IRS Offers Tips to Reduce Big Refunds and Prevent Tax Bills

Posted on September 6, 2016 by FCA Admin

Issue Number:    IRS Summertime Tax Tip 2012-22

Inside This Issue

The Internal Revenue Service reminds taxpayers that it’s not too late to adjust their 2015 tax withholding to avoid big tax refunds or tax bills when they file their tax return next year.

Taxpayers should act soon to adjust their tax withholding to bring the taxes they must pay closer to what they actually owe and put more money in their pocket right now.

Most people have taxes withheld from each paycheck or pay taxes on a quarterly basis through estimated tax payments. Each year millions of American workers have far more taxes withheld from their pay than is required. Many people anxiously wait for their tax refunds to make major purchases or pay their financial obligations. The IRS encourages taxpayers not to tie major financial decisions to the receipt of their tax refund – especially if they need their tax refund to arrive by a certain date.

Here is some information to help bring the taxes you pay during the year closer to what you will actually owe when you file your tax return.

Employees 

  • New Job. When you start a new job your employer will ask you to complete Form    W-4, Employee’s Withholding Allowance Certificate. Your employer will use this form to figure the amount of federal income tax to withhold from your paychecks. Be sure to complete the Form W-4 accurately.
  • Life Event. You may want to change your Form W-4 when certain life events happen to you during the year. Examples of events in your life that can change the amount of taxes you owe include a change in your marital status, the birth of a child, getting or losing a job, and purchasing a home. Keep your Form W-4 up-to-date.

You typically can submit a new Form W–4 at anytime you wish to change the number of your withholding allowances. However, if your life event results in the need to decrease your withholding allowances or changes your marital status from married to single, you must give your employer a new Form W-4 within 10 days of that life event.

Self-Employed

  • Form 1040-ES. If you are self-employed and expect to owe a thousand dollars or more in taxes for the year, then you normally must make estimated tax payments to pay your income tax, Social Security and Medicare taxes. You can use the worksheet in Form 1040-ES, Estimated Tax for Individuals, to find out if you are required to pay estimated tax on a quarterly basis. Remember to make estimated payments to avoid owing taxes at tax time.

Publication 505, Tax Withholding and Estimated Tax, has information for employees and self-employed individuals, and also explains the rules in more detail. The forms and publication are available at IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676). 
Links:

  • Form W-4, Employee’s Withholding Allowance Certificate
  • Form 1040-ES, Estimated Tax for Individuals
  • Form W-4P, Withholding Certificate for Pension or Annuity Payments
  • Publication 505, Tax Withholding and Estimated Tax

 

Note. From Issue Number: IRS Tax Tip 2012-22. Copyright 2013 by Copyright Holder. Reprinted with permission.

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Rent or buy? You decide.

Posted on March 3, 2016 by FCA Admin

These days the buzz word is that it’s a great time to buy. But deciding whether to rent or buy is an individual decision that should be considered on a case by case basis.  It is not wise to buy just because someone tells you that it’s a great time to buy. 

What are some of the factors to consider?

  • Your income and expenses.  This is number one on my list. 
  • Falling equity in current homes. Homes are losing and continue to lose their value. 
  • Rent is cheaper: In most cases this is true. Renters do not have to pay for property tax or home insurance.
  • Benefits of home ownership: There are many benefits such as building equity and tax breaks.

Some smart moves to make right now:

If you’re still unsure of what to do, consider using a mortgage calculator to help you determine the costs of home ownership.  Bankrate.com has great calculators that can help you with this assessment.  Another option is to consider the price to rent ratio.  This is determined by dividing the price of  a home by the annual rent you’d pay on a comparable home.  If your answer is 15 or higher, than it is better to rent.

What are your thoughts?

