• If the return is done but you do not have funds to pay a balance due, do not request an extension. File your return on time and pay as much as you can. You will be billed for the remainder of the amount you owe. To request a payment plan, include a Form 9465 with your return.
• Individuals who owe $25,000 or less in combined tax, penalties, and interest are eligible for an Installment Agreement and can use the Online Payment Agreement application available on IRS.gov.

The Cliff Notes of Form 1040

A lot of taxpayers use a paid preparer when filing their return. It doesn't hurt to understand a few basic rules about Form 1040.

First you need to determine if you have To file a tax return? Once you've done that let's look at the different sections of the tax return.

Filing Status
There are five filing status available. Married taxpayers can file together (Married Filing Jointly) or apart (Married Filing Separate). Single, Head of Household, and Qualifying Widower are filing statuses for unmarried taxpayers.

3 days left to file your return

Normally today is the final day to timely file your federal income tax return. However, this year the IRS extended the deadline to April 18, 2011 because today is Emancipation Day, a District of Columbia holiday. Taxpayers requesting an extension have until Oct. 17 to file their 2010 tax returns. Now start filing.

You've claimed the exemption. Don't forget the Child Tax Credit

Taxpayers with children can claim a credit of up to $1,000 for each qualifying child. The Child Tax Credit is claimed on line 51 of Form 1040 as a nonrefundable credit . Taxpayers can use this credit up to the amount that reduces their income tax to zero.

A qualifying child for this credit is someone who meets the qualifying criteria of all six tests:

1. Age - must be under age 17 – age 16 or younger – at the end of the year.

Here's a Tip ...... about Tip Income

If you work in an occupation where tips are part of your total compensation, you need to be aware of several facts relating to your federal income taxes as outlined in IRS Publication 531.

First all tips received from customers are taxable income and must be reported on Form 1040. Tips are also subject to Social Security and Medicare taxes. The value of non–cash tips, such as tickets, passes or other items of value, is also income and subject to tax.

Total tip income includes all cash tips you receive directly from customers, tips added to credit cards, and your share of any tips you receive under a tip–splitting arrangement with fellow employees.

Child and Dependent Care Credit

If you paid someone to care for your child, spouse, or dependent, you may be able to claim the Child and Dependent Care Credit on your federal income tax return. To take the credit, complete Form 2441 Child and Dependent Care Expenses, and report the amount of the credit on line 48 of Form 1040. This credit is considered nonrefundable meaning the amount of the credit can not exceed your tax on line 46 of Form 1040.

In order to claim the credit, the taxpayer must meet ALL of the following requirements:

1. The care must have been provided for one or more qualifying persons. A qualifying person is your dependent child age 12 or younger when the care was provided. Additionally, your spouse and certain other individuals who are physically or mentally incapable of self-care may also be qualifying persons. You must identify each qualifying person on your tax return.

Still time to contribute to an IRA and save money on your taxes

You still have five days left to save money on your 2010 income taxes.

Generally you can deduct contributions made to a traditional Individual Retirement Arrangement (IRA) on line 32 of Form 1040. Do not confuse a Traditional IRA with a Roth IRA, contributions to a Roth IRA are never deducted as an adjustment to income.

Contributions can be made to your traditional IRA at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means contributions for 2010 must be made by April 18, 2011. Additionally, if you make a contribution between Jan. 1 and April 18, you should designate the year targeted for that contribution. Use the IRA Deduction Worksheet to figure your deduction for IRA contributions.

Do I have to make Estimated Tax Payments

You may need to make estimated tax payments if you do not pay enough tax on your income during the year.

Typically employees have taxes withheld by their employer throughout the year. For taxpayers with income from interest, dividends, alimony, rent, partnerships, self-employment and capital gains may need to make estimated payments. Taxpayers with this scenario can avoid making estimated tax payments by adjusting Form W-4 and rely on their employer's payroll department to withhold additional taxes.

In general, you must make estimated payments during the tax year if you expect to owe at $1,000 in tax for 2011 after subtracting withholding and credits, and you expect your withholding and credits to be less than the smaller of:

1. 90% of the tax shown on your 2011 tax return; or
2. 100% of the tax shown on your 2010 tax return.

Did you Take an Early Distribution from Your Retirement Plan?

Tax laws encourages taxpayers to contribute to retirement plans whether it is a plan sponsored by their employer (typically a 401k) or an individual retirement arrangement (IRA). However, taking money out of these retirement accounts before age 59 ½ is considered an early distribution and can have some serious tax consequences in the form of an additional tax of 10% on the taxable part of the distribution.

The taxpayer will receive a Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. If the distribution code in box 7 is a code 1 (early distribution), the taxpayer will need to report the 10% penalty on line 58 of Form 1040.

Paying on Student Loans? Deduct the interest

A deduction of up to $2,500 may be allowed for amounts paid for interest on qualified student loans on line 33 of Form 1040. Only the actual amount of interest paid in the current year may be deductible. You may not claim the deduction in any year in which another taxpayer claims you as a dependent or if your filing status is Married Filing Separate.

A qualified student loan is a loan you took solely to pay qualified education expenses at an eligible education institution.

Use the Student Loan Interest Deduction Worksheet to see if the deduction amount is reduced or eliminated based on your Adjusted Gross Income.

Taxable or Non-Taxable Income?

