1. What Parents Should Know about Their Child’s Investment Income

    Parents need to be aware of the tax rules that affect their children’s investment income. Here are four facts from the IRS that will help parents determine whether their child’s investment income will be taxed at the parents’ rate or the child’s rate:

    1. Investment Income Children with investment income may have part or all of this income taxed at their parents’ tax rate rather than at the child’s rate. Investment income includes interest, dividends, capital gains and other unearned income.

    2. Age Requirement The child’s tax must be figured using the parents’ rates if the child has investment income of more than $1,900 and meets one of three age requirements for 2010:

    • Was under age 18 at the end of the year,
    • Was age 18 at the end of the year and did not have earned income that was more than half of his or her support, or
    • Was a full-time student over age 18 and under age 24 at the end of the year and did not have earned income that was more than half of his or her support.

    3. Form 8615 To figure the child’s tax using the parents’ rate for the child’s return, fill out Form 8615, Tax for Certain Children Who Have Investment Income of More Than $1,900, and attach it to the child’s federal income tax return.

    4. Form 8814 When certain conditions are met, a parent may be able to avoid having to file a tax return for the child by including the child’s income on the parent’s tax return. In this situation, the parent would file Form 8814, Parents’ Election To Report Child’s Interest and Dividends.

  2. Today’s March 15th and you know what that means…

    Everyone seems to know that April 15th (actually 18th this year) is the tax deadline but many business owners don’t realize that March 15th is the corporate deadline.  This includes both regular corporations, S corporations, and LLC’s that are taxed as S corporations.  Partnerships have until the individual tax deadline of 4/18 to file. 

    You can always extend, but the tax or estimated tax at least, is due on the regular due date, not the extended one.  Aren’t sure you have the funds to pay all of it in… at least file an extension anyway and pay as much as you can.  The penalties are much stiffer if you don’t!

  3. Six Facts about Choosing the Standard or Itemized Deductions

    When filing your federal income tax return, taxpayers can choose to either take the standard deduction or to itemize their deductions. The IRS has put together the following six facts to help you choose the method that gives you the lowest tax.

    Whether to itemize deductions on your tax return depends on how much you spent on certain expenses last year. Money paid for medical care, mortgage interest, taxes, charitable contributions, casualty losses and miscellaneous deductions can reduce your taxes. If the total amount spent on those categories is more than your standard deduction, you can usually benefit by itemizing.

    1. Standard deduction amounts are based on your filing status and are subject to inflation adjustments each year. 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 

    2. Some taxpayers have different standard deductions The standard deduction amount depends on your filing status, whether you are 65 or older or blind and whether an exemption can be claimed for you by another taxpayer. If any of these apply, you must use the Standard Deduction Worksheet on the back of Form 1040EZ, or in the 1040A or 1040 instructions. The standard deduction amount also depends on whether you plan to claim the additional standard deduction for a loss from a disaster declared a federal disaster or state or local sales or excise tax you paid in 2010 on a new vehicle you bought before 2010. You must file Schedule L, Standard Deduction for Certain Filers to claim these additional amounts.

    3. Limited itemized deductions Your itemized deductions are no longer limited because of your adjusted gross income.

    4. Married Filing Separately When a married couple files separate returns and one spouse itemizes deductions, the other spouse cannot claim the standard deduction and therefore must itemize to claim their allowable deductions.

    5. Some taxpayers are not eligible for the standard deduction They include nonresident aliens, dual-status aliens and individuals who file returns for periods of less than 12 months due to a change in accounting periods.

    6. Forms to use The standard deduction can be taken on Forms 1040, 1040A or 1040EZ.  If you qualify for the higher standard deduction for new motor vehicle taxes or a net disaster loss, you must attach Schedule L. To itemize your deductions, use Form 1040, U.S. Individual Income Tax Return, and Schedule A, Itemized Deductions.

  4. Health Insurance Tax Breaks for the Self-Employed

    Here is some information from the IRS about a special tax deduction for the self-employed. You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for you, your spouse, and your dependents if you are one of the following:

    • A self-employed individual with a net profit reported on Schedule C (Form 1040), Profit or Loss From Business, Schedule C-EZ (Form 1040), Net Profit From Business, or Schedule F (Form 1040), Profit or Loss From Farming.
    • A partner with net earnings from self-employment reported on Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc., box 14, code A.
    • A shareholder owning more than 2% of the outstanding stock of an S corporation with wages from the corporation reported on Form W-2, Wage and Tax Statement.

