Tax Strategies – Who Should File a 2012 Tax Return?

Tax Strategies – Who Should File a 2012 Tax Return?

Federal, State, Local and International Taxes – If you received income during 2012, you may need to file a tax return in 2013. The amount of your income, your filing status, your age and the type of income you received will determine whether you’re required to file. Even if you are not required to file a tax return, you may still want to file. You may get a refund if you’ve had too much federal income tax withheld from your pay or qualify for certain tax credits. 

Even if you’ve determined that you don’t need to file a tax return this year, you may still want to file. Here are five reasons why: 

1. Federal Income Tax Withheld.  If your employer withheld federal income tax from your pay, if you made estimated tax payments, or if you had a prior year overpayment applied to this year’s tax, you could be due a refund. File a return to claim any excess tax you paid during the year. 

2. Earned Income Tax Credit.  If you worked but earned less than $50,270 last year, you may qualify for EITC. EITC is a refundable tax credit; which means if you qualify you could receive EITC as a tax refund. Families with qualifying children may qualify to get up to $5,891 dollars. You can’t get the credit unless you file a return and claim it. Use the EITC Assistant to find out if you qualify. 

3. Additional Child Tax Credit.  If you have at least one qualifying child and you don’t get the full amount of the Child Tax Credit, you may qualify for this additional refundable credit. You must file and use new Schedule 8812, Child Tax Credit, to claim the credit. 

4. American Opportunity Credit.  If you or someone you support is a student, you might be eligible for this credit. Students in their first four years of post secondary education may qualify for as much as $2,500 through this partially refundable credit. Even those who owe no tax can get up to $1,000 of the credit as cash back for each eligible student. You must file Form 8863, Education Credits, and submit it with your tax return to claim the credit. 

5. Health Coverage Tax Credit.  If you’re receiving Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance, Alternative Trade Adjustment Assistance or pension benefit payments from the Pension Benefit Guaranty Corporation, you may be eligible for a 2012 Health Coverage Tax Credit. Spouses and dependents may also be eligible. If you’re eligible, you can receive a 72.5 percent tax credit on payments you made for qualified health insurance premiums. 

Want more information about filing requirements and tax credits?  For no obligation free consultation contact us today!

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Published in: on January 29, 2013 at 3:02 pm  Comments (1)  
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Employers Hiring Veterans by Year’s End May Get Expanded Tax Credit

Employers Hiring Veterans by Year’s End May Get Expanded Tax Credit

Year- End Tax Planning – Employers planning to claim an expanded tax credit for hiring certain veterans should act soon, according to the IRS. Many businesses may qualify to receive thousands of dollars through the Work Opportunity Tax Credit, but only if the veteran begins work before the New Year.

Here are six key facts about the WOTC as expanded by VOW to Hire Heroes Act of 2011.

  1. Hiring Deadline: Employers may be able to claim the expanded WOTC for qualified veterans who begin work on or after Nov. 22, 2011, but before Jan. 1, 2013.
  2. Maximum Credit: The maximum tax credit is $9,600 per worker for employers that operate for-profit businesses, or $6,240 per worker for tax-exempt organizations.
  3. Credit Factors: The amount of credit will depend on a number of factors. Such factors include the length of the veteran’s unemployment before being hired, the number of hours the veteran works and the amount of the wages the veteran receives during the first-year of employment.
  4. Disabled Veterans: Employers hiring veterans with service-related disabilities may be eligible for the maximum tax credit.
  5. State Certification: Employers must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their state workforce agency. The form must be filed within 28 days after the qualified veteran starts work.

Be sure to contact us if you need assistance. We are here to help. Considering a Tax Professional? For no obligation free consultation contact us today!

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Published in: on November 19, 2012 at 2:48 pm  Leave a Comment  
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Year-End Tax Planning For Individuals – Strategize Tuition Payments

Year-End Tax Planning For Individuals – Strategize Tuition Payments

Federal, State, Local and International Taxes – The American Opportunity Tax Credit, which offsets higher education expenses, is set to expire after 2012. It may be beneficial to pay 2013 tuition in 2012 to take full advantage of this tax credit, up to $2,500, before it expires. 

