IRS info on EIC
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.
Itemizing deductions – Schedule A
Getting the Most out of Itemizing your deductions.
Itemizing deductions is an incredibly easy theory to understand, yet the strategies behind it all can be intricate and countless.
Free Quicken Online automatically categorizes your expenses.
The rule for when to itemize is simple = you do it if the total of your itemized deductions is greater than your standard deduction.
First of all, your tax is based on your “taxable income.” That’s your total income after you’ve subtracted above-the-line deductions like your Individual Retirement Account (IRA) or other qualified retirement-plan contributions, moving expenses or alimony payments, plus your personal exemption and either :
Your standard deduction or, Your itemized deductions.
Your itemized deductions are sometimes referred to as “below-the-line” deductions. (“adjusted gross income” -aka AGI- is “the line.”) Clearly, the more you can deduct, the less in tax you’ll owe.
Here are the standard deductions that apply to 2011 taxes:
|
Standard deductions for 2011 |
|
|
Filing Status |
Amount |
|
Married filing jointly or Qualifying Widow(er) |
$11,600 |
|
Single |
$5,800 |
|
Heads of households |
$8,500 |
|
Married couples filing separately |
$5,800 |
Some taxpayers must itemize, even if their deductions are less than the standard deduction. You must itemize your deductions if:
- You are married, filing separately, and your spouse itemizes.
- You are a U.S. citizen who can exclude income from U.S. possessions.
- You are a nonresident or dual-status alien.
- You file a short-period return because of a change in your accounting period.
- There are eight sections On Schedule A. Seven of which are itemized expenses that you can deduct on your taxes:
Taxes. These include state and local income taxes, property taxes on real estate, intangible taxes (on the value of stocks and bonds you own) and on personal property taxes on such things as cars.
Interest expenses. For most people, these are limited to home mortgage interest, points (interest that’s prepaid to buy a home), and some interest on investments and education expenses. For most taxpayers, the mortgage deduction is what lets them itemize. If you take out a 30-year, $140,000 mortgage at 6%, you will generate about $8,350 in deductible interest in the first year.
- See also my Fair Market Value Guide. (recently updated for 2010 filing)
Job & Misc. Expenses
Other Misc. Deductions
Total Deductions
The key, then, is to maximize the value of your itemized deductions. Here’s where planning can put dollars in your pocket. Ask your Tax preparer a list of deductions to see What You Can Itemize.
Dealing with the floors
Some itemized deductions — including medical expenses or miscellaneous deductions such as investment expenses, safe deposit fees, professional education, employee job-hunting expenses and tax-preparation fees — are not allowed until they exceed a certain “floor” amount.
The toughest floor to exceed is medical expenses. No medical expenses are allowed as itemized deductions except for the amount that exceeds 7.5% of your adjusted gross income. That means if you have an adjusted gross income of $100,000, the first $7,500 of your medical expenses doesn’t count. But sometimes, elective medical expenses can be accelerated or even deferred. Orthodontia payments for you or your dependents can often be extended. They always can be accelerated. These expenses are deducted in the year they are paid, not necessarily in the year the service is rendered.
If you can already pass the 7.5% test for allowable expenses or these expenses would put you over the minimum hurdle, you should consider accelerating them. If you lack the cash, consider charging the expenses.
On credit card charges, you are allowed the deduction in the year of the charge, not in the year that the charge is paid off.
Don’t automatically accelerate if it puts you over the 7.5% floor. Remember, your total itemized deductions must exceed your standard deduction before you get any real additional benefit from any of them. Allowable medical expenses are just one component of the package.
If you don’t exceed the 7.5% floor or your total itemized deductions don’t exceed your standard deduction this year, you should consider deferring your payments or any elective medical procedures. You get the use of the money — and any investment returns. In any case, you may be able to use the deductions in the subsequent year when you revisit the itemization question.
Miscellaneous itemized expenses are also deductible only after they exceed a minimum floor. In this case, it’s 2% of your adjusted gross income. So, with an adjusted gross income of $100,000, your first $2,000 of miscellaneous itemized deductions won’t count.
But here again, many of these deductions can be either accelerated or deferred. Miscellaneous itemized deductions such as those mentioned above often can be paid in the year of your choice. Many of my clients send my tax-preparation fees to me on Dec. 31 in order to get the deduction in the year the check was mailed. I don’t get the income until I receive the check — in the new year.
The rule here is the same as with medical expenses. First, qualify the expenses to be included in the deductible pot. Then, only if you expect to itemize, accelerate. If not, defer.
Interest and tax payments
Some interest and tax payments can be handled in the same way.
Let’s look at the interest you are paying. Your January payment on your mortgage includes the interest you accrued for December of the previous year.
