Tax Ranger's Blog

Do teens have to pay taxes on summer job earnings?

2013-05-13T14:54:00Z

Most high school and college students anticipate the money they will earn working typical summer jobs, which range from babysitting and moving lawns to working part-time at their local restaurant or video store. While a summer paycheck may give them a nice chunk of change to begin the next school year, some may also face liabilities depending on their earnings and employment status.

In order to determine any potential tax bills, workers should first determine what type of employee they are. For example, those who earn their wages mowing lawns, babysitting or taking on small tasks for individuals are classified typically as self-employed workers. Workers will be required to file a tax return with the IRS if their earnings exceed $400. Although individuals may not be required to pay income taxes on their returns, they may be held responsible for paying self-employment taxes, such as Social Security and Medicare. To determine their responsibilities - and as a general learning tool - it may be helpful for individuals to set up an appointment with a tax preparer so that they know what to expect and how to proceed.

In contrast, those who work for a company may be considered either employees or independent contractors, depending on how the employer chooses to classify them. It's important that teens understand the difference. Independent contractors do not have taxes withheld from their pay as they are considered self-employed. They will also receive a 1099 in January instead of a W-2 form. While this classification may be preferable and cost-effective for companies, it's not always correctly applied. Because the responsibility to take taxes out of their pay will ultimately rest on the worker, summer hires should make sure they are classified correctly. An independent contractor is one that generally sets his or her own hours, supplies their own tools and sets the rules on how they carry out their work tasks.

Lastly, working in a restaurant is a popular summer job, and individuals can make a great deal of money in tips. However, the IRS does require that individuals report all tips - both cash and credit card charges - to their employer, who then reports the figures to the agency. Therefore, waiters, waitresses and other individuals who earn these types of income should keep their earnings well documented.

For a more in-depth look at Liberty Tax Services, visit the Give Me Liberty! Magazine. Follow Liberty Tax on Facebook and on Twitter or contact Liberty Tax directly at 1-877-at-Liberty.

Should you keep old tax returns?

2013-04-24T14:54:00Z

After the end of filing season, many people receive a copy of their returns from their tax preparer and file them away in a cabinet or drawer along with past returns. In many cases, years of saved tax returns can leave little room for other documents and start to create clutter, prompting many Americans to question whether they need to bother hanging on to old returns. The answer to that question is: Yes.

It's not always necessary for individuals to keep 30 years of tax records, but there are different timelines and guidelines applied to old returns depending on a filer's personal situation. For example, the Internal Revenue Service urges individuals to keep old returns for at least three, especially those who carried a tax liability. In many cases, keeping a return for at least three years gives individuals the opportunity to amend them in the event of mistakes. Three years is also the statute of limitations imposed on the IRS for auditing an individual, unless more severe circumstances exist, such as fraud or tax evasion.

Some individuals may need to hang on to records longer
There are some scenarios in which keeping tax records for a longer period of time or indefinitely is the best option. For example, in cases where individuals did not report income that should have been reported, and the amount exceeds 25 percent of the gross income shown on their returns, all tax records should be kept for a period of six years. In more serious circumstances, such as when individuals filed a fraudulent return or failed to file at all, records should be kept for an indefinite period of time.

Even if the statute of limitations for an IRS audit or making amendments to a return have passed, it's important for individuals to take a cautious approach to throwing out old returns. In some cases, lenders, insurance agents and other parties may need them to render services to filers. This is particularly true in the case of mortgage lenders, who typically request several years of previous tax returns from home loan applicants. Therefore, any person planning on making a big life change may want to hang on to their files a little longer just to be on the safe side.

Lastly, tax records contain a great deal of personal information, such as Social Security numbers, addresses and employment data. When disposing of these documents, individuals should shred them to lower their risk of identity theft.

Younger generations more likely than older counterparts to be responsible with taxes

2013-04-08T14:54:00Z

When it comes to being financially responsible and educated about complex topics, such as taxes, most people generally believe older adults to be more prudent than younger generations. This is largely because older individuals typically have more experience managing their finances and taxes and therefore may be better equipped to make smarter decisions than more inexperienced youths. However, a new study debunks this generalization and shows that younger adults typically surpass their parents when it comes to making wise tax decisions.

Findings from a behavioral study conducted by account management service Manilla.com demonstrate that young adults are more likely than older age groups to file their taxes early and save their refunds. Approximately 62 percent of respondents from ages 18 to 23 said they file their taxes in January or February, compared to 39 percent of older study participants. In addition, 46 percent of respondents in the younger age group also said they plan on saving their refunds, while only 25 percent of older individuals gave the same response.

The study also examined general behaviors during tax filing season that did not take age into account. For example, the research discovered that March is the most popular time to meet with a tax preparer and submit tax forms, with 39 percent of all respondents saying they wait until this month to start putting returns together. As 65 percent of all respondents cited gathering tax paperwork as the biggest annoyance about filing their returns, an overall 87 percent of filers said that keeping their financial records organized all year greatly helped them prepare to file and made tax season a great deal easier.

Adults of all ages try to use their refunds wisely
Though younger individuals were the most likely group to put their refunds into a savings or retirement account, the research showed that the majority of people from all generations boasted good intentions for their windfall. Forty-two percent said they planned to use their windfall to pay bills or chip away at their credit card debt. A total 23 percent of all survey respondents said saving their refund was their top priority. Only 11 percent of respondents said they would put the money toward a big-ticket purchase or vacation, and 24 percent said they don't expect to receive a refund at all.

Regardless of age, making smart decisions about taxes is important to overall financial health. This includes understanding the importance of financial recordkeeping, making wise investment and retirement decisions to keep liability low and being educated on the different credits and deductions that can benefit filers overall.

For a more in-depth look at Liberty Tax Services, visit the Give Me Liberty! Magazine. Follow Liberty Tax on Facebook and on Twitter or contact Liberty Tax directly at 1-877-at-Liberty.

Navigating healthcare tax deductions

2013-03-22T14:54:00Z

Medical costs can be burdensome , particularly for those who suffer from chronic health issues. While individuals may be forced to cover many costs out-of-pocket, they may also be eligible for medical expense deductions during tax season, which may help lower their tax liability.

First, individuals can lower their taxable income by maxing out contributions to a health savings account. HSAs are tax-advantaged accounts that individuals can access to pay for qualified medical expenses not covered by their insurance plan. For 2012, individuals can contribute a maximum of $3,100 to an HSA, while families can devote $6,250 to these accounts. This means that if a person made $50,000 in 2012, but contributed $2,000 to an HSA, that individual would only be taxed on $48,000. In addition, workers can make contributions to their accounts up until April 15 and count these contributions toward their 2012 taxes.

Deducting medical expenses from taxes
In addition to maxing out HSAs, individuals may also qualify for a medical expense deduction. In order to be eligible, any qualifying out-of-pocket health expenses must have exceeded 7.5 percent of their adjusted gross income. This threshold will increase to 10 percent in 2013. In addition, taxpayers must itemize their returns in order to claim the benefit. Individuals can write off medical expenses they paid for themselves, their spouses or dependents.

It's important for individuals to keep all receipts relating to medical expenses paid out-of-pocket. This will not only help them support their deduction claims if the IRS asks questions, but they can also use them to ensure their write-off is legitimate. There are a number of expenses the deduction covers, including contacts and glasses, medical equipment and devices, fees, prescriptions, crutches, dental treatments, insurance premiums and home care. While the list of qualifying expenses is long, there are some expenses that are not covered under the deduction. This includes cosmetic surgery, health club dues, weight loss programs and veterinary fees. For questions about which expenses are included under the medical expense deduction, individuals should ask their tax preparer to ensure they are filing correctly.

Lastly, the recession prompted more multigenerational households and an expanding "sandwich generation." For individuals who are providing financial support for ailing parents, the IRS also allows them to write off some of these expenses. In order to qualify, individuals must have provided at least half of the financial support for a parent that earned less than $3,800 in 2012, excluding Social Security. Keep in mind, however, that this person must be claimed as a dependent.

Avoidable tax mistakes can be costly

2013-03-18T14:54:00Z

The U.S. Tax Code is lengthy and complex, which may be one of the many reasons that some Americans fail to understand their filing obligations or make common mistakes when they submit their information. This can lead to errors that can jeopardize individuals' refunds or result in audits from the Internal Revenue Service.

Some tax filing mistakes are more common than others, and individuals should educate themselves on their responsibilities in order to effectively prepare throughout the year and work with a tax preparer to ensure their returns are processed correctly. In many of these instances, tax issues may have been avoided through consumer education and working with a tax office.

For example, high unemployment rates have resulted in many Americans taking on independent contractor positions, freelance jobs or starting their own businesses. In these cases, particularly in regards to freelancing opportunities, employers do not withhold payroll taxes from individuals' paychecks. Instead, workers are responsible for deducting these amounts from their paychecks and making quarterly estimated tax payments to the IRS. Failing to do so can leave them stuck with a sizable tax bill in April for amounts that were not paid throughout the year.

Thoroughness and accuracy are crucial to claiming deductions
Another common mistake people make is failing to keep receipts, invoices and other documentation that support deductions and credits. Certain benefits, while valid, can attract more attention from the IRS if deduction amounts are large. These may include write-offs for home offices, travel and entertainment expenses and charitable contributions. Should the IRS come knocking, it's imperative that individuals have records to back up their benefits to avoid a lengthy audit and being denied the deductions for which they qualify. Individuals should keep in mind that even though they may have legitimately claimed a benefit, there is a risk of it being denied if they can't produce records.

Lastly, people may miss out on bigger refunds if they provide inaccurate or erroneous information on federal documents. A recent article in LearnVest highlighted the plight of a taxpayer who listed two dependents on his return. He had incorrectly listed the date of birth for one of the dependents, and provided the wrong contact information. After failing to hear from anyone for several weeks, he contacted officials who told him that they had been trying to contact him, but were unable to do so. He was ultimately only able to claim one dependent instead of two, which led to a loss of nearly $1,100.

Liberty Tax Service (NASDAQ: TAX) has prepared over 2 million tax returns in 2012 alone and has over 4,100 offices in the United States and Canada. As the fastest growing tax franchise ever, Liberty Tax's total revenues grew to $109.1 million last tax season. Liberty Tax stands behinds community enrichment efforts by sponsoring various non-profit organizations and urging their employees and franchisees to give back to their communities.

For a more in-depth look at Liberty Tax Services, visit the Give Me Liberty! Magazine. Follow Liberty Tax on Facebook and on Twitter or contact Liberty Tax directly at 1-877-at-Liberty.

IRS holds $917 million in unclaimed tax refunds from 2009

2013-03-15T14:54:00Z

Most people anticipate the start of tax season so that they can obtain the refund to which they may be entitled. So why does the IRS have millions of dollars in unclaimed refunds each year?

The Internal Revenue Service announced that it currently has roughly $917 million in unclaimed tax refunds for a projected 984,000 Americans who failed to file their taxes in 2009 in its possession. In order to obtain the refund, however, individuals must file their 2009 returns by April 15, 2013, or forfeit their money to the U.S. Treasury. The IRS provides a three-year window to file old returns for those who are owed a refund.

This scenario is common each year, with hundreds of thousands of Americans choosing not to file their tax returns. This is largely because they may have had too little income to require filing a return even though they had taxes withheld from their wages or made quarterly estimated payments. Although some individuals who don't generate enough income to require them to file may choose not to bother meeting with a tax preparer and submitting a return, this is not always the best decision. They may find that they miss out on refunds made possible by the Earned Income Tax Credit and other benefits.

Files rules differ for those who owe the IRS a tax bill
There is currently no penalty for filing a late return qualifying for a refund. However, those who owe a tax bill for a previous year and failed to file will be subject to a different set of rules. The IRS typically imposes three types of penalties for those who fail to file returns and pay their balance: Failure to file, failure to pay and accrued interest.

The failure-to-file penalty is calculated based on the time elapsing between the filing deadline and the date individuals actually filed the tax return. The penalty is 5 percent for each month the tax return is late, up to a total maximum penalty of 25 percent. The failure to pay penalty is 0.5 percent of the amount the taxpayer owes, and there is currently no cap on the amount that the IRS can collect in these penalties. Lastly, the IRS will impose interest on unpaid balances, and these rates change every three months. Given these heavy penalties, those who have not filed previous returns and think they may owe a balance should meet with their tax preparer to submit their documents.

Most Americans to spend all or part of their tax refunds

2013-03-08T14:54:00Z

The April 15th tax filing deadline is quickly approaching, and many Americans who are awaiting the receipt of their refunds already have big plans in mind as to how they will spend it.

Capital One Bank's annual Taxes and Savings survey found that most filers plan to spend all or part of their refunds, while only a small percentage will put the money into a savings or investment account. The average refund will be $2,803, and 65 percent of survey respondents don't factor tax windfalls into their annual budgets. After they receive their money, the majority of respondents - 30 percent - said they will spend it on daily expenses and necessities. Twenty-three percent said they will put their refund toward a vacation, followed closely by 22 percent who will use the money to pay down debt. The number of Americans who plan to save their refund was tied with those who plan to spend it on clothing and accessories at 16 percent.

The case for saving a portion of a refund
Many analysts are encouraging consumers to save a portion of their refunds after the elimination of the reduced payroll tax by lawmakers. The tax holiday - which reduced payroll taxes from 6.2 percent to 4.2 percent - officially ended earlier this year, and many Americans have already seen their paychecks shrink as a result.

"At a time when people are seeing smaller paychecks, now more than ever they should take a step back, evaluate their financial goals and consider saving their tax refund," said Mickey Konson , managing vice president for Retail Banking at Capital One Bank . "People tend to think of their tax refund as free money or an annual bonus, which makes it very tempting to spend it right away, but remember, that refund is your own money - without added interest. Tax season is a great time to plan ahead, with an eye toward your financial goals."

Individuals might consider splitting their tax refund among various accounts to help them accomplish several goals. For example, filers can provide Form 8888 to their tax preparer when completing their income taxes, which outlines up to three separate accounts in which their refund may be deposited. This may allow filers to put a portion into savings, while devoting another chunk to checking or an account that is used with a specific goal in mind.

For a more in-depth look at Liberty Tax Services, visit the Give Me Liberty! Magazine. Follow Liberty Tax on Facebook and on Twitter or contact Liberty Tax directly at 1-877-at-Liberty.

Are you eligible for homeowner tax breaks?

2013-02-22T14:54:00Z

Owning a home can yield sizable financial rewards, such as growing equity and long-term security. However, the costs of purchasing, maintaining and repairing a property can be expensive over the life of a loan. For these reasons, the Internal Revenue Service allows eligible homeowners to take advantage of several deductions when they file their income taxes to lower their liability.

For example, owners who paid points in order to secure their mortgage can write them off during filing season as long as they were used in the initial purchase of the property. Many people refinanced their homes in recent years to take advantage of competitive mortgage rates, reduce their payments or pay off their mortgage balances more quickly. Individuals who refinanced their property may also write off mortgage points associated with this transaction, but it must be done over the life of the loan.

Private mortgage insurance premiums may also be deducted on individuals' principal or second residence, according to Zillow. However, the deduction begins to phase out for joint filers whose adjusted gross income is $100,000 or higher, or $50,000 or higher for singles. As the rules for deducting PMI can vary depending on the type of mortgage individuals carry - i.e. FHA, VA or other government-backed mortgage - homeowners should consult with their tax preparer before deducting these amounts.