 

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Paying Debt versus Saving

Posted on February 21, 2016 by FCA Admin

During the current economic crisis, many people find themselves wondering whether it is more important to pay down debt versus building up a savings account balance.  Some of the top financial experts are recommending that people build up their savings versus paying down debt.  Suze Orman recently recommended that people build up their savings and pay the minimum balance on credit cards.  Does this make any sense to you?  Well, let’s look at it from another viewpoint.  Credit Card companies have changed many of their terms without notifying card holders.  Some are reducing credit limits and even canceling accounts.  Many people believe that they should pay the credit card debt.  Then in case of an emergency, they can use the balance remaining on the credit card.  During this current recession, you can’t really depend on credit cards any more.  And that’s why it is recommended that you save first and then pay the minimum on your credit card balance.  See the link below for Suze’s expert advice.

http://www.suzeorman.com/igsbase/igstemplate.cfm?SRC=SP&SRCN=suzescoop&GnavID=1&SnavID=134&NewsID=177

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New IRS YouTube Video – How to Check on Your Refund

Posted on January 21, 2016 by FCA Admin

 

Issue Number:    Special Edition IRS Tax Tip 2013-06

 

With the April 15 tax filing deadline approaching, the Internal Revenue Service created a new YouTube video to provide taxpayers more details and tips to check on their tax refund.

The new video How to Use the Where’s My Refund? Tool  offers in-depth information about how the redesigned “Where’s My Refund” tool on IRS.gov works. The IRS’s previous refund YouTube video When Will I Get My Refund? has already received more than 750,000 views. The IRS expects this video will also be a helpful resource for taxpayers.

The IRS issues more than nine out of 10 refunds to taxpayers in less than 21 days. Even though the IRS issues most refunds in less than 21 days, some tax returns will require additional review and take longer.

The refund video released today is one of several YouTube videos the IRS created to help taxpayers navigate this year’s filing season. Other top videos that help people prepare their tax returns or resolve tax problems include:

The IRS YouTube channels offer short, informative videos in English, American Sign Language and other languages. IRS currently has more than 100 videos, which already have more than 4 million views.

 

 

 

 

Note. From Issue Number: IRS Tax Tip 2013-06.  Copyright 2014 by Copyright Holder. Reprinted with permission.

 

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Preparing for Tax Season

Posted on December 3, 2015 by FCA Admin

Tax season is upon us.  My personal belief is that preparation is key to making it through tax season.  Many people become overwhelmed by all of the forms and deadlines.  Well, to help you get organized for this tax season, I offer these simple tips:

 

  • Locate a copy of your prior year return: This is really important in the event that you or your tax preparer wants to compare how you filed last year.  For example, did you claim a deduction last year that you are not claiming this year?  Did your filing status change?  If you aren’t able to locate a copy of last year’s return, the IRS keeps transcripts of prior year returns. Transcripts are free of charge.  Obtaining them is as simple as picking up the phone and making the call or completing Form 4506-T, Request for Tax Return Transcript.  This form can be downloaded from the IRS website, http://www.irs.gov/pub/irs-pdf/f4506t.pdf.
  • Create checklist for expected tax forms:  If you receive multiple forms such as W2s or 1099s etc. a checklist will be really helpful in helping you to stay organized.  The checklist can be as simple as a list using pen and paper or as technical as using an Excel Spreadsheet.  My personal favorite is the Microsoft Money Software.  The software has a feature that allows you to organize all of your accounts so that you know which accounts to expect a form for. Additionally, many companies now offer you to option to receive your tax forms online.  Check with your bank or brokerage to see if this is an option for you. 

If you are not eligible for Free File, decide if you will file your taxes electronically, use a professional tax preparer, or use the paper form.   Bankrate.com has a great site on current tax topics to help you prepare for this tax season.  Visit the site at http://www.bankrate.com/brm/news/news_taxes_home.asp.

  • Use Direct Deposit:   If you are expecting a refund this year, direct deposit is the way to go.  In many instances you will receive your refund faster than if it had elected to receive a check in the mail.  To indicate that you want to receive direct deposit, simply fill in the direct deposit section on your tax form with your banking information. 
  • Research deductions and Credits:   By researching these ahead of time, you are putting yourself ahead of the game. You will have a better idea of which ones you qualify for.  For more information on this topic, visit the Bankrate.com website, http://www.bankrate.com/brm/news/news_taxes_home.asp.