Example: By making your January 2012 payment on Dec. 31, 2011, you have accelerated a full month’s interest deduction into 2011.
In the 25% bracket for 2011 on a $1,000 interest payment, that saves you an immediate $250 on April 15, 2012. By doing that each year, you have created an interest-free loan of that $250 in perpetuity or at least until the loan is paid off.
Unfortunately, you can’t prepay two or three months in advance because the interest deduction must relate to the year the money was used. But your Dec. 31, 2011 payment will be for the use of the money during December 2011.
You can accelerate some tax payments as well. If you don’t pay your real-estate tax in your mortgage, you have the opportunity to accelerate your real-estate tax payments. I am billed in the 4th quarter of my real-estate taxes January of the following year. But I actually make my payment on Dec. 31 of the previous year. The technique is the same with estimated state income tax payments. I make my estimated state income tax payment, due in January in December.
Any voluntary expenditure can be accelerated or deferred. Your gifts to charity are the best example. Whether your $1,000 pledge to your church or synagogue is sent on Dec. 31, 2011 or Jan. 1, 2012 makes little difference to the charity receiving the money. However, in the 25% bracket for 2011, it can make a $250 difference to your tax bill — but again, only if your total itemized deductions exceed your standard deduction.
Personally, if I can qualify for itemizing my taxes, I want to accelerate my tax savings.
And my favorite quotes fits here:
“Not everything that counts can be counted, and not everything that can be counted counts”. – Albert Einstein
Some Commonly Overlooked Small Business Deductions
Written by: Courtney Phillips
In the current economic climate, it is no surprise that people are looking for ways to save on their taxes. Over the last several years, many people have begun to telecommute, freelance, or work from home. These people often do not realize that there are many things that can be deducted from taxes as an independent contractor. Other small business owners may not realize what is deductible and what is not.
Whether you do your taxes on your own or use a tax professional to help you through the filing process, look into whether or not some of the following commonly overlooked small business deductions apply to your situation.
Office Space – If you have a dedicated office space in your home, you may be able to deduct the value of the square footage. There are some requirements that your office must meet, like being strictly used for business purposes.
Gift Deductions – Perhaps you have donated goods or services at some point throughout the last tax year. These gifts are often tax-deductible, so keep track of donations and gifts.
Office Supplies – Office supplies that are necessary to the functionality of your office and business can be tax-deductible. Make sure that you keep meticulous records of what you purchase for your office so that money can be accounted for later on down the road.
Communications – Office lines, dedicated cell phones, fax lines, and internet connections may all be tax-deductible, depending on your situation. These types of services are often necessary for operating a successful business and can give you a much-needed break come tax time.
Equipment – Purchasing new office equipment and other items needed to perform the tasks related to your business are generally tax-deductible as well. If you need to buy external hard drives, printers, or other hardware, keep track of your spending.
Professional Organizations, Memberships, and Fees – These things are all commonly overlooked tax deductions. If you belong to a particular group, subscribe to a trade journal, or keep memberships in order to meet with and entertain clients, you may be able to deduct these expenses as well.
Talk with a tax professional, like Bruce or visit www.irs.gov for more information regarding tax guidelines for business deductions.
This post was contributed by Courtney Phillips, who writes about how to obtain bachelors degree online (Bachelors Degree Online). She invites and welcomes your feedback at CourtneyPhillips80 at gmail.com
Be sure to check out the Carnival of Pecuniary Delights No. 1: The Madoline Hatter Pecuniary Art Edition. it is a must read for us all.
Are Credit Card Statements Sufficient Documentation for the IRS?
Written By: Steve Sildon
For those running small or home-based businesses, you may have gotten in the habit of using a credit card to charge items for your business. The nice thing about using a credit card, especially a small business credit card, is that card issuers typically provide year-end expense statements that itemize and categorize expenses, nicely and neatly. Especially at tax time, this is a nice feature for a credit card to have.
There is some confusion, however, for some small business owners about what constitutes legitimate documentation for tax purposes on their business expense deductions. Simply put, is your credit card statement good enough to document your business expenses for the IRS? If you’ve been convinced that using your credit card statements as proof enough for your business tax deductions, depending on who you ask, you just might be in for a rude awakening at tax time-even if you e-file.
Regarding business expenses, some tax preparers implore their clients to always save hard copies of their receipts, no matter what, of all their “ordinary and necessary” business expenses as proof of these expense deductions. Other tax preparers indicate that merely keeping your credit card statements, in most cases, should be satisfactory enough.
