Monday, October 18, 2010

IRS Alerts Public to Identity Theft Scams and To Beware of e-Mail Scams about the Electronic Federal Tax Payment System

IRS Alerts Public to Identity Theft Scams

WASHINGTON — The Internal Revenue Service reminds consumers to avoid identity theft scams that use the IRS name, logo or Web site in an attempt to convince taxpayers that the scam is a genuine communication from the IRS. Scammers may use other federal agency names, such as the U.S. Department of the Treasury.

In an identity theft scam, a fraudster, often posing as a trusted government, financial or business institution or official, tries to trick a victim into revealing personal and financial information, such as credit card numbers and passwords, bank account numbers and passwords, Social Security numbers and more. Generally, identity thieves use someone’s personal data to steal his or her financial accounts, run up charges on the victim’s existing credit cards, apply for new loans, credit cards, services or benefits in the victim’s name and even file fraudulent tax returns.

The scams may take place through e-mail, fax or phone. When they take place via e-mail, they are called “phishing” scams.

The IRS does not discuss tax account matters with taxpayers by e-mail.

How to Spot a Scam

Many e-mail scams are fairly sophisticated and hard to detect. However, there are signs to watch for, such as an e-mail that:

Requests detailed or an unusual amount of personal and/or financial information, such as name, SSN, bank or credit card account numbers or security-related information, such as mother’s maiden name, either in the e-mail itself or on another site to which a link in the e-mail sends the recipient.

Dangles bait to get the recipient to respond to the e-mail, such as mentioning a tax refund or offering to pay the recipient to participate in an IRS survey.

Threatens a consequence for not responding to the e-mail, such as additional taxes or blocking access to the recipient’s funds.

Gets the Internal Revenue Service or other federal agency names wrong.

Uses incorrect grammar or odd phrasing (many of the e-mail scams originate overseas and are written by non-native English speakers).

Uses a really long address in any link contained in the e-mail message or one that does not start with the actual IRS Web site address ( To see the actual link address, or url, move the mouse over the link included in the text of the e-mail.

What to Do

The IRS does not initiate taxpayer contact via unsolicited e-mail or ask for personal identifying or financial information via e-mail. If you receive a suspicious e-mail claiming to come from the IRS, take the following steps:

Do not open any attachments to the e-mail, in case they contain malicious code that will infect your computer.

Do not click on any links, for the same reason. Also, be aware that the links often connect to a phony IRS Web site that appears authentic and then prompts the victim for personal identifiers, bank or credit card account numbers or PINs. The phony Web sites appear legitimate because the appearance and much of the content are directly copied from an actual page on the IRS Web site and then modified by the scammers for their own purposes.

Contact the IRS at 1-800-829-1040 to determine whether the IRS is trying to contact you.

Forward the suspicious e-mail or url address to the IRS mailbox, then delete the e-mail from your inbox.
Genuine IRS Web site

The only genuine IRS Web site is All Web page addresses begin with Anyone wishing to access the IRS Web site should initiate contact by typing the address into their Internet address window, rather than clicking on a link in an e-mail.

The Latest News Release from the IRS regarding Identity Theft Scams:

Consumers should be aware of a scam in which recipients receive an e-mail that claims to come from the Electronic Federal Tax Payment System. The e-mail states that tax payments made by the e-mail recipient through EFTPS have been rejected. The e-mail then directs recipients to a bogus website containing malicious software (malware) that infects the intended victim’s computer. To avoid the bogus website and malware, do not click on any links, open any attachments or reply to the sender for any e-mail you may receive that claims to come from EFTPS.

The IRS and the Financial Management Service (the Treasury bureau that owns EFTPS) does not communicate payment information through e-mail.

EFTPS is committed to taxpayer privacy and uses industry-leading security practices and technology to protect taxpayer data.

A scam that tricks someone into revealing their personal and financial data is identity theft. A scam that attempts to do this through e-mail is known as phishing. Find out more about IRS-impersonation phishing scams and how to recognize and report them to the IRS.

If you responded to this scam and believe you may have become the victim of identity theft, find out what steps you can take.

EFTPS is a tax payment system that allows individuals and businesses to pay federal taxes electronically via the Internet or phone, at any time of the day and any day of the year. It’s free, it’s fast and it’s secure, accurate and convenient.

If you have any questions about any correspondence you've received from the IRS, please don't hesitate to contact our office. We would be glad to help you determine the authenticity of the communication and the best course of response.

Tuesday, October 5, 2010

71 Ways to Save on Taxes Now! (Part 3 of 3)

For 2010, don't make the mistake of waiting until the end of the year (or tax-filing time) to see what can be done to lower taxes. The following article, the last of a three-part series, discusses everyday actions that taxpayers can take to lower their annual tax bill. See our previous blog postings for parts one and two of this series.

71 Ways to Save on Taxes Now
by Mary Beth Franklin, Senior Editor, Kiplinger's Personal Finance
provided by

PART 3 of 3

Don't wait until you file your return to find ways to lower your tax bill. These moves will help you save throughout the year.

Take advantage of tax-free rental income.
You may not think of yourself as a landlord, but if you live in an area that hosts an event that draws a crowd (a Super Bowl, say, or the presidential inauguration), renting out your home temporarily could make you a bundle -- tax-free -- while getting you out of town when tourists overrun the place. A special provision in the law lets you rent a home for up to 14 days a year without having to report a dime of the money you receive as income.

Home buyer's Bible.
Be a packrat with paperwork. Some costs associated with buying a new home affect your "tax basis," the amount from which you'll figure your profit when you sell; others can be deducted in the year of the purchase, including any points you pay (or the seller pays for you) to get a mortgage and any property taxes paid by the seller in advance for time you actually own the home.

Home seller's Bible.
Costs associated with selling -- from the real estate commission to points paid for a seller to property taxes paid in advance for time the buyer actually owns the home -- all reduce your profit on the deal. Sure, most home-sale profit is tax-free these days, but keep track of big basis-boosting improvements in case you get close to the limit.

Pinpoint the "stepped-up" basis of property you inherit.
In most cases, the tax basis of inherited property -- that's the value from which you will figure gain or loss when you sell -- is "stepped up" to the value on the day the previous owner dies. Tax on all appreciation during his or her lifetime is forgiven. Although the estate tax and stepped-up rules on inherited property expired at the end of 2009, Kiplinger’s believes Congress will reinstate the $3.5 million estate tax exclusion and step-up rules retroactive to January 1, 2010. If you inherit assets in 2010, be sure you pinpoint your basis so you don't overpay your tax later. Taxpayers who know about this break save billions of dollars each year.

Don't buy a tax bill.
Before you invest in a mutual fund near the end of the year, check to see when the fund will distribute dividends. On that day, the value of shares will fall by the amount paid out. Buy just before the payout and the dividend will effectively rebate part of your purchase price, but you'll owe tax on the amount. Buy after the payout and you'll get a lower price, and no tax bill.

Check the calendar before you sell.
You must own an investment for more than one year for profit to qualify as a long-term gain and enjoy preferential tax rates. The "holding period" starts on the day after you buy a stock, mutual fund or other asset and ends on the day you sell it.

Keep a running tally of your basis.
For assets you buy, your "tax basis" is basically how much you have invested. It's the amount from which gain or loss is figured when you sell. If you use dividends to purchase additional shares, each purchase adds to your basis. If a stock splits or you receive a return-of-capital distribution, your basis changes. Only by carefully tracking your basis can you protect yourself from overpaying taxes on your profits when you sell.

Mine your portfolio for tax savings.
Investors have significant control over their tax liability. As you near the end of the year, tote up gains and losses on sales to date and review your portfolio for paper gains and losses. If you have a net loss so far, you have an opportunity to take some profit tax free. Alternatively, a net profit on previous sales can be offset by realizing losses on sales before the end of the year. (This strategy applies only to assets held in taxable accounts, not tax-deferred retirement accounts such as IRAs or 401(k) plans).

Tell your broker which shares to sell.
Doing so gives you more control over the tax consequences when you sell stock. If you fail to specifically identify the shares to be sold, the tax law's FIFO (first-in-first-out) rule comes into play and the shares you've owned the longest (and perhaps the ones with the biggest gain) are considered to be sold. With mutual funds, an "average basis" can be used when determining gain or loss; but that alternative isn't available for stocks.

Avoid the wash sale rule.
If you sell a stock, bond or mutual fund for a loss and then buy back the identical security within 30 days, you can't claim the loss on your tax return. The IRS considers the transaction a wash, since your economic situation really hasn't changed. It's easy to avoid being stung by the "wash sale" rule, though. Watch the calendar or, buy similar but not identical securities.

Ask your broker for a favor.
The law allows investors to deduct a loss on a worthless security, but only if you can prove the stock is absolutely worthless. If you own stock you're sure isn't coming back, ask your broker to buy it from you for a nominal amount. You can then report the sale and claim your loss.

