The earlier you file your taxes, the sooner you get your return
February 9, 2010 by Taxcut Editor
Filed under Personal and Business Taxes
Tax time coming soon
One of the easiest ways to find money now is to get a jump on filing income taxes. Many consumers wait until April to start gathering their paperwork together. They bring them to their tax preparer and want a rush job. The problem with waiting is that it opens the door for mistakes and it makes the time to get a refund that much longer. Anyone wanting to get the jump on filing, here are some tips.
Getting the jump on taxes
The first thing taxpayers need to be aware of is Schedule M. Schedule M is a new tax document that is used to account for the “Making Work Pay” credit money received on paychecks. The new payroll tables from last year that put an extra $ 400 in the pockets of single people or $ 800 for married couples filing jointly. For some taxpayers, however, they may have paid too much into the fund. To correct the over taxation, consumers have to file a Schedule M.
Secondly, you have to get your paperwork together. January to mid-February is when W-2s and other tax-related documents start coming in. Consumers should create a special place for all tax documents. The requisite information for these documents and getting it all together at once will make it easier to finish tax paperwork.
Thirdly, you have to double check things like social security numbers. Though it sounds rudimentary, there are a surprising number of tax returns received without the correct numbers. It holds up processing and refunds for thousands of filers. The correct number is critical, because a lot of transactions are directly tied to them. Everything from income statements to retirement plan contributions are recorded based on the social security number.
Fourthly, you need to know what filing package is the best to get. The IRS package is based on the filing history of a taxpayer, but that can change. Many documents are accessible online or at the library of post office. For taxpayers who had a major change, like marriage, it’s important to find the right documentation. Married couples looking for money now have to file with the right documents and in the right way.
Fifthly, think about electronic filing. Studies have shown that last year about two-thirds of all taxpayers filed electronically. The IRS processed E filed tax returns 50% faster than paper returns. Many of the software programs have a review function, where the return is double checked for innaccuracies and errors. The good news for E-filers is that taxpayers may qualify to file for free. Taxpayers this year with adjusted gross income of $ 57,000 or less for 2009, can file for free thanks to a cooperative program between tax software companies and the IRS.
Finally, taxpayers can elect direct deposit. A paper return takes weeks to get to the IRS, get processed, and a check to be cut and then sent. Conversely, it usually takes 10 to 14 days for a direct deposit to get to a bank account. Taxpayers that desire direct deposit have to file Form 8888, but it speeds up the process.
Filing in 2010
Now more than ever, filing tax returns is being made simpler and simpler for taxpayers. Those who want their tax return money now should follow the above tips to speed the process up. There are millions of tax returns that have to be reviewed and consumers looking for quick ways to file should use every advantage available.
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Marriage and Taxes
June 24, 2009 by Taxcut Editor
Filed under Personal and Business Taxes
Getting married is the greatest day for 50 percent of couples. The other 50 percent get divorced. Perhaps the marriage tax penalty has something to do with it.
Family Values? Hardly….
For all the chatter from politicians about family values, it is ironic that the tax code actually penalizes people for getting married. At its heart, the tax code is designed to modify behavior. Deductions and credits are given in areas the politicians wish to promote and taken away in areas considered less positive. Home ownership is viewed as a good thing, so mortgage interest is deductible. Cigarettes are bad, so they are taxed like no tomorrow. If you buy this argument, one must wonder why married couples suffer under the tax code.
A recent study found that by getting married, couples are forced to pay roughly $1,500 in additional taxes. Known as the marriage penalty, one must wonder what the government is up to. Is it trying to promote family values or not? The numbers would seem to indicate not.
The marriage penalty is a nasty little development for newlyweds. The penalty occurs because married couples must pool their earnings when they report taxes. Typically, this means their pooled earnings move them into a higher tax bracket and they pay more taxes. For instance, assume husband makes $45,000 a year as does wife. As a married couple, their pooled income is $90,000 with the accompanying tax consequences. For really doomed couples, the combined income will actually kick in the alternative minimum tax. The AMT more or less voids many major deductions. In the tax industry, there is a nickname for this situation – dash the divorce tax.
The marriage penalty has existed for years, yet the politicians have failed to find a fix. They pay lip service to the idea, but no major changes have been made to fix the problem. The best they have come up with is doubling the standard deduction for married couples, but this has had little impact since most couples itemize their deductions.
It appears the marriage tax penalty is here to stay for the foreseeable future. One has to wonder why our family values President didn’t include a fix in his tax cuts.
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Tax credits available to homebuyers
June 8, 2009 by Taxcut Editor
Filed under IRS News Items
It is pretty simple really … if you have not owned a home for the past three years you will likely receive a credit equal to 10 percent of the cost of purchasing a main home up to a maximum credit of $8,000. Homes purchased from April 2008 to Dec. 2009 could qualify for benefits.
The credit is available for homes purchased after April 8, 2008, and BEFORE Dec. 1, 2009. The credit for homes purchased in 2009 is larger than the credit available for 2008 purchases. The rules described below apply to homes purchased in 2009, prior to Dec. 1.
A credit is a dollar-for-dollar reduction in tax. This credit is a “refundable” credit. This means that the government will send you a check if you do not have any taxes to offset the credit. The credit is equal to 10 percent of the cost of the house, up to the maximum credit amount. So, if the house costs $80,000 or more, the credit amount will be $8,000.