CALL US FIRST – This is just one of the year-end planning tax moves that could make a substantial difference in your tax bill for 2012. But the best advice we can give you is to give us a call. We’ll sit down with you, discuss your specific tax and financial needs, and develop a plan that works for your business.

ABA Tax Accounting

info@abataxaccounting.com

866-936-0430 Toll Free

http://www.abataxaccounting.com

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Published in: on November 19, 2012 at 1:24 pm  Comments (1)  
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YEAR-END TAX PLANNING FOR INDIVIDUALS – CHECK YOUR WITHHOLDINGS

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Federal, State, Local and International Taxes – With less than two months remaining in the calendar year, it’s a great time to double check your federal withholding.

 
Most people have taxes withheld from each paycheck or pay taxes on a quarterly basis through estimated tax payments. But each year millions of American workers have far more taxes withheld from their pay than is required. In fact, the average refund for 2011 was just under $3,000. Although it’s a slight decrease from 2010, ($2,973 vs. $3,003), taxpayers might want to consider adjusting 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.
 
On the flip side, is that some workers and retirees still need to take steps to make sure enough tax is being taken out of their checks to avoid penalties they might have to pay. Certain folks should pay particular attention to their withholding. These include: 
  • Married couples with two incomes
  • Individuals with multiple jobs
  • Dependents
  • Some Social Security recipients who work
  • Workers who do not have valid Social Security numbers
  • Retirees who receive pension payments
Whether you’re starting a new job, retiring, or self-employed, you can use the following tips 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 anytime that 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. 
If you’re not sure how much you need to withhold from your paycheck, just give us a call and we’ll figure it out with you.
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Published in: on November 14, 2012 at 1:11 pm  Leave a Comment  
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Year- End Tax Planning – Income From Foreign Sources

Year- End Tax Planning Income From Foreign Sources

Income From Foreign Sources – Many U.S. citizens earn money from foreign sources. But unless it is exempt under federal law, taxpayers sometimes forget that they have to report all such income on their tax return. 

As such, some U.S. taxpayers living abroad have failed to timely file U.S. federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs). Some of these taxpayers have recently become aware of their filing requirements and want to comply with the law. 

Effective September 1, 2012, taxpayers who are low compliance risks are able to get current with their tax requirements without facing penalties or additional enforcement action. These taxpayers generally have simple tax returns and owe $1,500 or less in tax for any of the covered years. 

U.S. citizens are taxed on their income regardless of whether they live inside or outside the United States. The foreign income rule also applies regardless of whether the person receives a Form W-2, Wage and Tax Statement, or Form 1099. 

Foreign source income includes earned and unearned income, such as:

  • Wages and tips
  • Interest
  • Dividends
  • Capital gains
  • Pensions
  • Rents
  • Royalties

But there is some good news. Citizens living outside the United States may be able to exclude up to $95,100 of their 2012 foreign source income if they meet certain requirements. This will increase to $97,600 in 2013.

If you’re married and you and your spouse both work abroad and meet either the bona fide residence test or the physical presence test, each of you can choose the foreign earned income exclusion. Together, you can exclude as much as $190,200 for the 2012 tax year.

Caution: The exclusion does not apply to payments made to U.S. government employees or folks in the military living outside the United States.

If you earn income from outside the country, please be sure to meet with us about it. We can advise you on how to address all of the tax implications of this situation. For no obligation free consultation contact us today!

ABA Tax Accounting

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Published in: on November 13, 2012 at 2:43 pm  Leave a Comment  
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Tap Your Retirement Money Early & Minimize Penalties

Tap Your Retirement Money Early & Minimize Penalties-www.abataxaccounting.com  

Year- End Tax Planning – The purpose of retirement plans such as the 401(k) and Individual Retirement Account (IRA) is to save money for your retirement years. As such, the IRS imposes a penalty of 10% for early withdrawals taken from qualified retirement plans before age 59 1/2. Qualified retirement plans include section 401(k) plans, individual retirement accounts (IRAs), and 401(k) plan, tax-sheltered annuity plans under section 403(b) for employees of public schools or tax-exempt organizations.

 

While you should always think carefully about taking money out of your retirement plan before you’ve reached retirement age, there may be times when you need access to those funds, whether it’s buying a new house or pay for out of pocket medical expenses. Fortunately, IRS provisions allow a number of exceptions that may be used to avoid the tax penalty.

