Friday, March 29, 2013

Are you giving the IRS an interest-free loan?


Will you be among the thousands of taxpayers who get a big tax refund this year? While most Americans happily accept their tax refund checks, smart taxpayers understand that refunds actually cost them money. Here's why:

* The government pays no interest on refunds. Kept in your hands, those dollars could have been productive. For example, you could have invested the money or used it to pay off your debt during the year. If the money had been added to a 401(k) plan, tax would have been deferred on both the investment and its earnings. Even better, your employer might have matched all or part of your investment, adding to your retirement savings.

* Refunded cash is not available for use until actually received. Even though most taxpayers get their checks promptly, circumstances or errors can delay (or stop) a refund.

To prevent losing money on tax refunds, consider reducing your withholding or estimated tax payments. For most taxpayers, withholding must equal either the prior year's tax or 90% of the current year's liability. If your annual income changes little, it's relatively easy to avoid overwithholding. You should consider filing a revised Form W-4 withholding statement with your employer if you're having too much withheld.

For taxpayers with fluctuating income or multiple sources of income, the problem is more complex. The IRS provides a worksheet with Form W-4, but many people find the form complicated.

Friday, March 22, 2013

Look backward and forward for tax savers


You can reach into the past and future to cut your taxes. How? Through the use of tax carryforwards and carrybacks. Here is what you should know about these tax savers.

Some tax deductions have a maximum amount that you can use in any one year. In these situations, the rules generally allow you to apply the unused tax deduction to a past or future tax return. One of the most popular examples of this is the "net operating loss" or NOL. Business owners whose qualified expenses exceed their income are allowed to apply the NOL to taxable income earned in the second prior year, and if there is still loss available, to apply it to last year's income. Any further unapplied NOL can be used to offset future taxable income.

But there are a few twists to the NOL rules. If your NOL is the result of a theft or disaster, you may be able to carry it back three years. An NOL from farming can be carried back five years. And you may opt to apply all your NOL to future years only, which might not be a bad strategy if you expect to be taxed at higher rates in future years.

Net capital losses, such as from the sale of stocks, can be carried forward (but not back) to offset future capital gains and up to $3,000 of ordinary income. You can also carry forward charitable contributions that exceed 50% of taxable income for up to five years.

It's important to save all records related to carryback and carryforward deductions for at least three years after the year they are applied. If you have any questions about your potential for tax carryback and carryforward deductions, contact our office. We'll help you keep an eye on your tax situation, past, present, and future.

Friday, March 15, 2013

Check out your IRA options


It's not too late to make contributions to an IRA for 2012. You can establish and contribute to a 2012 IRA as late as April 15, 2013. If the IRA is the traditional, tax-deductible kind, you can deduct your contributions on your 2012 tax return. If you're under age 50, the maximum contribution is $5,000; if you were 50 or older by December 31, 2012, you can contribute up to $6,000.

The "charitable IRA rollover" rule was extended through 2013, permitting taxpayers who are 70½ or older to use their IRA to donate up to $100,000 to charity. The donation must be made directly from the IRA to the charity, and it counts as part of the taxpayer's required minimum distribution for the year.

If you turned 70½ in 2013, remember that you're now required to take a minimum distribution from your IRA (and, unless you're still working, from other retirement plans also) every year. If you delayed taking your first distribution last year, you have only until April 1, 2013, to take it or you'll be subject to a 50% penalty on the amount you should have taken.

Converting a traditional IRA to a Roth IRA is still an available option for all taxpayers. Although a conversion will generate taxable income in the year you do it, later qualifying withdrawals from the Roth will be tax-free. Your conversion opportunities are not limited to just traditional IRAs. You can also convert your 401(k), 403(b), or 457 plan to a Roth.

Friday, March 8, 2013

IRS issues warning about bogus e-mails


It's tax season, and the identity thieves are once
again sending out bogus IRS e-mails trying to get you
to provide your personal and financial information.

The crooks create IRS e-mails and websites that appear
to be legitimate, but they are schemes designed to steal
your identity. One of the newest scams is tax refund
fraud where your personal data is stolen and used to
file a tax return in your name in order to claim a refund.
When you then file your return, the IRS rejects it and
notifies you that you have already filed.

Here's what the IRS wants you to know about bogus e-mails:

* The IRS does not initiate contact with taxpayers by
  e-mail or social media to request financial information.

* The IRS never asks taxpayers for detailed personal
  and financial information.

* The address of the official IRS website is www.irs.gov;
  don't be misled by sites claiming to be the IRS but
  ending in .com, .net, .org, or anything else.

* If you receive an e-mail claiming to be from the IRS
  or directing you to an IRS site, do not reply to the
  message, open any attachments, or click on any links.

* To help the IRS fight identity theft and refund fraud,
  report any bogus correspondence and forward any
  suspicious e-mail to phishing@irs.gov.

Friday, March 1, 2013

Lower your tax bill with recently extended tax breaks


The new tax law signed last month extended a number of
tax breaks that had expired at the end of 2011 or 2012.
These tax breaks could affect the 2012 return you'll be
filing soon, and they may also lower your 2013 tax bill.
Don't overlook any that apply to you or your business.
Here's a quick overview.

EXTENDED FOR INDIVIDUALS:

* The optional deduction for state and local sales
  taxes in lieu of deducting state and local income
  taxes.

* The above-the-line deduction for up to $4,000 for
  qualified tuition and related expenses.

* The above-the-line deduction for up to $250 for
  classroom supplies purchased by teachers.

* The deduction for mortgage insurance premiums.

* Allowing taxpayers 70½ or older to make tax-free
  contributions of up to $100,000 from an IRA to a
  charity.

* The exclusion from income for cancellation of mortgage
  debt of up to $2 million on a principal residence.

EXTENDED FOR BUSINESSES:

* An increase to $500,000 in the Section 179 first-year
  expensing option for the purchase of new or used
  business equipment, with an investment limit of
  $2,000,000.

* 50% bonus depreciation on purchases of new business
  equipment.

* The research tax credit and the work opportunity tax
  credit.

* 15-year depreciation for leasehold improvements,
  restaurant property, and retail space improvements.