Think twice about selling stock for a profit if you're subject to the AMT.
Although long-term capital gains benefit from the same 15% maximum rate under both the regular tax rules and the alternative minimum tax, a capital gain can effectively cost more than 15% in AMT-land. The special AMT exemption is phased out as income rises so, for example, a $1,000 capital gain can wipe out $250 of the exemption, effectively exposing $1,250 to tax. That means your tax bill rises by more than $150 for that $1,000 gain.

Pay tax sooner rather than later on restricted stock.
If you receive restricted stock as a fringe benefit, considering making what's called an 83(b) election. That lets you pay tax immediately on the value of the stock rather than waiting until the restrictions disappear when the stock "vests." Why pay tax sooner rather than later? Because you pay tax on the value at the time you get the stock, which could be far less than the value at the time it vests. Tax on any appreciation that occurs in between then qualifies for favorable capital gains treatment. Don't dally: You only have 30 days after receiving the stock to make the election.

Minimize the bite of the "kiddie tax."
The rule that taxes a child's income at the parents' rate now covers children up to age 19, or up to age 24 if the child is a full-time student. You can minimize the damage by steering a child's investments into tax-free municipal bonds or growth stocks that won't be sold until the child turns 19, or 24 for full-time students.

Consider tax-free bonds.
It's easy to figure whether you'll come out ahead with taxable or tax-free bonds. Simply divide the tax-free yield by 1 minus your federal tax bracket to find the "taxable-equivalent yield." If you're in the 33% bracket, your divisor would be 0.67 (1 - 0.33). So, a tax-free bond paying 5% would be worth as much to you as a taxable bond paying 7.46% (5 ÷ 0.67). A bond swap may pay off. It's a fact of life: As market interest rates rise, bond values fall. If you have bond that have lost value, consider a bond swap. You sell your losers, cash in the tax loss and invest the proceeds in higher-yielding bonds to maintain your income stream.

Use Treasury bills to defer taxes.
Interest on three- and six-month Treasury bills is taxed in the year it is paid. So, buying a T-bill that matures in 2011 means you don't have to report the income until you file your 2011 return in 2012. Remember, Treasury interest is completely exempt from state or local taxes, too.

Death and taxes.
Someone who is terminally ill may want to sell investments that show a paper loss. Otherwise, the "tax basis" of the property -- the value from which the heir will figure gain or loss when he or she sells -- will be "stepped-down" to date-of-death value, preventing anyone from claiming the loss. If you want to keep property, such as a vacation home, in the family, consider selling to a family member. You get no loss deduction, but it could save the buyer taxes later on.

Time claiming Social Security benefits.
If you stop working, you can claim benefits as early as age 62. But note that each year you delay -- until age 70 -- promises higher benefits for the rest of your life. And, delaying benefits means postponing the time you'll owe tax on them.

Dodge a 50% tax penalty.
Taxpayers older than 70½ are required to take minimum withdrawals from their IRAs each year. Failing to do so, subjects them to one of the toughest penalties in the tax law: the IRS claims 50% of the amount that should have come out of the account. Your IRA sponsor can help pinpoint the amount of the required payout. is available More on the ins and outs of the minimum withdrawals.

Keep careful records of the cost of medically necessary improvements.
To the extent that such costs -- for adding a wheelchair ramp, for example, lowering counters or widening a doorway or installing hand controls for a car -- exceed any added value to your home or vehicle, that amount can be included in your deductible medical expenses.

Include travel expenses in medical deductions.
In addition to the cost of getting to and from the doctor, you can deduct up to $50 a night for lodging if seeking medical care requires you to be away from home overnight. The $50 is per person, so if you travel with a sick child to get medical care, you can deduct $100 a day. As with other medical expenses, you get a tax benefit only to the extent your expenses exceed 7.5% of adjusted gross income.

Crank in the value of deducting long-term-care premiums.
As you shop for long-term care insurance, remember that a portion of the cost is deductible. The older you are, the more you can write off. For employees, this is a medical expense which means it only saves money if your medical expenses exceed 7.5% of your adjusted gross income. If you're self-employed, you avoid the 7.5% haircut and get this deduction even if you don't itemize.

Double your family's estate tax break.
If yours is among the minority of families that has to worry about the federal estate tax, realize that planning ahead can save your heirs a fortune. A simple plan employing what's called a "by-pass trust", for example, can double from $3.5 million to $7 million the amount you can pass tax-free to the next generation. Although the estate tax and stepped-up rules on inherited property expired at the end of 2009, Kiplinger’s believes Congress will reinstate the $3.5 million estate tax exclusion and step-up rules retroactive to January 1, 2010

Give it away.
Money you give away during your lifetime won't be in your estate to be taxed at your death. That's one reason there's also a federal gift tax. The law allows you to give up to $13,000 to any number of people in 2010 without worrying about the gift tax. If your spouse agrees not to give anything to the same person, you can give $26,000 a year to each individual. If you have four married kids, for example, and you give $26,000 to all eight children and in-laws, you can shift $208,000 out of your estate gift-tax free each year.

Choose the right kind of business.
Beyond choosing what business to go into, you also have to decide on the best form for your business: a sole proprietorship, a subchapter S corporation, a C-corp or a limited-liability company (LLC). Your choice will have a major impact on your taxes. Hire your children. If you have an unincorporated business, hiring your children can have real tax advantages. You can deduct what you pay them, thus shifting income from your tax bracket to theirs. Since wages are earned income, the "kiddie tax" does not apply. And, if the child is under age 18, he or she does not have to pay Social Security tax on the earnings. One more advantage: the earnings can serve as a basis for an IRA contribution.

Watch start-up costs.
Generally, the costs of starting up a new business must be amortized, that is, deducted over years in the future. But you can deduct up to $5,000 of start-up costs in the year you incur them, when the tax savings could prove particularly helpful.

Avoid the hobby-loss rules.
There's a heads-the-IRS-wins-tails-you-lose rule if the IRS determines your activity is a hobby rather than a for-profit business. You still have to report any earnings as income, but there are restrictions on deducting expenses and you can't deduct a loss. To avoid this problem, run your activity in a business-like manner, including having a separate bank account and having business cards printed.

Time receipt of self-employment income.
Those who run their own businesses have a lot of flexibility at year-end. To push the receipt of income into the following year , delay mailing bills to clients until late in December that payment is received after December 31. Or, pay business expenses before January 1 to lock in deductions.

Don't be afraid of home-office rules.
If you use part of your home regularly and exclusively for your business, you can qualify to deduct as home-office expenses some costs that are otherwise considered personal expenses, including part of your utility bills, insurance premiums and home maintenance costs. Some home-business operators steer away from these breaks for fear of an audit. But if you deserve them, claim them.

Cut compensation, boost dividends.
Principals in closely held businesses may want to shift part of their compensation from salary (which is taxed in their top bracket) to dividends (which is taxed at a maximum 15% rate). This can pay off if the corporation is in a low tax bracket, so the loss of the deduction for dividends paid is more than offset by the owner's savings.

Stash cash in a self-employed retirement account.
If you have your own business, you have several choices of tax-favored retirement accounts, including Simplified Employee Pensions (SEPs) and individual 401(k)s. Contributions cut your tax bill now while earnings grow tax-deferred for your retirement.

Pay estimated taxes ... or not.
If you receive significant income not subject to withholding -- from self-employment or investments, for example -- you probably need to make quarterly estimated tax payments to avoid an IRS penalty. But, if withholding will equal 100% of your 2009 income tax bill (or 110% if your income was over $150,000), you don't need to make estimated payments ... no matter how much extra income you make in 2010.

Take Uncle Sam shopping for your new business vehicle.
It may not be the greenest of strategies, but if you need a new vehicle for your business, realize that Congress offers special tax incentives if you buy a heavy sports-utility vehicle or a pick-up. While the first-year write-off for most business cars is limited to around $12,000, you can "expense" much more if you buy a heavy SUV or pick-up truck for your business.

Buy a hybrid, take Uncle Sam for a ride.
You can drive away with a tax credit if you buy a gasoline/electric hybrid or qualifying clean diesel vehicle in 2010. The size of the credit depends on how fuel-stingy your new car is, but the tax savings can range from several hundred to over $3,000.

Brummet & Olsen, LLP is ready to help you with your tax situation. Please feel free to contact our office at (630) 986-0540 to set up an appointment to discuss your particular circumstances.

Wednesday, September 1, 2010

71 Ways to Save on Taxes Now!

As mentioned in a prior blog, many of our clients make the mistake of waiting until the end of the year (or tax-filing time) to see what they can do to lower their taxes. The following article, the second of a three-part series, discusses everyday actions that taxpayers can take to lower their annual tax bill. See our previous blog posting for part one of this series.

71 Ways to Save on Taxes Now
by Mary Beth Franklin, Senior Editor, Kiplinger's Personal Finance
provided by

PART 2 of 3

Don't wait until you file your return to find ways to lower your tax bill. These moves will help you save throughout the year.