  1. If you are the beneficiary of a deceased IRA owner, you do not have to pay the 10% penalty on distributions taken before age 59 1/2 unless you inherit a traditional IRA from your deceased spouse and elect to treat it as your own. In this case, any distribution you later receive before you reach age 59 1/2 may be subject to the 10% additional tax.
  2. Distributions made because you are totally and permanently disabled are exempt from the early withdrawal penalty. You are considered disabled if you can furnish proof that you cannot do any substantial gainful activity because of your physical or mental condition. A physician must determine that your condition can be expected to result in death or to be of long, continued, and indefinite duration.
  3. Distributions for qualified higher educational expenses are also exempt, provided they are not paid through tax-free distributions from a Coverdell education savings account, scholarships and fellowships, Pell grants, employer-provided educational assistance, and Veterans’ educational assistance. Qualified higher education expenses include tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a student at an eligible educational institution, as well as expenses incurred by special needs students in connection with their enrollment or attendance. If the individual is at least a half-time student, then room and board are considered qualified higher education expenses. This exception applies to expenses incurred by you, your spouse, children and grandchildren.
  4. Distributions due to an IRS levy of the qualified plan.
  5. Distributions that are not more than the cost of your medical insurance. Even if you are under age 59 1/2, you may not have to pay the 10% additional tax on distributions during the year that are not more than the amount you paid during the year for medical insurance for yourself, your spouse, and your dependents. You will not have to pay the tax on these amounts if all of the following conditions apply: you lost your job, you received unemployment compensation paid under any federal or state law for 12 consecutive weeks because you lost your job, you receive the distributions during either the year you received the unemployment compensation or the following year, you receive the distributions no later than 60 days after you have been reemployed.
  6. Distributions to qualified reservists. Generally, these are distributions made to individuals called to active duty after September 11, 2001 and on or after December 31, 2007.
  7. Distributions in the form of an annuity. You can take the money as part of a series of substantially equal periodic payments over your estimated lifespan or the joint lives of you and your designated beneficiary. These payments must be made at least annually and payments are based on IRS life expectancy tables. If payments are from a qualified employee plan, they must begin after you have left the job. The payments must be made at least once each year until age 59 1/2, or for five years, whichever period is longer.
  8. If you have out-of-pocket medical expenses that exceed 7.5% (10% in 2013) of your adjusted gross income, you can withdraw funds from a retirement account to pay those expenses without paying a penalty. For example, if you had an adjusted gross income of $100,000 for tax year 2012 and medical expenses of $12,500, you could withdraw as much as $5,000 ($2,500 in 2013) from your pension or IRA without incurring the 10% penalty tax. You do not have to itemize your deductions to take advantage of this exception.
  9. An IRA distribution used to buy, build, or rebuild a first home also escapes the penalty; however, you need to understand the government’s definition of a “first time” home buyer. In this case, it’s defined as someone who hasn’t owned a home for the last two years prior to the date of the new acquisition. You could have owned five prior houses, but if you haven’t owned one in at least two years, you qualify.
  10. The first time homeowner can be yourself, your spouse, your or your spouse’s child or grandchild, parent or other ancestor. The “date of acquisition” is the day you sign the contract for purchase of an existing house or the day construction of your new principal residence begins. The amount withdrawn for the purchase of a home must be used within 120 days of withdrawal and the maximum lifetime withdrawal exemption is $10,000. If both you and your spouse are first-time home buyers, each of you can receive distributions up to $10,000 for a first home without having to pay the 10% penalty.

Remember that although using the above techniques will help you avoid the 10% penalty tax, you are still liable for any regular income tax that’s owed on the funds that you’ve withdrawn. Distributions rolled over into another qualified retirement plan or distributions from a Roth IRA however, escape both the regular income tax and the 10% penalty tax. Rollovers should be made directly between your brokers, to avoid paying the 20% withholding required on distributions that you touch. Considering a Tax Professional? For no obligation free consultation contact us today!