One of the most costly aspects of owning a home includes paying property taxes to state and local governments. The IRS allows homeowners to deduct these taxes on their returns, so long as the money is not being held in escrow to cover property tax payments.

Deductions exist for sellers as well
Individuals who sold their homes in the past year may also be eligible for tax breaks. People generally absorb a number of costs associated with selling their properties, including repairs, broker's fees and title insurance. Many of these costs are deductible, particularly with regard to repair costs. However, there are special rules governing these expenses, and homeowners who try to write off repairs must ensure that they were completed within 90 days of the sale, and that they were completed for the sole purpose of improving the home's marketability, Zillow explains. Individuals who have questions about selling costs should address them with their tax office to ensure that they are valid for deductions.

For a more in-depth look at Liberty Tax Services, visit http://libertytax.com or the Give Me Liberty! Magazine. Follow Liberty Tax on Facebook at http://facebook.com/LibertyTax and on Twitter at http://twitter.com/libertytax or check the blog at http://libertytax.com/taxlounge or contact Liberty Tax directly at 1-877-at-Liberty.

IRS discourages taxpayers from checking refund status more than once a day

2013-02-20T14:54:00Z

After people are finished filing their income taxes, the waiting game begins for many who are anticipating a refund. The Internal Revenue Service recently created a page on its website where Americans who filed could check the status of their refund. In recent days, however, the federal tax agency issued a plea to taxpayers to limit checking the website to once a day.

The IRS said its "Where's My Refund?" website and smartphone app are getting more activity than it can handle, with some people checking it several times a day, according to The Associated Press. The agency is also reminding people that its website is only updated once a day, and this usually occurs overnight. It also said that the same information can be retrieved by calling its toll free number, which can help eliminate unnecessary traffic on the website.

"I think what we're seeing is just part of the natural evolution in the refund process," IRS spokesman Terry Lemons told the AP. "Twenty-five years ago, you desperately checked the mailbox every day."

Individuals' fervent interest in checking their refund status may be the result of the IRS processing delay, which prohibited Americans from filing their taxes until January 30. The filing postponement allowed the IRS to update their systems to account for the changes to federal tax law that Congress enacted at the beginning of the year. However, many Americans who filed their taxes on this date are likely requesting their refunds to be processed quickly.

Why is the refund process taking so long?
Typically, individuals who file electronic returns can expect to receive money back in roughly 21 days. This process may take up to six weeks for those who file paper returns. However, there are some factors that may delay the process. For example, incorrect information, missing data or failing to provide sufficient documents may cause processing delays while the IRS tries to piece together what it needs to determine tax liability. To avoid these scenarios, filers should rely on a licensed tax preparer to complete their returns and asks questions if they are confused about whether they qualify for certain credits and deductions.

Refunds may also be delayed if individuals are facing certain circumstances. For example, bankruptcy, open audits or balances due for previous tax years can lead to slower processing times and affect the date in which individuals receive the amount they're owed.

Steps to take when missing important tax documents

2013-02-14T14:54:00Z

Keeping documents and work information organized during tax season can make filing income taxes simpler and less stressful. So when individuals find that they are missing important paperwork before their meeting with a tax preparer, panic can set in. As Â a rule, employers, banks and other parties who are responsible for sending taxpayers the necessary forms they will need to file must send out this paperwork by January 31. If weeks have passed and individuals have not received their statements, there are a number of steps to take.

For missing W-2s, workers should first contact their payroll office. Incorrect information, such as a wrong address, could be the culprit for missing W-2s. If this is the case, an employee's company may issue them a replacement W-2 or enable them to pick it up at the office, according to Fox Business. Many companies are now allowing their workers to download this information online, so it may also be expedient to find out if the company offers this retrieval method.

However, if individuals have requested a replacement and have still not received the form, it might be a good idea to contact the Internal Revenue Service. When companies generate W-2s, one copy is sent to the worker, while another is delivered to the IRS. It's likely they will already have consumers' information on file, so taxpayers should be prepared to provide some compensation information - which can be found on their last pay stub - to the agents, Fox Business reports. The IRS will then alert the employer of the issue and sendÂ out substitution W-2 forms for the worker.

Deductions and credit information
Individuals likely receive other information from banks, brokerages and lenders that allow them to make deductions. People who find that they are missing Forms 1099 from banks or Forms 1098 for mortgage interest may be able to download this information off their account site. If this information is unavailable online, the service providers should be able to resend these forms. Self-employed workers who made more than $600 during the year are required to submit a 1099 form as well. However, if they do not receive one, workers are still required to report the income on their taxes.Â

Knowing how to respond when missing key information can be stressful, so those who are unable to retrieve key tax documents should contact their tax office immediately for guidance on how to proceed.Â

Tax refund options: Which will you choose?

2013-01-22T14:54:00Z

The process of filing income taxes can be stressful and tedious for many Americans, but a large number look forward to receiving a large tax refund from Uncle Sam when it's all said and done. The quickness in which taxpayers receive their refunds depends on a several factors, ranging from how they filed their taxes to whether any processing delays or mistakes occurred. For example, those who submit their tax forms electronically are likely to obtain their refunds more quickly than paper filers. In addition to knowing which factors will affect when they obtain money from the IRS, individuals may also be curious as to their different refund options. Gone are the days when taxpayers only had the choice of receiving a refund check from the government. Now, there are several ways Americans can obtain what they're owed.

The first option is a standard check. Those who file paper returns may request that their refund be sent in the mail via check. However, this process can take longer and it make take roughly six weeks after their tax returns are processed for filers to obtain their refunds. Electronic filers may also request that their refunds be sent via check, and they typically wait up to three weeks. Though this process takes longer, there are some benefits to requesting a paper check. Unlike refunds that are directly deposited into wrong accounts due to incorrect routing and account numbers, paper checks that are lost in the mail are granted better protection.

Another more popular option is to have a refund directly deposited into taxpayers' accounts. Individuals may also choose to have their refund deposited into multiple bank accounts. The IRS will allow refunds to be deposited in up to three accounts, such as checking, savings and retirement funds. Taxpayers can fill out Form 8888 to specify the accounts in which their money is to be deposited, and the process is much more expedient than obtaining a paper check. However, it's important that taxpayers ensure they fill out account information correctly. Failing to do so may result in them losing their refunds altogether.

Don't forget about investment options

Individuals may also use all or a portion of their refunds to purchase U.S. Series I Savings Bonds. These investments can be purchased in multiples of $50, and individuals may purchase up to $5,000 in paper bonds in a given calendar year. Further, individuals have the option of purchasing these bonds as gifts for others, including spouses, children and grandchildren. For more information about the rules relating to bonds, individuals should consult their tax preparer when filing their returns.

Measures to lower your property taxes

2012-12-21T14:54:00Z

As the year comes to a close, the housing market remains a top priority for lawmakers and homeowners next year. In addition to high rates of foreclosure short sales, many families are still carrying negative equity or finding it difficult to refinance. However, home values have strengthened modestly over the course of the year, bringing some good news to both owners and potential buyers. While values may have fluctuated, many home assessments have not and there are a large number of households who may be overpaying on their property taxes.

As individuals seek to keep their tax bills low in the coming year, one of the first areas they focus on is their property taxes. Data from the National Taxpayers Union reveals that 60 percent of homes are overvalued on their property taxes - yet, only 2 percent of homeowners appeal their property taxes.

Taking action to ensure the property was assessed fairly

Homeowners have some recourse to determine if their property value was calculated accurately. First, property values and home details are public information and can be obtained through their local governments. Homeowners should pick up their property record card which is essentially a summary of their home's features. This may include the number of rooms in a home, square footage and other details that impact their value. It's not uncommon for mistakes to be made in this area, so individuals should double check to make sure their footage is correct. In addition, they should ensure the number of bedrooms is correct and other features, such as a swimming pool or a deck, have not been erroneously added to their property card. Additional features can easily drive up the value of a home.

If taxpayers choose to have their home reassessed, it's also important to know what professionals will be examining. If updates to the home have been made recently, this could drive a homeowner's value higher, so they should take this into consideration. On the offhand, if there are significant repairs that must be made or other characteristics that would drive down the value of a home, assessors should also be made aware of these features.

Many Americans are concerned about their tax filing next year due to the impending fiscal cliff, and as a result, trying to reduce their liability in other areas of their lives. Appealing inaccurate assessments is one tax sector that may help reduce individuals' overall tax obligations.

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Liberty Tax Service (NASDAQ: TAX) has prepared over 2 million tax returns in 2012 alone and has over 4,100 offices in the United States and Canada. As the fastest growing tax franchise ever, Liberty Tax’s total revenues grew to $109.1 million last tax season. Liberty Tax stands behinds community enrichment efforts by sponsoring various non-profit organizations and urging their employees and franchisees to give back to their communities.

For a more in-depth look at Liberty Tax Services, visit http://libertytax.com or the Give Me Liberty! Magazine. Follow Liberty Tax on Facebook at http://facebook.com/LibertyTax and on Twitter at http://twitter.com/libertytax or check the blog at http://libertytax.com/taxlounge or contact Liberty Tax directly at 1-877-at-Liberty.

Landlords: Start preparing your income taxes soon

2012-12-17T14:54:00Z

Many people with second properties find themselves becoming "accidental landlords" when they rent out these homes or condos to others at various points of the year. The Internal Revenue Service has specific guidelines that govern how often and the length of time in which homeowners may rent out their properties before being classified as a landlord, a title that greatly impacts a person's tax liability.

Individuals who use their primary or second home as a personal residence for most of the year may not be considered landlords. The IRS considers a home to be a "personal" residence if people use it for personal purposes for a certain amount of time during the tax year. In order to be considered a personal residence, rather than rental property, owners must use it for more than the greater of 14 days or 10 percent of the total days it is rented to others. Also, if owners only rent out a second or primary home for 14 days or less, they do not have to report the rent they received to the IRS. However, for those who regularly rent out their homes to make money, the end of the year may be the perfect time to gather up all expense statements and book an appointment with a tax preparer. Landlords must report rental properties on their federal income taxes, but they may claim several deductions for expenses incurred through the year.

Typical rental costs that landlords can write off

There are a number of expenses that may be deducted on a person's taxes to help them lower their liability. These include mortgage interest, points, HOA fees, property taxes and insurance. Landlords may also deduct the cost of cleaning and maintenance, utilities, repairs and management and legal fees. Another important deduction relates to the depreciation of the property.

To calculate the depreciation, landlords must determine the tax basis and depreciable basis of their property. The tax basis is the smaller of the amount paid when a person purchased the property, plus any capital improvements that were made over the years or the FMV at the time of the conversion. This figure is then split into land value and building value to get the depreciable basis. Finally, the deduction can be calculated by dividing the building value by 27.5 years. Landlords are highly encouraged to consult a tax professional to help calculate these figures and avoid costly mistakes.

This information must be filled out on IRS 1040 Form Schedule E - Supplemental Income and Loss From Real Estate.

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Liberty Tax Service (NASDAQ: TAX) has prepared over 2 million tax returns in 2012 alone and has over 4,100 offices in the United States and Canada. As the fastest growing tax franchise ever, Liberty Tax’s total revenues grew to $109.1 million last tax season. Liberty Tax stands behinds community enrichment efforts by sponsoring various non-profit organizations and urging their employees and franchisees to give back to their communities.

For a more in-depth look at Liberty Tax Services, visit http://libertytax.com or the Give Me Liberty! Magazine. Follow Liberty Tax on Facebook at http://facebook.com/LibertyTax and on Twitter at http://twitter.com/libertytax or check the blog at http://libertytax.com/taxlounge or contact Liberty Tax directly at 1-877-at-Liberty.

Few people claim the mortgage interest deduction

2012-12-10T14:54:00Z

Homeownership is not only considered a smart financial investment, but also a satisfying personal aspiration. However, owning property is one of the most significant monetary moves most people make during their lifetimes, and generally takes up a large percentage of an owner's income. To help lessen some of the costs, the Internal Revenue Service allows homeowners to claim a mortgage interest deduction. Despite the benefits of this allowance, new data from the IRS shows that few individuals actually take advantage of it.

USA Today recently analyzed data from the federal tax agency, and found that only 25 percent of tax filers actually write off their mortgage interest, and that this figure varies significantly by region, with particularly high rates in costly areas. The use of tax benefit ranges from a high of 37 percent in high-cost areas, such as Maryland, to roughly 15 percent in low-cost regions, such as North Dakota and West Virginia, the news source reports.

Some analysts argue that this scenario occurs due to the requirement that filers must itemize their deductions in order to claim the write-off. As a result, the deduction may only be lucrative for those whose total itemized deductions - which may include charitable contributions and medical expenses - are worth more than the standard deduction. For example, deductions may exceed $12,000 for individuals who live in high-cost areas, such as California, Washington and Hawaii. The current standard deduction is $11,900 for couples filing jointly in 2012.

Claiming the mortgage interest deduction

Some may be on the fence about whether they are eligible to claim a mortgage interest deduction or whether writing it off would be worthwhile. To make this determination, homeowners should keep records of their mortgage statements and consult their tax preparer. Under current tax laws, homeowners are required to hold a secured loan - meaning the debt must be collateralized by a bank - in order to be eligible for the deduction.

At the end of the year, homeowners' lenders will send them Form 1098, which is their mortgage interest statement. The document will outline how much interest and principal was paid on the residence over the course of the year. Those who write off their interest will apply the information on Form 1098 to Schedule A itemized deductions on their IRS Form 1040.

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Liberty Tax Service (NASDAQ: TAX) has prepared over 2 million tax returns in 2012 alone and has over 4,100 offices in the United States and Canada. As the fastest growing tax franchise ever, Liberty Tax’s total revenues grew to $109.1 million last tax season. Liberty Tax stands behinds community enrichment efforts by sponsoring various non-profit organizations and urging their employees and franchisees to give back to their communities.

For a more in-depth look at Liberty Tax Services, visit http://libertytax.com or the Give Me Liberty! Magazine. Follow Liberty Tax on Facebook at http://facebook.com/LibertyTax and on Twitter at http://twitter.com/libertytax or check the blog at http://libertytax.com/taxlounge or contact Liberty Tax directly at 1-877-at-Liberty.

Won the lottery? You must pay Uncle Sam

2012-12-03T14:54:00Z

After the largest Powerball lottery in history ended last week, many Americans may be wondering how much those lucky winners will walk away with. The final jackpot totaled $587.5 million, with two winners in Arizona and Missouri being the night's big winners. There are also several others who may have also won smaller prizes in the running. However, before those individuals can take possession of their reward, the IRS must first take its cut of the winnings.

Gambling winnings - including monetary prizes from horse races, lotteries, casinos, sweepstakes, poker tournaments and even Bingo - are all considered taxable by the IRS. In some cases, the winnings may incur high taxes, depending on several factors. First, the winners will face state taxes, the rate of which varies by their location. For example, the Arizona resident who won the Powerball will face a 5 percent tax rate, or 6 percent if the winner is a non-resident, according to the Tax Foundation. In contrast, the winner who won in Missouri will be charged a 4 percent tax rate. New Jersey residents typically pay the highest tax rates in the country for lottery winnings, which sit at 10.8 percent. Maryland residents are charged 9.25 percent, while non-residents face a tax rate of 7.5 percent. New York comes in third, with residents paying an 8.97 percent tax rate, plus an additional 3.648 percent for New York City.

Residents of certain states that do not impose an income tax may not face state liabilities, such as those who reside in South Dakota, Tennessee, Texas and Washington.