Generally, most income you receive is considered taxable but there are situations when certain types of income are partially taxed or not taxed at all.

To help taxpayers understand the differences between taxable and non-taxable income, the Internal Revenue Service offers these common examples of items not included as taxable income:

• Adoption Expense Reimbursements for qualifying expenses
• Child support payments
• Gifts, bequests and inheritances
• Workers' compensation benefits

What filing status should I use?

Your federal tax filing status is based on your marital and family situation. It is an important factor in determining your standard deduction, your tax liability, eligibility for deductions and credits and whether you must file a return.

Your marital status on the last day of the year determines your status for the entire year. State law determines if a taxpayer is married or legally separated under a divorce.

If more than one filing status applies to you, you may choose the one that gives you the lowest tax obligation.

There are five filing status options:

• Single. Generally, if you are unmarried, divorced, or legally separated according to your state law as of December 31 and you do not qualify for another filing status, your filing status is Single.

Columbus TV anchor needs a new tax preparer

Just days after I published a blog post about Deducting the cost of Work Clothes and Uniforms, the Columbus Dispatch ran a story over the weekend about local TV anchor Anietra Hamper's issues with the IRS. To me this is a case of bad advice from a tax preparer.

IRS Publication 529 is clear when it comes to clothing costs. "It is not enough that you wear distinctive clothing. The clothing must be specifically required by your employer. Nor is it enough that you do not, in fact, wear your work clothes away from work. The clothing must before not be suitable for taking the place of your regular clothing."

The Clock is Ticking

If you haven't filed a prior year tax return, it's not too late. Generally, a refund can be claimed by filing the tax return within three years from the due date.

That means if you haven't filed your 2007 return, the deadline is April 18, 2011 to claim your refund. If you extended that return, the due date is October 17, 2011.

The Internal Revenue Service (IRS) announced that it has $1.1 Billion for People who have not filed a 2007 tax return.

Don't wait any longer, file your return.

Deducting the cost of Work Clothes and Uniforms

Qualified uniform expenses are the cost and upkeep of uniforms and certain articles that are:

• Specifically required as a condition of employment, and
• Not adaptable to general use as regular clothing

The deduction is also allowed for "Uniforms required by your employer that are not suitable for ordinary wear" as well as "protective clothing required in your work."

This includes protective clothing such as safety shoes, boots, safety glasses, hard hats, and work gloves. Taxpayers should look into this deduction if their occupation is a carpenter, cement worker, chemical worker, electrician, fishing boat crew member, machinist, oil field worker, pipe fitter, steamfitter, or truck driver.

I lost my home. Now I received a 1099 from my mortgage lender

People who lose their homes in foreclosure, abandon them or give them back to their lenders will receive a Form 1099-C Cancellation of Debt because the lender has forgiven a portion of the debt.

The forgiven amount is the difference between the amount owed on the mortgage and the value of the home. Prior to 2007, consumers had to pay federal taxes on the forgiven amount.

Loss of rental income

Landlords from time to time have to deal with problem tenants. In some instances, a tenant moves out without paying rent.

Although the landlord cannot deduct any loss of rental income, he or she is able to deduct expenses for managing, conserving, or maintaining the property while the property is available for rent even if the tenant has moved out.

Taxpayers who own and actively participate in a rental real estate activity may offset up to $25,000 of against. Generally, a taxpayer actively participates if he makes significant and bona fide management decisions, such as approving new tenants, deciding rental terms, and approving capital expenditures. To qualify, a taxpayer must also own at least 10 percent by value of all interests in the property.

The $25,000 offset amount is reduced by 50 percent of the amount that a taxpayer's adjusted gross income is more than $100,000.

If this active participation rule is not met, then such expenses may only be deducted with future rental income.

Self-Employment Income this year? Here's how to report it.

Schedule C is the form to use when reporting Self-Employment and business income.

All income pertaining to the business is reported. Expenses are subtracted from income to determine if there is a gain (profit) or loss. The net profit or loss is entered on line 12 of Form 1040. If a taxpayer owns and operates more than one business activity, file a separate Schedule C for each business. Combine the profits and losses on Form 1040 line 12 if there is more than one Schedule C.

If net earnings from self-employment are $400 or more, the taxpayer must file an income tax return. If net earnings from are less than $400, the taxpayer may still have to file a return and would still report the net earnings.

You can't do this on your tax return

Here are ten no-no's on your return.

1. Claim head of household filing status when you're married
2. Claim Earned Income Credit for a child that doesn't live with you
3. Claim an exemption for a child that doesn't live with you and you don't have permission from the custodial parent.
4. Claim the standard deduction when your spouse doesn't
5. Claiming deductions for a hobby
6. Claim an exemption for your pets
7. Fail to file a tax return and claim the "taxation without representation"
8. Deducting your home office when your employer provides a work station for you
9. Deducting commuting expenses
10. Deducting depreciation expenses on a vehicle you lease

In addition to the common tax return mistakes written previously, here are 11 more deductions you can't write off .

Need a Tax Form?

The Internal Revenue Service (IRS) no longer mails booklets to taxpayers. Even the post office and local libraries are no longer supplying tax forms. Here is your one stop spot for tax forms, instructions, schedules, worksheets, W-2 and 1099 examples, planning forms, publications and tables.

