Some helpful tax tips as we head into the heart of tax filing season

By now almost everyone has received their W-2's, 1099's and other tax documents and are ready (or getting ready) to file.  TaxSmarty would like to take this opportunity to review a few items that you may have missed or had questions about:

1)  Required minimum distributions from IRA's and other qualified retirement plans resume this year - if you turned 70 1/2 during 2009 you must take a required minimum distribution (RMD) by 12/31/2010.  If you turn 70 1/2 this year, you have until 4/15/2011 to take your RMD.

2)  Remember that if you were laid off after Aug. 31, 2008 but before Jan. 1, 2010, you were entitled to a COBRA subsidy from your former employer of 65% of your COBRA health insurance premiums.  The original subsidy was scheduled to last nine months, but congress extended this for those workers terminated before March 1, 2010 and provides for six months of additional aid.  (Note:  Your former employer receives a tax credit from the federal government for the cost of this subsidy).

3)  The IRS is stepping up documentation requirements in order for taxpayers to claim the home buyer credit.  A signed copy of your settlement statement (or certificate of occupancy for new homes just built) must be attached to your Form 5405 in order to claim the credit.  Further, those who are claiming the $6,500 repeat buyer credit must attach proof of prior home ownership such as a 1098 or records showing property taxes paid or insurance coverage in place on a prior home.  Please note that due to the documentation requirements for this credit, you will NOT be able to e-file your return.  Because of the time the IRS needs to program their computer system to process this credit and factoring in extra processing time for paper returns, don't expect to see your refund, if you're owed one, until late March.

4)  If you have donated or would like to donate to Haiti earthquake relief efforts in Jan. or Feb. of 2010, you have the option of deducting those contributions on your 2009 return.  Remember that you still need some sort of documentation to substantiate your contribution and you have to itemize deductions to be able to receive a tax benefit from your contribution.

Please check back with us as tax season moves forward for additional helpful tax tips and updates.  Please go to TaxSmarty to access additional free tax resources such as our online tax guide, financial calculators and a tax calendar.  You can also prepare your 1040-EZ return absolutely FREE and your more complicated federal return for a very reasonable price.  Additionally, all state income tax returns are available.

Federal tax update and final tax tips as we close out 2009

As we enter the final days of 2009, many federal income tax issues remain unresolved at the federal level due to the Senate's focus on the healthcare bill. The following tax issues and expiring tax breaks are still "to be determined":

1) Federal Estate and Gift Tax - under current law, the federal estate tax is to expire for 2010 and then reappear in 2011 with a top rate of 60% and only a $1 million exemption. The generation-skipping tax will also end for a year, but the gift tax will continue with a top rate of 35%. This issue will definitely be dealt with during 2010, so stay tuned.

2) Expiring "write-offs" - Business R & D credit, college tuition deduction (NOT the Hope or Lifetime Learning Credits), direct donations of IRA distributions - these should all be extended retroactive to 1/1/2010, but it may take a little time to get this done, so stay tuned on these as well. However, the suspending of the mandatory annual IRA payout that was put into law for 2009 will most likely NOT be extended due to the general market recovery.

3) Raising of the Alternative Minimum Tax (AMT) exemptions - this is something that has now been dealt with on an annual basis for the last several years so as not to have the unintended consequences of affecting "the average joe/jane" by subjecting him/her to the alternative minimum tax that was meant for "high incomers" with a large percentage of itemized deductions. Congress has avoided overhauling this section of the tax code and will probably continue to volley this around for the next year or two.

4) Bush tax cuts set to expire - This will be a contentious issue due to the expanding federal deficit and Washington politics, especially as it relates to the top individual tax rate. At this point, we can probably expect to maintain the current tax rates for low and middle-income taxpayers, but an increase to the pre-2001 top tax rate of 39.6% from the current 35% is the most likely scenario.

5) Home Buyer's Credit - This break was extended and expanded. For all of the details, check out the official IRS release at www.irs.gov

For year-end tax tips, please see our Nov. 5 blog entry titled "Some Tax Planning Strategies as We Near the End of 2009".

For all of your tax preparation needs as we enter the 2009 filing season, please visit www.taxsmarty.com We are offering a new and improved CompleteTax® online filing program with four different levels, including a free filing option. Happy New Year!

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.