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Ten Facts about Amended Returns

Published on June 24, 2010 in Tax Planning and Tax Preparation. Closed Tags: , , .

You can make a change or an adjustment to a tax return you’ve already filed by filing an amended return. Here are the top 10 things the IRS wants you to know about amending your federal tax return.

  1. If you need to amend your tax return, use Form 1040X, Amended U.S. Individual Income Tax Return.
  2.  Use Form 1040X to correct previously filed Forms 1040, 1040A or 1040EZ. The 1040X can also be used to correct a return filed electronically. However, you can only paper-file an amended return.
  3.  You should file an amended return if you discover any of the following items were reported incorrectly: filing status, dependents, total income, deductions or credits.
  4.  Generally, you do not need to file an amended return for math errors. The IRS will automatically make the correction.
  5.  You usually do not need to file an amended return because you forgot to include tax forms such as W-2s or schedules. The IRS normally will send a request asking for those documents.
  6.  Be sure to enter the year of the return you are amending at the top of Form 1040X. Generally, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.
  7.  If you are amending more than one tax return, prepare a 1040X for each return and mail them in separate envelopes to the IRS campus for the area in which you live. The 1040X instructions list the addresses for the campuses.
  8.  If the changes involve another schedule or form, you must attach it to the 1040X.
  9.  If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X. You may cash that check while waiting for any additional refund.
  10.  If you owe additional tax for 2009, you should file Form 1040X and pay the tax as soon as possible to limit interest and penalty charges. Interest is charged on any tax not paid by the due date of the original return, without regard to extensions.

United We Save

Published on June 19, 2010 in Uncategorized. Closed Tags: , , , .

“United We Save” – Stay Informed, Receive Financial News, and Get Professional Advice @ http://www.artofsaving.com

IRS Tells Registered Domestic Partners to Follow State Community Property Laws (PLR-149319-09)

Published on June 2, 2010 in Tax Planning and Tax Preparation. Closed

In an enlightened private letter ruling, the IRS has issued guidance to unmarried taxpayers afforded the rights and benefits of married under state law. California registered domestic partners (RDPs) requested a determination from the IRS about how to report income on their separately filed (single or head of household) federal returns.

The IRS came to three very important conclusions: 

  1. Each domestic partner must report one-half of the community property earnings and income from community property on his/her individual federal income tax return.
  2. Each domestic partner must report one-half of the income tax withholding on his/her individual federal income tax return (i.e., the federal income tax that is withheld and forwarded to the IRS is credited equally to the two individual federal income tax returns). 
  3. There is no federal gift as a result of income being divided equally between the two domestic partners because each already is entitled to it.

The IRS noted that “federal tax law generally respects state property law characterizations and definitions” (U.S. v. Mitchell [USSC 1971] and Burnet v. Harmel [USSC 1932]). Accordingly, when filing their individual tax returns (registered domestic partners cannot file joint federal income tax returns), each partner “must report one-half of the community income, whether received in the form of compensation for personal services or income from property” (Poe v. Seaborn [USSC 1930]). 

Example: Karen works at a W-2 job and Kate stays at home with the kids. One-half of Karen’s W-2 income is reported on her federal income tax return and one-half of Karen’s W-2 income is reported on Kate’s federal income tax return. If Karen and Kate both work, one-half of the total combined income is reported on each tax return. In addition, one-half of the federal income tax withholding should be credited on each return.

This ruling reverses the text of Publication 555 Community Property (last revised May 31, 2007) that reads: “California domestic partners. If you are a registered domestic partner in California, the rules discussed in this publication for reporting community income do not apply to you. You must report all wages, salaries, and other compensation received for your personal services on your own return. Therefore, you cannot report half the combined income that you and your domestic partner earned as a married person filing separately does in California.”

© Sharon Kreider & Karen Brosi

Senate declares dislike of value-added tax idea.

Published on April 19, 2010 in Uncategorized. Closed Tags: , .

The Senate does not like the idea of a value-added tax, which would be similar to a national sales tax.
The Senate voted 85-13 Thursday to pass a nonbinding “sense of the Senate” resolution that calls the value-added tax “a massive tax increase that will cripple families on fixed income and only further push back America’s economic recovery.”
The issue came up because White House adviser Paul Volcker told a group in New York last week that taxes might have to be raised to bring budget deficits under control. He added that the value-added tax “was not as toxic an idea” as it had been in the past.

IRA Contributions

Published on April 11, 2010 in Tax Planning and Tax Preparation. Closed Tags: , , .

Taxpayers can make contributions to IRAs until April 15th– and take a full deduction on their 2009 tax return. If neither the taxpayer nor spouse was covered for any part of the year by an employer retirement plan, they can take a deduction for total contributions to one or more of your traditional IRAs of up to the lesser of:

  • $5,000 ($6,000 if you are age 50 or older), or
  • 100% of the compensation that is includible in gross income.

Taxpayers covered by a retirement plan at work may take a deduction for contributions to a traditional IRA. The deduction is reduced (phased out) if the 2009 modified AGI is:

  • More than $89,000 but less than $109,000 for a married couple filing a joint return or a qualifying widow(er)
  • More than $55,000 but less than $65,000 for a single individual or head of household, or
  • More than $0 but less than $10,000 for a married individual filing a separate return

For 2009, taxpayers that live with their spouse or file a joint return,  and the spouse is covered by a retirement plan at work, but the taxpayer is not, the contribution is phased out if the modified AGI is more than $166,000 but less than $176,000.