FORMS
Form 1040
Form 1040 Instructions
Form 1040A
Form 1040A Instructions
Form 1040EZ
Form 1040EZ Instructions
Form 1040ES Estimated Tax for Individuals
Form 1040V Payment Voucher
Form 1040X Amended U.S. Individual Income Tax Return
Form 1040X Instructions

Debunking Frivolous Tax Arguments

Many have tried and the Internal Revenue Service (IRS) has issued a response to the most common frivolous arguments made by individuals and groups that oppose compliance with federal tax laws.

The IRS publishes a long list of arguments it warns have already been deemed frivolous including contentions that taxpayers can refuse to pay income taxes on religious or moral grounds by invoking the First Amendment; that the only "employees" subject to federal income tax are employees of the federal government; and that only foreign-source income is taxable.

Penalties jumped from $500 per offense to $5,000 in 2006. The increased penalty amount applies when a person submits a tax return or other specified submission, and any portion of the submission is based on a position the IRS identifies as frivolous.

Are you really self-employed?

Many businesses mislabel their employees as "self-employed independent contractors" to get Social Security, Medicare, Unemployment, and income tax relief. Generally:

• an employee is anyone who performs services if the employer can control what will be done and how it will be done.
• a person is an independent contractor if the employer/supervisor has the right to control or direct only the result of the work and not the means and methods of accomplishing the result.

If you think your employer should treat you as an employee instead of a contractor, file a Form SS-8. If the IRS agrees, they will send to you a determination letter stating you are an employee of that organization. You can then report your wages on Form 8919 and you will only be responsible for your share of Social Security and Medicare taxes. The wages are carried over to line 7 of Form 1040 and the Social Security and Medicare taxes are reported on line 57 of Form 1040.

The IRS has general guidelines for more information.

Paying money to your ex? There is tax relief.

Generally, alimony you pay is deductible (even if you don't itemize) while alimony you receive is taxable income. Alimony received is considered earned income for purposes of contributing to an Individual Retirement Arrangement (IRA).

Report alimony received on Form 1040 line 11 and alimony payments can be deducted on Form 1040 line 31a. Income taxes are not withheld from alimony payments - you may need to make estimated tax payments or increase the amount withheld from your paycheck.

Child support payments are NOT alimony – these payments received are not taxable income and child support payments paid are not deductible.

For more information, review IRS Publication 504.

When is my State tax return due?

By now most of you have heard that the IRS extended the 2010 federal income tax filing deadline to April 18, 2011 because Emancipation Day, a District of Columbia holiday, falls on Friday, April 15. In addition, taxpayers requesting an extension have until Oct. 17 to file their 2010 tax returns due to October 15 falling on a Saturday.

As far as State tax returns, the timetable is the same for most states with a few exceptions:

• Delaware, due date is May 2. Normally, April 30 but this year falls on a Saturday.
• Hawaii, due date is April 20.
• Iowa, same as Delaware
• Louisiana, due date is May 16. Normally, May 15 but this year falls on a Sunday.
• Virginia, due date is May 2. Normally, May 1 but this year falls on a Sunday.

Therefore, most states including Ohio the due date is April 18. In addition, for those who live in Ohio cities where the Regional Income Tax Agency collects local taxes, the due date is April 18, 2011.

Received my income tax refund - Now what?

Congratulations on receiving your refund. Now it's time to get your financial house in order. Below are some priorities:

$10,000 reserve fund - You've heard this one many times. Few taxpayers have an adequate emergency fund that could be used for living expenses in the event of a major crisis, like job loss. Having three to six months in a reserve fund is recommended. With $10,000 at least it's a starting point.

Credit Card Debit - Now that the new credit card rules are in place, it's imperative that your credit card debt be managed. A credit card charging 18% interest will be difficult to pay off.

401k - Failure to fund your 401(k) can be like throwing away free money because you could be passing up the employer match. The contribution withheld from your paycheck also reduces your taxable income.

Can I deduct my home office?

If you use part of your home for business, you may be able to deduct expenses for business use of home from your business income. To qualify to deduct expenses, you must use part of your home:

• Exclusively and regularly as your principal place of business
• Place where you meet clients or customers
• In connection with your business, a separate structure which is not attached to your home

Performing essential aspects of your business at home such as bookkeeping and administrative services does not make your home the principal place of business. However if you use your home regularly for administrative purposes and you have no other fixed location where you conduct your business your home will qualify.

To itemize or not to itemize? Here's the answer:

Taxpayers have a choice of taking the standard deduction or itemizing their deductions. If itemizing certain expenses results in a greater refund, then file Schedule A and claim the greater deduction on line 40 of Form 1040.

First you have to determine your standard deduction based on your filing status. For 2010, they are:

• Single $5,700
• Married Filing Jointly $11,400
• Head of Household $8,400
• Married Filing Separately $5,700
• Qualifying Widow(er) $11,400

Can I claim my child as a dependent?

To claim someone as a dependent that person must either be your qualifying child or qualifying relative.

To be a qualifying child:

1. The child must be related to you.
2. The child must be (a) under age 19 at the end of the year, (b) under age 24 at the end of the year and a full-time student, (c) any age permanently and totally disabled.
   
   A child is permanently and totally disabled if both of the following apply.
   
   • He or she cannot engage in any substantial gainful activity because of a physical or mental condition.
   • A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death
3. Child must live with you more than six months.
   

Do I Have To File a Tax Return?