The definition of a “first time homebuyer” is interesting. Basically, in order to qualify for the credit, you AND your spouse (if married) must neither have owned a main home for the three year period ending on the date of the purchase. A “main home” is the one you live in most of the time. It can be a house, house trailer, condo, etc.
You cannot claim a credit if you acquire the house from a related person. There is no requirement that the house be new … only that it be new to you. You can claim a credit on a home that you build too. If you build a new home, it’s considered to be purchased on the date you occupy it.
As with most tax benefits, this credit is unavailable to those whose income exceeds certain levels. For single individuals, if adjusted gross income is more than $95,000 or for married couples filing joint returns, if adjusted gross income exceeds $170,000, you cannot claim the credit.
If you sell the home within three years, you may have to repay all, or a part of the credit. There are exceptions to this rule. For example, if you sell the home to an unrelated person, the amount of the credit that you have to repay is limited to the gain on the sale.
For most people who purchase their first home, finances are really tight. If you qualify for this credit by purchasing a house in 2009, you can actually file an amended return for 2008 and claim the credit on that return. By doing this, you should have the funds in hand within a few weeks rather than having to wait until you file your 2009 tax return to claim the credit.
The credit is claimed on Form 5405 –First Time Homebuyer Credit.
When you combine this credit with low interest rates and the depressed housing prices, now might well be the time to buy. And parents, now might be the time to help your recent grad get into their first home. For a real change, the government might help you out!
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The Making Work Pay Tax Credit
June 4, 2009 by Taxcut Editor
Filed under IRS News Items
How will the Making Work Pay tax credit affect you?
Most wage earners will benefit immediately — or already have — with a larger paycheck as a result of the changes made to the federal income tax withholding tables to implement the Making Work Pay tax credit. Some people may find that the changes built into the withholding tables result in less tax being withheld than they prefer.
If you’re not eligible for the Making Work Pay tax credit, withholding changes could mean a smaller refund next spring. A limited number of people, including those who usually receive very small refunds, could in some situations owe a small amount rather than receiving a refund. Those who should pay particular attention to their withholding include:
Pensioners (see more information under Pensioners, below)
Married couples with two incomes
Individuals with multiple jobs
Dependents
Some Social Security recipients who work
Workers without valid Social Security numbers
The Making Work Pay tax credit, normally a maximum of $400 for working individuals and $800 for working married couples, is reduced by the amount of any Economic Recovery Payment ($250 per eligible recipient of Social Security, Supplemental Security Income, Railroad Retirement or Veteran’s benefits) or Special Credit for Certain Government Retirees ($250 per eligible federal or state retiree) that you receive. If you are affected by this reduction, you should review your withholding to ensure that sufficient funds have been withheld to meet your tax obligation.
If you believe your current withholding is not appropriate for your personal situation, you can perform a quick check using the IRS withholding calculator. Adjustments can be made by filing a revised Form W-4, Employee’s Withholding Allowance Certificate, with your employer.
Pensioners
Pensioners do not qualify for the Making Work Pay credit, unless they receive earned income. However, because the February withholding tables also apply to pensioners, the IRS has provided pension plans with an optional adjustment procedure. If you are a pensioner with questions about your withholding, contact your pension plan administrator.
If desired, pensioners can adjust their withholding by filing Form W-4P, Withholding Certificate for Pension or Annuity Payments.
Self-Employed
Self-employed individuals can also benefit now from the Making Work Pay tax credit by evaluating their expected income tax liability, allowing for this tax credit if they are eligible, and making the appropriate adjustment in the amount of their regularly scheduled estimated tax payments.
Information for Employers
In February 2009 the IRS issued updated withholding tables to help you implement the withholding adjustments required by the American Recovery and Reinvestment Act of 2009. Information about these tables can be found in news release 2009-13, while more details about the Making Work Pay credit are available in Publication 15-T, New Wage Withholding and Advance Earned Income Credit Payment Tables (For Wages Paid Through 2009).
The IRS subsequently issued optional adjustment procedures for pension plans that will make the February 2009 tables more accurate for some pension recipients.
The IRS has also issued information on a withholding adjustment option for pension plans in news release 2009-50.
Questions and Answers
If you have questions about the Making Work Pay provision, these questions and answers might help.
General Information
In 2009 and 2010, the Making Work Pay provision of the American Recovery and Reinvestment Act will provide a refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns.
This tax credit will be calculated at a rate of 6.2 percent of earned income and will phase out for taxpayers with modified adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly.
For people who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes in early spring. These changes may result in an increase in take-home pay. The amount of the credit will be computed on the employee’s 2009 income tax return filed in 2010. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return.
It is not necessary to submit a Form W-4 to get the automatic withholding change. However, an employee with multiple jobs or a married couple whose combined income places it in a higher tax bracket should consult the IRS withholding calculator and, if necessary, submit a revised Form W-4, Employee’s Withholding Allowance Certificate, to ensure enough tax is withheld. Publication 919, How Do I Adjust My Tax Withholding?, provides additional guidance for tax withholding including a special Making Work Pay worksheet.
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