Friday, May 31, 2013

Deductions reduced for those with higher incomes

As you start your 2013 tax planning, you may have to
deal with the loss of certain deductions you've become
used to taking.

PERSONAL EXEMPTIONS. A previous tax rule based on
adjusted gross income (AGI) has been reinstated for
2013: the phase-out of the deduction for personal
exemptions. Your deduction for yourself, your spouse,
and your dependents (each worth $3,900) will be reduced
if you're married, filing a joint return and your AGI
is greater than $300,000. For singles the threshold
amount is $250,000.

For every $2,500 of AGI over the threshold amount,
exemptions are reduced by 2%; at $422,500 for joint
filers, the exemptions are completely phased out.

ITEMIZED DEDUCTIONS. Itemized deductions for higher-
income taxpayers will again be limited in 2013. They
will be reduced by 3% of that portion of AGI exceeding
the thresholds mentioned above ($250,000 for singles
and $300,000 for couples). The amount of your itemized
deductions won't be phased out completely, however.
They can't be reduced by more than 80%, and certain
deductions are not affected (medical expenses,
investment interest, theft and casualty losses,
for example).

With these changes to the tax rules, an early start on
tax planning for 2013 is essential. 

Friday, May 24, 2013

Six rules for avoiding credit card disaster

Here are the rules to help keep you from becoming a credit card victim. Credit cards should be a convenience for payment, not a source of credit. This requires that the entire balance due on the card be paid each month. If the entire balance is not paid on any month, the card should not be used again until the balance is zero. The only exception would be an "essential" purchase such as for gas to go to and from work.

The six credit card rules:

1.  Pay the entire balance due each month.

2.  If a balance remains unpaid at month's end, do not use the card again.

3.  Do not use more than one credit card.

4.  Do not accept credit cards from specific retail stores.

5.  Do not pay off one credit card with another.

6.  Do not purchase gifts for people with your credit card. Give them a nice card or letter instead. It is too easy to let your generosity exceed your ability to pay.

To monitor and review your spending habits, try this exercise. Take your credit card charges and your cancelled checks for the past year and do the following: Sort each charge or cancelled check into two piles. One pile is for the "must" payments such as utilities, taxes, medication, rent, mortgage payment, etc. The other pile is for the optional spending, such as meals at restaurants, gifts for people, recreational events or equipment, etc.


This review of how you spend your money may give you some guidance on how to spend more wisely and it may even help you create a surplus of cash for a savings and investment program.

Friday, May 17, 2013

You can correct tax return mistakes


What should you do if you find that you made a mistake on your 2012 tax return after it's been filed? Perhaps you find that you missed a big deduction. Perhaps you receive a late notice of income you earned. Or perhaps you receive a corrected Form 1099 from your broker. The answer is not to panic. You can correct the mistake with an amended return.

The general rule is that you have three years to amend a personal or business return. Special rules may apply if you paid your taxes late, or are claiming certain business losses or carrybacks. You may have as long as seven years if you are filing to claim a loss on a worthless security or bad debt.

Many amended returns are filed each year. Form 1040X is used to show the items of income or deductions that you want to change or the different elections you want to make. A separate form must be filed for each previous year you want to change. You’ll have to file a paper copy to amend your return, even if you originally filed electronically or by telephone. If you want to change a corporate return, you file a Form 1120X, but the procedures are similar.

If you owe additional tax because of the change, you should send a check at the time you file your amended return. The IRS will let you know if you owe additional interest or penalties.

Friday, May 10, 2013

FBAR filing due soon


The IRS and the Treasury Department are getting increasingly interested in U.S. citizens who maintain foreign bank, savings, and investment accounts. If you have any foreign investments, there's an approaching reporting requirement that you should be aware of.

You are required to file "Treasury Department Form 90-22.1," the "Report of Foreign Bank and Financial Accounts," if you have a financial interest in or signature authority over a foreign financial account. These accounts include bank accounts, brokerage accounts, mutual funds, or other types of foreign financial accounts. This is not a form that you file with your tax return. Rather it is a separate form due June 30 each year that is filed with the Treasury Department in Detroit (due June 28 this year since June 30 is a Sunday). Generally, this report is required to be filed if you have an interest in such accounts, and the aggregate value of those accounts exceeds $10,000 at any time during the calendar year.

If you do have assets in foreign banks or brokerages, be sure to meet your filing obligation. The requirements can get complicated, and the penalties for nonfiling are severe.

Friday, May 3, 2013

Tax records: What should you keep, and what can you toss?


Once you've filed your 2012 tax return, you may wonder what records you can toss and what you should keep. Here are some suggestions.

Keep records that directly support income or expense items on your tax return. For income, this includes W-2s, 1099s, and Form K-1s. Also keep records of any other income you might have received from other sources. It's also a good idea to save your bank statements and investment statements from brokers.

For expense items, keep your cancelled checks as well as support for any itemized deductions you claimed. This includes acknowledgments from charitable organizations and backup for taxes paid, mortgage interest, medical deductions, work expenses, and miscellaneous deductions. Even if you don't itemize, keep records of expenses for child care, medical insurance if you're self-employed, and any other expenses that appear on your return.

The IRS can audit you routinely for three years after you file your return. But in cases where income is underreported, they can audit for up to six years. To be safe, keep your records for seven years.

Keep certain other records longer. These include records relating to your house purchase and any improvements you make. Also keep records of investment purchases, dividends reinvested, retirement plan contributions, and any major gifts you make or receive. And finally, keep copies of all your tax returns and W-2s in case you ever need to prove your earnings for social security purposes.