Federal tax rules

The IRS also takes its cut as well, with winnings in excess of $5,000 being subject to a 25 percent withholding tax. When it comes to receiving big payments, lottery winners -such as those who won the Powerball - can take the amount as an annuity payment, which will be spread out over a period of years and taxed each year. Or winners can take a large cash payment, which will be taxed immediately. In the case of the Powerball, if the two winners take the lump sum, they each will receive $192.5 million - and would owe roughly $67 million to the IRS, CNN Money reports. In addition, they will be taxed at the highest federal rate of 35 percent, the news source adds.

Lottery winners are also required to follow the proper tax filing rules, which require them to submit Form W-2G to report their winnings.

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Liberty Tax Service (NASDAQ: TAX) has prepared over 2 million tax returns in 2012 alone and has over 4,100 offices in the United States and Canada. As the fastest growing tax franchise ever, Liberty Tax’s total revenues grew to $109.1 million last tax season. Liberty Tax stands behinds community enrichment efforts by sponsoring various non-profit organizations and urging their employees and franchisees to give back to their communities.

For a more in-depth look at Liberty Tax Services, visit http://libertytax.com or the Give Me Liberty! Magazine. Follow Liberty Tax on Facebook at http://facebook.com/LibertyTax and on Twitter at http://twitter.com/libertytax or check the blog at http://libertytax.com/taxlounge or contact Liberty Tax directly at 1-877-at-Liberty.

IRS permits retirement loans, hardship distributions to Sandy victims

2012-11-20T14:54:00Z

For the thousands of victims who were affected by Hurricane Sandy, coming up with the funds to cover daily costs or start rebuilding their homes can be challenging. While many may have homeowners and flood insurance to cover the damages, some find that their policies are not sufficient to pay for all the damages. In addition to covering some or all rebuilding costs out-of-pocket, damage to vehicles and replacing lost clothing and belongings add more expenses. To help victims meet their needs, the Internal Revenue Service announced that 401(k)s and other employer-sponsored retirement plans can make loans and hardship distributions to Sandy victims and members of their families.

Those allowed to participate in the flexible rules include 401(k) plan participants, employees of public schools and tax-exempt organizations with 403(b) tax-sheltered annuities, and state and local government employees with 457(b) deferred-compensation plans. While those with individual retirement accounts may not take out loans, they may be eligible to receive hardship distributions, the agency explained. In order to obtain the relief, Sandy victims and certain members of their families must live or work in disaster areas and apply for withdrawals by February 1, 2013.

IRS eases rules and guidelines that govern loans, withdrawals
In addition to extending this relief option to victims, the IRS also noted it will ease procedural and administrative rules that typically apply to loans and hardship withdrawals. The relaxed standards are designed to enable taxpayers to gain access to their money more quickly. Further, the six-month prohibition on 401(k) and 403(b) contributions that normally impact employees who take hardship distributions will not apply.

In addition, those who live outside disaster areas may now can take out a retirement plan loan or hardship distribution and use it to assist a son, daughter, parent, grandparent or other dependent who lived or worked in the disaster area. The IRS also relaxed the limits on how the funds may be used, and victims are now free to use their distributions or loan money for food and shelter. Those who want to take out a loan or hardship withdrawal should consult their tax office to learn more about the easing of limitations.

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Liberty Tax Service (NASDAQ: TAX) has prepared over 2 million tax returns in 2012 alone and has over 4,100 offices in the United States and Canada. As the fastest growing tax franchise ever, Liberty Tax’s total revenues grew to $109.1 million last tax season. Liberty Tax stands behinds community enrichment efforts by sponsoring various non-profit organizations and urging their employees and franchisees to give back to their communities.

For a more in-depth look at Liberty Tax Services, visit http://libertytax.com or the Give Me Liberty! Magazine. Follow Liberty Tax on Facebook at http://facebook.com/LibertyTax and on Twitter at http://twitter.com/libertytax or check the blog at http://libertytax.com/taxlounge or contact Liberty Tax directly at 1-877-at-Liberty.

Tax issues to follow prior to the new year

2012-11-19T14:54:00Z

Many Americans are concerned about the potential tax changes that may take place by the end of the year. While lawmakers have yet to make concrete changes to current rules, several proposed alterations have made many taxpayers question how these changes would impact them. Therefore, those who are considering year-end tax planning strategies may benefit from understanding the types of proposals that are being considered and how they may impact them.

For example, many parents rely on the Child Tax Credit to help manage the expenses associated with raising a family. Beginning in 2013, the maximum credit for each eligible child is expected to drop from the existing $1,000 to $500. Changes may also be made to the Earned Income Credit, which millions of families in the lowest income brackets rely on to lower their tax liability. In previous years, lawmakers enacted legislation that increased the credit for families with three or more qualifying children and allowed married joint-filing couples to earn more without having their credits reduced. However, these changes are set to expire at the end of the year if Congress does not choose to extend them.

Potential changes to education and student loan allowances

Millions of families rely on deductions and credits to manage the rising costs of education expenses. Currently, student loan debt tops $1 trillion dollars, and many schools have been forced to raise tuition rates due to lost endowments and donors. However, potential changes to these benefits may affect how much households can save on qualified education expenses.

For example, the current student loan interest deduction enables families to write off as much as $2,500 in interest payments. In 2013, however, there may be a 60-month limit on deductible interest, and phase-out provisions may be tightened to a level that may eliminate the deduction for many families, according to MarketWatch.

Those who rely on Coverdell Education Savings Accounts to help families save for college costs may also see a stark reduction in the amount they can devote to these accounts annually. The current maximum contribution amount to the federal-income tax-free accounts is $2,000, but this may fall to $500 if proposals are approved, the news source explains.

Proposed end-of-year tax changes have made it difficult for many families to plan ahead. While no person can clear up the uncertainty until Congress acts, it may be helpful for families to consult a tax preparer to help them determine which year-end strategies to adopt for their circumstances.

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Liberty Tax Service (NASDAQ: TAX) has prepared over 2 million tax returns in 2012 alone and has over 4,100 offices in the United States and Canada. As the fastest growing tax franchise ever, Liberty Tax’s total revenues grew to $109.1 million last tax season. Liberty Tax stands behinds community enrichment efforts by sponsoring various non-profit organizations and urging their employees and franchisees to give back to their communities.

For a more in-depth look at Liberty Tax Services, visit http://libertytax.com or the Give Me Liberty! Magazine. Follow Liberty Tax on Facebook at http://facebook.com/LibertyTax and on Twitter at http://twitter.com/libertytax or check the blog at http://libertytax.com/taxlounge or contact Liberty Tax directly at 1-877-at-Liberty.

End-of-year financial planning tips

2012-11-15T14:54:00Z

As the holiday season approaches, many people get caught up in making travel plans, purchasing gifts and hosting events. However, this can leave little time for individuals to organize their finances and start the new year on the right foot. People who know where they currently stand may be better equipped to plan ahead for their 2013 goals. This in turn may enable them to boost their savings, develop a stronger investment portfolio and lower their tax liability.

Individuals should take advantage of the calm before the holidays to review their standing and consider a few year-end changes that may boost their position for next year. For example, those who have not contributed the maximum amount to a retirement fund - such as a 401(k) or 403(b) - have until December 31 to do so. The rules differ slightly for IRAs, as individuals can make contributions for 2012 until the due date of their returns - in most cases, April 15. In addition to boosting their retirement funds, making maximum contributions may also lower workers' tax liability for the 2012 tax year. Those 50 and older should also take advantage of "catch-up" contribution allowances, which enable them to put an additional $5,500 toward their retirement accounts each year.

The end of the year is also a good time to contribute to charities and meaningful causes. Those who give money or assets to qualifying organizations may write these costs off on their taxes if they itemize their deductions. However, it's important that people ensure the organization to which they donate is a qualifying charity or cause in order for the write-off to be valid. The Internal Revenue Service typically classifies organizations as "qualifying" if they are organized and operated for religious, charitable, educational, scientific or literary purposes. Those that operate for the prevention of cruelty to animals or children are also valid. Those who have questions about where a group qualifies under these rules should consult their tax preparer.

Preparing for the long-term

In addition to maxing out retirement contributions, those who invest heavily in the stock market tend to use the end of the year for tax-loss harvesting. This process involves selling securities at a loss to offset capital gains tax liability. Prior to doing so, however, it may be ideal for investors to consult with their advisor to ensure this strategy will help them in the long run.

Finally, individuals should take any life changes into account to update their legal documents. This includes marriage, divorce, death and birth, all of which may prompt changes in a person's beneficiary information.

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Liberty Tax Service (NASDAQ: TAX) has prepared over 2 million tax returns in 2012 alone and has over 4,100 offices in the United States and Canada. As the fastest growing tax franchise ever, Liberty Tax’s total revenues grew to $109.1 million last tax season. Liberty Tax stands behinds community enrichment efforts by sponsoring various non-profit organizations and urging their employees and franchisees to give back to their communities.

For a more in-depth look at Liberty Tax Services, visit http://libertytax.com or the Give Me Liberty! Magazine. Follow Liberty Tax on Facebook at http://facebook.com/LibertyTax and on Twitter at http://twitter.com/libertytax or check the blog at http://libertytax.com/taxlounge or contact Liberty Tax directly at 1-877-at-Liberty.

IRS increases retirement contribution limits for 2013

2012-10-23T14:54:00Z

Several studies reveal that many Americans are focusing more seriously on their retirement planning efforts to ensure they don't fall short when they enter their golden years. More workers are enrolled in employer-sponsored contribution plans, namely 401(k)s, and are contributing fervently to these tax-advantaged plans to build their nest eggs. The push toward more responsible retirement and tax planning is partly in response to uncertainty regarding whether lawmakers will allow the Bush tax cuts to expire at the end of the year. In the meantime, however, the Internal Revenue Service has announced the retirement contribution and gift tax rates for 2013.

Next year, the contribution limit for employees who participate in 401(k), 403(b) and other plans will increase to $17,500 from the current $17,000. This represents the second consecutive year the IRS has increased the contribution limit by $500. However, the additional "catch-up" contribution limit for those 50 and older will remain unchanged at $5,500.

The IRS also increased the upper income limit for those who make deductible contributions to traditional individual retirement accounts and are covered by a workplace retirement plan. The 2013 limits will rise to $115,000 for married couples filing jointly and $69,000 for single filers. For IRA contributors who are not covered by a workplace plan, but married to someone who is, the upper income limit increases to $188,000 of modified adjusted gross income from its current $183,000. Finally, the upper income limits for taxpayers contributing to a Roth IRA are set at $127,000 for singles and $188,000 for married couples filing jointly.

Other changes to expect in 2013

In addition to retirement contribution limits, the IRS also announced the gift tax limits will rise to $14,000 for the 2013 tax year from its current $13,000 for singles and $26,000 for married couples filing jointly. This means individuals may gift up to that amount - or $28,000 if filing jointly - without triggering a tax.

Lastly, Americans who are living overseas may also see some benefits. The amount of foreign earnings they can exclude from their taxable income will increase to $97,600 next year, compared to its current $95,100. Because individuals who are living abroad may miss announcements relating to changes in U.S. rates and contribution limits, it can be helpful to work closely with a tax preparer at various points in the year to take advantage of these adjustments as they occur.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Follow the right process after inheriting an IRA

2012-10-10T14:54:00Z

No one wants to come into money through the death of a loved one, but many parents and family members choose to leave their retirement accounts to relatives as part of their estate. When a person inherits an individual retirement account from a relative other than a spouse, there are specific tax rules that they must follow when deciding how to handle the funds to avoid the ire of the Internal Revenue Service.

One of the most common, and costly, mistakes that an individual can make after inheriting an IRA from a family member is rolling it over to a new custodian, according to Fox Business. Many people are aware that they have flexibility with their own IRA accounts, and may take the money out of their own account and re-deposit it with a new bank as long as the transfer takes place within 60 days. This is not the case with an inherited IRA.

These funds may only be moved in a "trustee-to-trustee" transfer. This means that the money must never be removed and given to the beneficiary in the form of a check, even if the individual immediately deposits the amount in a new IRA within 60 days. In a trustee-to-trustee transfer, the funds must move directly from the initial custodian to the new custodian.

Failing to follow these rules may trigger income taxes and other penalties. For this reason, it's imperative to work with a tax preparer after inheriting retirement accounts from a loved one as the rules are strict and complex.

Other rules for inheriting an IRA
IRAs that are inherited from someone other than a spouse must also be retitled to reflect that the deceased individual is still the owner and balance is an inheritance. This may include titling it as "Mom's IRA, son Robert is beneficiary."

In addition, heirs must begin taking required minimum distributions from the account by December 31 of the year after they inherited the account. However, beneficiaries may draw these out over their expected life spans. This means that the younger an individual is, the smaller the distribution they may take. It is important for individuals to follow the RMD rule to avoid a steep IRS penalty - 50 percent of the amount that was supposed to be withdrawn.

Trying to decipher tax rules relating to IRAs after losing a loved one can be difficult. To avoid potential mistakes and financial consequences, enlist the help of a tax professional to ensure the process is completed smoothly.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Managing your tax records when filing season is over

2012-10-05T14:54:00Z

With tax season long over and the holidays approaching, many people are putting their records behind them and preparing their homes for gatherings with family and friends. For individuals who are cleaning out old documents and paperwork, it can be tempting to toss them in a box for storage or simply throw them away. However, it's a wise idea to keep some records for a certain period of time, especially if the IRS comes knocking or individuals are undergoing a major life event.

Taxpayers can adopt a simple approach to managing and organizing their records, and the first step is gathering all paperwork they have maintained in the past several years. Once they have this data collected, individuals should sift through each document and match it to the year in which it was filed to keep it organized. This may include 1099s, W-2s, withholding statements, retirement and investment accounts, deeds, receipts and invoices. Generally, most tax preparers recommend keeping tax returns and supporting documents for at least three years. This is the statute of limitations for IRS audits as well as for making corrections to tax paperwork.

There are some exceptions, however. The IRS may have up to six years to audit individuals who underpay their taxes by 25 percent or more, according to USA Today. Further, there is no statute of limitations on audits for individuals who fail to file a return. This means that for people who chose not to file on year, tossing old tax paperwork may not be a wise move. For those who have filed returns each year and have not previously been audited for serious tax issues, e-filers should still print out a copy of receipt acknowledgement to prove they filed on time. Those who file paper returns should send in their paperwork via certified mail and maintain all receipts as proof that they submitted their taxes.

Home seekers: Know your lenders tax requirements

Individuals who are planning to buy a home in the next several months should also expect a request from their lenders for their tax records. Each bank has its own requirements for how many years of tax records must be provided, with most lenders commonly requesting the last three years of returns. Understanding how many returns are necessary to apply for a mortgage can help buyers avoid tossing out necessary paperwork inadvertently.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Tax benefits for low-income families

2012-09-20T14:54:00Z

When households are struggling to make ends meet, build savings and plan for retirement, being hit with a tax bill can hinder their goals. While Americans should never shirk their tax responsibilities, there are ways they can lower their liability. Low-income families may be eligible for a number of benefits in the form of credits and deductions, which can lower their tax bill on a dollar-for-dollar basis, or reduce their taxable income.

The Earned Income Credit is one of the most beneficial, but underutilized, tax breaks available to families who don't have a high income threshold. To qualify for the benefit for the 2012 tax year, individuals must have an earned income and adjusted gross income that is less than $45,060 - or $50,270, if married filing jointly - with three or more qualifying children. The threshold drops to $41,952 - or $47,162 for married filing jointly - with two qualifying children. Individuals with one qualifying child must earn less than $36,920 or $42,130 if married filing jointly. Lastly, the income stipulations for taxpayers with no qualifying children is $13,980 or $19,190 if married filing jointly.

