Archive for September, 2011
Getting Organized for Tax Time
Posted on September 25, 2011 | Tax Studies.
Yes it’s that time again, the tax man is coming. If you’re like most people you haven’t thought about taxes since the check cleared your bank account last year. But, a little up front effort will help keep you from the inevitable scramble on April 15.
First, pull out your return from last year. Unless there have been some significant changes in your life this really should be a good guide. If you haven’t filed last years return that should really be your first step before doing anything else for this year. If you file a 1040, an individual income tax return, start at the top and pull together any relevant information. Last years return should already have all of the personal information as well as the dependant information, unless you’ve added a dependent e.g. had a baby (or two in my case).
Next is the income section which for most people consists of wages and possibly interest income. Other forms of income that are common are rental income, IRA or pension distributions, dividends, and unemployment. Also, if you itemize your state refund is taxable and if you have any business income. Business income requires filing a Schedule C., so you’ll have to figure out the income and expenses for the business separately and enter them on Schedule C. Wages are reported to you on a W2 and a lot of the other types of income are reported on 1099′s so watch for these in the mail. W2′s are due to you by the end of January and 1099′s should be mailed by the end of February.
Now that you have all this income you want to think about how to offset it with credits and deductions. The most common deductions are for interest reported on 1098′s, taxes and children. Mortgage interest and points are deductible for 2 homes, including in most cases mobile home loan interest because they have a cooking areas and bathrooms. Student loan and investment interest is also deductible. Personal interest such as interest on credit cards and car loans is not deductible. Taxes that can be deductible are your state and local income tax (if you itemize), real estate taxes, and personal property tax such as your vehicle licenses tabs. If you have children you get a dependent credit per qualifying child and child care is deductible, but it’s offset by any amount you’ve used out of a flex spending account through your employer. There are many other deductions for charitable contributions, unreimbursed employee expenses, IRA deductions etc.
The most important thing when getting organized for tax season is work with your tax preparer. They will be able to answer your questions, and let you know what to watch for. In most case like at my firm they’ll have handy organizers already made up for you. So work with a professional it’ll make you life easier, and by the way tax prep fees are deductible.
Allowable and Disallowable Expenses for Tax Deductions
Posted on September 12, 2011 | Tax Studies.
For people filing tax deductions, medical expenses should feature on their list of tax reductions. The Internal Revenue Service allows taxpayers to make deductions of annual medical expenses that are over 7.5% of one’s annual gross income. Medical expenses incurred from regular checkups, eye and dental checkups, and visits to the doctors qualify under this section. Mileage incurred in the medical trips should also be logged in as part of the deductions. Taxpayers who make monthly health insurance payments should make their January payments in December and sum them up with the medical expenses that qualify for deductions.
In some States, taxes on real estates are made once per year, but in other states like New Jersey, municipal taxes, county taxes, and school taxes are combined and payments done on quarterly basis. In such states, taxpayers can settle the payments due in early 2012, in December 2011.
Taxpayers who make quarterly payments of tax estimates deducting state income tax and local income tax but not state/local sales tax should consider making the payment of the quarter, which is usually due in mid January, in December. Those who expect due balances on their state income tax returns of the year can consider requesting their employer to increase their income tax withholding.
For those hoping to buy a car in the beginning of 2012 and are in a state with no income tax or decide to make state/local sales tax deductions instead of state/local income tax deductions, they should consider acquiring the vehicle in December and save the receipts for sales tax purposes.
Being charitable can also add value to one’s account. Donations made by a taxpayer, to churches, charities, or any other places, should be included in the deductions, as long as one has receipts for every donation made.
Taxpayers with monthly mortgage payments should make their January loan payments in December and ensure that the mortgage company receives those payments in December so that they can be reflected in the taxpayer’s Form 1098 for 2011.
There are work-related expenses that the IRS recognizes for tax deduction purposes. Some of these expenses include costs of new uniforms, subscriptions to work, or career related publications that expire in early 2012, purchase of work clothing and small tools. College fee for a dependant person, whether a child or spouse, also qualifies for tax deduction. However, such costs qualify only for the year they were incurred and paid for.