ABA Tax Accounting

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Published in: on November 12, 2012 at 12:53 pm  Leave a Comment  
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Year-End Tax Planning For Individuals – Accelerating Income

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Year-End Tax Planning For Individuals – Accelerating Income

Federal, State, Local and International Taxes -Tax planning is always a good idea, but with the Bush-era tax cuts set to expire and tax rates set to rise to pre-2010 levels, it’s more important than ever. With that in mind, accelerating income is one tax planning strategies you can use this year to help you cut your tax bill in 2013. 

ACCELERATING INCOME

In most years, taxpayers adopt a strategy of deferring income, but with the Bush-era tax cuts set to expire on December 31, 2012, income tax rates and capital gains taxes set to rise, and a 0.9 percent Hospital Insurance (HI) tax applicable to earnings of self-employed individuals or employee wages in excess of $200,000 ($250,000 if filing jointly) effective January 1, 2013, it might make more sense to accelerate income into 2012 instead of deferring it to 2013. Here are some of the ways you can do this:

  • Sell any investments on which you have a gain this year and take advantage of the zero percent long-term capital gains tax rate if you’re in the 10% or 15% tax bracket, or a 15% tax rate for higher tax brackets.
  • If you are expecting a bonus at year-end, try to get it before December 31. However, keep in mind that contractual bonuses are different, in that they are typically not paid out until the first quarter of the following year. Therefore, any taxes owed on a contractual bonus would not be due until you file a tax return for tax year 2013.
  • If your company grants stock options, you may want to exercise the option or sell stock acquired by exercise of an option this year if you think your tax bracket will be higher in 2013. Exercise of the option is often but not always a taxable event; sale of the stock is almost always a taxable event.
  • If you’re self employed, send invoices or bills to clients or customers this year in order to be paid in full by the end of December.
  •              Caution: Keep an eye on the estimated tax requirements.

CALL US FIRST – This is just one of the year-end planning tax moves that could make a substantial difference in your tax bill for 2012. But the best advice we can give you is to give us a call. We’ll sit down with you, discuss your specific tax and financial needs, and develop a plan that works for your business.

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

amare@abataxaccounting.com

612-282-3200

866-936-0430 Toll Free

http://www.abataxaccounting.com

www.abataxaccounting.wordpress.com

Published in: on November 6, 2012 at 1:45 pm  Leave a Comment  
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Tax Strategy: Income Acceleration Techniques

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Income acceleration techniques for 2012 year-end planning  – The acceleration of income for tax purposes has not traditionally been a top-shelf strategy because of the simple fact that the delay of taxable income means the postponement of tax into a subsequent year, which is usually a good thing based upon time-value-of-money principles. The same reasoning applies to postponing deductions. Read the Full Story at Accounting Today (10/01).Considering a Tax Professional? For no obligation free consultation contact us today!

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

amare@abataxaccounting.com

612-282-3200

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Published in: on October 16, 2012 at 5:48 pm  Leave a Comment  
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Tax Strategies for Individuals – The “Nanny Tax” Rules: What to Do If You Have Household Employees

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If you have a household employee, you may need to pay state and federal employment taxes. Which forms do you need to file for your household employees? Is your maid, housekeeper, or babysitter covered by the rules? Considering a Tax Professional? For no obligation free consultation contact us today!

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

amare@abataxaccounting.com

612-282-3200

866-936-0430 Toll Free

http://www.abataxaccounting.com

www.abatax81.blogspot.com

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Published in: on October 16, 2012 at 12:19 pm  Leave a Comment  
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Tax-filing and Payment Extensions Expire Oct. 15

Federal, State, Local and International TaxesIR-2012-73 The Internal Revenue Service today urged taxpayers whose tax-filing extension runs out on Oct. 15 to double check their returns for often-overlooked tax benefits and then file their returns electronically using IRS e-file system.

Many of the more than 11 million taxpayers who requested an automatic six-month extension this year have yet to file. Though Oct. 15 is the last day for most people, some still have more time, including members of the military and others serving in Iraq, Afghanistan or other combat zone localities who typically have until at least 180 days after they leave the combat zone to both file returns and pay any taxes due. Considering a Tax Professional? For no obligation free consultation contact us today!  

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

amare@abataxaccounting.com

612-282-3200

866-936-0430 Toll Free

http://www.abataxaccounting.com

www.abatax81.blogspot.com

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Published in: on October 10, 2012 at 9:55 pm  Leave a Comment  
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