If you can’t meet the April 15 deadline for completing and filing your 2009 income tax return to the IRS, it’s important to file Form 4868 by that date so you have an extra 6 months to complete your return.  Unfortunately, the extension is not an extension of time to pay.  To avoid penalty and interest on your outstanding balance, you must include a check with Form 4868.  The check should be large enough to cover your tax bill, so it’s appropriate to roughly calculate what you will owe before submitting the extension request.  If you calculate that you will be receiving a refund, filing Form 4868 without the check by April 15 should suffice.  You will then have until October 15 to complete your return.  Please contact us if you have any questions.

To avoid penalties, the IRS requires taxpayers to make regular contributions to their tax obligations throughout the year.  Most individuals have their employer or pension holder withhold a specified amount from each paycheck or retirement money to cover the tax.  If the withholding amount is below certain thresholds, there can be a penalty.  Those taxpayers with significant interest, dividend, capital gains, or other income need to have additional money withheld or make quarterly payments to the IRS.  According to the IRS, no penalty will be made for failure to pay estimated taxes if the tax liability, after credit for withholding is less than $1,000.  Also, individuals need not pay estimated tax if they had no tax liability for the preceding tax year.  Guidelines for who must submit quarterly payments are somewhat complicated, but taxpayers can generally avoid the penalty for failure to pay estimated tax by:

1. paying at least 90% of the tax shown on the current year’s return,
2. paying 100% of the tax shown on the prior year’s return.

More rules apply if the adjusted gross income exceeds $150,000, and when the income was received.  The specific due dates the IRS has established for the quarterly payments are April 15, 2010, June 15, 2010, September 15, 2010,and January 18, 2011.

Please contact us if you have questions about your specific circumstances.

For donations of property such as clothing and household items, be sure to get a receipt from the charity that includes the name of the charity, date of contribution, and a reasonably detailed description of the donated property.  You will need to place a fair market value on the donated goods.  This valuation is often done by comparing the sale price of similar used items sold at garage sales or on the Internet.  If the amount of a taxpayer’s deduction for all non-cash contributions is over $500, a properly completed Form 8283 must be submitted with the tax return.

The IRS requires people to pay taxes on profits made from the sale or redemption of stocks and mutual funds.  Likewise, taxpayers can claim a deduction if the sale results in a loss.  Be sure to know the purchase dates and costs of all such items as well as the sales price and date of the sale.  The gain or loss on a stock sale is calculated by subtracting your cost basis from the proceeds of the sale. The dates of purchase and sale are important to determine whether the loss is short term or a long-term capital gain.  Profits made on investments held for more than one year (long-term) are taxed at a lower rate.

If you do not have a record of what you paid for a stock, your broker might be able to provide that to you, or the company may be able to provide you the value of the stock on the purchase date.  For those who participate in dividend reinvestment plans, remember to keep the year-end reports that tell the basis of the newly acquired shares.  Always keep purchase records until an asset is sold.  Please contact us if you have any questions.

Taxpayers whose deductions total close to the standard amount can try to bunch deductible expenses into one year. They can itemize in the year into which they shift deductible expenses and take the standard deduction in the year from which the expenses are shifted.  It might work in your favor to pay real estate taxes in January for the current year, and again in December for next year. Similarly do the same with health insurance premiums.  This strategy might take you above the standard deduction threshold and make it worthwhile to itemize every other year.  Please contact us if you have any questions.

Mon, 01 March 2010

The 1099-INT is for interest earned and these usually come from your bank or broker.  The 1099-DIVs are for dividends and generally come with your broker statements.  If you receive a 1099-DIV, it is usually better to wait until mid-March or sometimes later to file your tax return since you may receive corrected forms.  This is common, particularly if you have mutual funds.  By waiting, you may save the bother and expense of filing a corrected return.  Please contact us if you have any questions.

Monday, 22 Feb 2010

Individuals who make energy efficiency improvements to their principal residence may be eligible for a federal tax credit.  Things like exterior doors and windows, insulation, heat pumps, furnaces, central air conditioners, and water heaters that qualify as energy efficiency improvements and are installed in 2009 may claim the credit.  The credit is limited to 30% of the cost of qualified energy efficiency improvements for the tax year.  The amount of credit a taxpayer may claim is limited to a maximum of $1500.  This maximum credit is not limited to the $1500 for certain solar, wind, and fuel cell installations completed before 2017.  Please contact us if you have any questions.

Monday 15, 2010

Taxpayers who take the standard deduction in lieu of itemizing their deductions for their 2009 returns are eligible to take an additional standard deduction for property taxes paid in 2009.  This additional deduction is equal to the lesser of the amount actually paid for real estate taxes or $500 for single taxpayers or $1,000 for couples filing jointly.

Also, if you bought a new vehicle in 2009 after February 16th, you can deduct the amount of sales and excise tax on the first $49,500 of the purchase price, even if you do not itemize.  This deduction is phased out for higher income individuals ($125,000 for single and $250,000 for joint filers)

If you’re unsure as to whether a charity is qualified, IRS Publication 78 lists most organizations that are qualified to receive deductible contributions.  This publication is available online and in many libraries. Check the list at IRS.gov and click on Search for Charities.  In addition, most churches, synagogues, temples, and mosques and government agencies are eligible, even if they are not listed.  Contributions to individuals or trust funds set up to help families of individuals are NOT eligible for a deduction.

Monday o1, February 2010

The IRS is allowing taxpayers who donate cash or checks to qualified charities providing earthquake relief to Haiti, to claim the donation on either their 2009 or their 2010 tax return.  To get the tax benefit, the taxpayer must itemize deductions.  To be eligible for the deduction in 2009, the donation must be made after January 11, 2010 but before March 1, 2010.  If Jim Davis CPA is preparing your 2009 tax return and you wish to claim a contribution you made in 2010, please discuss it with us.