    The insurance plan must be established under your business.

    • For self-employed individuals filing a Schedule C, C-EZ, or F, the policy can be either in the name of the business or in the name of the individual.
    • For partners, the policy can be either in the name of the partnership or in the name of the partner. You can either pay the premiums yourself or your partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business.
    • For more-than-2% shareholders, the policy can be either in the name of the S corporation or in the name of the shareholder. You can either pay the premiums yourself or your S corporation can pay them and report the premium amounts on Form W-2 as wages to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the S corporation must reimburse you and report the premium amounts on Form W-2 as wages to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business.

  5. Did you Take an Early Distribution from Your Retirement Plan?

    Some taxpayers may have needed to take an early distribution from their retirement plan last year. The IRS wants individuals who took an early distribution to know that there can be a tax impact to tapping your retirement fund.  Here are ten facts about early distributions.

    1. Payments you receive from your Individual Retirement Arrangement before you reach age 59 ½ are generally considered early or premature distributions.
    2. Early distributions are usually subject to an additional 10 percent tax.
    3. Early distributions must also be reported to the IRS.
    4. Distributions you rollover to another IRA or qualified retirement plan are not subject to the additional 10 percent tax. You must complete the rollover within 60 days after the day you received the distribution.
    5. The amount you roll over is generally taxed when the new plan makes a distribution to you or your beneficiary.
    6. If you made nondeductible contributions to an IRA and later take early distributions from your IRA, the portion of the distribution attributable to those nondeductible contributions is not taxed.
    7. If you received an early distribution from a Roth IRA, the distribution attributable to your prior contributions is not taxed.
    8. If you received a distribution from any other qualified retirement plan, generally the entire distribution is taxable unless you made after-tax employee contributions to the plan.
    9. There are several exceptions to the additional 10 percent early distribution tax, such as when the distributions are used for the purchase of a first home, for certain medical or educational expenses, or if you are disabled.
    10. For more information about early distributions from retirement plans, the additional 10 percent tax and all the exceptions see IRS Publication 575, Pension and Annuity Income and Publication 590, Individual Retirement Arrangements (IRAs)

  6. Ten Facts for Mortgage Debt Forgiveness

    If your mortgage debt is partly or entirely forgiven during tax years 2007 through 2012, you may be able to claim special tax relief and exclude the debt forgiven from your income. Here are 10 facts the IRS wants you to know about Mortgage Debt Forgiveness.

    1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.
    2. The limit is $1 million for a married person filing a separate return.
    3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.
    4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.
    5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.
    6. Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.
    7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
    8. Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.
    9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
    10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.

  7. $1.1 Billion in Unclaimed 2007 Tax Refunds

    Did you forget to file your 2007 taxes? The IRS might have a nice check waiting for you.

    Nearly 1.1 million taxpayers failed to file that year, and the IRS estimates they are entitled to $1.1 billion in potential refunds.

    Half of those who failed to file are owed a refund $640 or more, the agency announced Tuesday. And it could be even more.

    But Uncle Sam isn’t holding your money for you much longer.

    If you don’t file your 2007 return by April 18, 2011, say goodbye to your refund forever. Taxpayers are only given a three-year window to claim refunds. After that, your money is scooped up by the U.S. Treasury.

    If you do decide to finally claim your 2007 refund, remember that your check will be held until the IRS has received your 2008 and 2009 tax returns as well. And, if you owe other federal debts, child support or back taxes, the refund will be applied to those amounts.

    In addition to a refund, some Americans may also be missing out on the Earned Income Tax Credit, which helps many low- and middle-income taxpayers.

  8. Ten Important Facts About Capital Gains and Losses

    Did you know that almost everything you own and use for personal or investment purposes is a capital asset? Capital assets include a home, household furnishings and stocks and bonds held in a personal account. When a capital asset is sold, the difference between the amount you paid for the asset and the amount you sold it for is a capital gain or capital loss.

    Here are ten facts from the IRS about gains and losses and how they can affect your Federal income tax return.

    1.       Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.

    2.       When you sell a capital asset, the difference between the amount you sell it for and your basis – which is usually what you paid for it – is a capital gain or a capital loss.

    3.       You must report all capital gains.

    4.       You may deduct capital losses only on investment property, not on property held for personal use.

    5.       Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.