The stork brings tax savings, too.
A child born, or adopted, during the year is a blessed event for your tax return. An added dependency exemption will knock $3,650 off your taxable income, and you'll probably qualify for the $1,000 child credit, too. You don't have to wait until you file your 2010 return to reap the benefit. Add at least one extra withholding allowance to the W-4 form filed with your employer to cut tax withholding from your paycheck. That will immediately increase your take-home pay.

Tally adoption expenses.
Thousands of dollars of expenses incurred in connection with adopting a child can be recouped via a tax credit, so it pays to keep careful records. In 2010, the credit can be as high as $12,170. If you adopt a special needs child, you get the maximum credit even if you spend less.

Save for college the tax-smart way.
Stashing money in a custodial account can save on taxes. But it can also get you tied up with the expensive "kiddie tax" rules and gives full control of the cash to your child when he or she turns 18 or 21. Using a state-sponsored 529 college savings plan can make earnings completely tax free and lets you keep control over the money. If one child decides not to go to college, you can switch the account to another child or take it back.

Be aware of new rules for Coverdells.
A former boon to parents and grandparents who wanted to use tax-free dollars to pay private-school tuition and other education-related costs for elementary and high-school students is about to get a lot less generous. You can contribute up to $2,000 to a Coverdell Education Savings Account for any beneficiary in 2010, but starting next year, that maximum contribution will be slashed to $500. You don't get a deduction, but money you stash in a Coverdell grows tax-deferred and can be withdrawn tax-free to pay education bills. Beyond tuition and fees, you can use Coverdell money to pay for tutoring, books and supplies, uniforms and transportation. You can buy a computer for the whole family to use and pay for Internet access, too. But you better hurry. Starting in 2011 any earnings you withdraw from a Coverdell that are not used for college expenses will be taxable as ordinary income and subject to a 10% penalty. Consider rolling over the Coverdell money into a 529 savings plan next year. It’s a penalty-free move, as long as the accounts have the same beneficiary.

Use a Roth IRA to save for college.
Sure, the "R" in IRA stands for retirement, but because you can withdraw contributions at any time tax- and penalty-free, the account can serve as a terrific tax-deferred college-savings plan. Say you and your spouse each stash $5,000 in a Roth starting the year a child is born. After 18 years, the dual Roths would hold about $375,000, assuming 8% annual growth. Up to $180,000 -- the total of the contributions -- can be withdrawn tax- and penalty-free and any part of the interest can be withdrawn penalty-free, too, to pay college bills.

Fund a Roth IRA for your child or grandchild.
As soon as a child has income from a job -- such as babysitting, a paper route, working retail -- he or she can have an IRA. The child's own money doesn't have to be used to fund the account (fat chance that it would). Instead, a generous parent or grandparent can provide the funds, or perhaps match the child's contributions dollar for dollar. Long-term, tax-free growth can be remarkable.

Use a Roth IRA to save for your first home.
A Roth IRA can be a powerful tool when you're saving for your first home. All contributions can come out of a Roth at any time, tax- and penalty-free. And, after the account has been opened for five years, up to $10,000 of earnings can be withdrawn tax- and penalty-free for the purchase of your first home. Say $5,000 goes into a Roth each year for five years for a total contribution of $25,000. Assuming the account earns an average of 8% a year, at the end of five years, the Roth would hold about $31,680 -- all of which could be withdrawn tax- and penalty-free for a down payment.

Convert to a Roth IRA.
Switching a traditional IRA to a Roth requires paying tax on the converted amount, but that can be a fabulous tax-saving investment because all future earnings inside the Roth can be tax free in retirement. (Withdrawals from traditional IRAs are taxed in your top tax bracket.) If you convert to a Roth in 2010, you have up to three years to pay the tax bill. Rather than reporting the income (and paying tax on the conversion) with your 2010 return, you can report half of the conversion on your 2011 return (due in 2012) and the remainder on your 2012 return (due in 2013).

Undo a Roth conversion gone bad.
When you convert a traditional IRA to a Roth, you must pay tax on the amount you convert. But what if the investments in the new Roth IRA fall in value? You get a chance for a do-over. You have until October 15 of the year following the conversion to "unconvert" and avoid paying tax on the money that evaporated. You can then redo the conversion the following year.

Protect your heirs.
Be sure beneficiary designations for your IRAs and 401(k)s are up to date. If your IRA goes to your estate rather an a designated beneficiary, unfavorable withdrawal rules could cost your heirs dearly.

Roll over an inherited 401(k).
A recent change in the rules allows a beneficiary of a 401(k) plan to roll over the account into an IRA and stretch payouts (and the tax bill on them) over his or her lifetime. This can be a tremendous advantage over the old rules that generally required such accounts be cashed out, and all taxes paid, within five years. To qualify for this break, you must name a person or persons (not your estate) as your beneficiary. If your 401(k) goes through your estate, the old five-year rule applies.

Help your adult children earn a credit for retirement savings.
The Retirement Savers Credit can be as much as $1,000, based on up to 50% of the first $2,000 contributed to an IRA or company retirement plan. It's available only to low-income taxpayers, though, who are often the least able to afford such contributions. Parents can help, however, by giving an adult child (who cannot be claimed as a dependent and who is not a full-time student) the money to fund the retirement account contribution. The child not only saves on taxes, but also saves for his or her retirement.

The bank of mom and dad.
If your adult children ask for a loan to help them buy a house or start a business, beware that Uncle Sam has something to say about the deal. If the kids want to borrow more than $10,000, you may be required to charge a minimum amount of interest. And if you don't? You have to report the "phantom" interest as income anyway.

Deduct interest paid by mom and dad.
Until recently, parents had a good reason not to help their kids pay off student loans. If the parents were not liable for the debt, then no one got to deduct the interest. Now, however, when parents pay it's treated as if they gave the money to the real debtor who then paid off the loan. The child gets the tax deduction, as long as the parents can't claim him or her as a dependent, even if he or she doesn't itemize.

Make the most of the tax-free home sale profit.
Up to $250,000 of home-sale profit is tax free ($500,000 if you are married and file a joint return) if you own and live in the house for two of the five years leading up to the sale. If you are bumping up on the limits, consider selling and buying a new home to start the tax-free clock ticking again. There is no limit on the number of times you can claim tax-free profit on the sale of a home.

Don't underestimate the cost of home-equity debt.
Generally, interest on up to $100,000 of debt secured by your home can be deducted, no matter what you use the money for. But if you are among the growing number of taxpayers subjected to the alternative minimum tax (AMT), home-equity debt is only deductible if the loan was used to buy or improve your home.

Second homes can offer a vacation from taxes.
If you're trying to figure whether you can afford a second home, remember that you'll get some help from the IRS. Mortgage interest on a loan to buy a second home is deductible just as it is for the mortgage on your principal residence. Interest on up to $1.1 million of first- and second-home debt can be deducted. Property taxes can be written off, too. Things get more complicated -- and perhaps more lucrative-if you rent out the place part of the year to help cover the bills.

Watch the calendar at your vacation home.
If you hope to deduct losses attributable to renting the place during the year, be careful not to use the house too much yourself. As far as the IRS is concerned, "too much" is when personal use exceeds more than 14 days or more than 10% of the number of days the home is rented. Time you spend doing maintenance or repairs does not count as personal use, but time you let friends or relatives use the place for little or no rent does.

Stay actively involved in rental real estate.
Generally, anti-tax-shelter legislation prevents losses from real estate investments from being deducted against other kinds of income. But, if you are actively involved in a rental activity, you can deduct up to $25,000 of such losses ... if your adjusted gross income is less than $100,000. You don't have to mow grass and unclog toilets to qualify as actively involved; but you should make sure you're involved in setting rents and approving tenants and management firms.

Use a tax-free exchange to acquire new property.
By trading one rental property for another, for example, you avoid the capital gains taxes you'd incur if you sold the first property ... leaving you with more to invest in the second.

Use an installment sale of real estate to defer a tax bill.
If the buyer pays you in installments, the IRS will let you pay the tax bill on your profit in installments, too. You must charge interest on the deal, and each payment you receive will have three parts: interest (taxable at your top rate), capital gain (taxed at a maximum of 15% in 2010) and return of your investment (tax-free).

Convert a vacation home to your principal residence.
Until 2009, there was a sweet tax break for folks who sold their homes, claimed tax-free profit and then moved into a vacation property. After they lived in that home for two years, they could sell and claim tax-free profit again ... including appreciation from the days the place was a vacation home. There can still be some real tax benefits to this strategy, but the value will fall over the years. Starting in 2009, a portion of any profit on the sale of a vacation-home-turned-principal-residence will not qualify as tax-free home-sale profit. The taxable portion will be based on the ratio of the time after 2008 the property was used as a vacation home to the total period of ownership. So if you have owned a vacation home for 18 years and make it your main residence in 2011 for two years before selling it, only 10% of the gain would be taxed. The rest qualifies for the exclusion of up to $500,000. Homes owned for a short time prior to a post-2008 conversion fare the worst tax wise.