Have Questions? Ask Savism Experts.

Home Foreclosure and Debt Cancellation

Published on March 11, 2010 in Tax Preparation. Closed Tags: , .

The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for this relief.

This provision applies to debt forgiven in calendar years 2007 through 2012.Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.

The amount excluded reduces the taxpayer’s cost basis in the home. 

Home ForeclosureMortgage Forgiveness Debt Relief Act and California Franchise Tax Board:

For discharges occurring on or after January 1, 2009, California does not conform to the federal Mortgage Forgiveness Debt Relief Act. Amounts excluded for federal income tax purposes must be added to income for California tax purposes. However, several bills pending in the Legislature would extend and modify California mortgage forgiveness debt relief to conform more to the Federal law: AB 1779, SBX8 32, and SBX8 25.

Tax Planning : New Mileage Rates for 2010

Published on February 8, 2010 in Uncategorized. Closed

New Mileage Rates for 2010

If you drive a car, truck or van for work, you’ll want to make sure you know the standard mileage rates that the Internal Revenue Service (IRS) has set for 2010. And remember, these mileage rates are not just used to calculate deductible costs for driving an automobile for business, but also for charitable, medical or moving purposes.

New for 2010

As of January 1, 2010, the standard mileage rates are as follows:

  • Businesses = 50 cents per mile driven
  • Medical or moving = 16.5 cents per mile driven
  • Charitable organizations = 14 cents per mile driven

Note: The 2010 rates are slightly lower than last year’s, due to generally lower transportation costs as compared to a year ago.

Make Sure You Qualify

Before you calculate your deduction, make sure you qualify. The IRS reminds taxpayers that they cannot use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously.

Additional Option

Although the IRS provides the standard mileage rate for ease and convenience, you’re not required to use it. If you prefer, you can calculate the actual costs of using your vehicle instead of using the standard mileage rates.

Most people find that they save money on taxes by working with a tax processional. Contact Tax Advisors if you need any help!

Avoiding Income Tax Audits & Discriminant Inventory Function System (DIF)

Published on February 3, 2010 in Tax Planning and Tax Preparation. Closed

The IRS does not like returns that are different. In fact, it likes norms so much that it has a computer program to make sure you fit them. The program is called the Discriminant Inventory Function System (DIF), and it assigns a numeric score to each individual tax return after it has been processed. If your score varies wildly from the norm, chances are, you will be flagged.

Here are some common red flags:

1. Significant income increase or decrease

2. Income exceeding significant benchmarks, such as $100,000 and $1,000,000

3. Significant deduction-to-income ratio — say, $80,000 in deductions on a $100,000 income

4. Home office deductions

5. Self-employment

6. Business deductions consisting of fancy dinners and pricy trips

7. Computational mistakes and typos

8. Incorrect Social Security number

9. Incorrect reporting of income, deductions, etc.

10. Late filing without applying for an extension with Form 4868

11. Not paying your full tax liability without applying for an installment agreement with Form 9465

The bottom line: Be smart. But do not cheat yourself, either. Do not let a fear of being audited discourage you from reporting unusual losses or significant itemized deductions that you may be entitled to. Just be sure to keep good records to substantiate those items.It is true that your chances of being audited are increasing. As the numbers of audits go up, take steps to protect yourself. Do not be greedy, keep good records, and check (and double-check) your return. The fewer reasons you give the IRS to take a second look at your return, the better.

 

“Worried about an IRS audit? Avoid what’s called a red flag. That’s something the IRS always looks for. For example, say you have some money left in your bank account after paying taxes. That’s a red flag.“

Jay Leno

Making Work Pay Credit

Published on January 31, 2010 in Uncategorized. Closed Tags: .

In 2009 and 2010, the Making Work Pay provision of the American Recovery and Reinvestment Act will provide a refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns.

This tax credit will be calculated at a rate of 6.2 percent of earned income and will phase out for taxpayers with modified adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly.

For people who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes. These changes may result in an increase in take-home pay. The amount of the credit will be computed on the employee’s 2009 income tax return filed in 2010 and the employee’s 2010 tax return filed in 2011. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 and 2010 tax returns.

It is not necessary to do anything to get the automatic withholding change. However, an employee with multiple jobs or a married couple whose combined income places it in a higher tax bracket should consult the IRS withholding calculator and, if necessary, submit a revised Form W-4, Employee’s Withholding Allowance Certificate, to ensure enough tax is withheld. Publication 919, How Do I Adjust My Tax Withholding? provides additional guidance for tax withholding including a special Making Work Pay worksheet.

Read more @ http://www.irs.gov/newsroom/article/0,,id=204447,00.html

Haiti – Charitable Contributions for Earthquake Victims

Published on January 28, 2010 in Tax Planning and Tax Preparation. Closed Tags: , , .

The Senate and the House have approved H.R. 4462, a bill to accelerate the income tax benefits for charitable cash contributions for the relief of victims of the earthquake in Haiti, which is now cleared for signature by the President. The bill permits taxpayers to treat qualifying cash contributions made after 1/11/10 and before 3/1/10 as made on 12/31/09, and therefore deductible as an itemized charitable deduction on the taxpayers’ 2009 income tax return. The bill also provides that a telephone bill will satisfy the recordkeeping requirements if it shows the name of the donee organization, the date of the contribution, and the amount of the contribution. Thus, a charitable contribution made by text message and chargeable to a telephone or wireless account qualifies if the bill from the telecommunications company contains the required information.