Category: Tax Tips

Tax tips to save you time, money, and heart ache.

End of year tax planning

End of Year Tax Planning

Your tax return may not be due for another few months, but that doesn’t mean you shouldn’t start working on your end-of-year tax plans. With the calendar year ending soon, there are certain steps you should consider to minimize your tax obligation.

Figure out your tax brackets

One of the first things you need to do is figure out what your tax rate will be for this year and next year. This is important; depending on your tax bracket status, it may be more advantageous to defer certain tax deductions or income to next year, or take them this year.

Defer or accelerate income and tax deductions

Once you know which tax bracket you will be in this year and most likely be in next year, you can decide how you want to time when you use certain deductions and receive certain income. For example, if you think you will be in a higher tax bracket next year, you might want wait to use a deduction until next year and do everything you can to receive all the income possible this year. But if you anticipate being in a lower tax bracket next year, you might want to use the tax deduction now and defer the expected income until the next tax year. Note that if you are able to receive a current year’s income in the following year, such as an end-of-year bonus, you’ll need to confirm this is a normal business practice for your employer.

Take full advantage of your flexible spending account

Also known as a flexible spending arrangement or FSAs, these financial accounts allow an employee to put pre-tax dollars into an account throughout the year, which can then be spent on certain health expenses not otherwise covered by the employee’s health plan. One of the biggest drawbacks of an FSA is that funds contributed, but not used, are forfeited at the end of the calendar year. Recent changes have mitigated this “use-it-or-lose-it” rule somewhat by allowing up to $500 to be carried over into the following calendar year. The changes also allow the employer to provide a grace period of up to 2 ½ months to spend the money.

Make an extra mortgage or state tax payment

By paying that January mortgage payment in December, you can effectively take 13 months worth of deductible mortgage interest for the current year. The same principle can be used for state taxes due early the following year. Instead of making that state tax payment in January, make it in December and claim a bit more in your itemized deductions for the current tax year. But be careful if using this tax strategy: if you are subject to the Alternative Minimum Tax, or AMT, you may not be able to take full advantage of these early payments.

Loss harvesting

Selling off losing investments can give you tax losses to offset any capital gains during the current tax year. There are a few things to keep in mind. First, you can only use up to $3,000 in losses to offset any gains. Any additional losses can be carried over to the next tax year, though. Second, be aware of the wash-sale rule, which will effectively undo the tax offset if a “substantially identical” security is bought or sold within 30 days of the tax offset sale. Three, do not let your desire to engage in loss-harvesting override your overall investment goals.

In Closing

These are just a few of the potential end-of-year tax strategies you may want to consider. And not all these tips will be right for everyone. The best thing to do is to consult with your tax professional to see which steps make the most sense and the best way to go about taking full advantage of them.

 

 

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Tips To Keep Your Tax Information Safe

Due to the financial nature of taxes, as well as the personal information needed to prepare a return, tax returns are prime targets for identity thieves. To put give an idea of how bad things are, the US Government Accountability Office estimates that during the 2013 tax season, over $5 billion in fraudulent tax refunds were issued by the IRS.

In order to prevent yourself from becoming a victim of identity theft, you should take reasonable steps to keep your tax information safe.

 

Tip #1: Secure your personal computer and Internet connection

Make sure your computer or mobile device has up-to-date firewall, anti-virus and malware/spyware security software. These can help detect malicious software that can steal information and record keystrokes. Additionally, if using a Wi-Fi Internet connection, make sure it’s protected before doing anything that requires the submission of personal information or typing of passwords, like online banking.

 

Tip #2: Protect personal information

Don’t provide personal information such as date of birth, social security number, address or other information unless it’s truly necessary. Also, don’t carry your social security card in your wallet or purse.

 

Tip #3: Avoid scams

Learn to spot suspicious e-mails or telephone calls stating you must confirm the security of a financial account or asking for personal information. If you think an e-mail or telephone call might be real, do not click on the link provided in the e-mail or provide personal information to the person who called you. Instead, contact the financial institution directly through a phone number known to be legitimate, such as on the back of your credit or debit card, to make sure the e-mail or phone call you received is not fraudulent.

Tip #4: Use an Identity Protection PIN (IP PIN) when filing your taxes

The IP PIN is offered by the IRS and consists of a six digit number that taxpayers provide with their returns to help prevent fraudulent federal tax returns. Only certain taxpayers are eligible, and once an IP PIN is used for one year’s returns, it must be used for all subsequent years.

 

Tip #5: Go paperless

Whether it’s e-filing taxes or receiving tax related documents via a website, it may be wise to have financial documents obtained electronically. If going paperless isn’t an option, having mail with sensitive personal information delivered to a post office box or a locked mailbox is an alternative.