    6.       If you have long-term gains in excess of your long-term losses, you have a net capital gain to the extent your net long-term capital gain is more than your net short-term capital loss, if any.

    7.       The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income. For 2010, the maximum capital gains rate for most people is 15%. For lower-income individuals, the rate may be 0% on some or all of the net capital gain. Special types of net capital gain can be taxed at 25% or 28%.

    8.       If your capital losses exceed your capital gains, the excess can be deducted on your tax return and used to reduce other income, such as wages, up to an annual limit of $3,000, or $1,500 if you are married filing separately.

    9.       If your total net capital loss is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you incurred it in that next year.

    10.   Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13 of Form 1040.

  9. Get Credit for Your Retirement Savings Contributions

    You may be eligible for a tax credit if you make eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement.  Here are six things the IRS wants you to know about the Savers Credit:

    1. Income Limits The Savers Credit, formally known as the Retirement Savings Contributions Credit, applies to individuals with a filing status and income of:

    • Single, married filing separately, or qualifying widow(er), with income up to $27,750 
    • Head of Household with income up to $41,625 
    • Married Filing Jointly, with incomes up to $55,500 

    2. Eligibility requirements To be eligible for the credit you must have been born before January 2, 1992, you cannot have been a full-time student during the calendar year and cannot be claimed as a dependent on another person’s return.

    3. Credit amount If you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans, you may be able to take a credit of up to $1,000 or up to $2,000 if filing jointly. The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income.

    4. Distributions When figuring this credit, you generally must subtract the amount of distributions you have received from your retirement plans from the contributions you have made. This rule applies to distributions received in the two years before the year the credit is claimed, the year the credit is claimed, and the period after the end of the credit year but before the due date - including extensions - for filing the return for the credit year.

    5. Other tax benefits The Retirement Savings Contributions Credit is in addition to other tax benefits which may result from the retirement contributions. For example, most workers at these income levels may deduct all or part of their contributions to a traditional IRA. Contributions to a regular 401(k) plan are not subject to income tax until withdrawn from the plan.

  10. Moving Soon? Let the IRS Know!

    If you’ve changed your home or business address, make sure you update that information with the IRS to ensure you receive any refunds or correspondence. The IRS offers five tips for taxpayers that have moved or are about to move:

    1. Change Your IRS Address Records  You can change your address on file with the IRS in several ways:

    • Write the new address in the appropriate boxes on your tax return;
    • Use Form 8822, Change of Address, to submit an address or name change any time during the year;
    • Give the IRS written notification of your new address by writing to the IRS center where you file your return. Include your full name, old and new addresses, Social Security Number or Employer Identification Number and signature. If you filed a joint return, be sure to include the information for both taxpayers. If you filed a joint return and have since established separate residences, each spouse should notify the IRS of their new address; and
    • Should an IRS employee contact you about your account, you may be able to verbally provide a change of address.

    2. Notify Your Employer  Be sure to also notify your employer of your new address so you get your W-2 forms on time.

    3. Notify the Post Office If you change your address after you’ve filed your return, don’t forget to notify the post office at your old address so your mail can be forwarded.

    4. Estimated Tax Payments If you make estimated tax payments throughout the year, you should mail a completed Form 8822, Change of Address, or write the IRS campus where you file your return. You may continue to use your old pre-printed payment vouchers until the IRS sends you new ones with your new address. However, do not correct the address on the old voucher.

    5. Postal Service The IRS does use the Postal Service’s change of address files to update taxpayer addresses, but it’s still a good idea to notify the IRS directly.

  11. Checking the Status of Your Refund

    If you already filed your federal tax return and are due a refund, you have several options to check on your refund. Here are eight things the IRS wants you to know about checking the status of your refund:

    1. Online Access to Refund Information Where’s My Refund? or ¿Dónde está mi reembolso? are interactive tools on http://www.irs.gov and are the fastest, easiest way to get information about your federal income tax refund. Whether you split your refund among several accounts, opted for direct deposit into one account, used part of your refund to buy U.S. Savings Bonds or asked the IRS to mail you a check, Where’s My Refund? and ¿Dónde está mi reembolso? give you online access to your refund information, 24 hours a day, 7 days a week. It’s quick, easy and secure.