In fact, both may be right. To be safe, keeping hard copies of the actual receipts (preferably with notes about the specific purchase on the back of the receipt) is the safest and most defensible approach that you can take. Using just your credit card statements for documentation is generally not a good idea for a few reasons, but having them is certainly far better than having no documentation at all. In fact, in certain circumstances, credit card statements might just be enough proof. The IRS has warned tax professionals and businesses alike, however, that, at the very least, you’ll also have to have additional supporting documentation on top of the card statement itself to prove your tax deduction.
In some cases, your credit card statement might simply be the only documentation that you have, specifically for merchants and vendors ordered from online or by telephone where written order confirmations were not provided. In that case, you should keep your own notes and records about those purchases in your files, including the dates, the credit card used for the transaction, the items purchased, and the vendor used.
The IRS requires that any legitimate expense qualifying as deductible for your business must be “both ordinary and necessary.” An ordinary expense is one that is “common and accepted” in your specific trade or business type and a necessary expense is one that is also “helpful and appropriate” for your trade or business. Having an expense item on a card statement for purchases made at Staples, Office Depot or any local office supply store doesn’t automatically qualify the purchase as a legitimate business expense. That’s simply not proof enough. As far as the IRS is concerned, you could have easily just loaded up on iPod accessories, stereo equipment or video games (all of which are sold at Staples, Office Depot). The IRS suggests that business owners keep all the original store receipts that itemize the details of the items purchased. Ideally, the receipts should also have notes on the receipt indicating the business purpose for the items as well.
Scanning the receipts and storing them on a computer is another method that the IRS says is OK, but IRS knows about and fully understands the ease with which these digital files can be manipulated. If you are audited by the IRS and you show up with scanned images of your receipts, they will assuredly test their authenticity by cross-checking some of the scanned receipts with the original copies of the same receipts.
Another legitimate concern of business owners is fading that occurs on the original receipt paper, a fairly common occurrence. In addition to scanning the receipts, you can also make copies and file them alongside (or stapled to) the original receipts for your records as added insurance for record-keeping purposes.
While saving credit card receipts is preferred and certainly the most defensible method, there are instances, however, when a credit card statement will suffice. For example, many small business owners who take out their customers for coffee, meals or other entertainment purposes might not have all of their actual receipts because of disorganization or simply because they might have misplaced or even lost some of these receipts. Just because you’ve lost receipts does not mean that you cannot legitimately deduct them as business expenses. If you have a car expense or vehicle mileage log that tracks your mileage and vehicle expense items or an entertainment expense item log, you can use those as supporting documentation for the items in question on your credit card statement. To be legitimate and verifiable, however, business owners will need to verify who, what, why, where and how the items in question were purchased. What was the specific item? Where was it purchased? With whom and for what purpose were the items purchased? If you can provide answers to those questions and support it with documentation, you can legitimately expense the items.
The bottom line is that, as a business owner, you should make it a general practice to save all of your credit card receipts, no matter what. There’s no doubt that the physical receipt is the most ideal and simply the best evidence that you can provide for legitimizing any expense. In some instances, however, you just might not have a hard copy of the actual receipt. You can legitimately deduct these items in question, but if, and only if, you can provide sufficient supporting documentation in lieu of an actual receipt for items that you purchased.
Steve Sildon is a Senior Contributing Editor for Credit Card Assist. Steve writes about a wide variety of personal finance and credit-related topics, including credit cards, debt consolidation and credit repair.
Be sure to check out the Carnival of Pecuniary Delights No. 1: The Madoline Hatter Pecuniary Art Edition. it is a must read for us all.
The Truth About Paying Fewer Taxes.
I read a lot about the taxing world. Often I am searchingto find books to recommend to my clients to give them a better understanding how a tax return works and what is needed to make it work best and what they can do to minimize their liability. The Truth About Paying Fewer Taxes is by far the best book I have ever come across to accomplish just that.
The Truth About Paying Fewer Taxes is a book with “52 Truths” about taxes. It plainly answers questions like ”do you have to file?”, to “when?”, to figuring out just what is taxable all the way through to retirement. Also covering Compliance, Audits, and Special Tax Situations The Truth About Paying Fewer Taxes will give you a better understanding of taxes, thus giving you what you need to cut your taxes.
The Truth About Paying Fewer Taxes, is a book written by Kay Bell. Kay is a fellow tax blogger (Don’t Mess With Taxes, Taxes: Eye on the IRS), She helped create Bankrate.com’s tax channel and continues to be a major contributor to Bankrate’s Tax Guide. I have had occasion to talk with Kay on the phone, and I communicate regularly with her via Twitter.
Kay’s writing is beautiful and gentile, like reading a great novel.
You can see a full list of the 52 truths just by looking at Barnes and Nobel’s Feature tab for The Truth About Paying Fewer Taxes Each one of the truths is explained in detail and in plain language, so you can save money and understand why you’re saving money.