Yes, you must file a federal income tax return if you are a U.S. citizen. However, there are certain instances where a taxpayer does not have to file a return based on three factors:

• Gross Income
• Filing Status
• Age

You must file a return if your gross income is at least the amount shown for your age and filing status.

Common tax return mistakes

10 things to watch for as you prepare your tax return.

1. Incorrect Social Security numbers or misspelled names
2. Using incorrect forms and schedules
3. Wrong filing status
4. Claiming ineligible dependents
5. Misapplied Earned Income Credit and Child Tax Credit
6. Lack of receipts
7. Failure to report all income
8. Not checking for Alternative Minimum Tax
9. Not signing the return – note the taxpayer and the spouse must sign and date the tax return
10. Not attaching Form W-2 and other forms that indicate taxes withheld during the year

Bonus items:

1. Applying for a Refund Anticipation Loan (RAL) without W-2 Earned Income
2. Omitting the Social Security Number or EIN of your caregiver for the Child and Dependent Care Credit
3. Mailing the tax return to the wrong address. Here is where to mail tax forms.
4. Making your check payable to the IRS. The correct payee on checks and money orders should be the United States Treasury.
5. Misreading the income tax tables
6. Failure to make a copy of the return for the taxpayer's records
7. Computation errors
8. Incorrect bank account numbers for Direct Deposit
9. Insufficient postage on envelopes. Better yet, use registered mail so there is a record that IRS received your tax return especially if you are paying a balance due.

Here are some other suggestions to avoid tax problems.

Is social security taxable income?

A portion of your social security benefits may be taxable if your total income plus one-half of your net social security benefits exceeds a base amount for your filing status. Net benefits are reported on box 5 of Form SSA-1099. If the only source of income is Social Security, then none of the benefits are taxable and the taxpayer does not have to file a federal income tax return.

The base amount is

• $25,000 if your filing status is single, head of household, or qualifying widower
• $25,000 if MFS if you lived apart from your spouse the entire year
• $32,000 if MFJ
• $0 if MFS if you lived with your spouse at any time during the year *
  

Use the Social Security Benefits Worksheet to determine the taxable amount. Total social security benefits are reported on Form 1040 line 20a while the taxable amount is reported on line 20b.

How to choose a tax preparer

Choose your preparer wisely. Ultimately the taxpayer is responsible for what's on their tax return even if it was prepared by someone else. Here are some helpful hints to finding a preparer.

Reputation - Ask family or friends. Compile a list of recommended preparers and contact them.

Guidance - Your professional should not only have communication skills to explain different parts of the tax code but should also teach you a little as well. What new changes in the tax law will affect you? Ask their opinions on tax strategies and financial planning.

Integrity - Your preparer should stand behind their work by signing their name to the tax return and providing you a copy. Reputable preparers will request to see your receipts and ask probing questions. They have your best interests in mind and are working with you to avoid penalties, additional taxes, and IRS examinations. A paid preparer is now required by law to sign the return and include their PTIN. The preparer should also give you a copy of the return.

Receive an email from the IRS? Delete it

Under most circumstances, I would never recommend to ignore communications from the Internal Revenue Service (IRS) – except when it comes to emails. Understand this: the IRS will never reach out to taxpayers via email.

In fact, the IRS receives thousands of reports from taxpayers who report receiving suspicious emails, phone calls, faxes from the IRS. Some of them even contain the IRS logo. These goals of these scams – known as phishing – is to trick taxpayers into providing personal information like Social Security numbers and bank accounts in order to commit identity theft.

We're selling our house. What taxes do we owe?

Taxpayers can exclude gains from the sale of your personal residence up to $250,000 ($500,000 married filing jointly) if all the following are true:

• You meet the ownership test – owned the home for at least 2 years
• You meet the use test - lived in the home as your main home for at least 2 years
• During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home.

Report the gain from the sale on line 8 of Schedule D (use Form 1099-S if you received one). Then on line 9 of Schedule D, write "Section 121 exclusion" in column (a) of that line and show the amount of the exclusion in column (f) as a loss in parentheses.
For more information please see IRS Publication 523, Selling Your Home (.pdf).

You could owe the IRS this year

Taxpayers could have a surprise when they file their taxes this year. It's the result of the Making Work Pay credit.

The credit began in 2009 and is also available to taxpayers in 2010 as part of the American Recovery and Reinvestment Act (ARRA). It consists of two components:

1. the new form Schedule M which includes a $400 credit for most taxpayers ($800 for married couples filing together) and
2. a change in employer withholding.

Starting April 1, 2009 employers began withholding less federal income tax so most workers may have noticed an increase in their take-home pay. The idea is this decrease in withholding will be offset by the Making Work Pay Credit when taxpayers include the Schedule M as part of their income tax return.

Need Prior Year Tax Information from the IRS?

Taxpayers who need certain prior year tax return information can obtain it from the IRS. In fact, you can order the current year transcript and the past three years for free.

The tax return transcript shows most line items from the tax return as it was originally filed, including any accompanying forms and schedules. However, any changes made after the return was filed will not be reflected on this type of transcript.

The tax account transcript is designed to show the adjustments you or the IRS made after your tax return was filed. This transcript shows basic data; including marital status, type of return filed, adjusted gross income and taxable income.

