Personal Exemptions, Standard Deductions and Tax Brackets

Posted by Bruce Mc on Feb 22, 2011 in Exemptions, Filling Status | 0 comments

In 2011, personal exemptions and standard deductions will rise and tax brackets will widen due to inflation.

These inflation adjustments relate to eight tax provisions that were either modified or extended by the Tax Relief, Unemployment Insurance Re-authorization and Job Creation Act of 2010 that became law on Dec. 17. New dollar amounts affecting 2011 returns, filed by most taxpayers in early 2012, include the following:

• The value of each personal and dependent exemption, available to most taxpayers, is $3,700, up $50 from 2010.
• The new standard deduction is $11,600 for married couples filing a joint return, up $200, $5,800 for singles and married individuals filing separately, up $100, and $8,500 for heads of household, also up $100. The additional standard deduction for blind people and senior citizens is $1,150 for married individuals, up $50, and $1,450 for singles and heads of household, also up $50. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
• Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $69,000, up from $68,000 in 2010.
• The maximum earned income tax credit (EITC) for low- and moderate- income workers and working families rises to $5,751, up from $5,666 in 2010. The maximum income limit for the EITC rises to $49,078, up from $48,362 in 2010.The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children.
• The modified adjusted gross income threshold at which the lifetime learning credit begins to phase out is $102,000 for joint filers, up from $100,000, and $51,000 for singles and heads of household, up from $50,000.

Several tax benefits are unchanged in 2011. For example, the monthly limit on the value of qualified transportation benefits (parking, transit passes, etc.) provided by an employer to its employees, remains at $230.

Check Your Withholdings

Posted by Bruce Mc on Nov 30, 2010 in Exemptions, Filling Status | 0 comments

With less than two months remaining in the calendar year, it’s a great time to double check your federal withholding to make sure enough taxes are being taken out of your pay.

The average refund for 2009 was $2,887, up 8 percent from 2008. Even though the Making Work Pay Tax Credit lowered tax withholding rates in 2009 and 2010 for millions of American households, some workers and retirees still need to take steps to be sure enough tax is being taken out of their checks.

Certain folks should pay particular attention to their withholding. These include:

• Married couples with two incomes
• Individuals with multiple jobs
• Dependents
• Some Social Security recipients who work
• Workers who do not have valid Social Security numbers
• Retirees who receive pension payments

As was the case in 2009, taxpayers who wind up owing tax because too little was taken out of their paychecks during 2010 may qualify for special relief on a penalty that sometimes applies. Depending on their personal situation, some people could have less withheld from their paychecks than they need or want.

Failure to adjust withholding could result in potentially smaller refunds or, in limited instances, a taxpayer may owe tax rather than receive a refund next year.

An easy way to check how much you’ll owe this year is to use the 1040 Tax Calculator on our website. Or just give us a call and we’ll figure it out with you.

Do You Qualify for the EIC

Posted by Bruce Mc on Feb 12, 2010 in Credits, Exemptions, Filling Status, Form 1040 Information, Information | 0 comments

IRS TAX TIP 2010-22

They are really going after those who file for this credit and do not qualify. Make sure you really are eligable. Start by reading this IRS tax tip.

Be Sure to Know Whether You Qualify for the Earned Income Tax Credit 

The Earned Income Tax Credit, commonly referred to as EITC, can be a financial boost for working people adversely impacted by hard economic times. However, one in four eligible taxpayers could miss out on the credit because they don’t check it out. Here are the top 10 things the Internal Revenue Service wants you to know about this valuable credit, which has been making the lives of working people a little easier for 35 years.