I have been recommending this book to every one of my clients, and will continue to do so from now on.
I have a signed copy (yes, signed by Kay Bell the author) of The Truth About Paying Fewer Taxes and will be giving it away here.
How to enter:
Each of the following will count as one entry for a chance to win.
Please read the Contest Terms below.
ü Leave a comment on this post stating how you prepared or will prepare your taxe return. (self, fast-food chain, CPA, software, free-file, Other-please describe)
ü Subscribe to my RSS feed and leave a comment below to let me know you did so, or
ü Subscribe to my email feed leave a comment here using the same email address with which you subscribed. (this will gain you two entries for the drawing)
ü Blog about this contest and link back here from your blog. (Leave me a comment and link to your blog post here to let me know.)
ü Follow me on twitter – @bruce_taxguy. Leave a comment here with your twitter username.
ü Tweet about this contest and leave a comment to let me know you did so.
Bonus Entries: Leave comments on other posts on this blog. If you’re new to taxguy, visit earlier posts. The comment(s) must show some thought and not just “I agree” or “Great idea.” Come back to this post and let me know which post(s) you commented on. Each approved comment will gain you an additional entry.
Contest Terms
Ø The contest begins now and ends at 11:59PM EST on March 17th, 2009. Comments to this post will be closed at that time.
Ø 1 winner will be randomly selected using a random integer generator at random.org.
Ø I will contact the winner via the email address used to comment here.
Ø The winner will have 3 days to respond with necessary contact information for mailing prize. (I will send a 2nd notification email after 2 days if we have not heard back.)
Ø If the winner does not respond after 4 days, a new winner will be selected from remaining entrants.
Prize Terms
While I will do my best to ensure proper delivery of the winners autographed copy of The Truth About Paying Fewer Taxes, I am not liable for non-delivery due to:
v Incorrect mailing and contact information provided by the winner
v Loss or error on the part of the postal service or delivery personnel
v Any other matter beyond my control
Information you need
Released – January 14, 2009
Affiliate Marketers, Bloggers and eBay Sellers Worried about Understanding and Paying Taxes on Online Income
Ebiz Tax Tips Owner Kristine McKinley Seeks to Remedy Situation by Offering Tax Consulting, Planning and Preparation Services to Address the Unique Tax Needs of Online Business Owners
With the economy in recession and layoffs increasing, millions of Americans are turning to the Internet to earn extra income, some even replacing their full-time jobs with businesses created solely online. The web has seen a huge increase in bloggers, eBay sellers, affiliate marketers, service providers and other online businesses in the last year.
Online business owners are seeking help in understanding the tax rules regarding online income, including questions such as:
Ø How do I report my online or 1099 income?
Ø What expenses can I deduct?
Ø What is the best business structure for my company?
Ø Do I need to make estimated tax payments?
Ø How can I minimize the taxes I pay on my online income?
Many bloggers, eBay sellers and affiliate marketers would like to use a tax professional for help answering these questions. Yet, not many tax professionals understand online businesses. As a result, most online business owners turn to the Internet for tax advice. But that can be dangerous, and most online business owners want advice from a tax professional who understands online businesses rather than from a forum.
According to Kristine McKinley, founder of Ebiz Tax Tips, online business owners want tax advice, but can’t find tax professionals who are familiar with PayPal, shopping carts, eBay reports and other items that are unique to online businesses. The result is that many online business owners are not getting the advice they seek, and many are overpaying their taxes simply because they don’t know what expenses they can deduct and other strategies they can use to minimize their taxes.
In an effort to help online business owners better understand the unique tax needs of their businesses Ebiz Tax Tips offers tax advice for U.S. taxpayers who have income earned from online businesses such as eBay, blogging, affiliate marketing, etc. Options for Kristine McKinley’s clients include tax preparation, tax planning, and tax consultations.
Kristine McKinley, a CPA, Certified Financial Planner and founder of Ebiz Tax Tips, has been providing tax preparation and advice to individuals and small business owners for 15 years. For articles, reports, ebooks, teleclasses and other resources please visit www.internetbiztaxtips.com.
Be sure to catch this Pod cast featuring Kristine. eBay Tax Expert - Kristine McKinley.
Contact: Kristine McKinley, CFP, CPA
816-739-4853
kristine@internetbiztaxtips.com
Make sure to enter contest at Pecuniarities to win a free subscription to the WSJ.
Get up to 20% Off QuickBooks Accounting Software Products + Free Shipping
Next post scheduled for 02/01/2009
Prepare your taxes on-line With L & R Tax Preparation
L & R Tax Preparation
Tax Preparation, Payroll, and Accounting,
Including online services.
E=MC2 or use QuickBooks