In addition, investment income must not exceed $3,200 per year. The maximum credits eligible individuals may earn are as follows: $5,891 for three or more qualifying children; $5,236 with two qualifying children; $3,169 with one qualifying child, or $475 with no qualifying children.

Housing costs are typically among the largest expenses Americans are responsible for, and homeowners may be eligible for the mortgage interest credit if they have purchased their home through a special program in which they receive a Mortgage Credit Certificate from their state or local government, according to Fox Business.

Lastly, individuals may also qualify for the Retirement Savings Contribution credit. To be eligible for the 2012 tax year, married couples filing jointly must not have an adjusted gross income that exceeds $57,500. This benchmark falls to $43,125 for head of household filers and $28,750 for single filers and qualifying widow or widower.

Americans facing economic hardship or who are in the low-income bracket should consult with their tax preparer about other benefits for which they may be eligible.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Potential tax issues to be aware of during retirement

2012-09-12T14:54:00Z

A person's retirement years can be relaxing when they have planned accordingly and amassed enough wealth to keep them comfortable. However, one of the most overlooked aspects of retirement planning often involves taxes and how they will impact individuals' finances during their golden years.

Retirees should first look to the type of retirement account they participated in to determine how their finances will be affected. For example, those who invested in a Roth IRA may not face tax issues during retirement because they paid taxes on the money prior to putting it into the Roth account, and the earnings have been left to grow tax-free. For this reason, withdrawals taken during retirement will not be subject to taxes.

Those who utilized traditional IRAs or 401(k)s, however, will be required to pay taxes each year. This is because workers do not pay income taxes on employer-sponsored plans or deductible IRA contributions, Fox Business reports. Further, distributions will be taxed at a retirees' ordinary income tax rate. Lastly, many retirees safeguard their earnings for as long as possible to keep funds in tax-favored accounts. However, investors with tax-deferred retirement accounts must take required minimum distributions when they turn 70 1/2.

Individuals may also face tax liabilities due to their investment accounts. As the rules relating to capital gains may change in the near future, it can be helpful for investors to closely monitor their portfolios and work with a tax preparer to determine how many gains or losses will impact their taxes.

Lastly, federal taxes are not the only type that retirees must address, and they should also take state taxes into consideration. The rules relating to taxes vary on the state level, and some areas have more favorable tax advantages than others relating to sales and property taxes. In addition, some locations impose no income taxes at all, which can be more beneficial for seniors with limited assets. These states include Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. In addition, Tennessee and New Hampshire only tax dividend and interest income. Retirees who are planning to relocate should research their potential location's tax rules to better understand how it will impact their overall savings in the long-term.

Retirement planning is a lifelong process, and factoring in related considerations, such as federal and state liabilities, can help ensure that seniors better prepare their finances.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Tax rules for military personnel

2012-09-10T14:54:00Z

Americans who serve in the military often face travel and moving costs due to frequent relocations, experience long stints overseas and incur job-related costs. Although members of the armed forces are required to pay income taxes like civilians, they may receive special tax treatment or qualify for a number of benefits.

For example, combat pay earned from serving in a designated combat zone is not considered taxable income. However, military members may include this type of pay on earned income when applying for the Earned Income Tax Credit, according to Fox Business. However, these benefits only apply to those serving in combat zones. Military personnel who are serving overseas in a safe zone may still be required to pay income taxes on wages.

Armed forces personnel who are serving in combat zones may also have more time to file their taxes. The Internal Revenue Service automatically extends the filing deadline by 180 days for those serving in designated areas, which begins on the last day they are stationed in this zone. The same extension is also given to those who are deployed from their permanent home base to serve in a contingency operation. Further, many military bases are equipped with a tax preparation agency to help members meet their needs.

Military personnel may also qualify for a number of deductions that can help lower their travel and business expenses. For example, reservists who must travel more than 100 miles from their home to perform their duties should track their mileage, as they may deduct these costs. Further, those who meet the 100-mile requirement may also deduct hotel lodgings, airfare and meal expenses. The cost of uniform upkeep, job-related education costs and professional membership fees may also be written off.

Lastly, those members who leave the armed forces and transition to civilian positions should also consider deducting job-search expenses, ranging from resume preparation and mailing fees to outplacement services and travel costs.

Military personnel should consult a tax preparer prior to deployment to better understand their tax benefits and filing requirements while overseas. This may help service members - or loved ones at home - better organize their documents and take advantage of all the rewards they are entitled to.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

How forgiven debt will affect your tax bill

2012-08-24T14:54:00Z

Many individuals who fell on hard times may have struggled to pay their mortgage or spent hours negotiating their credit card debt with their lender. If these scenarios resulted in a foreclosure or cancelled balances, it's important that borrowers know how these actions will impact their tax bill so they can be prepared.

Cancelled debt is often treated as taxable income by the Internal Revenue Service. For example, if an individual carried a $15,000 credit card bill, and the lender agreed to forgive $8,000, the borrower may be taxed on the latter amount because it is classified as income for tax purposes. This can come as a shock to many Americans who are struggling to get their finances back in order. In some cases, those who receive a 1099-C notice regarding cancelled income from credit card debt may be exempt from paying taxes on a portion or full amount of those funds. By IRS standards, those whose liabilities exceeded their assets when the debt was settled were insolvent, which may mean they don't have to pay forgiven debt.

Foreclosure is another scenario that may result in a tax bill from Uncle Sam. However, this can be considerably more complicated than cancelled credit card debt, and those who lost their homes through this process should consult their tax preparer to discuss their liability.

The IRS treats foreclosures as the sale of property, meaning that owners may not only be required to pay capital gains on the "sale," but also income from cancelled debt, depending on whether they carried a recourse or non-recourse loan. Consumers who held a recourse loan are personally liable for the debt, and lenders may pursue repayment following the foreclosure. Those with non-recourse loans are not legally liable for their balances. Instead, lenders repossess the property to secure the loan.

To determine capital gains or losses, the basic formula involves subtracting the adjusted basis of the property - typically the purchase price plus any home improvements - from the fair market value of the property or, for non-recourse loans, the outstanding loan balance immediately prior to the foreclosure. If the calculation resulted in a gain, and borrowers used the home as their primary residence for at least two years during the five-year period ending on the date of foreclosure, they may qualify to exclude up to $250,000 from income. This amount increases to $500,000 for married couples filing jointly.

Lastly, those with non-recourse loans will not have cancelled debt income because lenders may not pursue repayment of the loan. However, those with recourse loans may find that they are liable for their balances, and should consult a tax professional following the sale to discuss their particular situations.

____________________________________________________________________________________________________________________
Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Deducting mortgage points

2012-08-23T14:54:00Z

Owning a home can be a great asset for Americans, and many view it as an investment into their futures. Having a stake in property not only enables consumers to build equity, but it may also qualify them for lucrative tax benefits. While many individuals are aware that they may deduct mortgage interest on their income tax returns, few may know that they might also be eligible to write off mortgage points as well.

Points are prepaid interest and each one is equal to one percent of the loan amount. Lenders typically charge points to increase their earnings, and new owners generally benefit from lower mortgage rates as a result, Bankrate.com explains. Individuals who paid points will see them on the 1098 statement from their lender, which will detail how much interest was paid. Homeowners who can deduct all the interest paid on their mortgage can usually deduct the mortgage points paid on their mortgage. However, those who plan on deducting their points in full during the year in which they are paid must meet nine requirements.

First, the loan must be secured by the individuals' main home, which is typically defined as the property they reside in for most of the year. Second, paying points must be considered an established business practice in their area. Third, the points that were paid should not exceed the amount generally charged in that area. Fourth, homeowners must use the cash method of accounting. This means that individuals must report income in the year they receive it and deduct expenses in the year they paid them. Fifth, the points cannot have been paid for items that are separately stated on a settlement sheet. These items may include fees for appraisals, retaining an attorney, inspections, titles or property taxes.

Sixth, the funds that were provided at or before closing on the home, in addition to the points the seller paid, must be at least equal to the points charged. This means that new owners cannot write off the funds that were borrowed to pay the points. The seventh requirement mandates that owners use the loan to buy or build their main home. The last two rules require that the points were computed as a percentage of the principal mortgage amount and, finally, that the amount is specifically stated as points on an owner's settlement statement.

Keep in mind that these requirements must only be met if owners plan to deduct the full amount of their points in the year they were paid. The IRS has other stipulations for those who refinance, making improvements on their homes or want to deduct their points over the life of their loan. For this reason, it can be helpful for homeowners to consult a tax preparer if they plan to write off points and interest.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Child care costs surpass rent prices in some states

2012-08-17T14:54:00Z

Many working families who struggle to make ends meet find that housing and living costs are not the highest burdens they face. Instead, a new study shows that the rising costs of reliable child care is what puts a dent in most households' income.

The results of a recent report from Child Care Aware of America reveal that the price of paying for child care exceeds rent costs in some states, putting a significant financial burden on working Americans. In addition, the costs of care vary by state, with facilities in New York, Massachusetts and Wisconsin being the least affordable. For instance, single parents who enroll a four-year-old child in daycare in New York can expect to spend roughly 44.8 percent of their income on these services. This percentage drops to 13.1 percent for two-parent households. In Massachusetts, the former can expect these costs to account for 41.8 percent of their income or 11.1 percent for two-parent families.

Analysts say that many families are now being forced to make tough decisions about child care, such as whether one working partner should leave the workforce to care for children and save money.

"Parents have to make some very difficult decisions: Do you pay your child care or do you pay your rent?" Marsha Basloe, executive director of New York's Early Care & Learning Council, told CNN Money. "In this economy, when they're really just trying to make ends meet, families are moving to informal childcare."

The federal government provides some tax relief to working parents in the form of the Child and Dependent Care Tax Credit and the Child Tax Credit. The CDCTC is available for eligible working families who cover expenses for child care, or the care of adult dependents or incapacitated spouses. Taxpayers may claim up to $3,000 in child care expenses for a child or dependent or up to $6,000 for a second child or dependent. The amount of the credit typically falls between 20 and 35 percent of the overall expenses, and the percentage individuals may claim depends on their income.

Parents may also be eligible to claim the Child Tax Credit, which amounts to $1,000 for each qualifying child. In order to be eligible, however, children must qualify as a dependent and fall under several stipulations. For example, the child must be under 17, live with the taxpayer for more than half the year and not provide more than half of his or her own financial support.

Federal benefits can provide some financial assistance to families who are struggling to meet their child care obligations. Individuals who enroll their children in these facilities should consider speaking with their tax preparer to determine if they are eligible for related credits or deductions.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Survey shows sandwich generation unaware of IRS gifting and loan tax rules

2012-07-11T14:54:00Z

Millions of Americans fall into what has been labeled the "sandwich generation." This demographic is defined as those individuals who are providing care or financial assistance to both their aging parents and adult children. In the period immediately following the recession, the sandwich generation began to swell as more individuals lost jobs and were unable to make ends meet. Many adults or recent graduates returned to their parents' homes, and aging adults relied more heavily on children to cover medical and financial expenses.

Providing financial assistance to loved ones, whether in the form of loans or gifts, carries significant tax consequences. However, the results of a recent Harris Interactive survey conducted on behalf of National Family Mortgage reveals that many in the sandwich generation are unaware of the tax ramifications of gifting and lending. Further, this lack of familiarity also extends to rules about intrafamily real estate transfers, which have becoming increasingly common as aging parents seek to downsize their living arrangements and adult children are unable to qualify for mortgages.

According to the results, 64 percent of Americans aged 45 and older are "not at all familiar" with a lender's obligation to report earned interest income from certain loans at a rate equal to the appropriate "IRS Applicable Federal Rate" in effect at the time the loan was issued. This is the case even if no interest was paid. In addition, another 46 percent of individuals between 45 and 54 are "not at all familiar" with the annual $13,000 gift exclusion.

Timothy Burke, founder and CEO of National Family Mortgage, said unfamiliarity with tax rules can cause problems for Baby Boomers during filing season if they have not followed the proper protocols.

"Intrafamily loans and financial gifts with relatives can be a win-win for both sides, but absolutely must be structured and documented properly to prevent misunderstandings with the IRS," said Burke. "Anyone considering a loan or a financial gift with a relative or friend should first consult with their preferred tax professional, financial planner, or attorney, to ensure the transaction is a successful one."

Individuals who provide financial support to family members should speak with their tax preparer to not only avoid potential issues, but to also determine if they qualify for certain credits and deductions.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Can you write off taxable income?

2012-07-09T14:54:00Z

When it comes to paying Uncle Sam, there are very strict rules about what can and cannot be written off on income tax returns. However, there are several costs that many individuals and business owners may not realize qualify for deductions during filing season. As a result, they may end up paying more than they should in taxes each year.

The Internal Revenue Service allows individuals to deduct expenses that were paid for the purposes of "producing or collecting taxable income, managing, conserving or maintaining property held for producing such income and determining, contesting, paying or claiming a refund of any tax." In addition, the amount of the expenses must exceed 2 percent of the filer's adjusted gross income in order to qualify.

There are several types of expenses and fees that may fall under this umbrella.

For example, investment and trustee fees are a common write-off if they meet specific rules. Expenses for professional investment advice and accounting or legal fees that relate to investments may qualify under this deduction. Clerical assistance and fees paid to an investment management company may also be written off on tax forms, but filers should ensure they keep good records to detail these costs. The IRS can be very particular when it comes to writing off these types of expenses, so ask investment managers to clearly detail what each fee corresponds to, Fox Business suggests.

In addition, individuals may deduct trustee fees, but only if they were billed and paid separately from an individual's own wallet. Those costs paid from within a retirement account do not qualify for the tax benefit, the news source explains.

Fees related to tax planning, guidance or preparation can also be deducted. This means that consumers who purchased software to help them file taxes may deduct it on their income taxes. In addition, those expenses paid to participate in certain tax repayment programs, such as an offer in compromise, installment program or resolving a tax dispute can also be written off.

Before deducting any of these types of fees and expenses, individuals should always consult their tax preparer to make sure the write-offs are valid. The IRS has very particular rules about these types of benefits, and having a firm understanding of the rules can help filers avoid potential tax issues.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Pay attention to capitals gains and losses

2012-06-12T14:54:00Z

Investing in the stock market is one of the most common strategies individuals rely on to grow their wealth and bolster their retirement savings. However, when tax filing season rolls around, they have to take their capital gains and losses into account to complete their returns accurately.

Capital gains and losses can be confusing for new investors at first, but understanding the basics of how they affect an individual's taxes can be a good foundation to set. First, almost anything a person owns and uses for personal and investment purposes is considered a capital asset. This includes stocks and bonds, mutual funds, real estate, collectibles and fine art, precious metals and even coins. A capital gain is defined as the difference between the amount an individual paid for the investment and the amount they received when they sold it. A profit from the sale results in a capital gain. Meanwhile, losing money during a sale is defined as a capital loss.

Individuals must pay taxes on capital gains. However, they are also permitted to deduct their capital losses. For these reasons, it's important to keep accurate records of all investments made over the course of the year. This not only includes what an individual purchased and the amount invested, but also any fees and commissions attached to both the purchase and the sale.

