Some tax planning strategies as we near the end of 2009

As we near the end of 2009, TaxSmarty would like to review some common but often overlooked tax planning strategies and tips to help you manage and/or reduce your 2009 (and possibly 2010) federal tax burden.

1) As a general rule, try to accelerate deductions into 2009 and defer income into 2010 since individual tax rates are not expected to change for 2010 at this point. (However, if you expect to be in a higher income tax bracket for 2010 because you received a promotion recently with a significant pay raise, you plan to sell investments or property and incur large gains, etc., you would want to do the opposite).

Here are a few ways to accelerate deductions:

* If you're just at or above the standard deduction as of now, you could pay property taxes you owe on your main (or second) home that are due in January 2010 in December 2009 or you could pay any state or local income tax estimates due in January 2010 in December 2009

* You could pre-pay your January 2010 mortgage payment in late December 2009 in order to be able to deduct an additional month's interest

* Accelerate any planned charitable contributions for 2010 into December 2009

A few tips to defer income:

* If you are lucky enough to have a bonus of some sort coming to you from your employer for 2009, as them to delay payment to you until January 2010

* If you own your own small business and report your income on the cash basis, you could delay your end-of-year billings to your clients until January 2010

2) First-time home buyers won't have to worry about closing their purchase by Nov. 30 to take advantage of the $8,000 new purchasers credit since Congress is expected to extend this tax break for several months well into 2010

3) If you are still in the market for a new vehicle, you may want to make that purchase prior to January 1, 2010 to take advantage of the special sales tax deduction on the sales tax you pay for new vehicle purchases up to $49,500 since this break is not expected to be extended by Congress into 2010. As a bonus, if you don't itemize your deductions, you can add the sales tax paid on your new vehicle purchase to your standard deduction. If you do itemize and you deduct state and local income taxes, your sales tax on your new vehicle purchase is added to that amount!

4) If you are planning on converting your traditional IRA to a Roth IRA, you may want to wait until 2010 to take advantage of a special, one-time break that allows you to spread the tax due on your regular IRA conversion over two tax years (50% of the tax split between 2011 and 2012); however, if you're likely to be in the top tax bracket, you may want to pay the tax upfront since the current top tax rate is scheduled to go up to 39.6% from 35% in 2011.

5) If you've experienced a rebound with some of your taxable investment accounts during 2009 and you had carried over losses from 2008 that you couldn't use, you could sell those investments at a gain and utilize your losses on your 2009 tax return to offset some or all of your investment income.

6) If you are looking at owing additional tax this year based on under-withholding, you still have time to increase your withholding through your employer in Nov. and Dec. to ensure that you pay at least 90% of your current year expected tax liability (or 100% of your 2008 tax liability if your adjusted gross income is less than $150,000)

These are just a few steps you can take to help your tax situation as we near year end. Please check back with the TaxSmarty Blog over the next six weeks for additional year-end tax planning tips and for updates on proposed tax legislation at the federal level.

Please visit taxsmarty.com for additional helpful tax tips.

Help in filling out your W-4 Form

What how do I fill out the W-4 form correctly


TaxSmarty is getting questions concerning “how do I to manage exemptions so I don’t owe any additional tax when I file my Federal Tax return?” This is a tough one to answer since every working person has a different scenario.

When staring a new job or changing your allowances, it is necessary to complete a W-4. On the W-4 form, one of the questions is “total number of allowances you are claiming.” What do you do? It depends on a few factors

1.Project yearly gross income
2.Number of exemption you plan to claim on your 1040
3.Deductions you use on your 1040
4.Filing Status

If being new to the work force, not being married and no deductions, completing the W-4 seems simple right? Maybe not. We see many people in this situation claiming “0” on the allowance line. Then they are wondering why they are getting a big refund. Based on using your yearly gross income you may need to claim “0” or more to balance out your withholding. It is nice to have money in your paycheck instead of waiting for it in a tax refund.

Make this decision easy by using TaxSmarty’s free tax calculator. It determines a reliable estimate on how many allowances you should claim. Follow the following link:

http://www.internet-taxprep.com/plindex.asp?welcome=ZJ1389183&page=plcalc.asp

$8000 First Time Home Buyers Tax Credit - Get your credit on your 2008 tax return!

Yes you can receive this credit even if you already filed your 2008 Federal Tax Return.

Here is how it works.

If you purchased a home in 2009 after you filed your 2008 Federal Tax Form, all you have to do is file an amended form for this year. You are in the money. It is that easy.

TaxSmarty.com can help you with the amendment and you will be waiting at your mailbox for the credit in no time. www.taxsmarty.com

Many questions have been asked – one is do I qualify for the First Time Home Buyers Tax Credit? Here is the answer:

A first time home buyer is you (single) or your spouse (if married) and did not own any other main home three years prior to buying the new home in 2009. If this is you, apply for the tax credit which is 10% of your new home’s purchase price up to $8000. If you are married and filing separately, it is $4000.