1. Just because you didn’t qualify last year, doesn’t mean you won’t this year. As your financial, marital or parental situations change from year-to-year, you should review the EITC eligibility rules to determine whether you qualify.
2. If you qualify, it could be worth up to $5,657 this year. EITC not only reduces the federal tax you owe, but could result in a refund. The amount of your EITC is based on the amount of your earned income and whether or not there are qualifying children in your household. New EITC provisions mean more money for larger families.
3. If you qualify, you must file a federal income tax return and specifically claim the credit in order to get it – even if you are not otherwise required to file.
4. Your filing status cannot be Married Filing Separately.
5. You must have a valid Social Security Number. You, your spouse – if filing a joint return – and any qualifying child listed on Schedule EIC must have a valid SSN issued by the Social Security Administration.
6. You must have earned income. You have earned income if you work for someone who pays you wages, you are self-employed, you have income from farming, or – in some cases – you receive disability income.
7. Married couples and single people without kids may qualify. If you do not have qualifying children, you must also meet the age and residency requirements as well as dependency rules.
8. Special rules apply to members of the U.S. Armed Forces in combat zones. Members of the military can elect to include their nontaxable combat pay in earned income for the EITC. If you make this election, the combat pay remains nontaxable.
9. It’s easy to determine whether you qualify. The EITC Assistant, an interactive tool available on IRS.gov, removes the guesswork from eligibility rules. Just answer a few simple questions to find out if you qualify and estimate the amount of your EITC.
10. Free help is available at volunteer assistance sites and IRS Taxpayer Assistance Centers to help you prepare and claim your EITC. If you are preparing your taxes electronically, the software program you use will figure the credit for you. If you qualify for the credit you may also be eligible for Free File. You can access Free File at IRS.gov.

For more information about the EITC, see IRS Publication 596, Earned Income Credit. This publication – available in both English and Spanish – can be downloaded from IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).

Links:

• EITC Assistant
• Earned Income Tax Credit
• Publication 596, Earned Income Credit (EIC) (PDF 373K)
• Free File
• Tax Topic 601, Earned Income Credit

IRS info on EIC

Posted by Bruce Mc on Feb 8, 2010 in Exemptions, Filling Status, Information, Tax Preparation | 0 comments

IRS Marks EITC Awareness Day; Highlights Expanded Tax Credit

WASHINGTON — An expanded Earned Income Tax Credit (EITC) means larger families will qualify for a larger credit, offering greater relief for people who struggled through difficult financial times last year, the Internal Revenue Service said today.

The IRS and the Treasury Department marked EITC Awareness Day as their partners nationwide worked to highlight the availability of this important tax credit. EITC, which is in its thirty-fifth year, is one of the federal government’s largest benefit programs for working families and individuals. Last year, nearly 24 million people received $50 Billion in benefits. The average credit was more than $2,000.

“As part of the economic recovery efforts, there have been important changes to expand EITC to benefit taxpayers,” said IRS Commissioner Doug Shulman. “Today, more than ever, hard-working individuals and families can use a little extra help. EITC can make the lives of working people a little easier.”

Eligibility for EITC depends on earned income and family size, among other tests. However, single people and childless workers also are eligible, although for smaller amounts. For tax years 2009 and 2010, the American Recovery and Reinvestment Act created a new category for families with three or more children and expanded the maximum benefit for this category.

To qualify for the EITC, earned income and adjusted gross income (AGI) for individuals must each be less than:

• $43,279 ($48,279 married filing jointly) with three or more qualifying children
• $40,295 ($45,295 married filing jointly) with two qualifying children
• $35,463 ($40,463 married filing jointly) with one qualifying child
• $13,440 ($18,440 married filing jointly) with no qualifying children

The maximum credit for tax year 2009 is:

• $5,657 with three or more qualifying children
• $5,028 with two qualifying children
• $3,043 with one qualifying child
• $457 with no qualifying children

The maximum amount of investment income is $3,100 for tax year 2009. For families, there are also certain requirements for child residency and relationship that must be met. Additional eligibility information is available in FS-2010-11 and on the Web at IRS.gov/EITC.

Another new provision adds to the definition of a “qualifying child:” The child must be younger than the person claiming the child unless the child is totally and permanently disabled any time during the year. The child cannot have filed a joint return other than to claim a refund. Also new for 2009, if a qualifying child can be claimed by either a parent or another person, the other person must have an AGI higher than the parent in order to claim the child for EITC purposes.