Tuesday, July 6, 2010

Make Small Commitments. Get Big Changes.

Simply resolving to do something does not guarantee real and permanent change. Real change is a slow process, involving time and self-reflection. The following article has gentle advice that can help you enhance your life and facilitate personal and professional growth.

Make Small Commitments. Get Big Changes.
Compiled by Michael Dalton Johnson

Taking Care of You
Drink plenty of water.
Eat breakfast like a king, lunch like a prince and dinner like a pauper.
Eat more fruits and vegetables and eat less that is manufactured in processing plants.
Avoid eating food that is handed to you through a window.
Live the 3 E's -- Energy, Enthusiasm and Empathy.
Play more games.
Read more books than you did in 2009.
Sit in silence for at least 10 minutes each day.
Sleep for 7 hours.
Take a 10-30 minute walk daily. And while you walk, smile.

Your Outlook
Don't compare your life to others. You have no idea what their journey is all about.
Don't have negative thoughts of things you cannot control. Instead invest your energy in the positive present moment.
Don't overdo. Keep your limits.
Don't take yourself so seriously. No one else does.
Don't waste your precious energy on gossip.
Dream more while you are awake.
Envy is a waste of time. You already have all you need.
Forget issues of the past. Don't remind others of their past mistakes.
Life is too short to waste time hating anyone.
Make peace with your past so it won't spoil the present.
No one is in charge of your happiness except you.
Realize that life is a school and you are here to learn. Problems are simply part of the curriculum that appear and fade away but the lessons you learn will last a lifetime.
Learn a new word every day.
Smile and laugh more.
You don't have to win every argument.

Your Relationships
Call your family often.
Each day give something good to others.
Forgive everyone for everything.
Spend time with people over the age of 70 and under the age of 6.
Try to make at least three people smile each day.
What other people think of you is none of your business.
Your job won't take care of you when you are sick. Your friends will. Stay in touch.

Your Life
The worst promise you can break is one made to yourself.
Do the right thing!
Get rid of anything that isn't useful, beautiful or joyful.
You don't have a soul. You are a soul. You have a body.
However good or bad a situation is, it will change.
The best is yet to come.
When you awake alive in the morning, thank God for it.
Your Innermost Self is always happy. Follow it.
No matter how you feel, get up, dress up and show up.

Reprinted with permission of For a free subscription to SalesDog's weekly sales tips and inspiration newsletter, go to

Friday, May 28, 2010

71 Ways to Save on Taxes Now!

Many of our clients make the mistake of waiting until the end of the year (or tax-filing time) to see what they can do to lower their taxes. The following article, the first of a three-part series, discusses everyday actions that taxpayers can take to lower their annual tax bill.

71 Ways to Save on Taxes Now
by Mary Beth Franklin, Senior Editor, Kiplinger's Personal Finance
provided by

PART 1 of 3

Don't wait until you file your return to find ways to lower your tax bill. These moves will help you save throughout the year.

If you managed to claim every possible tax break that you deserved when you filed your 2009 return this spring, pat yourself on the back. But don't stop there. Those tax-filing maneuvers are certainly valuable, but you may be able to rack up even bigger savings through thoughtful tax planning all year round. The following ideas could really pay off in the months ahead.

Give yourself a raise.
If you got a big tax refund this year, it meant that you're having too much tax taken out of your paycheck every payday. So far this year, the average refund is nearly $2,900, up about $200 from last year. Filing a new W-4 form with your employer (get one from your payroll office) will insure that you get more of your money when you earn it. If you're just average, you deserve about $225 a month extra.

Boost your retirement savings.
One of the best ways to lower your tax bill is to reduce your taxable income. You can contribute to up to $16,500 to your 401(k) or similar retirement savings plan in 2010 ($22,000 if you are 50 or older by the end of the year). Money contributed to the plan is not included in your taxable income.

Switch to a Roth 401(k).
But if you are concerned about skyrocketing taxes in the future, or if you just want to diversify your taxable income in retirement, considering shifting some or all of your retirement plan contributions to a Roth 401(k) if your employer offers one. Unlike the regular 401(k), you don't get a tax break when your money goes into a Roth. On the other hand, money coming out of a Roth 401(k) in retirement will be tax-free, while cash coming out of a regular 401(k) will be taxed in your top bracket.

Fund an IRA.
But if you are concerned about skyrocketing taxes in the future, or if you just want to diversify your taxable income in retirement, considering shifting some or all of your retirement plan contributions to a Roth 401(k) if your employer offers one. Unlike the regular 401(k), you don't get a tax break when your money goes into a Roth. On the other hand, money coming out of a Roth 401(k) in retirement will be tax-free, while cash coming out of a regular 401(k) will be taxed in your top bracket.

If you don't have a retirement plan at work, or you want to augment your savings, you can stash money in an IRA. You can contribute up to $5,000 in 2010 ($6,000 if you are 50 or older by the end of the year). Depending on your income and whether you participate in a retirement savings plan at work, you may be able to deduct some or all of your IRA contribution. Or, you can choose to forgo the upfront tax break and contribute to a Roth IRA that will allow you to take tax-free withdrawals in retirement.

Go for a health tax break.
Be aggressive if your employer offers a medical reimbursement account -- sometimes called a flex plan. These plans let you divert part of your salary to an account which you can then tap to pay medical bills. The advantage? You avoid both income and Social Security tax on the money, and that can save you 20% to 35% or more compared with spending after-tax money.

Pay child-care bills with pre-tax dollars.
After taxes, it can easily take $7,500 or more of salary to pay $5,000 worth of child care expenses. But, if you use a child-care reimbursement account at work to pay those bills, you get to use pre-tax dollars. That can save you one-third or more of the cost, since you avoid both income and Social Security taxes. If your boss offers such a plan, take advantage of it.

Ask your boss to pay for you to improve yourself.
Companies can offer employees up to $5,250 of educational assistance tax-free each year. That means the boss pays the bills but the amount doesn't show up as part of your salary on your W-2. The courses don't even have to be job-related, and even graduate-level courses qualify.

Pay back a 401(k) loan before leaving the job.
Failing to do so means the loan amount will be considered a distribution that will be taxed in your top bracket and, if you're younger than 55 in the year you leave your job, hit with a 10% penalty, too.

Tally job-hunting expenses.
If you count yourself among the millions of Americans who are unemployed, make sure you keep track of your job-hunting costs. As long as you're looking for a new position in the same line of work (your first job doesn't qualify), you can deduct job-hunting costs including travel expenses such as the cost of food, lodging and transportation, if your search takes you away from home overnight. Such costs are miscellaneous expenses, deductible to the extent all such costs exceed 2% of your adjusted gross income.

Keep track of the cost of moving to a new job.
If the new job is at least 50 miles farther from your old home than your old job was, you can deduct the cost of the move ... even if you don't itemize expenses. If it's your first job, the mileage test is met if the new job is at least 50 miles away from your old home. You can deduct the cost of moving yourself and your belongings. If you drive your own car, you can deduct 16.5 cents per mile for a 2010 move, plus parking and tolls.

Save energy, save taxes.
This is the last year to cash in on a tax credit for home improvements designed to save energy. One tax credit is worth 30% of the cost of new insulation, doors, windows, high-efficiency furnaces, water heaters and central air conditioners up to a maximum credit of $1,500. The credit applies to both 2009 and 2010, so if you took full advantage of it last year, you don't get another crack at it. But if you didn't make any eligible home improvements in 2009, get busy before this opportunity slips away. Don't think you need to do anything?

Think green.
A separate tax credit is available for homeowners who install alternative energy equipment. It equals 30 percent of what a homeowner spends on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, and wind turbines, including labor costs. There is no cap on this tax credit.

Put away your checkbook.
If you plan to make a significant gift to charity in 2010, consider giving appreciated stocks or mutual fund shares that you've owned for more than one year instead of cash. Doing so supercharges the saving power of your generosity. Your charitable contribution deduction is the fair market value of the securities on the date of the gift, not the amount you paid for the asset, and you never have to pay tax on the profit. However, don't donate stocks or fund shares that lost money. You'd be better off selling the asset, claiming the loss on your taxes, and donating cash to the charity.

Tote up out-of-pocket costs of doing good.
Keep track of what you spend while doing charitable work, from what you spend on stamps for a fundraiser, to the cost of ingredients for casseroles you make for the homeless, to the number of miles you drive your car for charity (at 14 cents a mile). Add such costs with your cash contributions when figuring your charitable contribution deduction.

Time your wedding.
If you're planning a wedding near year-end, put the romance aside for a moment to consider the tax consequences. The tax law still includes a "marriage penalty" that forces some pairs to pay more combined tax as a married couple than as singles. For others, tying the knot saves on taxes. Consider whether Uncle Sam would prefer a December or January ceremony. And, whether you have one job between you or two or more, revise withholding at work to reflect the tax bill you'll owe as a couple.