It's also important that investors separate their long-term capital gains and losses from their short-term capital gains and losses, as these will each receive different tax treatment. Long-term assets are those investments that were held in ownership for more than one year, while short-term investments are those held for one year or less. Long-term assets are taxed at a lower rate than short-term investments, which are taxed at ordinary income tax rates. This means that the rate for short-term gains may reach as high as 35 percent. Long-term capital gains rates typically don't exceed 15 percent and may be lower for individuals in lower-income brackets.

Individuals whose capital losses exceed their capital gains may deduct as much as $3,000 during filing season, or $1,500 if married and filing separately.

Capital gains and losses can be tricky to decipher for new investors or those who experienced a significant amount of activity during the year. For this reason, investors can make filing easier by maintaining their records and setting an appointment with a tax preparer early in the year.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Consider all your options when it comes to an old retirement account

2012-06-08T14:54:00Z

Retirement planning is a lifelong process that most Americans take seriously. Shortfalls during an individual's golden years can make it difficult to cover basic needs, such as housing and food costs, as well as medical expenses and similar financial obligations that may present themselves. For these reasons, many individuals explore their options when it comes to managing a 401(k) sponsored by a previous employer.

The way in which workers handle old 401(k) accounts will have heavy tax consequences. There are four ways individuals may manage this type of account.

First, individuals may choose to simply leave their account behind with their employer. Some workers choose this "set it and forget it" option because it helps them to avoid getting hit with tax penalties. However, this option can be limiting, because they may be forced to invest their 401(k) in specific funds that they have little control over. For those who want more discretion and authority over how their retirement nest egg is invested, this may not be the best option.

Another option is to roll the money over into an individual retirement account. This allows the money to continuing growing in a tax-deferred account, and workers will have more control over how their funds are invested. This can be especially beneficial for adults who think their financial circumstances may change in the future, because they can choose investments that best accommodate their financial picture.

Individuals may also have the choice of transferring their 401(k) plan to their new employer's retirement program. This can help workers avoid tax hassles and allow them to maintain their tax-free status. Keep in mind, however, that once the rollover has occurred, they must keep the funds in their new employer's account until they leave their position.

Lastly, workers may choose to cash out their 401(k) account. This can be a costly option because individuals will be required to pay taxes on their withdrawal, and those below age 591/2 will also be hit with a 10 percent early withdrawal penalty. For this reason, individuals should consider their long-term retirement goals before entertaining this option.

Making the right decision takes several factors into account, including a worker's overall retirement aims, current investment strategies and nest egg savings to date. It may be helpful to speak with a tax preparer to better understand the ramifications of each option before making a choice.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.
About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.
Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Are you an independent contractor or an employee?

2012-05-24T14:54:00Z

An individual's employment status plays a pivotal role in their income taxes during filing season. In some cases, however, determining how to classify a worker can be difficult, and individuals who may not be considered regular employees will need to pay close attention in order to file correctly.

This is largely because individuals who are employed as independent contractors fall under different tax guidelines than regular employees. Independent contractors are responsible for withholding their own income, Social Security and Medicare taxes because these amounts will not be withheld from their paychecks like a traditional employee. In addition, independent contractors are also required to make quarterly estimated tax payments to the IRS.

However, independent contractors also gain some tax benefits in the form of deductions during filing season. For example, they may claim a home office deduction and write off a portion of their rent or mortgage, utilities, and equipment. In addition, contractors may also deduct mileage for business-related travel and 100 percent of their health insurance premiums.

There is often some confusion over whether certain workers are classified as independent contractors or employees. For example, individuals who work from home out of their personal office may seem like independent contractors in theory, but if they fall within certain rules, they may still be labeled employees by IRS guidelines. Differentiating between the two can be challenging, but there are some basic guidelines that the IRS uses to define the work relationship and determine an individual's status.

The IRS categorizes individuals by whether they pass certain relationship tests. The first test, the right to control, focuses on whether the employer has the authority to control how workers do their jobs and the other functions they perform. Second, the IRS examines how workers are paid, whether expenses are reimbursed and who provides the equipment and supplies needed to complete the job. Lastly, the IRS examines the type of relationship between employers and workers, such as whether written contracts exist and whether benefits are extended. Benefits include health insurance, vacation time and pension plans. Independent contractors are not extended benefits, while employees generally are. Typically, the more flexibility a worker has in terms of these three tests, the more likely they are to be considered an independent contractor.

Workers who are unsure which category they fall into should consult with a tax preparer to avoid tax liability issues that can result from misclassification.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Taking advantage of a mortgage interest deduction

2012-05-14T14:54:00Z

A home is one of the largest investments an individual makes during his or her lifetime, and one of the benefits homeowners are privy to is a mortgage interest deduction during filing season. However, these deductions can be complex in some cases, and understanding the basics may help current owners start planning ahead.

Mortgage interest deductions allow individuals who own a primary residence or second home to deduct the mortgage payments they made to a lender. In order to claim a mortgage interest deduction, homeowners must itemize their taxes rather than taking the standard deduction.

However, they must meet several rules in order to qualify. First, mortgage interest can only be deducted if the debt is secured and the home is the collateral, according to Fox Business. This means that wraparound mortgages are excluded from interest deductions. Mortgage interest deductions can be claimed for primary and secondary homes, but certain stipulations apply for the latter.

Many consumers with second homes rent out their properties during part of the year and use it as their personal residence for another time period. Homeowners can still claim the deduction when they travel between these two if they reside in their home for more than 14 days out of the year, or more than 10 percent the number of days the home is rented out - whichever period is longer.

Further, individuals must have a creditor-lender relationship and take on personal liability for the mortgage in order to be able to claim interest on the property. This means that parents who pay their children's mortgage interest as a gift cannot deduct the amount on their own taxes.

Homeowners may also be able to deduct points if they meet certain qualifications. The rules surrounding the deduction of points in particular can be tricky, so most experts encourage homeowners to consult with their tax preparer to determine if they qualify.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Last-minute considerations for filing taxes

2012-04-04T14:54:00Z

The April 17 tax filing deadline is quickly approaching, and Americans who haven't yet filed their taxes may be scrambling to do so. Others who have already completed their returns, but owe a bill to Uncle Sam may be going through their resources to determine how to cover their balance. The good news is that there is still time to get everything done before the deadline, but individuals need to act quickly.

First, taxpayers who have not filed should contact their tax preparer immediately to schedule the closest appointment. This will give them enough time to ask questions and go over their returns with their professional. After this, it's also important to gather all the paperwork needed to file - W-2's, 1099s, receipts, invoices and financial statements - and go over them carefully to make sure nothing is missing. When the tax deadline approaches, it's easy to make simple mistakes, so going through a quick inventory of all tax records can help cut down on these errors.

The same care should also be taken when filing taxes. Make sure all names, Social Security numbers, amounts and calculations are correct before submitting the return. Even small errors, such as inverted numbers can cause headaches during filing season, so double check all the information to avoid problems.

Adults who owe taxes and do not have enough money to cover the full amount should explore all their payment options. Individuals who owe less than $50,000 may be able to enroll in an installment agreement with the IRS to make monthly payments toward their balance. Individuals should also be aware of all their payment options to choose the best one for them. The IRS accepts checks, money orders, debit and credit cards. However, the latter two payment methods impose convenience fees, so taxpayers should keep this in mind before turning to this option.

Individuals who have already completed their taxes and are awaiting money back from the IRS can check the status of their refunds by accessing the IRS website to track their funds. Keep in mind that taxes that were filed electronically will be processed more quickly than paper filing.

Adults who have questions about their taxes during this period should contact a licensed tax preparer to make any necessary changes to their forms before the deadline.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Are there any benefits to receiving a tax refund?

2012-04-03T14:54:00Z

Common knowledge tells most taxpayers that if they are receiving a large refund at the end of filing season, they did not withhold enough from their paychecks and essentially provided an interest-free loan to Uncle Sam. But in some cases, there can be a benefit to receiving a tax refund - but only if it's used wisely, according to The Associated Press.

The most obvious benefit of getting money back from the government is that filers do not owe a large bill to the IRS. Individuals who find out they have a tax bill may be caught off guard and financially ill-equipped to cover their balance, which can lead to stress and penny-pinching down the road, the AP reports. Further, adults who owe a significant balance they cannot cover out-of-pocket may be forced to sign up for an installment plan or pay with a credit card, both of which may come with fees and interest.

In addition to avoiding a hefty bill from Uncle Sam, getting a refund can also help individuals improve their financial situation. The lingering effects of the recession, coupled with rising gas prices and higher living costs have created a financial strain for some Americans in many areas of their life. Tax refunds can help alleviate some of these money woes and put adults in a better position. For example, the funds may be used to pay down credit card debt, which can help individuals escape rising balances and interest charges, and devote more income to savings.

In other cases, refunds can be used to bolster regular savings or establish an emergency cash cushion to deal with sudden expenses, the AP explains. Having some sort of cash windfall can give taxpayers the financial resources they need to meet their immediate goals, whether it be a home improvement project or putting money away for college savings or retirement.

Lastly, the AP notes several changes in tax code, deductions and credits in recent years. While withholding too much from a paycheck can translate into lower take-home pay for workers, it can also help protect them when new tax changes go into effect that may raise their tax liability. By having less on hand to spend on discretionary or unnecessary purchases, consumers may be in a better position during filing season to accommodate any tax changes that would have otherwise resulted in a bill.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Job seekers: take advantage of these tax breaks

2012-03-19T14:54:00Z

Jobless Americans may be facing several financial obstacles while they seek a new job, and the prospect of owing a tax bill can be stressful for unemployed individuals. Although individuals will be taxed on 100 percent of their unemployment compensation for the 2011 tax year, there are several deductions job seekers can claim that may help lower their liability during filing season.

"There's no question, most people would rather have a job than have to look for tax breaks for being unemployed," federal tax analyst Mark Luscombe told CNN Money. "But for those facing an extended period of unemployment, they can benefit from knowing the steps to take to lower their tax bill."

Searching for a new job can be expensive once the costs of mailing and printing resumes, phone calls, resume preparation services and traveling to interviews are factored in. But individuals who meet certain requirements can deduct these job search costs. In order to qualify, individuals must be seeking a new position in the same field or industry in which they were previously employed. This means first-time job seekers or those wanting to switch careers are not eligible for this deduction. Second, individuals must be conducting their job search consistently in order to qualify. Adults who take a "substantial break" between losing a position and seeking a new one will be ineligible. Individuals who qualify can treat job search expenses as miscellaneous deductions. Keep in mind that miscellaneous expenses must exceed 2 percent of an taxpayer's income.

After being unemployed for a long period of time, getting hired for a new position can be a huge relief for job seekers. But when this position requires adults to relocate, the costs can be burdensome. The IRS offers some relief in this category as well, and individuals who meet the time and distance test can write off several of their relocation expenses.

First, an individuals' new place of employment must be 50 miles further from their previous home than their prior office was. In addition, new hires must be employed for at least 39 consecutive weeks during the first 12 months of their relocation in order to qualify. The 39-week rule does not require workers to be employed with the same company for which they relocated in order to be eligible.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Are you eligible to claim miscellaneous deductions?

2012-03-15T14:54:00Z

Deductions are one of the most common allowances Americans use to lower their tax liability during filing season, and these write-offs exist in several categories. Many taxpayers are aware of the most common deductions, such as those relating to charitable contributions, medical expenses, childcare and student loan interest, but there is another more general write-off that often falls by the wayside: miscellaneous deductions.

Write-offs for miscellaneous expenses can apply to a variety of costs and fees, however they are generally divided into three categories: unreimbursed employee expenses, tax preparation fees and "other" expenses, according to Bankrate.com. Further, in order to qualify, expenses must exceed 2 percent of a taxpayer's adjusted gross income and only the amount over this requirement is deductible.

Unreimbursed employee expenses refer to those costs that were paid out of pocket and were required in order for a worker to be able to perform his or her job. In addition, they must also be "ordinary and necessary" to an employee's business or trade industry in order to be considered legitimate. This may include work uniforms, licenses, job-related training classes and certain fees. However, it's imperative to keep thorough records and descriptions that detail why certain items are necessary to employees' positions or how they help them do their jobs.

Individuals who paid to have their taxes completed by a professional or purchased software to complete the task themselves may see some tax relief in the way of miscellaneous deductions. In addition, the IRS allows taxpayers to deduct the costs of related tax-filing fees, such as the expense of copying returns and paying postage to send them out, Bankrate.com explains. Taxpayers must write these fees off for the year they were paid, rather than the year in which they are filing. For example, individuals filing their 2011 tax returns can deduct fees paid in 2011 to prepare their 2010 return.

Lastly, "other" expenses may fall within the miscellaneous deductions category. This allowance generally relates to fees and activities related to "income-producing" efforts. For example, clerical or trustee's fees, may be included in this section if they related to caring for investments and retirement accounts.

Because miscellaneous expenses can be broad and far-reaching, individuals writing off these costs for the first time may consider consulting a tax preparer to ensure they are filing correctly and their deductions are allowable.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

IRS offers new relief for unemployed Americans

2012-03-08T14:54:00Z

While the unemployment crisis has made modest improvements in recent months, joblessness in the United States remains stubbornly high. Filing season can exacerbate the hardship under which many unemployed adults labor, as those receiving jobless benefits are taxed for the compensation and may end up with a large tax bill. However, new provisions announced by the IRS may provide some relief to individuals who are struggling to pay their balance.

The new rules would provide unemployed and self-employed individuals with a six-month grace period on failure-to-pay penalty fees if they meet certain conditions. In order to qualify, unemployed individuals must have been without a job at least 30 consecutive days during 2011 or 2012 up to the April 17 deadline for filing this year. The provision will also apply for self-employed workers who suffered an income loss of 25 percent or more in 2011 due to the economy.

In addition to these initial qualifying criteria, adults must also fall within certain income eligibility rules. Individuals who are married filing jointly must not have an income that exceeds $200,000 or $100,000 for adults filing as single or head of household. In addition, a taxpayer's 2011 bill must not exceed $50,000 in order to qualify.

The new provisions are an extension of the IRS' "Fresh Start" program, which was designed in 2008 to provide some relief to struggling taxpayers. The IRS also announced another change that will positively impact individuals who owe a balance for their 2011 taxes and plan on enrolling in an installment payment plan. The tax agency has raised the threshold from $25,000 to $50,000 for those who wish to make installment payments to settle their tax bill. In addition, adults who fall under this threshold will not be required to provide a financial statement to the IRS in order to enroll. The maximum length of an installment agreement has also been extended from 60 months to 72 months.

"We have an obligation to work with taxpayers who are struggling to make ends meet," said IRS commissioner Doug Shulman. "This new approach makes sense for taxpayers and for the nation's tax system, and it's part of a wider effort we have underway to help struggling taxpayers."

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Make your tax refund work for you

2012-03-07T14:54:00Z

After the paperwork gathering and meeting with the tax preparer is over and done with, most Americans happily anticipate their refund from the IRS. Current economic conditions have made households rethink how they spend their cash windfall, with more adults opting to put it toward savings or pay down outstanding debt.

According to a recent survey conducted by the National Retail Federation, 43.8 percent of taxpayers questioned said they plan to put all or a portion of their refund into a savings account, an increase from last year's 42.1 percent. In addition, 39.4 percent said they will use the funds to pay down debt, while 28.7 percent will rely on the refund to pay for everyday expenses.

"After a rocky few years, consumers are now more vigilant about how they spend their money and the importance of preparing for future financial stability," said NRF president and CEO Matthew Shay.