    2. When to Check Refund Status If you e-file, you can get refund information 72 hours after the IRS acknowledges receipt of your return. If you file a paper return, refund information will generally be available three to four weeks after mailing your return.

    3. What You Need to Check Refund Status When checking the status of your refund, have your federal tax return handy. To get your personalized refund information you must enter:

    • Your Social Security Number or Individual Taxpayer Identification Number
    • Your filing status which will be Single, Married Filing Joint Return, Married.
    • Filing Separate Return, Head of Household, or Qualifying Widow(er).
    • Exact whole dollar refund amount shown on your tax return.

    4. What the Online Tool Will Tell You Once you enter your personal information, you could get several responses, including:

    • Acknowledgement that your return was received and is in processing.
    • The mailing date or direct deposit date of your refund.
    • Notice that the IRS could not deliver your refund due to an incorrect address. In this instance, you may be able to change or correct your address online using Where’s My Refund?

    5. Customized Information Where’s My Refund? also includes links to customized information based on your specific situation. The links guide you through the steps to resolve any issues affecting your refund.  For example, if you do not get the refund within 28 days from the original IRS mailing date shown on Where’s My Refund?, you may be able to start a refund trace.

    6. Visually Impaired Taxpayers Where’s My Refund? is also accessible to visually impaired taxpayers who use the Job Access with Speech screen reader used with a Braille display and is compatible with different JAWS modes.

    7. Toll-free Number If you do not have internet access, you can check the status of your refund in English or Spanish by calling the IRS Refund Hotline at 800-829-1954 or the IRS TeleTax System at 800-829-4477. When calling, you must provide your or your spouse’s Social Security number, filing status and the exact whole dollar refund amount shown on your return.

    8. IRS2Go This is the IRS’ first smartphone application that lets taxpayers check on the status of their tax refund. Apple users can download the free IRS2Go application by visiting the Apple App Store. Android users can visit the Android Marketplace to download the free IRS2Go app.


    Links:

  12. "The hardest thing in the world to understand is the income tax."
    Albert Einstein

  13. »  Help with Personal Finances

  14. Ten Facts about the Child Tax Credit

    Submitted by welch on Sat, 02/12/2011 - 14:12 

    The Child Tax Credit is an important tax credit that may be worth as much as $1,000 per qualifying child depending upon your income. Here are 10 important facts. Amount - With the Child Tax Credit, you may be able to reduce your federal income tax by up to $1,000 for each qualifying child under the age of 17. Qualification - A qualifying child for this credit is someone who meets the qualifying criteria of six tests: age, relationship, support, dependent, citizenship, and residence. Age Test - To qualify, a child must have been under age 17 – age 16 or younger – at the end of 2010. Relationship Test - To claim a child for purposes of the Child Tax Credit, they must either be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, niece or nephew. An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption. Support Test - In order to claim a child for this credit, the child must not have provided more than half of their own support. Dependent Test - You must claim the child as a dependent on your federal tax return. Citizenship Test - To meet the citizenship test, the child must be a U.S. citizen, U.S. national, or U.S. resident alien. Residence Test - The child must have lived with you for more than half of 2010. There are some exceptions to the residence test, which can be found in IRS Publication 972, Child Tax Credit. Limitations - The credit is limited if your modified adjusted gross income is above a certain amount. The amount at which this phase-out begins varies depending on your filing status. For married taxpayers filing a joint return, the phase-out begins at $110,000. For married taxpayers filing a separate return, it begins at $55,000. For all other taxpayers, the phase-out begins at $75,000. In addition, the Child Tax Credit is generally limited by the amount of the income tax you owe as well as any alternative minimum tax you owe. Additional Child Tax Credit - If the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim the Additional Child Tax Credit.

  15. Sales-tax Deduction

    Submitted by welch on Thu, 02/10/2011 - 17:47 
    Lawmakers extended (for 2010 and 2011) a deduction for state and local sales taxes in lieu of income taxes. This is primarily used by taxpayers who live in states without an income tax, such as Florida, Texas and Washington.

About me

My Way CPA provides the tax services you deserve—effortless, accessible, personal, affordable—all from a licensed CPA. Our convenient, internet-based business is the perfect match for on-the-go professionals and entrepreneurs like you. All tax returns are prepared in the United States by seasoned tax accountants who take the time to understand your individual needs. And you can do it all from the comfort of your living room, your office, your hotel room, your…wherever.