 

 

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Deducting Moving Expenses

Posted on May 18, 2015 by FCA Admin

Issue Number:    IRS Summertime Tax Tip 2014-20

Inside This Issue

If you move because of your job, you may be able to deduct the cost of the move on your tax return. You may be able to deduct your costs if you move to start a new job or to work at the same job in a new location. The IRS offers the following tips about moving expenses and your tax return.

In order to deduct moving expenses, your move must meet three requirements:

1. The move must closely relate to the start of work.  Generally, you can consider moving expenses within one year of the date you start work at a new job location. Additional rules apply to this requirement.

2. Your move must meet the distance test.  Your new main job location must be at least 50 miles farther from your old home than your previous job location. For example, if your old job was three miles from your old home, your new job must be at least 53 miles from your old home.

3. You must meet the time test.  After the move, you must work full-time at your new job for at least 39 weeks the first year. If you’re self-employed, you must meet this test and work full-time for a total of at least 78 weeks during the first two years at the new job site. If your income tax return is due before you’ve met this test, you can still deduct moving expenses if you expect to meet it.

See Publication 521, Moving Expenses, for more information about these rules. It’s available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

If you can claim this deduction, here are a few more tips from the IRS:

  • Travel.  You can deduct transportation and lodging expenses for yourself and household members while moving from your old home to your new home. You cannot deduct your travel meal costs.
  • Household goods and utilities.  You can deduct the cost of packing, crating and shipping your things. You may be able to include the cost of storing and insuring these items while in transit. You can deduct the cost of connecting or disconnecting utilities.
  • Nondeductible expenses.  You cannot deduct as moving expenses any part of the purchase price of your new home, the cost of selling a home or the cost of entering into or breaking a lease. See Publication 521 for a complete list.
  • Reimbursed expenses.  If your employer later pays you for the cost of a move that you deducted on your tax return, you may need to include the payment as income. You report any taxable amount on your tax return in the year you get the payment.
  • Address Change.  When you move, be sure to update your address with the IRS and the U.S. Post Office. To notify the IRS file Form 8822, Change of Address.

Premium Tax Credit – Changes in Circumstances.  If you purchased health insurance coverage from the Health Insurance Marketplace, you may receive advance payment of the premium tax credit in 2014. It is important that you report changes in circumstances, such as when you move to a new address, to your Marketplace. Other changes that you should report include changes in your income, employment, family size, or eligibility for other coverage. Advance credit payments provide premium assistance to help you pay for the insurance you buy through the Marketplace. Reporting changes will help you get the proper type and amount of premium assistance so you can avoid getting too much or too little in advance.

Additional IRS Resources:

IRS YouTube Videos:

IRS Podcasts:

 

Note. From Issue Number: IRS Tax Tip 2014-20.  Copyright 2014 by Copyright Holder. Reprinted with permission.

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Six Tips for People Who Owe Taxes

Posted on April 18, 2015 by FCA Admin

Issue Number:    IRS Summertime Tax Tip 2014-18

 Inside This Issue

While most people get a refund from the IRS when they file their taxes, some do not. If you owe federal taxes, the IRS has several ways for you to pay. Here are six tips for people who owe taxes:

1. Pay your tax bill.  If you get a bill from the IRS, you’ll save money by paying it as soon as you can. If you can’t pay it in full, you should pay as much as you can. That will reduce the interest and penalties charged for late payment. You should think about using a credit card or getting a loan to pay the amount you owe.

2. Use IRS Direct Pay.  The best way to pay your taxes is with the IRS Direct Pay tool. It’s the safe, easy and free way to pay from your checking or savings account. The tool walks you through five simple steps to pay your tax in one online session. Just click on the ‘Pay Your Tax Bill’ icon on the IRS home page.

3. Get a short-term extension to pay.  You may qualify for extra time to pay your taxes if you can pay in full in 120 days or less. You can apply online at IRS.gov. If you received a bill from the IRS you can also call the phone number listed on it. If you don’t have a bill, call 800-829-1040 for help. There is usually no set-up fee for a short-term extension.