Beware of Uncle Sam's interest in your divorce.
Watch the tax basis -- that is, the value from which gains or losses will be determined when property is sold -- when working toward an equitable property settlement. One $100,000 asset might be worth a lot more -- or a lot less -- than another, after the IRS gets its share. Remember: Alimony is deductible by the payer and taxable income to the recipient; a property settlement is neither deductible nor taxable.

Tuesday, May 4, 2010

10 Places NOT to Use Your Debit Card

Credit cards and debit cards are familiar to almost everyone. Our office gets inquiries from both individuals and small business owners as to the advantages and disadvantages of both types of cards. The following article breaks down the limitations of using debit cards in your financial transactions. As with most financial issues, it certainly pays to be informed!

10 Places NOT to Use Your Debit Card
by Dana Dratch
Friday, March 19, 2010
provided by

Debit cards have different protections and uses. Sometimes they're not the best choice. Sometimes reaching for your wallet is like a multiple choice test: How do you really want to pay?

While credit cards and debit cards may look almost identical, not all plastic is the same.

"It's important that consumers understand the difference between a debit card and a credit card," says John Breyault, director of the Fraud Center for the National Consumers League, a Washington, D.C.-based advocacy group. "There's a difference in how the transactions are processed and the protections offered to consumers when they use them."

While debit cards and credit cards each have advantages, each is also better suited to certain situations. And since a debit card is a direct line to your bank account, there are places where it can be wise to avoid handing it over -- if for no other reason than complete peace of mind.

Here are 10 places and situations where it can pay to leave that debit card in your wallet:

1. Online
"You don't use a debit card online," says Susan Tiffany, director of consumer periodicals for the Credit Union National Association. Since the debit card links directly to a checking account, "you have potential vulnerability there," she says.

Her reasoning: If you have problems with a purchase or the card number gets hijacked, a debit card is "vulnerable because it happens to be linked to an account," says Linda Foley, founder of the Identity Theft Resource Center. She also includes phone orders in this category.

The Federal Reserve's Regulation E (commonly dubbed Reg E), covers debit card transfers. It sets a consumer's liability for fraudulent purchases at $50, provided they notify the bank within two days of discovering that their card or card number has been stolen.

Most banks have additional voluntary policies that set their own customers' liability with debit cards at $0, says Nessa Feddis, vice president and senior counsel for the American Bankers Association.

But the protections don't relieve consumers of hassle: The prospect of trying to get money put back into their bank account, and the problems that a lower-than-expected balance can cause in terms of fees and refused checks or payments, make some online shoppers reach first for credit cards.

2. Big-Ticket Items
With a big ticket item, a credit card is safer, says Chi Chi Wu, staff attorney with the National Consumer Law Center. A credit card offers dispute rights if something goes wrong with the merchandise or the purchase, she says.

"With a debit card, you have fewer protections," she says.

In addition, some cards will also offer extended warrantees. And in some situations, such as buying electronics or renting a car, some credit cards also offer additional property insurance to cover the item.

Two caveats, says Wu. Don't carry a balance. Otherwise, you also risk paying some high-ticket interest. And "avoid store cards with deferred interest," Wu advises.

3. Deposit Required
When Peter Garuccio recently rented some home improvement equipment at a big-box store, it required a sizable deposit. "This is where you want to use a credit card instead of a debit," says Garuccio, spokesman for the national trade group American Bankers Association.

That way, the store has its security deposit, and you still have access to all of the money in your bank account. With any luck, you'll never actually have to part with a dollar.

4. Restaurants
"To me, it's dangerous," says Gary Foreman, editor of the frugality minded Web site The Dollar Stretcher. "You have so many people around."

Foreman bases his conclusions on what he hears from readers. "Anecdotally, the cases that I'm hearing of credit or debit information being stolen, as often as not, it's in a restaurant," he says.

The danger: Restaurants are one of the few places where you have to let cards leave your sight when you use them. But others think that avoiding such situations is not workable.

The "conventional advice of 'don't let the card out of your sight' -- that's just not practical," says Tiffany.

The other problem with using a debit card at restaurants: Some establishments will approve the card for more than your purchase amount because, presumably, you intend to leave a tip. So the amount of money frozen for the transaction could be quite a bit more than the amount of your tab. And it could be a few days before you get the cash back in your account.

5. You're a New Customer
Online or in the real world, if you're a first-time customer in a store, skip the debit card the first couple of times you buy, says Breyault.

That way, you get a feel for how the business is run, how you're treated and the quality of the merchandise before you hand over a card that links to your checking account.

6. Buy Now, Take Delivery Later
Buying now but taking delivery days or weeks from now? A credit card offers dispute rights that a debit card typically does not.

"It may be an outfit you're familiar with and trust, but something might go wrong," says Breyault, "and you need protection."

But be aware that some cards will limit the protection to a specific time period, says Feddis. So settle any problems as soon as possible.

7. Recurring Payments
We've all heard the urban legend about the gym that won't stop billing an ex-member's credit card. Now imagine the charges aren't going onto your card, but instead coming right out of your bank account.

Another reason not to use the debit card for recurring charges: your own memory and math skills. Forget to deduct that automatic bill payment from your checkbook one month, and you could either face fees or embarrassment (depending on whether you've opted to allow overdrafting or not). So if you don't keep a cash buffer in your account, "to protect yourself from over-limit fees, you may want to think about using a credit card" for recurring payments, says Breyault.

8. Future Travel
Book your travel with a check card, and "they debit it immediately," says Foley. So if you're buying travel that you won't use for six months or making a reservation for a few weeks from now, you'll be out the money immediately.

Another factor that bothers Foley: Hotels aren't immune to hackers and data breaches, and several name-brand establishments have suffered the problem recently. Do you want your debit card information "to sit in a system for four months, waiting for you to arrive?" she asks. "I would not."

9. Gas Stations and Hotels
This one depends on the individual business. Some gas stations and hotels will place holds to cover customers who may leave without settling the entire bill. That means that even though you only bought $10 in gas, you could have a temporary bank hold for $50 to $100, says Tiffany.

Ditto hotels, where there are sometimes holds or deposits in the hundreds to make sure you don't run up a long distance bill, empty the mini bar or trash the room. The practice is almost unnoticeable if you're using credit, but can be problematic if you're using a debit card and have just enough in the account to cover what you need.

At hotels, ask about deposits and holds before you present your card, says Feddis. At the pump, select the pin-number option, she says, which should debit only the amount you've actually spent.

10. Checkouts or ATMs That Look 'Off'
Criminals are getting better with skimmers and planting them in places you'd never suspect -- like ATM machines on bank property, says Foley.

So take a good look at the machine or card reader the next time you use an ATM or self-check lane, she advises. Does the machine fit together well or does something look off, different or like it doesn't quite belong? Says Foley, "Make sure it doesn't look like it's been tampered with."

Wednesday, April 21, 2010

Where's My Refund?

The following article describes the steps available to keep on top of your tax refund and where it is in the IRS processing system. You should have a copy of your tax return available with expected refund information, as well as pen and paper to jot down any needed information.

Tracking Down Your Tax Refund
by Kay Bell
provided by and excepted from BANKRATE.COM

You're getting a tax refund. So where's your check?

Well, you can stop bugging your mail carrier. There are more productive ways to track down your Internal Revenue Service cash.

Now you can go online or call a special toll-free number to check your refund status, regardless of whether you're awaiting a check in the mail or you've instructed the IRS to directly deposit your tax cash into one or multiple accounts.

The Waiting Game
Since 2003, taxpayers have been able to use the IRS' "Where's My Refund?" Web page to track down refunds directly from their own computers.

But exactly when you need this service depends on how you filed your return. Processing times differ for paper and electronically filed 1040s. How you ask the IRS to send you your money also makes a difference.

If you e-file and request direct deposit, the IRS says it should take no longer than three weeks for you to get your refund. If you filed a paper return and asked that your check be mailed to you, it could take up to eight weeks.

Once you're past the time frame for issuance of your refund, it's time to log on and locate your money.

Necessary Tracking Data
To get started, you'll need your Social Security number, the filing status entered on your return and the amount you're expecting. Joint-return filers should enter the name and tax ID number of the spouse shown first on the return.

And don't do any rounding on the refund amount entry. The tracking program wants precise dollars and cents.

If you have any questions about exactly what information the IRS wants here, the "Where's My Refund?" program has links that will open up new screens with explanations of where you can find the information on your copy of your return.

After you've entered the necessary data, then click and wait for the good news that your check is in the mail.

Dialing for Tax Dollars
If you don't have access to a computer or simply prefer using a telephone, you still can call the IRS to track down your refund.

A special automated toll-free line is dedicated to refund status reports. When you call (800) 829-1954, you'll need the same information the online system requires.

In addition to having a copy of your return on hand, it's always a good idea to have paper and pen ready to jot down any information, additional instructions or follow-up phone numbers that you might receive during the call.

And, as with the online system, don't call unless it's been the requisite number of weeks for your filing method.

What's the Holdup?
In most cases, the IRS says a taxpayer will learn via the Web site or by phone that his or her return was received and is being processed.