Historically, one in four eligible taxpayers fails to claim the EITC, which is why the IRS and its free tax preparation partners host an annual EITC Awareness Day. This year, there are 68 news conferences being held around the country. Community coalitions and IRS partners nationwide also are also issuing 128 news releases, writing letters to the editor and using social media tools to spread the word about EITC.

Typically, people who fail to claim the EITC include workers without qualifying children, people whose earned income falls below the threshold required to file a tax return, farmers, rural residents, people with disabilities and nontraditional families such as grandparents raising grandchildren. People must file a tax return to claim the EITC.

Free help is available to EITC-eligible taxpayers. There are nearly 12,000 free tax preparation sites nationwide. People who want to prepare their own tax returns can visit Free File on IRS.gov. This free tax software and free electronic filing program will walk taxpayers through a question and answer format and help them claim the tax credits and deductions for which they are eligible.

EITC-eligible taxpayers also can seek assistance at the 400 IRS Taxpayer Assistance Centers nationwide. To assist EITC taxpayers, 167 IRS assistance centers will offer Saturday service on Jan. 30, Feb. 6 and Feb. 20.

There is an online EITC Assistant also available on IRS.gov which can help taxpayers and tax preparers determine eligibility. And, for tax preparers and IRS partners, there is EITC Central which has links to toolkits that include marketing products.

More than 65 percent of EITC returns are prepared by a third party. The IRS urges taxpayers to choose a reputable tax preparer to avoid problems that come with an inaccurate tax return. The agency also urges tax preparers to follow due diligence requirements when preparing an EITC tax return. More information is available at irs.gov/eitc.

Five Important Facts about Dependents and Exemptions

Posted by Bruce Mc on Jan 7, 2010 in Deductions, Exemptions, Filling Status, Form 1040 Information, Information | 0 comments

          When you prepare to file your 2009 tax return, there are two things that will factor into your tax situation: dependents and exemptions. Here, the IRS gives you five important facts that you should know about dependents and exemptions before you file your 2009 tax return.

1. If someone else claims you as a dependent, you may still be required to file your own tax return. Whether or not you must file a return depends on several factors, including the amount of your unearned, earned or gross income, your marital status, any special taxes you owe and, any advance Earned Income Tax Credit payments you received.
2. Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,650 on your 2009 tax return. Exemption amounts are reduced for taxpayers whose adjusted gross income is above certain levels, depending on your filing status.
3. If you are a dependent, you may not claim an exemption. If someone else – such as your parent – claims you as a dependent, you may not claim your personal exemption on your own tax return.
4. Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.
5. Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children. See IRS Publication 501, Exemptions, Standard Deduction, and Filing Information for additional tests to determine who can be claimed as a dependent.

         For more information on exemptions, dependents and whether or not you or your dependent needs to file a tax return, see IRS Publication 501. The publication is available on IRS.gov or can be ordered by calling 800-TAX-FORM (800-829-3676).

 
Links:

• IRS Publication 501, Exemptions, Standard Deduction, and Filing Information

This information was provided by the IRS via IRS TAX TIP 2010-04 copied and pasted here to reach more people.

Making Work Pay tax credit

Posted by Bruce Mc on May 4, 2009 in Exemptions, Filling Status, Form 1040 Information, News Flash, Stimulus payments, Tax Preparation | 0 comments

April 1^st was implementation day for the Making Work Pay tax credit, and it wasn’t an April Fool’s joke. The American Recovery and Reinvestment Act of 2009 (ARRA), Congress’ most recent effort to “stimulate” our economy, contains this new tax credit, which will affect everyone when filing your individual return. You may be able to take advantage of an income tax credit of as much as $400 ($800 for a married couple) on your personal tax return for the next two years.

