I don't know if it is worth filing? Should I File a Tax Return?

This is a big question. Do I or don’t I? Your friends at TaxSmarty.com answer this question below. Make sure you read the last sentence, then decide.

Your filing status is determined on the last day of the tax year. Generally, your filing status depends on whether you're considered unmarried or married. Marital status is determined by state law with one important exception: For federal tax purposes, same sex marriages are not considered legal marriages. Your options for filing are:

* Single. You can file as Single if you have never been legally married under U.S. laws, you are legally separated or divorced according to the laws of your state, or were widowed before the last tax year and did not remarry during the tax year.

*Married Filing Jointly. You can file as Married Filing Jointly if you are married as of the last day of the tax year, whether or not you're living together, or if your spouse died during the tax year and you did not remarry.

* Married Filing Separately. You can file as Married Filing Separately if you are married as of the last day of the year.

* Head of Household. You can file as Head of Household if you are single, divorced, or otherwise unmarried at the end of the tax year, and (1) you paid more than 50% to keep a home for the entire tax year for a parent who was a dependent OR (2) you paid more than 50% to keep a home for the entire tax year with your dependent. Filing as Head of Household can be tricky; special rules and exceptions apply.
Qualifying Widow(er) With Dependent Child.

* You can file as a qualifying widow(er) with dependent child for two years following the year your spouse died.

Your age is calculated as of the last day of the tax year -- with one exception. If you turn 65 on Jan. 1, 2011, you're considered to be age 65 on the last day of 2010. And while it generally isn't a good thing to age a little faster, this allows you to use the higher income thresholds to determine whether you must file a return.

Taking those three factors into consideration, you determine whether you must file as follows:

* If you file as single and you're under the age of 65, you must file a return if your gross income is at least $9,350; if you are 65 or older, you must file a return if your gross income is at least $10,750.

* If you file as married filing jointly, and both spouses are under the age of 65, you must file a return if your gross income is at least $18,700; if both spouses are 65 or older, you must file a return if your income is at least $20,900. If one spouse is 65 or older, you must file a return if your income is at least $19,800.

* If you file as married filing separately, you must file a return if your gross income is at least $3,650, no matter what your age.

* If you file as head of household and you are under the age of 65, you must file a return if your gross income is at least $12,000; if you are 65 or older, you must file a return if your gross is at least $13,400.

* If you file as qualifying widow(er) and you are under the age of 65, you must file a return if your gross income is at least $15,050; if you are 65 or older, you must file a return if your gross is at least $16,150.

Special considerations apply for certain additional taxpayers:

* A child who is under the age of 19 or who is a full-time student under the age of 24 earning only interest and dividends may report that income on his or her own return or on a parent's return. For 2010, the amount of taxable investment income a child can have without it being subject to tax at the parent's rate has increased to $1,900. If a child earns income by performing services, from babysitting to acting, the income is reportable. A parent can elect to include the child's income on the parent's return. If this election is made, the child does not have to file a return.

* Self-employed persons must file a return if your gross income meets the age, income and filing status criteria above, or if your net earnings from self-employment totaled $400 or more. Self-employed persons who have church employee income of $108.28 or more must also file a return.

* If you are a resident alien for the entire year, you must file a tax return following the same rules that apply to U.S. citizens. If you are a nonresident alien or a dual-status taxpayer, different rules may apply. Check Publication 519 for more information.

* Even if you don't have to file, there are circumstances under which filing a federal income tax return makes sense. You may be entitled to a refund if you had federal income tax withheld from your pay or made estimated tax payments or if you qualify for one of a number of credits, including the Making Work Pay Credit, Government Retiree Credit, earned income tax credit, child tax credit, the American opportunity credit, first time homebuyer credit or health care coverage credit.

Still not sure whether you should file? Consider this statistic from the 2010 filing season: Out of the 139 million returns filed, 108 million were due a refund. The total amount of refunds due was $316 billion, making the average refund over $2,900. Don't lose out.

TaxSmarty
Taxes have never been this easy!

Help with completing your W-4 Form

We often get questions on how to correctly fill out the W-4 form, specifically line 5 - Number of Allowance. This seems straight forward but usually isn't. The easy way to remember how to fill this out correctly is the LESS allowances you claim on the W-4, the more federal tax will be withheld from your paycheck. Example: Claim 0 allowances and more tax is withheld than claiming 5 allowances. The IRS provides a worksheet to help you claim the proper number of allowances, which will take into account any itemized deductions you may be entitled to claim. Note that this does not guarantee a refund if you claim less allowances. If you claim 5 allowances based on the worksheet and then, when your complete your federal tax return and only have 2 exemptions (you and your spouse) and don't hit the itemized deduction threshold, you may very well end up writing the IRS a check. Everyone loves a refund or at least not owing tax. Use TaxSmarty.com to get your best tax results.

www.taxsmarty.com

What! No more IRS forms in the mail??

What! No more IRS forms in the mail?? That is just wrong!
Yes it is true. If you are a paper filer, well then your life just became more of a hassle to file your Federal taxes. Sure the IRS will save $10 million dollars, savings that will not be passed on to you. You have to find your own forms. What if the paper filers said: “hey, if I have to be inconvenienced to file the Federal forms, then I am just not going to file.” (that is another debate).

Stay out of trouble and file your Federal forms on time.

You can still file by logging on to the IRS website and downloading the forms to manually fill out or you can use an online tax preparation service. Since 1996, M&R Accounting PLL has been helping clients achieve the best results when filing. Our customers wanted a simple, easy and secure way to complete their own taxes. We developed TaxSmarty.com.

TaxSmarty.com is designed to help you complete the necessary tax forms with easy to answer questions. Complete the questionnaire and Tax Smarty.com/Complete Tax will complete the forms for you. It is that easy. You can use TaxSmarty.com for FREE. We will not collect any fees if you are not happy with results.

You Win with TaxSmarty.com.
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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