When the tax check is indeed in the mail, the tracking systems will provide the date it was sent out or directly deposited to the filer's chosen account.

But even when the news is bad, the online program might be able to offer some immediate help. If, for example, the U.S. Postal Service bounced your refund check back to the IRS as undeliverable, the IRS online tracker now allows some taxpayers to correct or change their mailing addresses online so they can get their refunds ASAP.

If this option is available in your case, "Where's My Refund?" will prompt you to take the appropriate steps.

Speeding Up the Process
Waiting any longer than necessary for a refund is one of the most infuriating parts of the filing process. That's why the IRS encourages taxpayers to do what they can to speed up the process.

The quickest path to your refund, says the IRS, is through e-filing and refund direct deposit. This usually cuts a refund wait to half of what paper filers face. In fact, says the agency, some refunds, especially those filed for early in the tax season, are issued in as little as two weeks.

Sometimes a slow refund is the filer's fault rather than the result of an overwhelmed IRS. Refunds are delayed when a taxpayer makes a mistake on a return, causing the agency to spend time tracking down the correct data. Some common filing blunders are math miscalculations, a mismatched name and Social Security number, a missing signature or omitted attachments such as W-2s or IRS schedules.

What If It's Lost?
Occasionally, though, a tax check actually is lost.

If your online or automated phone inquiry reveals your refund was mailed but it still hasn't shown up, you can begin an online refund trace using the "Where's My Refund?" program. This option is available for filers who are still waiting for refund money the IRS says was mailed at least 28 days earlier. If this is your situation, the online program will prompt you to take the next steps.

You also can call the IRS' main help line at (800) 829-1040. But be forewarned: During the filing season, you're probably in for a wait.

More localized assistance might be a better move. Check the IRS' "How to Contact Us" Web page for local and regional agency addresses and numbers.

Once the IRS verifies your refund check is lost or stolen, the replacement process will begin. You might be asked to complete Form 3911, Taxpayer Statement Regarding Refund, to get the ball rolling.

What If the Check Is Wrong?
When a refund check finally arrives, sometimes there are more questions than answers.

If you get a refund and you weren't expecting one, or the check is for more than you thought you'd get, don't cash it. The IRS should send you a notice explaining the difference, along with any additional information or instructions. If you don't get an explanatory letter within two weeks of getting your questionable refund, it's time to call (800) 829-1040 again.

On the other hand, if your refund is less than you expected, go ahead and cash the check. If further investigation reveals that you should have received more, the IRS will make up the difference (plus a bit of interest if it takes more than 45 days to correct the error) and send you another check for the balance due.

Check Your Bank Account
The IRS has one final piece of advice for anxious filers still looking for that refund: If you requested direct deposit, check your bank account regularly.

The IRS will simply transfer the money to your financial institution without sending you any other notification. It's up to you to find out if the refund is already in your account.

Sunday, April 11, 2010

How To File An Extension

When filing your return, it is important to have all of the necessary information. At times, you may find that you have not received all the documentation needed to assemble your return, or you may just find yourself short of time to file a complete and accurate return. If you cannot file your return on time, simply apply for an extension by the due date of your return (generally April 15, 2010, for 2009 returns) for an extension of time to file. Send the extension request on Form 4868 to the Internal Revenue Service office with which you file your return.

Before You Start
Collect and organize your tax records
Review income statements from banks, employers, brokers, and governmental agencies on their respective 1099 forms.
Check for miscalculations, additions, and omissions.

1.Automatic Filing Extension
You may get an extension without waiting for the IRS to act on your request. You receive an automatic six-month extension for your 2008 return if you file Form 4868 by April 15, 2010. The extension gives you until October 15, 2010, to file your return. A late filing penalty will not be imposed if you fail to submit a payment with Form 4868, provided you make a good faith estimate of your liability based upon available information at the time of filing. However, although the extension will be allowed without a payment, you will be subject to interest charges and possible penalties (discussed below) on 2009 taxes paid after April 15, 2010. You may file Form 4868 electronically and use a credit card (American Express, MasterCard, Visa, or Discover Card) to make a tax payment.

Payment is made through a service provider that handles the credit card transaction and charges you a fee. See the Form 4868 instructions for the phone numbers and web addresses of the service providers.

When you file your return within the extension period, you enter on the appropriate line of the return any tax payment that you sent with your extension request and include the balance of the unpaid tax, if any.

Please note: While the extension is automatically obtained by a proper filing on Form 4868, the IRS may terminate the extension by mailing you a notice at least 10 days prior to the termination date designated in the notice.

2. Interest and Penalty for Late Payment
You still have to pay interest on any 2009 tax not paid by April 15, 2010, even if you obtain a filing extension. In addition, if the tax paid with Form 4868, plus withholdings and estimated tax payments for 2009, is less than 90% of the total amount due, you will be subject to a late-payment penalty (usually one-half of 1% of the unpaid tax per month) -- unless you can show reasonable cause.

3. Abroad on April 15, 2010
You do not get an automatic extension for filing and paying your tax merely because you are out of the country on the filing due date. If you plan to be traveling abroad on April 15, 2010, and want to get a filing extension, you must submit a claim for the automatic six-month filing extension on Form 4868 or use a credit card (see above) to make a payment with an extension request.

The only exception is for U.S. citizens or residents who live and have their main place of business outside the U.S. or Puerto Rico, or military personnel stationed outside the U.S. or Puerto Rico, on April 15, 2010. If you qualify, you are allowed an automatic two-month extension, until June 15, 2010, to file your return and also pay any tax due. However, the IRS will charge interest from the original April 15 due date on any unpaid tax. If you cannot file within the two-month extension period, you can obtain an additional four-month extension by filing Form 4868 by June 15, 2010. This additional four-month extension is for filing only and not payment. In addition to interest, a late payment penalty may be imposed (see above) on any tax not paid by June 15, 2010.

If you are eligible for the two-month extension but expect to qualify for the foreign earned income exclusion under the foreign residence or presence test after June 15, 2010, you can request on Form 2350 an extension until after the expected qualification date. Back to top

4. Installment Arrangements
If you cannot pay the tax due for 2009 by the October 15, 2010, extension date, you should file your return and attach Form 9465 to request an installment arrangement.

If you owe $10,000 or less and certain conditions are met, the IRS must enter into an installment arrangement if you request one. You must show that full payment cannot be currently made, and that in the previous five years you filed income tax returns and paid the tax, and did not enter into an installment arrangement during that period. If the current return is a joint return, your spouse must also meet these tests for the five-year period. You must agree to pay the tax liability within three years.

If you are using an installment agreement to pay the tax due on a timely filed return (including extensions), the late payment penalty is reduced by half from .5% to .25% per month.

You receive an automatic six-month extension for your 2008 return if you file Form 4868 by April 15, 2010. The extension gives you until October 15, 2009, to file your return.
An extension of time to file does not give you an extension of time to pay your taxes.
You have to pay interest on any 2009 tax not paid by April 15, 2010, even if you obtain a filing extension.
You do not get an automatic extension for filing and paying your tax merely because you are out of the country on the filing due date.
If you cannot pay the tax due for 2009 by the October 15, 2010, extension date, you should file your return and attach Form 9465 to request an installment arrangement.

IRS Circular 230 Disclosure: To comply with certain U.S. Treasury regulations, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this communication (including any attachments, enclosures, or other accompanying materials) was not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of avoiding any penalties that may be imposed on such taxpayer by the Internal Revenue Service; furthermore, this communication was not intended or written to support the promotion or marketing of any of the transactions or matters it addresses.

Sunday, April 4, 2010

The 10 Most Common Tax-Filing Mistakes

Each year during tax season, clients ask us how to avoid an IRS audit. They are surprised to find out that many IRS mail examinations are caused by rather simple, avoidable mistakes made by taxpayers as they prepare and send in their income tax returns. The following list compiled by Yahoo Finance summarizes the errors that occur most frequently.

The 10 Most Common Tax-Filing Mistakes
by Katie Adams
Saturday, February 20, 2010
provided by Investopedia

One innocent slip-up on your federal income tax return could cost you time and money. Be sure to double check your return for these common mistakes:

1. Wrong Filing Status

You can only choose one filing status -- single, married filing separately or married filing jointly. What determines your filing status is your marital status as of year's end (either single or married). If you are married, it's your preference whether to file separately or jointly. (However, you and your spouse will need to agree on the filing status -- you can't file married separately if your spouse is filing jointly!) Mark the correct box accordingly, or it could cause you to be denied for tax credit claims such as the child or dependent care credit, earned income tax credit, etc.

2. Wrong Address

If you are submitting a paper return, it is best to use the peel-off label on the tax form you received in the mail. You can make corrections directly on the label. However, if you do not have a label or if there are too many corrections, make sure you clearly print your name, address and zip code on the return.