However, there are several other ways individuals can use their refund to not only boost their financial well-being, but improve their tax situation for next year, according to Daily Finance. For example, adults who have not maxed out their retirement contributions can still put money toward their individual retirement account or Roth IRA to reap the tax benefits.

In keeping with the savings theme, taxpayers can also elect to use all or a portion of their refund to purchase Series I Savings Bonds, which are issued by the Department of the Treasury. Adults may purchase the bonds in $50 multiples for either themselves or others, such as their children or grandchildren. The maximum amount individuals can purchase in a calendar year is $5,000 worth of paper bonds.

Adults who expect to have a high number of medical expenses that may not be covered by health insurance can also use some of the money to put toward a flexible spending account. Some limitations will be placed on these accounts in 2013, making 2012 the last year that certain costs, such as orthodontist services, can be covered by FSA funds, according to Daily Finance. For this reason, individuals who plan on seeking out big medical services that will no longer fall under the umbrella of FSA's can save money by taking advantage of them now.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Mitigate the risk of an audit with a few simple moves

2012-02-13T14:54:00Z

Most taxpayers have mixed feelings about filing season, with some dreading the stress of gathering and organizing their records and paperwork but also looking forward to receiving a refund when it's all said and done. But for many individuals who are self-employed, bring in a considerable income or claim certain deductions, they also worry about the risk of triggering an audit from the tax man.

The majority of audits conducted in the U.S. are paper audits only and are typically resolved by mailing in supporting documents or clarifying certain details. But these can still be stressful for taxpayers. So to lower the risk of being audited altogether, there are a few moves taxpayers can make when filing their taxes.

First, always rely on a calculator. Simple math mistakes are one of the most common reasons adults' income returns are flagged by IRS systems, according to SmartMoney.com. Individuals may balk at using a calculator to conduct simple math equations, but even the smallest errors can have big consequences when they throw off the final figures on an income tax return. So use a calculator when calculating deductions and income and double check the work when finished.

Second, it's imperative for individuals to have sufficient supporting documentation when claiming deductions and credits. Adults claiming certain deductions, such as those for home office expenses or charitable contributions, should explain themselves fully when filling out their taxes, the financial website urges. In addition, it's important to keep receipts, invoices and other documentation that can back up these write-offs just in case the IRS needs further clarification. The IRS has a three-year window for conducting an audit, so adults should keep this documentation with their tax paperwork through this period.

Lastly, individuals can greatly lower their risk of an audit by working closely with a tax preparer. This is especially true for young adults filing taxes for the first time, adults who have undergone significant life changes, such as divorce, marriage, foreclosure and similar events, or taxpayers with significant assets and holdings. Working with a professional can not only help adults avoid common mistakes, but preparers can answer questions and suggest other tax benefits that individuals may not have been previously aware of.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Bonus miles may be taxable

2012-02-07T14:54:00Z

Determining what is taxable and what is off limits to Uncle Sam during filing season can be difficult sometimes when it comes to lesser-known sources of income or gifts. And a new move from Citibank may have just added a new challenge for customers who enrolled in checking or savings accounts with the financial institution.

Citibank recently sent out 1099 forms to customers who received bonus miles for enrolling in a checking or savings account, and when tax season rolls around, these miles may be taxable. The financial institution recently reported to the IRS that it plans to treat these bonus miles as miscellaneous income, meaning that customers who received them will be responsible for paying Uncle Sam at tax time. Citi has said one mile represents the equivalent of 2.5 cents. This means that new account holders who received 25,000 miles will be taxed on its equivalent of $625.

Customers will only be taxed on bonus miles received for signing up for a new account and the move will not apply to individuals who accrued miles through regular credit card spending.

The move has received a backlash from consumers who said they were unaware when they signed up for the account that their bonus mile would be taxed. However, Citi explains that the tax implications of accepting bonuses were listed in its disclosure agreement. Citi spokesperson Sean Kevelighan says the move falls in line with current tax rules.

"Rewards and airline miles that are provided in connection with a purchase on a credit card are routinely not subject to individual income tax reporting," Kevelighan told the Los Angeles Times. "When a customer receives a gift for opening a bank account - whether cash, a toaster or airline miles - the value of that gift is generally treated as income and subject to reporting."

The IRS echoed Kevelighan's statement and noted that in some cases, bonus miles received in exchange for enrolling in a service may be taxable. Individuals who receive 1099 forms from institutions should include these documents in their taxes when working with their tax preparer. In addition, it's important that consumers read disclosure forms before signing up for credit cards that offer bonus miles and contact a tax professional if they have questions about the tax ramifications.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Tuition bills may carry tax implications

2012-02-02T14:54:00Z

College costs represent a significant expense to parents and students, and once tuition, room and board, books and fees are factored in, the final price tag can reach tens of thousands of dollars. However, the IRS offers several tax benefits to help ease the burden of secondary education costs, but the extent of these credits and deductions may depend on how individuals cover their college costs.

There are a variety of resources students or parents use to cover tuition costs, ranging from tax-favored 529 plans, retirement savings, out-of-pocket income, scholarships and grants and federal or private student loans. Depending on the payment method - and which college expenses the funds cover - Americans may be eligible for certain credits and deductions. When researching payment strategies and factoring in tax benefits, most experts encourage families to take credits over deductions, which accounts for a dollar-to-dollar reduction in taxes.

For example, the American Opportunity Credit provides an annual credit of $2,500 per student for the costs of tuition, fees and course materials. The benefit is available to households with a modified adjusted gross income of $80,000 or less for single filers or $160,000 or less for married filers filing jointly. The credit amounts will be phased out for individuals whose income exceeds these thresholds. The credit can be claimed for the first four years of an individual's post-secondary education.

Depending on their tax situation, individuals may choose to instead take a tuition and fees deduction. The benefit allows them to write off $4,000 if their income if their income falls below $65,000 for single filers and $130,000 for joint filers. Single filers with income between $65,000 and $80,000 or married joint filers with an income between $130,000 and $160,000 can deduct $2,000 in tuition and fees. In addition, taxpayers do not have to itemize in order to claim the benefit.

The Lifetime Learning Credit can also lower a household's tax burden and can be used to cover the costs of undergraduate or graduate education or those who choose to take one class at a time. Taxpayers can claim up to $2,000 per return for qualified education costs, including tuition, fees and course-related supplies and equipment.

There are several rules governing scholarships, grants, tax-favored savings plans and qualified expenses, so it's important to consult a tax preparer and provide the relevant tax forms when claiming deductions or credits.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Act quickly to replace missing tax paperwork

2012-01-17T14:54:00Z

Most individuals spend January and February awaiting their W-2 and 1099 forms from employers, lenders and other entities, and March organizing their supporting tax documents, such as invoices, receipts and financial records. But what happens when taxpayers lose or do not receive all the documents they need to file their taxes? It's not uncommon to misplace a W-2 form or a 1099, but take the necessary actions to avoid filing incorrectly or losing out on important benefits.

First, it's important to know the mailing deadlines to avoid getting anxious or stressed before the forms are even delivered. By law, all tax information must be mailed out by employers and other groups by January 31, meaning individuals may not receive them until the first week of February. If this period has passed, it may be time to contact certain parties.

Employers are required to keep copies of W-2 forms, so workers who don't receive them can call their company and request a copy quite easily, according to Fox Business. Employers must also submit a copy of the W-2 to the IRS, so in the event that a worker is having difficulties securing a copy of their forms, they also have the option of contacting the tax agency by submitting Form 4506-T to request it.

When it comes to 1099 forms, many can be requested directly from the party responsible for sending them. For example, financial institutions may be able to provide 1099 documents if taxpayers contact their customer service line, Fox Business reports. In some cases, individuals may also be able to download them. When it comes to other sources of income, however, such as self-employment compensation or earnings from gambling, individuals may not always receive a 1099 unless they made over $600. However, it's still important that individuals report this income on their taxes.

Lastly, individuals who lose documentation supporting credits and deductions should search for them, as they may not be able to apply for these benefits without supporting evidence. Different tax benefits require certain pieces of evidence in order for an individual to claim them. Speak to a tax preparer about the types of documents and paperwork the IRS will accept to claim a deduction or credit. It's better to be safe than sorry when writing off costs.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

File your taxes safely this year

2012-01-16T14:54:00Z

Filing taxes requires individuals to collect a great deal of documents and information that displays their personal and financial details. W-2s, bank records, investment statements, student loan paperwork and invoices generally include a taxpayer's full name, Social Security number, bank account number, date of birth and address. This information, in the wrong hands, can lead to cases of fraud and identity theft, making it important for individuals to safeguard their information during filing season.

First, individuals who retrieve tax records or choose to file electronically should not rely on public Wi-Fi to complete this process. Although the public Wi-Fi at a local coffee shop may be purposeful for browsing Google, avoid inputting private details, usernames and passwords. In some cases, public Wi-Fi may not have the proper security and encryption to protect an individual's information, leaving them vulnerable to hacking.

In addition, it's important that taxpayers ensure all the security settings, anti-virus updates and firewalls are up-to-date on their home computers to protect their information from being jeopardized. As filing season heats up, not only will many households choose to file online, but will also be receiving important information from a number of financial entities, CBS MoneyWatch reports.

During tax season, taxpayers may also receive offers from different websites offering free e-File services. However, before using these free services, it's imperative to verify the validity of these websites and ensure their security is up to par. While there are a number of legitimate free or low-cost services available, individuals who are concerned with their online security should visit a licensed tax preparer to e-file their taxes.

Lastly, the IRS may choose to get in touch with an individual for a number of reasons. However, it's imperative to understand that the government agency will never contact taxpayers via email. For this reason, individuals who receive correspondence via this method claiming to be from the IRS should not respond or give out personal information, such as their Social Security number or financial information. Instead, individuals should report the email to the IRS directly, as it may be an attempt to commit fraud or identity theft.

After an individual has filed his or her taxes, safeguard these documents in a locked safe or filing cabinet to keep them organized and prevent theft or loss.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Learn the basics for filing season

2012-01-11T14:54:00Z

During the first few months of the year, individuals may be busy collecting the information they need to claim certain benefits or are sifting through mailed documents they will need to file certain forms. Tax codes, benefits and rules and regulations associated with filing income taxes can seem like a maze for individuals. While tax preparers are well-equipped to help individuals file their forms, claim deductions and credits and handle more complicated issues, having a basic working knowledge of different terms and scenarios can be helpful in the months leading up to filing season.

One of the most frequent terms individuals are likely to come across - especially when claiming credits and deductions - is adjusted gross income, or AGI. An individual's AGI is all the income they received during the year, such as wages, dividends and interest and minus certain reductions. AGI can be reduced by a several different items, such as alimony payments, health savings plans, contributions to qualified individual retirement funds, business expenses and some college tuition, fees and interest.

Exemptions are another aspect of filing that will impact how much an individual pays in taxes. Taxpayers may claim exemptions up to a certain amount that is defined by the IRS for themselves as well as dependents and spouse.

Tax deductions and credits also serve an important purpose when it comes to calculating how much an individual will owe or receive back during filing season. Credits serve to reduce the amount of taxes an individual pays to the IRS. For example, individuals who owe a $3,000 tax bill and have a credit of $1,000 will see the amount they owe the IRS slashed to $2,000. In some cases, certain credits are also refundable, meaning that individuals who do not owe any taxes may receive the credit back in the form of a refund.

Deductions, in contrast, reduce individuals' taxable income by the amount of the benefit. For example, workers who have a taxable income amount of $50,000 with $10,000 in deductions will only be taxed on $40,000. There are two ways to write off allowable expenses: take a standard deduction or itemize them. Standard deductions refer to a specific amount calculated by the IRS based on filing status. Itemized deductions allow filers to calculate their deductions separately and reduce their taxable income by this amount. Certain expenses must be itemized in order to be claimed, such as medical expenses, charitable contributions and mortgage interest.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

What to save, what to shred when cleaning out tax records

2012-01-09T14:54:00Z

The new year is a busy time for most Americans, many of whom take it as an opportunity to clean out old clothing, appliances and financial files for a fresh and organized start to the next 12 months. But when it comes to organizing and getting rid of old tax and related financial files, individuals shouldn't be too quick to toss old records simply because they think they may not use or need them again. The IRS has a three-year period to request information about old tax returns, or in some cases longer, and other records may serve as supporting documents in the event of a mistake or inaccuracy. For this reason, individuals should go through their files carefully and know what to keep and what can go.

As a general rule, avoid throwing out old tax returns after filing season has ended. The three year IRS rule typically applies to small mistakes on consumer tax returns. However, this audit period extends to six years if there are mistakes on more than 25 percent of the return, according to MarketWatch. More serious infractions may have no statute of limitations, the news source adds. For this reason, keep printed copies of all tax returns in a single folder or file cabinet. In addition to safeguarding them for IRS purposes, many lenders now request at least the previous three years of tax returns during the mortgage application process or when applying for a business loan.

It's also crucial to keep records proving ownership and worth of property, investments, collectibles and other assets, the news source explains. This information is crucial when claiming deductions or credits as well as when it comes to calculating the cost basis when selling the item. Further, having this information is important for insurance and estate planning purposes as well.

There are a number of items that can be tossed after a period of time, however, such as old bank and credit card records. These type of financial documents can be shredded after four to seven years, especially as many institutions now offer electronic alternatives and can pull up records if necessary. The same holds true for utility records, which can be shredded after a year period. For individuals who claim a home office deduction and write off a portion of their utility bills, it may be best to keep these records along with their corresponding tax returns.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Have the necessary documentation before claiming these deductions

2011-12-19T14:54:00Z

Tax deductions are a common and financially advantageous method individuals use to lower their tax liability, but certain tax breaks may attract the attention of the IRS more so than others. This is largely because certain deductions have more wiggle room in the numbers or stricter rules and stipulations than others and the tax agency wants to make sure those who apply truly qualify. Keep in mind that these deductions are legitimate and individuals who qualify for them should apply. However, it's important to keep all the relevant supporting documents organized and work with a tax preparer to make sure the tax forms were completed correctly in the event that the IRS requests paperwork.

The first deduction that often attracts attention is a home office deduction. This tax break allows self-employed workers and some employees to deduct some of the costs, ranging from equipment, rent and utilities, from working out a home office, which is their sole and principal place of business. There are a number of parameters workers must fall into in order to qualify for this benefit, and it's important for individuals to make sure they satisfy all, not just some, of the requirements. Because the eligibility rules and the deduction calculations that accompany this deduction are specific, working with a tax professional to claim this benefit is advised.

In addition to a home office deduction, workers should keep all receipts, invoices and billing information related to meals, travel and entertainment expenses associated with their business. In order to steer clear of any problems that could arise from claiming this benefit, keep all financial information involved in these business transactions, as well as a detailed list of the time, place, number of people, business purpose and the nature of the business conversation, according to Kiplinger.com.

Lastly, being generous and donating to charity is an effective way of reducing you tax liability - but individuals should make sure they have the necessary documentation to support the write off. Although the documentation rules vary based on the amount and type of contribution, always keep cancelled checks and ask for a receipt cataloging the details of the charitable donation from the organization. In addition, make sure the organization is considered qualified by the IRS before claiming it on income tax forms.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Forgiven debt may impact your income taxes

2011-12-14T14:54:00Z

Consumers who negotiate a debt forgiveness deal with their credit card lender may feel a sense of relief after the agreement is finalized, but many may find that they have a larger tax bill during filing season as a result. In many cases, the IRS considers forgiven debt as taxable income, a lesser-known scenario that many individuals are not aware of until their tax bill arrives.