Still haven't received your W-2? Here's what to do

Employers have until January 31, 2011 to deliver your 2010 Form W-2. If you haven't received it, take these steps

1. Contact your employer. Inquire if the W-2 has been mailed and confirm the address it was mailed to. Allow a reasonable amount of time to re-issue or re-send.
2. Contact the IRS. Contact the IRS for assistance at 800-829-1040. Provide your name, address, city and state, including zip code, Social Security number, phone number and have the following information:
   
   • Employer's name, address, city and state, including zip code and phone number
   • Dates of employment
   • An estimate of the wages you earned, the federal income tax withheld, and when you worked for that employer during 2010. The estimate should be based on year-to-date information from your final pay stub.
3. File your return You still must file your tax return or request an extension to file by April 18, even if you do not receive your Form W-2. If you have not received your Form W-2 by April 18th, and have completed steps 1 and 2, you may attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible. You may be unable to e-file the tax return so be prepared to file your taxes using the old fashioned paper method. There may be a delay in any refund due while the information is verified.

Lovely RITA

I attended a seminar that was not about a female parking attendant in a Beatles song but it was an income tax seminar. RITA stands for Regional Income Tax Agency who have been collecting income taxes since 1971 and currently has 185 municipalities in the state of Ohio. Here are the highlights:

Some local Cleveland area changes:

• Mayfield Village: Tax rate increases to 2% with a tax credit of 100% up to 2%, effective 7/1/2010.
• Beachwood: Tax rate increases to 2% with a tax credit of 100% up to 2%, effective 1/1/2011.
• Cleveland Heights: Joins RITA on 7/1/2011.
• 2010-2011 Tax Table

Taxpayers who Itemize can file their returns today

Taxpayers who had to wait to claim certain deductions can now complete their 2010 tax returns. Starting today, the IRS will begin processing both paper and e-file returns claiming itemized deductions on Schedule A, the higher education tuition and fees deduction on Form 8917 and the educator expenses deduction claimed on Form 1040, Line 23, and Form 1040A, Line 16.

The IRS needed the extra time to update its systems to accommodate the changes in the tax law from the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 which was made official on December 17, 2010.

My employer paid moving expenses. Can I deduct them?

If you moved to a new home because you changed job locations or started a new job, you can deduct your moving expenses on Form 3903.  There are three requirements:

• Relationship test - must move within one year from the date you first report to your new location
  
• Distance test - move must decrease your commute by 50 miles or more. In other words, your new job has to more than 50 miles farther away from your hold home than the distance from your old home to the old work location.
  
• Time test - must work full time in the new location for at least 39 weeks during the 12 months after the move. If you're self-employed you must also work in the new job for 78 weeks during the 24 months following the move. (There are exceptions for disability, layoff, transfers, and other situations.)
  

If moving expenses were not reimbursed by your employer, you can deduct all allowable expenses. If moving expenses were reimbursed by the employer under a(an):

• non accountable plan, the reimbursement is included in your W-2 box 1.
• accountable plan, the reimbursement is excluded from the W-2 box 1. This amount excluded from income and is reported in box 12 of the W-2 with a code P. This amount is reported on line 4 of the Form 3903.

The easiest solution is to complete Form 3903 and if there is a deduction available it will carry over to Form 1040 line 26.

Why e-file?

In 2010, 99 million taxpayers e-filed their return last year. That's an increase of 10% from a year ago and represents 70% of all individual taxpayers. Here's why people e-file:

• Faster Refunds – with direct deposit, you can receive your refund in as little as 8 days.
• Greater Accuracy – error rate for paper returns is 20%; 1% for e-filed returns.
• Secure and confidential submission – there has never been an IRS e-file security breach
• File now, pay later – e-file does not mean you have to pay a balance due. You can postpone that until April 15
• Quick confirmation – receipt of your e-filed tax return is within 24 hours
• Convenience - accessible 24 hours a day, 7 days a week
• Most importantly, no paper return to mail

Starting January 1, 2011 most tax return preparers must be authorized IRS e-file providers so they can transmit tax returns electronically.

For more information, refer to the IRS e-file resource.

Refund too high?

Big refund this year? You're not alone. Taxpayers received an average refund of $3,003 last year - up 5% from the average refund of $2,859 taxpayers received in 2009.

The jump was the biggest in years thanks to several tax benefits as part of the American Recovery and Reinvestment Act.

• First-Time Homebuyer
• American Opportunity Credit
• Earned Income Tax Credit increases
• Increase in eligibility for the Child Tax Credit

Take steps now to receive some of that money throughout the year. Submit a new Form W-4 to your employer or a Form W-4P to your pension administrator. If you're eligible for Earned Income Credit, submitting a Form W-5 to your employer will allow to receive the credit throughout the year.

You can use IRS Pub. 919 and IRS Withholding Calculator for additional assistance in calculating your tax withholding.

Don't forget to take the Making Work Pay Credit

In 2009 and 2010, the Making Work Pay Credit has been added to the tax code under the American Recovery and Reinvestment Act (ARRA). It's a refundable credit of 6.2 percent of earned income with a maximum of $400 per individual and up to $800 for married filing joint tax returns.

The credit phases out for taxpayers with modified adjusted gross incomes over $75,000 and $150,000 for married couples filing together.