3. Incorrect or Missing Social Security Numbers

Your Social Security number is a crucial part of your federal income tax return. It corresponds with income reported as well as deductions and credits you are claiming. If you accidentally provide the wrong number, your claims could be denied, or at least delayed until you are able to make the correction with an amended tax return. In addition, the IRS can only verify someone you areclaiming as a dependent if you include his/her correct Social Security number as it appears on the Social Security card. If there have been any name changes since you last filed a tax return, you should contact the Social Security Administration by calling 1-800-772-1213 or by going to its website at

4. Unsigned Return

After doing all that hard work, don't forget the easy part -- signing the form! Neglecting this important last step could unnecessarily hold up your refund or, if you owe money, you will have to pay penalties and interest on your tax bill. If you are filing jointly, make sure that your spouse also signs and dates the return.

5. Math Errors

Use a calculator and go back over your return carefully to ensure that you have added and subtracted all those numbers correctly. While the IRS Service Center can, and often does, catch math errors and will make changes accordingly on your form, it's not guaranteed.

6. Tax Computation Errors

According to the IRS, in addition to basic addition and subtraction mistakes, filers often incorrectly compute their taxable income, withholding and estimated tax payments, earned income tax credit, standard deduction (for people age 65 or older or who are blind), taxable Social Security benefits and child or dependent care tax credit. Make sure you are using the correct column for the IRS tax table based on your filing status.

7. Incorrect Identification Numbers

If you are claiming a dependent or child-care tax credit, double check to make sure you have the right identification number(s) for the care provider(s).

8. Incorrect Financial Institution Information

If you are owed a refund and elect to have the funds directly deposited into your bank account, make sure that you provide the correct financial institution account and routing transit numbers, or your refund could be delayed or worse -- sent to the wrong taxpayer!

9. Undocumented Deductions

If you are filing an itemized return and claiming charitable contribution deductions, you will need written receipts for each donation verifying the date, contribution amount and name of the nonprofit organization you supported. Other common deductions for which you will need receipts include mortgage interest, property taxes and medical expenses (if they exceeded 7.5% of your adjusted gross income.

10. Wrongly Claiming -- or Forgetting to Claim -- Credits And Rebates

In addition to standard tax credits such as the Earned Income Tax Credit (EITC), each year there are new credits, rebates and deductions for which you may qualify. Last year's top tax-filing mistake was wrongly accounting for the 2008 recovery rebate. Over 2 million tax filers either didn't include the rebate on their return or entered the wrong amount. This year, millions of tax filers will be able to claim the Obama Administration's "Making Work Pay" tax credit that was extended under the 2009 American Recovery and Reinvestment Act (ARRA), as well as the First-Time Homebuyer Tax Credit. If you think you may qualify for a credit or rebate, check the IRS website to find the appropriate form, or consider using tax preparation software that can walk you through a checklist of potential benefits.


You can reduce the likelihood of making tax mistakes by filing electronically through the IRS website or by using tax preparation computer software that can help you avoid, or correct, common errors.

When it comes to filing your taxes, it can often pay to wait until the deadline.

Saturday, March 27, 2010

10 Ways the New Healthcare Bill May Affect You

Our office has been receiving many calls regarding the new healthcare legislation. The following article from Yahoo Finance summarizes ten areas of the bill that may affect the average taxpayer.

10 Ways the New Healthcare Bill May Affect You
by Katie Adams
Friday, March 26, 2010
provided by Investopedia

The Patient Protection and Affordable Healthcare Act, more commonly referred to as the "healthcare bill", has taken over a year to craft and has been a lightning rod for political debate because it effectively reshapes major facets of the country's healthcare industry.

Here are 10 things you need to know about how the new law may affect you:

1. Your Kids are Covered

Starting this year, if you have an adult child who cannot get health insurance from his or her employer and is to some degree dependent on you financially, your child can stay on your insurance policy until he or she is 26 years old. Currently, many insurance companies do not allow adult children to remain on their parents' plan once they reach 19 or leave school.

2. You Can't be Dropped

Starting this fall, your health insurance company will no longer be allowed to "drop" you (cancel your policy) if you get sick. In 2009, "rescission" was revealed to be a relatively common cost-cutting practice by several insurance companies. The practice proved to be common enough to spur several lawsuits; for example, in 2008 and 2009, California's largest insurers were made to pay out more than $19 million in fines for dropping policyholders who fell ill.

3. You Can't be Denied Insurance

Starting this year your child (or children) cannot be denied coverage simply because they have a pre-existing health condition. Health insurance companies will also be barred from denying adults applying for coverage if they have a pre-existing condition, but not until 2014.

4. You Can Spend What You Need to

Prior to the new law, health insurance companies set a maximum limit on the monetary amount of benefits that a policyholder could receive. This meant that those who developed expensive or long-lasting medical conditions could run out of coverage. Starting this year, companies will be barred from instituting caps on coverage.

5. You Don't Have to Wait

If you currently have pre-existing conditions that have prevented you from being able to qualify for health insurance for at least six months you will have coverage options before 2014. Starting this fall, you will be able to purchase insurance through a state-run "high-risk pool", which will cap your personal out-of-pocket expenses for healthcare. You will not be required to pay more than $5,950 of your own money for medical expenses; families will not have to pay any more than $11,900.

6. You Must be Insured

Under the new law starting in 2014, you will have to purchase health insurance or risk being fined. If your employer does not offer health insurance as a benefit or if you do not earn enough money to purchase a plan, you may get assistance from the government. The fines for not purchasing insurance will be levied according to a sliding scale based on income. Starting in 2014, the lowest fine would be $95 or 1% of a person's income (whichever is greater) and then increase to a high of $695 or 2.5% of an individual's taxable income by 2016. There will be a maximum cap on fines.

7. You'll Have More Options

Starting in 2014 (when you will be required by law to have health insurance), states will operate new insurance marketplaces - called "exchanges" - that will provide you with more options for buying an individual policy if you can't get, or afford, insurance from your workplace and you earn too much income to qualify for Medicaid. In addition, millions of low- and middle-income families (earning up to $88,200 annually) will be able to qualify for financial assistance from the federal government to purchase insurance through their state exchange.

8. Flexible Spending Accounts Will Become Less Flexible

Three years from now, flexible spending accounts (FSAs) will have lower contribution limits - meaning you won't be able to have as much money deducted from your paycheck pre-tax and deposited into an FSA for medical expenses as is currently allowed. The new maximum amount allowed will be $2,500. In addition, fewer expenses will qualify for FSA spending. For example, you will no longer be able to use your FSA to help defray the cost of over-the-counter drugs.

9. If You Earn More, You'll Pay More

Starting in 2018, if your combined family income exceeds $250,000 you are going to be taking less money home each pay period. That's because you will have more money deducted from your paycheck to go toward increased Medicare payroll taxes. In addition to higher payroll taxes you will also have to pay 3.8% tax on any unearned income, which is currently tax-exempt.

10. Medicare May Cover More or Less of Your Expenses

Starting this year, if Medicare is your primary form of health insurance you will no longer have to pay for preventive care such as an annual physical, screenings for treatable conditions or routine laboratory work. In addition, you will get a $250 check from the federal government to help pay for prescription drugs currently not covered as a result of the Medicare Part D "doughnut hole".

However, if you are a high-income individual or couple (making more than $85,000 individually or $170,000 jointly), your prescription drug subsidy will be reduced. In addition, if you are one of the more than 10 million people currently enrolled in a Medicare Advantage plan you may be facing higher premiums because your insurance company's subsidy from the federal government is going to be dramatically reduced.


Over the next few months you will most likely receive information in the mail from your health insurance company about how the newly signed law will affect your coverage. Read the correspondence carefully and don't hesitate to ask questions about your policy; there may be new, more affordable options for you down the road.

Wednesday, March 17, 2010

How long should I keep my financial records?

Our office receives many inquiries about how long a taxpayer is required to keep his records to support his tax returns or protect him in case of an audit. The following article from explains the basics. Please contact our office with any additional questions or comments.

How long to keep financial records

You can't take everything with you, but the following are suggestions about how long you should keep personal finance and investment records on file:

Financial Records Timeline - Type of record Length of time to keep, and why:

Tax records should be kept for: Seven years


Canceled checks/receipts (alimony, charitable contributions, mortgage interest and retirement plan contributions)

Records for tax deductions taken

The IRS has three years from your filing date to audit your return if it suspects good-faith errors.
The three-year deadline also applies if you discover a mistake in your return and decide to file an amended return to claim a refund.
The IRS has six years to challenge your return if it thinks you underreported your gross income by 25 percent or more.
There is no time limit if you failed to file your return or filed a fraudulent return.

IRA contribution records: Permanently

If you made a nondeductible contribution to an IRA, keep the records indefinitely to prove that you already paid tax on this money when the time comes to withdraw.
Retirement/savings plan statements From one year to permanently
Keep the quarterly statements from your 401(k) or other plans until you receive the annual summary; if everything matches up, then shred the quarterlies.
Keep the annual summaries until you retire or close the account.