4. Apply for a monthly payment plan.  If you owe $50,000 or less and need more time to pay, you can apply for an Online Payment Agreement on IRS.gov. A direct debit payment plan is your best option. This plan is the lower-cost, hassle-free way to pay. The set-up fee is less than other plans. There are no reminders, no missed payments and no checks to write and mail. You can also use Form 9465, Installment Agreement Request, to apply. For more about payment plan options visit IRS.gov.

5. Consider an Offer in Compromise.  An Offer in Compromise lets you settle your tax debt for less than the full amount that you owe. An OIC may be an option if you can’t pay your tax in full. It may also apply if full payment will cause a financial hardship. You can use the OIC Pre-Qualifier tool to see if you qualify. It will also tell you what a reasonable offer might be.

6. Change your withholding or estimated tax.  You may be able to avoid owing the IRS in the future by having more taxes withheld from your pay. Do this by filing a new Form W-4, Employee’s Withholding Allowance Certificate, with your employer. The IRS Withholding Calculator on IRS.gov can help you fill out a new W-4. If you have income that’s not subject to withholding you may need to make estimated tax payments. See Form 1040-ES, Estimated Tax for Individuals for more on this topic.

To find out more see Publication 594, The IRS Collection Process. You can get this booklet on IRS.gov. You may also call 800-TAX-FORM to get it by mail.

Additional IRS Resources:

IRS YouTube Videos:

IRS Podcasts:

Note. From Issue Number: IRS Tax Tip 2014-18.  Copyright 2014 by Copyright Holder. Reprinted with permission.

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Five Basic Tax Tips about Hobbies

Posted on March 18, 2015 by FCA Admin

Issue Number:    IRS Summertime Tax Tip 2014-15

Inside This Issue

Millions of people enjoy hobbies that are also a source of income. Some examples include stamp and coin collecting, craft making, and horsemanship.

You must report on your tax return the income you earn from a hobby. The rules for how you report the income and expenses depend on whether the activity is a hobby or a business. There are special rules and limits for deductions you can claim for a hobby. Here are five tax tips you should know about hobbies:

1. Is it a Business or a Hobby?  A key feature of a business is that you do it to make a profit. You often engage in a hobby for sport or recreation, not to make a profit. You should consider nine factors when you determine whether your activity is a hobby. Make sure to base your determination on all the facts and circumstances of your situation. For more about ‘not-for-profit’ rules see Publication 535, Business Expenses.

2. Allowable Hobby Deductions.  Within certain limits, you can usually deduct ordinary and necessary hobby expenses. An ordinary expense is one that is common and accepted for the activity. A necessary expense is one that is appropriate for the activity.

3. Limits on Hobby Expenses.  Generally, you can only deduct your hobby expenses up to the amount of hobby income. If your hobby expenses are more than your hobby income, you have a loss from the activity. You can’t deduct the loss from your other income.

4. How to Deduct Hobby Expenses.  You must itemize deductions on your tax return in order to deduct hobby expenses. Your expenses may fall into three types of deductions, and special rules apply to each type. See of Publication 535 for the rules about how you claim them on Schedule A, Itemized Deductions.

5. Use IRS Free File.  Hobby rules can be complex and IRS Free File can make filing your tax return easier. IRS Free File is available until Oct. 15. If you make $58,000 or less, you can use brand-name tax software. If you earn more, you can use Free File Fillable Forms, an electronic version of IRS paper forms. Free File is available only through the IRS.gov website.

For more on these rules see Publication 535. You can get it on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Additional IRS Resources:

Note. From Issue Number: IRS Tax Tip 2014-15.  Copyright 2014 by Copyright Holder. Reprinted with permission.

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Job Hunting Expenses

Posted on February 18, 2015 by FCA Admin

Issue Number:   IRS Summertime Tax Tip 2014-14

Inside This Issue

 

Many people change their job in the summer. If you look for a new job in the same line of work, you may be able to deduct some of your job hunting costs.