A Reward for Saving

Taxpayers may be eligible for a Retirement Savers Credit of up to $1,000 ($2,000 for married couples filing together) for making eligible contributions to an:

• Employer-sponsored retirement plan such elective deferrals to a 401(k), 403(b), 457, SEP or SIMPLE plans
• Voluntary contributions to qualified retirement plans
• IRA

Back to School = Big Rewards

Higher education expenses can be a huge benefit come tax time. There are several options available.

American Opportunity Credit tax years 2009 through 2010

• The maximum credit is $2,500 (same as 2009) per student (100% of the first $2,000 of expenses, 25% of the next $2,000 of expenses)
• The credit can be claimed for first four years of post-secondary education.
• Credit can reduce your tax liability dollar for dollar (Form 1040 line 49) and provide up to $1,000 additional refund (Form 1040 line 66).

It's not too late to take the First-Time Homebuyer's Credit

Taxpayers can still take advantage of the first-time homebuyer credit if an eligible buyer purchased a home as their primary resident in 2008, 2009, or 2010. Eligibility depends on the date of purchase. Those rules are listed below.

The IRS has been notifying taxpayers via mail who claimed the first-time homebuyer credit of repayment requirements. For example, those who purchased their homes between April 9, 2008 and Dec. 31, 2008 are required to repay the credit starting in 2010 by completing Part IV of Form 5405. If the home was purchased in 2009 or 2010, the letter from the IRS reminds the taxpayer that the credit must be repaid if the home is sold within three years or is no longer the main home.

What's New for your 2010 Income Tax Return

Due Date
Even though April 15 falls on a Friday this year, the deadline for your 2010 Form 1040 is Monday April 18. Emancipation Day is a District of Columbia holiday that falls on April 15 so the tax filing deadline for the whole nation is deferred to April 18 . If your return won't be ready by then, you can extend the deadline all the way out to October 17 by filing Form 4868 on or before April 18.

Personal exemption: $3,650 ($3,800 in 2012, $3,700 in 2011)

Standard deduction:
MFJ/QW $11,400 ($11,900 in 2012, $11,600 in 2011)
HH $8,400 ($8,700 in 2012, $8,500 in 2011, $8,350 in 2009)
Single / MFS $5,700 ($5,950 in 2012, $5,800 in 2011)

Maximum Earned Income Credit
$5,666 if 3 or more qualifying children ($5,891 in 2012, $5,751 in 2011, $5,657 in 2009)
$5,036 if 2 qualifying children (from $5,028 in 2009)
$3,050 if 1 qualifying child (from $3,043 in 2009)
$457 if no qualifying child (same)

Income Limits for Earned Income Credit

• Three or more qualifying children and earn less than $43,352 ($48,362 if MFJ)
• Two qualifying children and earn less than $40,363 ($45,373 if MFJ)
• One qualifying child and earn less than $35,535 ($40,545 if MFJ)
• No qualifying child and earn less than $13,460 ($18,470 if MFJ)

Wages Limit
The maximum amount of wages subject to social security tax is $106,800 (same as 2009).

2010 Limits for Retirement Plans

401(k) Plans
Elective deferral limit is $16,500 (same as 2009)
If age 50 or older on December 31, 2010, the limit is $22,000 (same as 2009)

IRA Contribution and Deduction Limit
Contribution limit for a traditional IRA and Roth IRA remains the lesser of $5,000 or taxable compensation.
If the taxpayer is 50 years of age or older the limit remains the lesser of $6,000 or taxable compensation.

Modified AGI Limit for Traditional IRAs
If a taxpayer is covered by a retirement plan at work, the deduction will be phased out if the modified AGI is between:

• $89,000 - $109,000 for Married Filing Joint (MFJ) or Qualifying Widower (QW) - same as 2009
• $56,000 - $66,000 for Single or Head of Household (HH) or Married Filing Separately and did not live with spouse at any time during the year - $55,000 to $65,000 in 2009
• $0 - $10,000 for Married Filing Separately (MFS) who lived with spouse at any time during 2010

Modified AGI Limit for Traditional IRAs
The limit for the spouse of a covered employee is:

• $167,000 - $177,000 for MFJ (up from $166,000 - $176,000)
• $0 - $10,000 for MFS (same as 2009)

Roth IRA Contribution Limits
The Roth phase out range increases to:

• $167,000 - $177,000 (up from $166,000 - $176,000) for MFJ & QW
• $105,000 - $120,000 (same) for single, HH and MFS not living with spouse during the year
• $0 - $10,000 (same) for MFS who lived with spouse at any time during 2010

Four days left to make your IRA Charitable Rollover

When President Obama made official on December 17, 2010, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, he reinstated the Individual Retirement Account (IRA) Charitable Rollover through 2011. This allows individuals aged 70 ½ and over to donate funds up to $100,000 from their IRAs to public charities without being mandated to report it as taxable income.

The new law has a special rule for 2010, taxpayers can make retroactive IRA charitable donations in January 2011 and have them count toward 2010. Only four days remaining to make this donation.

To qualify:

• You must be at least 70 ½ years old.
• You must be subject to Required Minimum Distribution from your IRA.
• Money is transferred directly from your traditional IRA to approved charities. Rollovers from 403(b) plans, 401(k) plans, pension plans, and other retirement plans do not qualify.
• Annual donations cannot exceed more than $100,000 per individual. Amounts more than $100,000 will be added to taxable income.
• The rollover for 2010 must be completed before January 31, 2011. The rollover for 2011 must be completed between January 1, 2011 and December 31, 2011.

