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 Kiplinger.com
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.
Friday, May 28, 2010
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 CreditCards.com
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."
10 Places NOT to Use Your Debit Card
by Dana Dratch
Friday, March 19, 2010
provided by CreditCards.com
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.
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.
Summary
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.
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.
Summary
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 ssa.gov.
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.
Conclusion
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.
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 ssa.gov.
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.
Conclusion
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.
Conclusion
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.
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.
Conclusion
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 Bankrate.com explains the basics. Please contact our office with any additional questions or comments.
How long to keep financial records
By Bankrate.com
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
Returns
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
How long to keep financial records
By Bankrate.com
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
Returns
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
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