Don’t forget this IRS zinger: You must remain in your new home for 36 months or guess what… the IRS wants the $8000 back. So ensure this is your plan before applying for the First Time Home Buyers Tax Credit.

Visit www.taxsmarty.com for all of your federal and state income tax preparation and planning needs.

Forgot to file or did not receive a 2008 Stimulus Payment? You may be able to qualify for a recovery rebate credit through your 2008 tax return

For those that did not file for a 2008 Stimulus Payment , you may qualify for a recovery rebate credit in 2009. Even if you received a 2008 Stimulus Payment, you may qualify if you meet one of the following criteria:

-you did not receive a Stimulus Payment in 2008 or you received less than the
maximum of the 2008 Stimulus Payment
-your gross income was too high or too low
-you gained a qualifying child after you filed in 2008
-you were claimed as a dependent on someone else's return in 2007 but
-you will not be claimed as a dependent on 2008 return
-you received a Social Security number is 2008 and did not have one for
2007


You can get the recovery rebate on your 2008 1040, 1040A or 1040EZ. If you are using a tax software like TaxSmarty - it will ask you a question "did you receive a Stimulus Payment?"; "How much was your Stimulus Payment?" From there, Tax Smarty or your tax software will determine if you qualify for the recovery rebate credit.

NOTE: This is a CREDIT and not a separate check. You will receive this tax credit as part of your 2008 federal return (either increasing your refund or lowering the balance you owe). It's a good deal so don't miss out if you qualify.

Visit www.taxsmarty.com for more free helpful tax tips and information.

Maximize your work-related and self-employed travel deductions

If you are a person who travels significantly for your employer or if you are self-employed, you of course want to maximize your tax deductions related to your business travel or self-employment income. One simple and effective way to track your mileage and other travel-related expenses is to keep a small appointment book/calendar in your vehicle and record all of your business miles driven as you travel for business throughout the year. You can also record any tolls paid, meals and entertainment for business purposes, etc. in your appointment book/calendar in order to make sure you are tracking all of your trips and expenses as you incur them. Many people wait until the end of the year and then they end up scrambling to go back and remember all of their trips and expenses and usually end up missing a significant amount of expenses due to their lack of record-keeping. Recording these things as they occur in this simple manner can save you hundreds, if not thousands, of dollars during any given year. Plus, this will help you immensely in the event that you are audited by the IRS or your state taxing authority since this is another level of documentation that you have in addition to the receipts, itineraries, employer travel schedules, etc. that you should be keeping as well.

Please visit TaxSmarty.com for all of your income tax information, preparation and planning needs.

Did you know you can deduct up to $500 ($1000 for joint filers) for paid real estate taxes if you used the standard deduction?

Did you know you can claim up to $500 deduction for property taxes ($1000 for joint filers) if you DO NOT itemize?

It is absolutely true – for tax years 2008 and 2009 and you don’t itemize deductions (just take the standard deduction) AND you paid real estate taxes you can increase your standard deduction up to $500 single and up to $1000 for joint filers. Those sneaky IRS guys slipped this one in. Just check box 39c on page 2 of your 1040 form or if you are using the 1040A form, look at line 23c.

Check out www.taxsmarty.com for additional free tax planning resources and filing options.

Advantages of contributing to a Roth IRA

Look to contribute to a Roth IRA each year since the earnings from these tax-advantaged savings vehicles are never taxed (unlike traditional IRA's which are taxed as ordinary income at your marginal tax rate at the time you take distributions from your traditional IRA). Also, Roth IRA balances are not subjected to the required minimum distribution rules when you reach 70 1/2 years old. Therefore, if you do not need the money at that time, you can continue to let your money grow tax-free and ultimately leave a larger sum to your decedents if you so choose.


Now for some of the mechanics of the Roth IRA:

You can contribute up to $5,000 ($6,000 if age 50 or over) for 2008 and 2009. Keep in mind that your modified adjusted gross income (MAGI) has to be below $166,000 to contribute the full amounts previously mentioned. If your MAGI is between $166,000 and $176,000, then you can contribute some amount less than the full limit. If your income exceeds $176,000, they you are not eligible to contribute to a Roth IRA for 2009. In 2008, this phase-out range is $159,000 to $169,000.

For single individuals, this Roth IRA phase-out limit is lower: $105,000 to $120,000 for 2009. In 2008, a single individual’s income restriction is between $101,000 and $116,000.

Remember that you still have until April 15 of this year to make a contribution to any IRA account for 2008.

Finally, a big advantage to a Roth IRA is that you can use this as an emergency fund since you can withdrawal your principal (the amount you've actually contributed to the Roth IRA) at any time without penalty. This will allow you to garner a market rate of return on your emergency funds while possibly building a source of retirement income at the same time.

Please visit www.taxsmarty.com for more helpful tax tips and information.