Who could benefit?

2010 Ohio Individual Income Tax Rates

The following rate table applies to the 2010 tax year.

Ohio Taxable  Income	Tax Calculation
0 – $5,050	0.618% of Ohio taxable income
$5,050 – $10,100	$31.21 + 1.236% of excess of $5,050
$10,100 – $15,150	$93.63 + 2.473% of excess over $10,100
$15,150 – $20,200	$218.52 + 3.091% of excess over $15,150
$20,200 – $40,350	$374.62 + 3.708% of excess over $20,200
$40,350 – $80,700	$1,121.78 + 4.327% of excess over $40,350
$80,700 – $100,900	$2,867.72 + 4.945% of excess over $80,700
$100,900 – $201,800	$3,866.61 + 5.741% of excess over $100,900
More than $201,800	$9,659.28 + 6.24% of excess over $201,800

Where to File Paper Tax Returns

Tax Professionals - Where to File Individual Returns for Your Clients
Addresses by state for Forms 1040, 1040A, 1040EZ, 1040ES, 1040V, amended returns, and extensions (also addresses for taxpayers in foreign countries, U.S. possessions, or with other international filing characteristics)

Individual Taxpayers - Where to File Your Own Individual Return
Addresses by state for Forms 1040, 1040A, 1040EZ, 1040ES, 1040V, amended returns, and extensions (also addresses for taxpayers in foreign countries, U.S. possessions, or with other international filing characteristics)

Where to File - All Types of Tax Returns (By Form Number)
Mailing addresses for all types of returns: individual, corporation, partnership, and many others (search for address based on form number)

Out in the Cold

Congratulations to our Liberty Tax waver Randy Cato for making the local news. Those eight-foot Liberty costumes can be pretty warm on days like today.

Are you eligible for Earned Income Credit?

Earned Income Credit (EIC) is a tax credit for taxpayers who work and have earned income less than the following limits:

• Three or more qualifying children: $43,352 ($48,362 if MFJ)
• Two qualifying children: $40,363 ($45,373 if MFJ)
• One qualifying child: $35,535 ($40,545 if MFJ)
• No qualifying children: $13,460 ($18,470 if MFJ)

A qualifying child under Earned Income Credit must meet the following requirements.

• Relationship – must be a son, daughter, stepchild, foster child or descendant of any of them.
  Note: child does not have to be your dependent
• Residency – child must live with you in the United States for more than half the year. Special circumstances such as school and business do not count against this requirement.
• Age – must be either (1) under age 19 years old at the end of the year; (2) under age 24 and a full-time student; or (3) totally and permanently disabled at any time during the year.

What to bring to your tax interview

Make sure you bring the following items to your interview:

Personal Information for each family member:

• Date of Birth
• Social Security Card (SSN) or Individual Tax ID Number (ITIN) card
• Last Year's Tax Return
• Valid Driver's License or State ID
• Proof of Bank routing and account numbers for Direct Deposit any refunds

Income and Tax Information

• W-2's
• Interest (1099-INT or substitute)
• Dividend Slips (1099-DIV or substitute)
• Stock Sales (1099-B or Broker Statement) - don't forget to bring the receipt detailing what you paid for the stock.
• Self-Employment Income and Expenses

Can I deduct my medicare premiums?

Generally, medical insurance premiums including certain Medicare premiums are deductible on your Federal Income Tax if you are itemizing your deductions using Schedule A, Form 1040.

There is a limitation placed on deductible medical expenses. You can only deduct the amount of your qualified medical expenses that exceeds 7.5% of your adjusted gross income for the year.

Here is an example. You have an adjusted gross income for the year of $47,000, 7.5% of that is $3525. If you have $4000 of qualified medical expenses, $475 of that amount would be the medical expense deduction.

IRS Publication 502 is the publication that covers the rules about medical and dental expense deductions.

Here is what it has to say about Medicare Premiums:

Tax filing deadline extended to April 18

The IRS extended the 2010 federal income tax filing deadline to April 18, 2011 because Emancipation Day, a District of Columbia holiday, falls on Friday, April 15. Taxpayers requesting an extension have until Oct. 17 to file their 2010 tax returns.

Get organized

The sooner you get organized, the sooner you may receive your refund. Take time today to gather all of your receipts, credit card and bank statements and anything you have spent money out of pocket. Put these documents in a folder or box so you can keep track for tax purposes. You can organize your files in the following categories:

• Income – pay stubs, bank and investment statements
• Medical – expenses and out of pocket premiums
• Donations – cash and non-cash
• Real Estate – Mortgage statements, property tax payments, settlement statement if you're a first-time home buyer in 2010 and have not yet claimed the credit.
  
• Child Care – receipts, provider's address and EIN
• Tax Correspondences – Ohio and Local Estimated statements
• Student Loans – tracks loan interest
• Payments – receipts for tax deductions
• Mileage Log - needed if you use your personal vehicle for work

During January you will receive the following documents in the mail and you'll be able to file these into their respective categories:

• W-2's
• 1099's
• Mortgage interest statements
• Bank interest statements
• Real estate tax statements
• Investment statements
• Receipts for charitable donations

Taking time now will have it easier to prepare this year's return. Here are the IRS record keeping guidelines.