The Making Work Pay tax credit served as centerpiece of the tax reduction provisions of the ARRA. President Obama strongly pursued its inclusion in the legislation because it would put money back into the pockets of working people. The annual tax credit (available in 2009 and 2010) is equal to 6.2% of earned income, to a maximum credit of $400 for an individual ($800 for a married couple filing jointly). The Key is “a maximum credit of $400 per working individual”. Dependants have no bearing on this.

Technically, taxpayers will receive the tax credit when they prepare and file their tax returns a year from now for 2009 (and then for 2010 the next year). However, practically speaking, taxpayers that receive wages from employment in 2009 will receive the tax credit in small increments throughout the year. How? The IRS in late February issued a new set of withholding tables structured to informally pay the amount of the tax credit over the course of the year by reducing required withholding amounts on payroll.

The Issue

The new withholding are designed to save employees roughly $10 per week for the rest of the year (40 weeks x $10 = a $400 tax credit). This isn’t working out for a lot of people.  Several of my clients have called me because they are having more taken out then the ten dollars, some are even getting as much as forty-three dollars more a week.

This is a problem and will affect refunds and or amount due/s. Why, because you aren’t having as much withheld, and tax tables on your income haven’t changed. Withholdings went down, not income tax on your earnings.

The IRS produced new withholding tables in February and asked employers to implement them by April 1. But, withholding tables are a blunt instrument, unable to precisely assess taxes for everyone’s unique situations. Employers who use the tables don’t know workers’ complete situation, such as whether an employee has a second job or is married to someone who also works. That means some workers will end up with more cash than they’re eligible for under the new credit.

Adjustments may have to be made by individuals to make sure they’re not over- or under-withheld.

Again, the lower withholding may cause some unwanted results for taxpayers with more than one job, two-earner married couples, and high-income taxpayers.

The Fix

The IRS is aware of this issue and warns taxpayers that they (individual taxpayers) are responsible for making sure their withholdings are correct. This means that you are ultimately responsible for making sure you have enough withheld from your checks using your form W-4.

The first thing you can do is make sure your employer has these new tables. The new tables and instructions are found in IRS Publication 15-T. The next thing to do would be to Contact your tax professional and discuss this with them.

If that isn’t a viable option you can contact me I will be glad to help.

Beware, though, because the credit is phased out as your adjusted gross income exceeds $75,000 for individuals ($150,000 for married couples filing jointly). If your income exceeds $95,000 ($190,000 for married couples filing jointly), then you will not be able to receive any benefit from the Making Work Pay tax credit.

Timing is everything, especially with taxes … and tax information.

The IRS has an online calculator that reflects the new stimulus act withholding tables to help you get your amount just right. Armed with your most recent tax return and paycheck stub, you can in 10 minutes or so fill in the required information and get instructions on filling out a new W-4. You should use the calculator now. Then again, later in the year to ensure your assumptions are on track (around the end of October). You can always make a tweak or adjustment with your very final paychecks for the year so you don’t have any penalty or big surprise.

If you don’t have the time to run through the calculator — it involves entering various tax-related figures, including expected credits and the like — there’s another way: Submit a new W-4 filled out the same way as your old form but with one exception: On line 6, add the extra dollar amount to be withheld from each paycheck. See Form W-4 on IRS site (PDF).

The easiest way might be to leave the number of allowances alone, see how much they’re reducing your withholding by and then on line 6 write in that you want them to withhold an extra amount.

But remember: That W-4 stays in effect until you file a new one. If you don’t want the same additional amount to be withheld starting in January, file a new W-4.

There’s a third option: Don’t worry about the credit now, and just wait until you file in 2010 to pay the bill.  Not recommended by me unless your checks are exactly $10.00 more per week.

Notes From the IRS

Posted by Bruce Mc on Feb 1, 2009 in Choosing a preparer, Deductions, Exemptions, Filling Status, Form 1040 Information, News Flash, Opinions, Preparer, Tax Preparation, Things forgotten | 2 comments