For example, if an individual owes $15,000 in credit card debt and their lender forgives $10,000 of the balance, it's likely that this amount will be included in the credit card holder's taxable income for that year, according to Bankrate.com. In many cases, the lender will send the individual a 1099 form, but this is not always the case. Even if consumers do not receive these tax papers from a lender, it is likely that the company still sent this information to the IRS.

In some cases, however, individuals may not be on the hook for all types of cancelled or forgiven debt. For example, the Mortgage Debt Relief Act typically allows homeowners to exclude income from debt that is discharged on their principal residence between calendar years 2007 and 2012. This may include foreclosures or refinancing in most cases. According to the current rules, up to $2 million of forgiven mortgage debt falls under this exclusion for married couples filing jointly and $1 million for those filing separately.

In addition, debt that is discharged through a bankruptcy agreement is not considered taxable income. Individuals who are considered insolvent at the time their debt is cancelled may also be excluded from the current rules that govern forgiven balances. By IRS rules, an individual is deemed insolvent when the total amount of his or her debts exceed the fair market value of his or her total assets.

In addition, the IRS also makes an exception for certain types of farm debts. For example, taxpayers who incurred debt directly from the operation of a farm, earned more than half of their income from the previous three years from farming and owed the loan to a person or agency that was regularly engaged in lending, may not see their forgiven debt treated as taxable income.

The rules that oversee the forgiveness of certain types of debt can be tricky and often depend on a variety of factors. For this reason, individuals who have had any debt forgiven, ranging from credit card to mortgage debt, should work with their tax preparer to determine how the cancellation will impact their income taxes.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Helpful tax deductions for young adults

2011-12-12T14:54:00Z

Many young adults struggle to make ends meet their first few years after graduating college. Some may be making an entry-level salary and trying to carry the costs of rent, auto payments and student loans on top of their day-to-day expenses. So when filing season rolls around, it's important for young taxpayers to take advantage of credits and deductions that may ease their tax burden.

Student loans can take a chunk out of a young adult's income, but some may not be aware that they can deduct the interest on their payments, even if their student debt is being paid by their parents. As long as individuals are not being claimed as a dependent on their parent's taxes, they can deduct up to $2,500 in student loan interest without itemizing their taxes.

In addition, many young adults who are switching jobs or looking for a new position in the same industry in which they currently work can deduct some of the expenses associated with their employment search. For example, these costs include postage, phone calls made to potential employers, career placement services, resume printing and any travel, food and lodging expenses associated with interviewing for a position. However, in order to deduct these costs, the overall costs must exceed 2 percent of the taxpayer's adjusted gross income and must be itemized as miscellaneous expenses on their tax forms. Keep in mind however that job hunting expenses for young adults looking for their first position are not deductible.

Lastly, adults who relocate to take a new position can deduct their moving costs from their taxes, easing some of the financial burden associated with hiring movers, buying packaging and boxes and traveling long distances. During the first half of 2011, that is January 1 through June 30, the standard mileage rate that movers can deduct is 19 cents per mile. This amount increases to 23.5 cents during the second half of the year. In order to qualify, a taxpayer's new workplace must be at least 50 miles further from their old home than their previous office was from their former home. In addition, employees must work at least 39 weeks during the first 12 months of their arrival to qualify.

These deductions can be helpful in lowering a young adult's tax liability, but there are rules and restrictions that may apply to each. For this reason, individuals may benefit from enlisting the assistance of a tax preparer in order to make sure they fall in line with the eligibility rules.

_____________________________________________________________________________________________________________________
Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Make sure tax contact and identification details are accurate

2011-12-06T14:54:00Z

Most taxpayers go through the details of their income tax returns with a fine-tooth comb before submitting them to the IRS. But many individuals are less diligent when it comes to reviewing the basic details on their tax forms, such as the spelling of their name, their Social Security number of date of birth and, commonly, their home address. These errors may seem minor, but they can cause tax problems and delay the delivery of your refund.

According to the IRS, the agency is currently holding on to 99,123 tax refunds this year amounting to roughly $153.3 million that it is unable to deliver to consumers due to mailing address errors. The average refund check amounted to $1,547 this year, the agency said.

The agency suggested that filing electronic, rather than paper returns, may not only speed up the time it takes the IRS to process individuals' returns, but may also reduce the incidences of lost return. In addition, consumers can elect to have their refunds deposited directly into the bank account of their choice or split and delivered to multiple accounts.

Although these actions may speed up the process and mitigate mistakes, it is still important that taxpayers pay close attention to their contact details and make changes when necessary. For example, a common mistake many newlyweds make is filing jointly under the new last name without waiting for the name change to be processed by the Social Security Administration. This can cause problems during filing season because the tax records of the individual filer will still be listed under the Social Security number attached to the old last name. Therefore, when the newlywed tries to file under the new last prior to waiting for the SSA systems to catch up, the tax records on file will not match.

The same holds true for ensuring the correct Social Security number and date of birth are listed. Small mistakes may mess up the system and delay the process overall. Individuals may benefit from having a third party, such as a tax preparer, fill out the relevant information because this may prompt taxpayers to read or recite their information more closely. Individuals who notice these errors on their tax forms should correct them immediately to prevent filing errors.

_____________________________________________________________________________________________________________________
Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Decoding home office deductions

2011-11-15T14:54:00Z

At some point or another, most taxpayers may have heard that claiming a home office deduction raises an automatic red flag at the IRS that may trigger an audit. However, home office deductions are legitimate for taxpayers who fall in line with the rules and individuals who truly qualify for this tax break should not be afraid to write-off these expenses.

The trick is in knowing all of the rules. Home office deductions can be complicated for taxpayers who are unaware of the rules, and in these cases, it's best that individuals consult a tax preparer to complete their income taxes. But it's still important to know the basics for independent contractors, freelancers and, in some cases, employees, who plan to claim the deduction.

First, in order to claim a home office deduction, taxpayers must use a part of their home exclusively and regularly as a principal place of business or a place to meet and deal with clients, customers or patients in the normal course of business. This means that if a freelancer uses his or her desk as a place to solely conduct business functions, he or she may claim the space as a deduction. But, if the freelancer also uses that space to perform other functions, such as paying personal bills, or lets his or her kids use the space to do their homework, this does not qualify under the rules.

In some cases, telecommuting employees may also qualify for a home office deduction. However, he or she must work from home solely for the employer's convenience in order to qualify. This means that if the employer does not have enough space for the employee and prefers that he or she work from home, the employee may qualify. But if the worker simply does not want to make a long commute, even though the employer has a work station ready, the employee cannot claim the deduction.

It's also important to note that home office deductions are based on a percentage of the home or apartment that is used for business purposes. This means individuals may have to measure the square footage space that is used for business purposes and only claim costs in relation to this area. For example, if a taxpayer's office space is 100 sq. feet in a 1,000 sq. foot home, he or she may only deduct 10 percent of costs relating to rent, insurance and utilities.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Pay close attention to these tax notices

2011-11-14T14:54:00Z

Receiving a tax notice from the IRS almost immediately incites fear in most taxpayers. First, it's important to understand that there are many types of communication from the government tax agency that may ask for additional information and will not result in an audit. But regardless of why a taxpayer receives a notice from the IRS, it's important to take all correspondence seriously and not ignore the document.

First, determine what the notice is for and what actions must be taken to satisfy the request. Collection process numbers listed in the top right-hand corner of your letter will determine the reason for the correspondence, so it's important to pay attention to these figures. For example, CP-12 denotes a miscalculation on your return, while CP-14 means you owe unpaid taxes.

The IRS routinely sends out notices asking taxpayers to make corrections to their income tax forms or supply additional information about a certain listing, according to Bankrate.com. These inquiries can be cleared up fairly simply and may even list the instructions for completing the request on the form.

In other cases, you may want to take a closer look at your return and enlist the help of your tax preparer to clear up more serious infractions. For example, if you receive correspondence with CP-504 listed, this is a final reminder of a balance that is due - and a notification that the seizure of your state income tax refund is imminent, the news source explains. The IRS may also choose to send a notice (CP-523) if you have defaulted on your installment payments and the agency plans to seize your assets.

When you receive a letter from the IRS for any type of infraction, it is important to double check your return against the information the tax agency listed. If you discover you are in the wrong, follow the directions listed on the correspondence to clear up any unpaid balances. But if you find that the agency may be wrong or you do not fully understand the notice, it is crucial to contact your tax preparer immediately for clarification.

Regardless of the reason, act quickly to resolve the issue before you receive any additional correspondence. Resolving the problem will give you piece of mind.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Can you deduct casualty losses from natural disasters?

2011-11-11T14:54:00Z

A recent ABC News report reveals President Barack Obama declared 89 major disasters in 2011, up from the 81 he declared in 2010. Additional statistics from the National Climatic Data Center reveal the natural disasters that pounded the United States this year, ranging from Hurricane Irene to the devastating tornadoes in Joplin, Missouri, caused more billion-dollar damage to the nation than any other year in history.

But what does this mean for taxpayers? Deductions for casualty and theft losses can help individuals who have suffered significant property damage due to natural disasters and other occurrences recover some of the costs. This means that you can write off a portion of the costs for items or property that were lost or damaged by disasters – including hurricanes, earthquakes, tornadoes, floods, fire, volcanic eruption and even theft. However, there are a number of rules attached to this type of deduction and a number of conditions must be met. First, you can only write off the cost of lost or damaged items that are not covered by insurance.

Second, when it comes to determining how much to deduct, the IRS asserts the amount must be the lesser of either the adjusted basis of a taxpayer’s property or the decrease in fair market value of the property as a result of the casualty or theft.

Third, taxpayers must follow a particular formula to determine how much they can deduct. Individuals must start by subtracting $100 from their total loss. Following this calculation, taxpayers must also reduce their loss by 10 percent of their adjusted gross income. For example, if an individual has a $12,000 property loss and makes $100,000 a year, the deduction would play out as follows - 12,000 minus $100 minus another $10,000. After all the reductions have been made, the taxpayer would only be allowed to write off $1,900 of his or her casualty loss. In addition, if the individual incurred losses that equaled less than $10,100, he or she would not be able to write off any of it.

The rules for not only calculating the amount of a write-off, but also determining when to deduct a loss can be tricky. Speaking with a tax preparer may be the best way for taxpayers to ensure they get the full deduction they need.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Are your alimony payments tax-deductible?

2011-11-09T14:54:00Z

Alimony payments can be expensive in some scenarios, so many divorcees may question whether these payments can be deducted from their taxes. But the answer is: it depends. There are a number of rules governing whether these payments can be deducted and a strict number of conditions must be met before individuals meet the eligibility requirements.

First, in order to meet the current requirements, the payments must be supported by a written order from the court in order to be considered alimony, according to SmartMoney.com. Additionally, the payments must be made directly to or on behalf of an ex-spouse, meaning that checks sent to a third party, such as an attorney, count if they are provided to a former husband or wife as alimony.

In order to qualify, divorced or separated spouses must also retain separate residences and cannot file a joint tax return, the news source explains. Payments must also be made as cash or a cash equivalent and cannot count toward child support. To add further, court records and agreements cannot define the payments by another name other than alimony, otherwise the amount cannot be deducted. Payments that are considered deductible must also be reported by the taxpayer's ex-spouse as taxable income.

Lastly, the requirement of a taxpayer to make alimony payments must end if his or her ex-spouse passes away, according to Smart Money.

All of the above conditions must be met for the deduction to be valid. Some issues taxpayers often run into are separating alimony payments from child support. It's important to keep in mind that child support and other forms of property-related payments are not tax-deductible. In order to simplify the process, it's important that clear payment definitions are established in separation or divorce agreements to avoid any confusion.

For example, alimony payments should be defined and listed separately from separate payments that are defined as child support or property settlements. It's also important to keep copies of these agreements and checks written to a former spouse. Taxpayers should keep these documents in their records and provide them to a tax preparer during filing season to support their deductions.

There are also rules or stipulations that may come into play when taxpayers are deducting alimony, so it's imperative to speak with a tax preparer before claiming payments.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Keep track of charitable contributions during holiday season

2011-11-03T14:54:00Z

The winter holiday season is a time for celebrating and reuniting with friends, family and loved ones, but it's also one of the periods when Americans spend the most money. Although holiday gifts, food and accessories are the most common items Americans spend money on, charitable giving to groups and organizations also spikes. But during all the commotion, some individuals may forget to keep track of their contributions, making it more difficult to claim deductions during filing season.

There are a number of ways to track and organize donations and contributions, making it easier for givers to receive small tax breaks this April. The key is to have a basic knowledge of the tax rules regarding which contributions can be deducted and keeping tidy records.

First, individuals who plan to deduct contributions should make sure their donation or gift is given to a qualified organization - otherwise, they may not be able to deduct it on their taxes. There are a number of groups and institutions that fall under the qualified organization definition, such as churches, most nonprofit groups, colleges and museums. Most organizations can be considered qualified if they operate for religious, educational, charitable, scientific or literary purposes. In addition, groups that work for the prevention of cruelty to animals or children generally qualify. Keep in mind that contributions to specific individuals, political organizations and candidates are not deductible.

Second, individuals should ask for a receipt outlining the details of the contribution and keep bank or payroll statements that also verify cash, check or monetary donations. Taxpayers must also have written communication from the organization that provides the name of the group, date of the donation and amount of the contribution.

Different contribution amounts and the type of contributions themselves may impose their own rules and require different actions in order to claim them, making it important to consult a tax preparer. For example, cash or property contributions amounting to more than $250 require communication from the organization giving a description of the donation and any goods or services provided in exchange for the gift. Individuals who make noncash contributions exceeding $500 must fill out and attach Form 8283. Section B of this form must also be filled out by taxpayers who contribute items exceeding $5,000, which typically require an appraisal.

Taxpayers who plan on claiming charitable contributions must file Form 1040 and itemize their deductions on Schedule A.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

IRS program notifies taxpayers of mistakes before audits

2011-11-03T14:54:00Z

An IRS audit can conjure fear in the majority of Americans and even the tiniest of mistakes can trigger a more skeptical look at taxpayer returns. However, a new pilot program launched by Uncle Sam will notify taxpayers of mistakes or discrepancies on their tax returns long before they get wind of a future audit.

The new pilot program, which falls under the umbrella of the IRS Automated Underreporter Program, will mail notices to consumers if there are inaccuracies on their tax returns, according to The Wall Street Journal. The program is designed to educate taxpayers on common reporting errors and prompt them to correct their returns quickly. Because of this, no response or action is required if consumers receive these notices from the federal tax agency, the Journal reports. The IRS hopes the program will improve voluntary compliance.

The Treasury Inspector General for Tax Administration has heralded the program as an effective tool for lowering the tax gap and and raising awareness among consumers.

"I commend the IRS for using a creative alternative approach to address compliance issues in an effort to reduce the tax gap," said TIGTA Inspector General J. Russell George in a statement.

Notices would be sent out if discrepancies are found between a taxpayer's return and other documents issued by third parties. This rule may apply to capital gains, dividends or interest on 1099 forms, as well as 1098 forms for mortgage interest.

The program is expected to reduce the number of audits the IRS conducts each year by urging Americans to make simple corrections themselves. In some cases, IRS systems can catch and correct small mathematical errors made on tax returns themselves, but in more complex cases, harmless errors may trigger a correspondence or in-person audit. Taxpayers who do receive audit notices are advised to gather documentation supporting the information on their tax returns and, if warranted, contact their tax preparer or a tax attorney to speak on their behalf.