Today is the first day to e-file

The Internal Revenue Service will begin accepting 2010 electronically filed tax returns today. Taxpayers who wish to apply for Refund Anticipation Loans can receive a check as early as Monday January 17.

If you're ready to make an appointment, make sure you bring the following items to your interview:

• Valid photo ID
• Social Security Number (SSN) or Individual Tax ID Number (ITIN) cards for everyone shown on the tax return including dependents.
• Birth dates of all dependents
• Bank information to Direct Deposit any refunds
• Any tax-related papers: W-2's, 1099's, mortgage interest statements (Form 1098), bank interest statements, real estate tax statements, investment statements, and receipts for charitable donations and child care
  

How to file your taxes while a divorce is pending

You can either file with your spouse (Married Filing Joint) or by yourself (Married Filing Separate).

If a married taxpayer is not filing with their spouse, then the following requirements must be met in order to be considered unmarried and qualify for Head of Household filing status:

1. Taxpayer paid over half the cost of keeping up the home
2. Taxpayer's spouse did not live in the house at any time during the last six months of the tax year
3. Taxpayer's home must be the main home for more than six months of the taxpayer's dependent child (includes children whom the taxpayer signed a Form 8332 allowing the noncustodial parent to claim the exemption). Note: the only persons who qualify are a child, stepchild, or eligible foster child.

Got married in 2010, here's how to file your taxes

Filing status determines your standard deduction and tax rate. It depends on your marital status.

The IRS defines marriage as a legal union between a man and a woman as husband and wife. You are considered married for the whole year if you are married on the last day of the tax year.

State law governs whether you are married or legally separated under a divorce or separate maintenance decree. If you are divorced by the last day of the year, you are considered unmarried for the whole year.

If your spouse died during the year, you are considered married for the whole year.

Married couples can either file jointly (MFJ) or separately (MFS). You should figure your tax liability both ways and choose the filing status that has the lowest tax. Filing together or separately on the Form 1040 means you need to use the same filing status on the Ohio return (does not matter on a local tax return). Many tax benefits on the Form 1040 are not available for MFS.

You can change your filing status between MFJ and MFS from year to year. On Form 1040X, you can also amend your tax return and change your filing status from MFS to MFJ within three years of the original due date of the returns. If you file MFJ, once the original due date of the return passes, you can not amend and change to MFS.

Debt relief = Taxable Income

Have you negotiated with a creditor to pay less than you owe on a debt such as a credit card? The IRS considers forgiven or canceled debt as taxable income.

You hear the commercials all the time: Companies that negotiate on behalf of consumers with debt collectors to pay off a portion of their outstanding debts. Several months later, these consumers receive a Form 1099-C. Creditors who accept at least $600 less than the original balance are required by law to issue this form to the debtor and the IRS.

If you're negotiating with a collector to settle a debt, clarify if a Form 1099-C will be issued and the exact amount that will be reported to the IRS. Make sure you bring the Form 1099-C along with W-2s and other forms when you visit your tax preparer. If the 1099-C is incorrect, contact the debt collector immediately and ask for a corrected 1099-C form.

In most cases, Form 1099-C is reported on line 21 of the Form 1040 long form and is included as ordinary income.

So what did happen to my Capital Gains Tax Cuts?

Investors who enjoyed a huge increase in their portfolio in 2010 will see some relief at income tax time.

Due to the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that became law on December 17, 2010, several of the Bush era tax cuts were extended two more years including the Capital Gains Tax cuts.

For tax years 2010-2012 the rate on capital gains is 0% on capital gains if you find yourself in the 10% or 15% tax bracket. This will allow you sell assets for a profit tax-free. Your 2010 taxable income – gross income minus exemptions and deductions – can't exceed $34,000 for individuals or $68,000 for married couples filing jointly.

If your taxable income is above these amounts, your capital gains tax rate is 15%. The tax rate is figured after including the capital gains in your income. The tax rate on capital gains and the tax rate on other ordinary income is figured separately.

H&R Block loses Refund Anticipation Loans

America's biggest tax preparation firm will no longer offer refund anticipation loans (RALs) to their clients forcing millions of customers elsewhere or having to wait longer to receive their federal income tax refund.

H&R Block's banking partner, HSBC, was told to quit underwriting these controversial loans by the Office of the Comptroller of the Currency.

RALs are short-term loans backed by the taxpayer’s expected refund. Typically low-income customers who file their taxes early in the season apply for the loans. RALs have been controversial for several years due to their huge bank fees, financing fees and sometimes triple-digit interest rates.

Bank lenders have been exiting the RAL business in recent years due to the credit crisis and a change by the Internal Revenue Service eliminating a code that lets tax preparers know if customers will receive their entire refund or if the dollars will be used to pay down back taxes or unpaid child support.

Taxpayers who elect not to apply for RALs can still receive their full refund directly from the IRS via direct deposit in as little as eight days.

The announcement is another blow to Block's reputation which in the last couple of years has seen:

• H&R Block overstated their own earnings in 2003 & 2004 by $91 million
• Sued by New York state for deceptive marketing of its Express IRA retirement accounts
• Mailing free copies of its software to its customers … with their social security number on the package
• Two preparers filing fraudulent tax returns and stealing more than $100,000 from its clients

H&R Block will still offer refund anticipation checks (RAC) which is the taxpayer's actual disbursed refund which is loaded onto a payment card after the IRS processes the taxpayer's return.