Bank records: From one year to permanently
Go through your checks each year and keep those related to your taxes, business expenses, home improvements and mortgage payments.
Shred those that have no long-term importance.

Brokerage statements: Until you sell the securities
You need the purchase or sales slips from your brokerage or mutual fund to prove whether you have capital gains or losses at tax time.
Bills From one year to permanently
Go through your bills once a year.
In most cases, when the canceled check from a paid bill has been returned, you can shred the bill.
However, bills for big purchases -- such as jewelry, rugs, appliances, antiques, cars, collectibles, furniture, computers, etc. -- should be kept in an insurance file for proof of their value in the event of loss or damage.

Credit card receipts and statements: From 45 days to seven years
Keep your original receipts until you get your monthly statement; shred the receipts if the two match up.
Keep the statements for seven years if tax-related expenses are documented.

Paycheck stubs: One year
When you receive your annual W-2 form from your employer, make sure the information on your stubs matches.
If it does, shred the stubs.
If it doesn't, demand a corrected form, known as a W-2c.

House/condominium records: From six years to permanently
Keep all records documenting the purchase price and the cost of all permanent improvements -- such as remodeling, additions and installations.
Keep records of expenses incurred in selling and buying the property, such as legal fees and your real estate agent's commission, for six years after you sell your home.
Holding on to these records is important because any improvements you make on your house, as well as expenses in selling it, are added to the original purchase price or cost basis. This adds up to a greater profit (also known as capital gains) when you sell your house. Therefore, you lower your capital gains tax.

Source: Marquette National Bank and Catherine Williams, President of Consumer Credit Counseling Services of Greater Chicago

Thursday, February 25, 2010

Start saving in your 20s if you want to get rich. Even if money is tight, this is the time to start stashing away money. Start small, start now.

It's easy to understand why retirement doesn't loom large on the horizon for 20-somethings. Young workers are more concerned with kick-starting careers, not ending them in the long-distant future.

But it's worth noting that the very fact that you're young gives you a huge edge if you want to be rich in retirement. That's because when you're in your 20s, you can invest relatively little for a short period and wind up with far more money than someone older who saves much more over a longer period.

Consider this scenario: If you begin saving for retirement at 25, putting away $2,000 a year for just 40 years, you'll have around $560,000, assuming earnings grow at 8% annually. Now, let's say you wait until you're 35 to start saving. You put away the same $2,000 a year, but for three decades instead, and earnings grow at 8% a year. When you're 65 you'll wind up with around $245,000 -- less than half the money.

Seems like a no-brainer, right? Save a little now and reap big rewards later.

Unfortunately, many of today's youngest workers pass on the opportunity to save for retirement early, when the beauty of compounding interest can work its magic and maximize savings. A study by human resources consultant Hewitt Associates found that just 31% of Generation Y workers (those born in 1978 or later, now in the thick of their 20s) who are eligible to put money into a 401(k) retirement savings plan do so. That's less than half of the 63% of workers between ages 26 and 41 who do invest in employer-sponsored savings accounts.

Start saving ASAP! There are plenty of reasons you may have yet to save, such as cash flow. If you're struggling to pay off student loans or cover rent, funding a 401(k) may seem difficult, if not downright impossible.

Sign up for that 401(k)! Make the most out of those few dollars you can get hold of by allocating them wisely. Don't squirrel them away under the mattress. You will want them to be invested in a way that will encourage your assets to grow as quickly as possible.

Where to start? If you're eligible to participate in a 401(k) at work, do so. There are plenty of reasons to love these plans but No. 1 by far is that most employers match your contributions in order to encourage your participation. The hitch: Oftentimes, you'll need to save enough to trigger the match.

In a typical plan, employers match up to 3% of your salary, according to the Profit Sharing/401(k) Council of America. When you sign up, the money you save is automatically deposited into the plan before it's taxed, so less of your income will be taxed now. That saves you money, too.

No company retirement fund? Use a Roth instead. If you aren't eligible for a retirement fund at work that gets you matching funds, sign up for the next best thing: a Roth IRA. You'll fund this with money that's already been taxed as part of your normal paycheck. But money in a Roth IRA withdrawn later is tax-free. Save what you can. It will add up. If you are able to sock away $4,000 a year into a Roth for 40 years, and if it earns 8% annually, you'll be a tax-free millionaire at retirement. To make sure you stick to saving, have a portion of your paycheck or payments from your bank account automatically deposited into the Roth each month or every few weeks.

Get educated! Meanwhile, don't be embarrassed to admit that financial talk can seem confusing. After all, financial know-how is not genetically encoded and, unless someone has taken the time to teach you about finance, you'll need to do a little learning. And now that you're starting to make and save money, this is the perfect time to educate yourself. Read books, articles or financial Web sites. The more you know, the easier it will be throughout your career to make solid, informed decisions.

Build a strong defense with an emergency stash. Start amassing an emergency fund so you don't have to rely on credit cards -- and possibly bury yourself in debt -- in the event that your car dies, your roommate comes up short on rent or you suffer some other financial mishap. Ideally, you'll stash up to three months living expenses, but the important goal is to save something. You can help stay on track by having automatic deposits made to your emergency account.

In the meantime, keep an eye on spending. Those splurges can add up fast and will prove to be a huge drain on future savings. What's more, if you pile on debt, you'll wind up wasting a lot of money on interest and fees that could be better spent elsewhere.

Avoid debt! If you're really struggling to stretch the paycheck to set something aside for retirement, this is the time to make some changes. Give your budget a major overhaul. Consider getting a roommate or picking up an extra job for the time being. Big changes now, coupled with consistent saving over time, will reap huge rewards down the road.

Excerpted from

Monday, February 22, 2010

13 tax changes you need to know before filing your 2009 returns

We found a concise summary of 2009 tax changes in the following AOL Walletpop personal finance article. Please contact our office to discuss any questions or comments you may have.

13 tax changes you need to know before filing your 2009 returns

Wednesday, February 17, 2010

2009 Educational Credits and Deductions

If you are a taxpayer with higher education costs, you should be aware of the many tax benefits that are available to you. Generally, educational assistance such as scholarship, fellowship, or employer-provided educational benefits are excludable from income. For education costs not covered by educational assistance, tax benefits include the Hope scholarship credit (also known as the American Opportunity credit for 2009 and 2010) and the lifetime learning credit. Alternatively, you may have the option of deducting qualified tuition and fees expenses "above the line." These credits and deductions are coordinated with the exclusion for distributions from education savings plans, such as, Coverdell Savings Accounts and qualified tuition programs. For taxpayers who take out a loan to pay for their education, a deduction is available for the student loan interest.

The amount of the American Opportunity tax credit is computed as 100 percent of the first $2,000 of qualified tuition and related expenses plus 25 percent of the next $2,000 of such expenses, for a total maximum credit of $2,500. The lifetime learning credit is generally available for 20 percent of education expenses up to $10,000. For taxpayers who do not itemize, an above-the-line higher education tuition deduction can be claimed in 2009 for up to $4,000.

Each education credit and the deduction have adjusted-gross-income phase out limitations. In addition the education credits are coordinated with the deduction and Coverdell Savings Accounts and qualified tuition programs so that taxpayers cannot realize duplicate tax benefits for the same dollars of education costs. Because of the variety of tax benefits and the variations as to eligibility and the definition of qualifying education expense, some or all of the benefits may apply to you. Every taxpayer should review their tax plan in order to take maximum advantage of the tax savings for education.

Determining the best alternative for you and your dependents requires an analysis of your expected costs, resources, and income. We can advise you on the best course of action. Please contact our office at your earliest convenience to discuss your situation.

Monday, February 15, 2010

How Do I ... Convert a Traditional IRA to a Roth IRA?

People are buzzing about Roth Individual Retirement Accounts (IRAs). Unlike traditional IRAs, "qualified" distributions from a Roth IRA are tax-free, provided they are held for five years and are made after age 59 1/2, death or disability. You can establish a Roth IRA just as you would a traditional IRA. You can also convert assets in a traditional IRA to a Roth IRA.

Before 2010, only taxpayers with adjusted gross income of $100,000 or less were eligible to convert their traditional IRA (provided they were not married taxpayers filing separate returns). Beginning in 2010, anyone can convert a traditional IRA to a Roth IRA, regardless of income level or filing status.

Comment: While you can only contribute a maximum of $5,000 to a Roth IRA for 2010 (plus a $1,000 catch-up contribution if you are over age 50), you can convert an unlimited amount from a traditional IRA.

Conversion is treated as a taxable distribution of assets from the traditional IRA to the IRA holder, although it is not subject to the 10 percent tax on early distributions. While paying taxes on conversion is undesirable, the advantages of holding assets in a Roth IRA usually outweigh this disadvantage, especially if you will not be retiring soon. Furthermore, if you convert assets in 2010, you have the option of including them in income in 2011 and 2012 (50 percent each year) instead of 2010.

For more details, including four ways to convert a Traditional IRA to a Roth IRA, please visit the newsletter section of our website at