 

Tip #6: Request a free credit check

Federal law allows you to receive a free credit report every year from the following credit reporting agencies: Equifax, TransUnion or Experian. Checking your credit report can help detect identity theft before you would otherwise notice it.

 

Tip #7: Use Form 8821

The IRS allows taxpayers to authorize another party to receive correspondence from the IRS. In order to utilize this service, individuals must complete Form 8821, which allows taxpayers to designate someone else, even themselves, to receive communications from the IRS. This can serve as a warning system should an identity thief deal with the IRS without the taxpayer knowing. For example, if an identity thief has submitted a fraudulent return and the IRS contacts the identity thief, the taxpayer can receive the same correspondence the identity thief has received.

 

Tip #8: Destroy then dispose

Before getting rid of anything that contains personal information, make sure that information has been properly destroyed first. From shredding old pay stubs to wiping computer hard drives to resetting mobile devices, make sure steps are taken to ensure personal information cannot be accessed by anyone else.

 

In Conclusion

Many of the above tips will be common sense for some taxpayers. For others, it won’t be applicable. Even if all of the above tips are followed, they don’t guarantee that tax information can’t be stolen. However, it makes things much harder for identity thieves, who often focus on the easiest targets.

 

 

tax payment plan

How to Set-Up an IRS Tax Payment Plan

It’s a few days before the April 15th tax deadline and you’ve just finished preparing your return for last year’s taxes. Unfortunately, it turns out you owe additional taxes in an amount exceeding your ability to pay off the tax debt in full when your tax return is filed. You know you will be able to pay off the entirety of this tax debt, but you’ll need more time. What can you do? The answer will depend on several factors, such as how much you owe and how much time you need.

 

Short Term Agreement Request

If you need only a small amount of time, you can ask the IRS for a short term extension. The extension cannot exceed 120 days and the entire tax debt will need to be paid, subject to interest and applicable penalties. The biggest advantage of the short term agreement plan is that there is no user fee. You can request a short term agreement over the telephone or through the IRS’ website by applying for an Online Payment Agreement.

 

Set Up a Payment Plan

If more than a few months are needed to pay off the tax debt, a taxpayer can set up an installment plan where the taxpayer makes monthly payment to pay off the tax debt over time, up to a few years. However, the taxpayer must qualify before the IRS will agree to a payment plan.

 

Generally speaking, as long as the taxpayer owes less than $50,000, is up to date with all tax returns and can pay off the entire tax debt in a few years, the IRS will approve the payment plan. When requesting a payment plan, the taxpayer will get to choose the day of the month to make the monthly payment and the monthly payment amount. The monthly amount must be large enough to pay off the debt within a few years, but not too large that the taxpayer risks not making a payment.

 

Setting up a payment plan is not free. In addition to the interest and penalties the taxpayer will owe due to the delay in paying off the tax debt, there will be user fee. As of the time of this writing, the fee is either $52 for payments made via direct debit, $120 for non-direct debit payments or $43 for qualified low income taxpayers. Direct debit refers to giving permission to the IRS to automatically withdraw the monthly payment amount from the taxpayer’s checking account.

 

Taxpayers may set up a tax payment plan by either calling the IRS, submitting Form 9465 or using the using the Online Payment Agreement Application. If the payment plan request is being made when the current tax return has not yet been filed, it’s recommended the tax payer submit Form 9465 along with the return. If the return has already been filed when the payment plan request is being made, using the Online Payment Agreement Application is suggested.

Information needed to set up a payment plan will include the taxpayer’s:

  •  Name
  • Social Security number
  • E-mail address
  • Mailing address from most recent processed tax return
  • Filing status
  • Date of birth

 

In Conclusion

The IRS is fairly agreeable to giving taxpayers more time to pay off their tax debts. However, this extra time is not free, as penalties and interest will almost always accrue during the extension, on top of the fee for setting up a payment plan.

 

 

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Watch Your Wallets!

Government spending constantly goes up, no matter what politicians promise.

With so many government programs, pork barrel spending and earmarks, it’s no wonder this country’s debt continues to rise.  And exactly how does the government pay for all this? With taxes, whether creating new ones or increasing the rate of existing ones. The following blog discusses some of the strategies available that can help keep the government out of your wallet! Continue reading “Watch Your Wallets!”

tax refund

ALERT: Tax Breaks for the Average Person

Nobody likes paying taxes, but everyone likes being able to reduce the taxes they have to pay. There are several ways you can get a few tax breaks, whether it’s a tax deduction, tax credit or tax exemption. Even if you already utilize a few, you may still be asking yourself if you’re taking full advantage of what’s available. When you prepare your tax return, are there any tax breaks or secrets that you might be missing? The following article will discuss a few tax breaks available to almost anyone that you could be missing out on. Continue reading “ALERT: Tax Breaks for the Average Person”