Here are some key tax facts you should know about if you search for a new job:

  • Same Occupation.  Your expenses must be for a job search in your current line of work. You can’t deduct expenses for a job search in a new occupation.
  • Résumé Costs.  You can deduct the cost of preparing and mailing your résumé.
  • Travel Expenses.  If you travel to look for a new job, you may be able to deduct the cost of the trip. To deduct the cost of the travel to and from the area, the trip must be mainly to look for a new job. You may still be able to deduct some costs if looking for a job is not the main purpose of the trip.
  • Placement Agency. You can deduct some job placement agency fees you pay to look for a job.
  • First Job.  You can’t deduct job search expenses if you’re looking for a job for the first time.
  • Work-Search Break.  You can’t deduct job search expenses if there was a long break between the end of your last job and the time you began looking for a new one.
  • Reimbursed Costs.  Reimbursed expenses are not deductible.
  • Schedule A.  You usually deduct your job search expenses on Schedule A, Itemized Deductions. You’ll claim them as a miscellaneous deduction. You can deduct the total miscellaneous deductions that are more than two percent of your adjusted gross income.
  • Premium Tax Credit.  If you receive advance payment of the premium tax credit in 2014 it is important that you report changes in circumstances, such as changes in your income or family size, to your Health Insurance Marketplace. Advance payments of the premium tax credit provide financial assistance to help you pay for the insurance you buy through the Health Insurance Marketplace. Reporting changes will help you get the proper type and amount of financial assistance so you can avoid getting too much or too little in advance.

For more on job hunting refer to Publication 529, Miscellaneous Deductions on IRS.gov. You can also call 800-TAX-FORM (800-829-3676) to get it by mail.

Additional IRS Resources:

IRS YouTube Videos:

IRS Podcasts:

 

Note. From Issue Number: IRS Tax Tip 2014-14.  Copyright 2014 by Copyright Holder. Reprinted with permission.

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Vacation Home Rentals

Posted on January 18, 2015 by FCA Admin

Issue Number:    IRS Summertime Tax Tip 2014-13

Inside This Issue

If you rent a home to others, you usually must report the rental income on your tax return. But you may not have to report the income if the rental period is short and you also use the property as your home. In most cases, you can deduct the costs of renting your property. However, your deduction may be limited if you also use the property as your home. Here is some basic tax information that you should know if you rent out a vacation home:

  • Vacation Home.  A vacation home can be a house, apartment, condominium, mobile home, boat or similar property.
  • Schedule E.  You usually report rental income and rental expenses on Schedule E, Supplemental Income and Loss. Your rental income may also be subject to Net Investment Income Tax.
  • Used as a Home.  If the property is “used as a home,” your rental expense deduction is limited. This means your deduction for rental expenses can’t be more than the rent you received. For more about these rules, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes).
  • Divide Expenses.  If you personally use your property and also rent it to others, special rules apply. You must divide your expenses between the rental use and the personal use. To figure how to divide your costs, you must compare the number of days for each type of use with the total days of use.
  • Personal Use.  Personal use may include use by your family. It may also include use by any other property owners or their family. Use by anyone who pays less than a fair rental price is also personal use.
  • Schedule A.  Report deductible expenses for personal use on Schedule A, Itemized Deductions. These may include costs such as mortgage interest, property taxes and casualty losses.
  • Rented Less than 15 Days.  If the property is “used as a home” and you rent it out fewer than 15 days per year, you do not have to report the rental income.
  • Use IRS Free File.  If you still need to file your 2013 tax return, you can use IRS Free File to make filing easier. Free File is available until Oct. 15. If you make $58,000 or less, you can use brand-name tax software. If you earn more, you can use Free File Fillable Forms, an electronic version of IRS paper forms. Free File is available only through the IRS.gov website.

Publication 527 is available on IRS.gov. You can also call 800-TAX-FORM (800-829-3676) to get it by mail.

Additional IRS Resources:

IRS YouTube Videos:

IRS Podcasts:

Note. From Issue Number: IRS Tax Tip 2014-13.  Copyright 2014 by Copyright Holder. Reprinted with permission.

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