Most audits are harmless and can be cleared up quickly, but it's still important that consumers double check all the information listed on their returns and explore any potential issues or inaccuracies. In addition, individuals who are claiming a significant amount of deductions and credits, especially those relating to home office deductions and charitable giving, should keep organized records to back up their claims.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Understanding your retirement options

2011-10-26T14:54:00Z

Americans have recently been inundated with reports that they are not saving adequately for retirement, as well as the consequences and ramifications of falling short during their golden years. Although there are a number of retirement options and accounts to choose from, understanding the difference between each can be complicated for individuals who are not well-versed in how they function and their respective tax treatments.

Individuals who are planning their retirement should explore and understand all their options prior to signing up to ensure they are making the best decision for their future.

401(k)s are one of the most common retirement accounts most Americans turn to, namely because this option is the more popular offering U.S. companies afford their employees. These accounts allow workers to put aside money from their paychecks before taxes are deducted, which reduces the amount of income taxes they pay each filing season. However, once they begin taking distributions from the fund at retirement age, they begin paying income taxes on the withdrawals. One of the benefits of a 401(k) account that makes them particularly popular is that many employers match their employees' contributions, essentially handing over free money.

Individuals may have also heard of 403(b) and 457 retirement plans at some point. These retirement accounts function similarly to 401(k)s. However, 403(b) plans are typically offered to employees who are employed by nonprofits and educational institutions. In a similar fashion, 457 plans are generally designed for employees of government institutions.

Individual retirement accounts, or IRAs, are another popular option for adults. These accounts differ in two primary ways from 401(k) accounts. First, individuals do not fund the account through their employer, but must open an IRA themselves through an investment firm. Accountholders are responsible for making contributions themselves and do not enjoy a company match that many employees with 401(k)s do. Second, IRA contributions are tax-deductible, meaning that individuals subtract the amount that they have allocated to the fund from their income. Similarly to 401(k)s, however, they must pay taxes on their withdrawals when they begin receiving distributions.

Roth 401(k)s and Roth IRAs eliminate an accountholder's requirement to pay income taxes on their distributions. Individuals who hold these accounts make contributions from their take-home pay, after taxes have already been taken out. Because they pay taxes beforehand, they are not required to pay income taxes on their withdrawals.

Understanding the tax treatment of different retirement plans - and the pros and cons of each - can help adults make the best decision for them. But because these factors can be confusing, speaking to a tax professional may help them better understand their options.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

IRS announces new adjustments for tax year 2012

2011-10-26T14:54:00Z

Taxpayers who are struggling to make ends meet may see some additional relief in 2012. The Internal Revenue Service recently announced inflationary adjustments relating to a number of income and estate taxes for 2012 that will impact consumers when they file their taxes in 2013.

To begin, the current personal and dependent exemption will increase to $3,800, up $100 from the 2011 allowance. Individuals who take standard deductions will also see a rise in the 2012 tax year, as single filers and married couples who file separately can claim $5,950, up $150. Married couples who file their taxes jointly will see a $300 increase as their standard deduction rises to $11,900. Head of household standard deductions will climb to $8,700, up $200 from 2011.

Tax bracket thresholds also increase for each filing status, so individuals should speak with their tax preparer about how they will be impacted.

A number of deductions and credit amounts have also been altered and may allow eligible families to lower their tax burdens further. For example, the earned-income tax credit is a popular and beneficial credit for many low-income households, and varies based on family size, filing status and other components. The EITC will increase from $5,751 in 2011 to $5,891 in 2012. The maximum income limit will also increase from $49,078 to $50,270. Individuals who take advantage of the lifetime learning credit will also see more leeway, as the modified adjusted gross income threshold at which the credit begins to phase out increases from $51,000 to $52,000 for single filers and heads of household. For married couples filing jointly, the phase-out amount increases from $102,000 to $104,000.

The credit and deduction amounts for certain benefits may fluctuate on a year-by-year basis, so it's important that consumers who plan on filing for these benefits speak with a tax professional to ensure they are up-to-date on the eligibility rules and allowances.

The IRS has recently made greater strides to help struggling families meet their tax burden and avoid undue stress by imposing reforms to its payment rules. Last year, the IRS announced it will not place a lien on taxpayers' properties unless they owe $10,000 or more, double the previous amount. The new rules may help taxpayers who owe money protect their credit during the repayment period and avoid negative actions being taken against their property.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Pre-retirees grow concerned over nest eggs

2011-08-11T14:54:00Z

Americans usually spend 30 to 40 years building up their retirement funds in order to ensure they have sufficient nest eggs by the time their golden years come around.

But recent market volatility has many pre-retirees, namely those in their 50s and early 60s, worried that their retirement funds and investments will be greatly reduced by losses, according to SmartMoney.com. Although 401(k) balances recently returned to pre-recession levels, financial professionals say boomers should be cautious about their investments and utilize tax benefits to boost income.

For example, individuals over age 50 may begin taking advantage of catch-up contributions, which allows them to contribute more than the maximum to a 401(k), 403(b) or 457(b) savings plan. The contribution maximum for 2011 will remain at $16,500 and individuals over 50 may contribute an additional $5,500.

There are also a number of temporary changes related to capital gains and loss provisions, which are set to expire at the end of this year. Pre-retirees with significant investments may consider speaking with a tax preparer about the most effective way to take advantage of these benefits.

_____________________________________________________________________________________________________________________
Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.

Show me the money!

2011-08-05T14:54:00Z

The IRS may have money waiting for you. If you earned income in the last few years but didn't file a tax return because your wages were below the filing requirement, the IRS may have some money for you.

The IRS also has millions of checks that are returned each year as undeliverable.

There are two types of "missing money" and you might be able to claim your share.

The first type of missing money is unclaimed refunds. Some people earn income and have taxes withheld from their wages but are not required to file a return because they have too little income.

In this example, you are able to file for a refund for the amount of tax that was withheld from your paycheck. You need to file your return within three years from the due date of the return.

The second type of potential money for you is the undeliverable refunds. Amazingly enough, people actually take the time to file a return and then forget about the check that is supposed to come their way.

The IRS refund checks are mailed to your last known address, but if you move without notifying the IRS or the US Postal Service then the check is returned.

If you think you may have a refund waiting for you, check out the "Where's My Refund" section of the IRS website.

Liberty Tax is here to help you maximize your refund, please give us a call to schedule a time to prepare your tax strategy.

Are business write-offs allowed for college expenses?

2011-07-28T14:54:00Z

Paying for college is an expensive endeavor, but it's one that millions of young adults undertake each year in order to pave the road to a better future. A number of tax breaks are available for matriculating students, but many often question whether business write-offs apply to college costs.

In general, the answer is no. Individuals pursuing undergraduate degrees may utilize non-business benefits, such as the American Opportunity Credit to cover qualified education expenses, including tuition, books and course materials, according to SmartMoney.com. In addition, the Lifetime Learning credit may also be available for eligible students.

In some cases, adults pursuing certain degrees may qualify for business write-offs, assuming they meet certain conditions. For example, current employees who take courses toward their MBA may be allowed to write off these costs during filing season. However, the rules strictly say that the courses a worker is pursuing must "maintain or improve the skills used in his or her current job, profession or business," the news source reports. This means individuals who pursuing a degree in order to get hired or enter a different profession may not deduct these costs.

Individuals who plan on writing off college-related expenses may qualify for benefits under certain rules, but it's important to speak with a tax preparer prior to filing in order to confirm.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Deductible vs. non-deductible common expenses

2011-07-28T14:54:00Z

When it comes to making deductions during filing season, consumers may be aware of the large items they are allowed to write-off, such as their mortgage taxes and charitable contributions. But there are a number of other items that may appear tax-deductible at first glance, when in fact they are not.

For example, school uniforms, summer camps related to sports and private school costs are generally not considered deductible expenses, according to Reuters. In some cases, individuals who use funds from an Educational Savings Account to pay for qualified education expenses may be allowed to deduct uniform costs, the news source explains.

Additionally, taxpayers may write off a large number of services, fees and equipment related to medical expenses, but certain costs related to health and wellness may not qualify under current tax laws. For example, individuals may not deduct personal workout equipment, such as treadmills, elliptical machines or weights, the news source reports. Although health equipment may be beneficial to a consumer's health, it does not fall under the tax guidelines, which only allow individuals to write off medical expenses related to the diagnoses, cure, treatment, mitigation or prevention of disease.

Individuals who plan to make deductions for common expenses should consider consulting with a tax preparer before doing so, in order to ensure the write-off is valid.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Know the tax rules before taking out a 401(k) loan

2011-07-14T14:54:00Z

Although the economy is making a slow recovery, many families are still hard-pressed and working to make ends meet. As a result, some may have found relief by taking out a loan against their 401(k)s.

These types of loan allow workers to receive a tax-free chunk of money to cover medical costs, avoid falling behind on their mortgage or cover other needs. But some workers who took out a 401(k) loan, only to lose their job later on, may not have realized that they would be required to pay back their loan in full, MarketWatch reports. While some employers may allow their former workers a small grace period to pay back the loan, others may treat the loan as a retirement distribution payment, triggering tax penalties, the news source explains.

If the latter occurs, the distribution amount becomes taxable and individuals under 59½ will also be required to pay a 10 percent early withdrawal penalty, the news source adds.

Financial professionals often discourage Americans from making any type of early withdrawals from their retirement funds, but if hard times require it, consumers should speak with a tax preparer to educate themselves on the possible implications.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Nearly half of Americans will not pay federal income taxes in 2011

2011-07-14T14:54:00Z

No one enjoys receiving a bill from Uncle Sam at the end of tax filing season, and the results of a new study show fewer Americans will have to worry about owing the government during the 2011 tax year.

Data released by the Tax Policy Center reveals 46 percent of Americans - or 76 million - will not have to pay federal income taxes for the 2011 tax season. However, more than 50 percent of individuals who are exempt from paying federal taxes fall within the country's lowest income brackets, and make less income than 80 percent of the rest of the nation. Additionally, many low-income individuals are not exempt from other types of taxes, such as those imposed by the state.

In addition to taxpayers who fall into a low-income bracket, roughly 12 percent of individuals who are considered middle-income and an even smaller percentage of high-income earners will not face tax liabilities in 2011. Many of these individuals and families have eliminated their tax burdens through the use of credits and deductions.

As tax policies continue to change amid economic turmoil, Americans should keep a close eye on the amendments and alterations to existing credits and deductions. Taxpayers may realize they now qualify for certain benefits for which they were previously ineligible.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Make sure charities give proof of a taxpayer's donation

2011-07-14T14:54:00Z

A recent study shows that more Americans are loosening their purse strings and making charitable contributions to qualified organizations. However, tax professionals are urging individuals who plan to claim their donations to get the details in writing.

A recent Wall Street Journal post highlighted the case of a taxpayer who made a six-figure donation to a university, only to find the amount could not be deducted because there was no valid letter confirming the details. According to Internal Revenue Service guidelines, individuals who make a donation amounting to $250 or more must have a valid document from the charity organization that confirms the details, the Journal reports.

"If you don't have the correct paperwork, there's no way to fix the problem," Deloitte Tax director Laura Peebles told the Journal.

Documentation provided by the organization should include the amount of the donation, and a confirmation that no goods or services were received in exchange for the gift. If goods or services were received, those details must be documented as well. Individuals who are unsure of the rules relating to charitable contributions should consult their tax preparer prior to making a large donation.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Avoid penalties when transferring a 401(k) to a traditional IRA

2011-07-14T14:54:00Z

Few Americans stay employed with the first company they joined for the duration of their lives, which often prompts them to transfer their retirement fund to a new account at least once. However, certain penalties may arise if the transfers are not done in a certain way.

Having sufficient savings is imperative to enjoying a comfortable retirement and avoiding money shortfalls, so it’s important that consumers earn the most from their 401(k) investments. For this reason, experts advise workers who are transferring a 401(k) to a traditional IRA account conduct a “direct” rollover, from trustee to trustee, SmartMoney reports.

Direct rollovers allow the account funds to be transferred to the traditional IRA in their entirety. However, individuals who opt to have their 401(k) balance mailed to them first will see 20 percent of the taxable funds withheld in federal taxes, the news source explains. This will force workers to come up with the 20 percent on their own to fund the IRA within a 60-day period.

Individuals who plan on opening a retirement account or transferring one over should consider speaking with a tax preparer first to find out about any tax implications that may exist and ways to avoid penalties.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Michigan to cut income tax credits to charities

2011-07-14T14:54:00Z

Budget shortfalls are impacting many states across the country, and some are finding ways to squeeze additional income by cutting longstanding tax incentives.

Michigan has announced it will eliminate an income tax credit that provides incentives for residents who donate to charities, according to the Flint Journal. The move is expected to yield a savings of roughly $35 million annually - but the change may reduce some taxpayers' refunds by between $100 and $200, the newspaper adds.

While many nonprofits are concerned the new rule will diminish charitable giving, previous research suggests donations are more the result of good will and generosity, rather than monetary incentives, the newspaper says.

The state said the change will go into effect on January 1, 2012. However, it will have no bearing on federal tax incentives for charitable donations.

Small tax credits can have a significant impact on a household's tax liability during filing season, and staying aware of the latest changes may help consumers work their finances around popular and beneficial tax incentives. Consumers can also educate themselves on the best ways to lower their burden by speaking with a tax preparer well in advance of filing season.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Summer jobs may have tax implications for young adults

2011-07-14T14:54:00Z

Many high school and college students spend their summers toiling away at restaurants, grocery stores and outdoor positions. But what many may not realize is that their summer job may have tax implications during filing season.

There are a few things young adults should look for when applying for a summer job to help them determine how they will be impacted at tax time. First, some teens may think they are employees, when really they have been hired as independent contractors. Making this distinction early on is important, because independent contractors do not have payroll or income taxes withheld, meaning they are likely to pay taxes on their compensation, MarketWatch reports.

Young adults who determine they are considered employees by their place of business should also pay close attention to their W-4 form, the news source advises. If the worker will not earn enough to incur income taxes, he or she can file a W-4 form to claim an exemption for withhholdng, MarketWatch explains.

Taxes can be a confusing concept for many young adults, and speaking to a tax preparer may help workers educate themselves on the rules and avoid making costly errors.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Tax Scams You Shouldn’t Ignore

2011-06-21T14:54:00Z

We know you don’t have to worry about your income tax preparation and tax filing until next year, but be aware of these common tax scams so you don’t fall victim in the future. If you let a tax scam promoter pull you into one of their schemes, you will have to repay the unpaid taxes plus interest fees and penalties.

Hiding income offshore. Even if you’re just using offshore debit cards, credit cards, wire transfers or insurance plans, these could count for abusive offshort transactions in the eyes of the IRS. Make sure you check with your tax preparer to ensure you’re staying legal before engaging in anything financial offshore.

Identity theft and phishing. Aside from the hassle of dealing with an identity theft (when someone uses your name, social security number, credit card info and more to commit fraud or other crimes), a criminal could also file a fraudulent tax return and collect a refund. Be aware of phishing scams too – sometimes fraudsters will send emails that look like they’re from the IRS and ask for personal information. Keep your personal information safe!

Return preparer fraud. Make sure you use a reputable tax return preparer or tax service to ensure your tax return is free of errors and illegal maneuvers. Fraudsters derive benefit by skimming a portion of their clients’ refunds, charging inflated fees for return preparation services and attracting new clients by making false promises.

Abuse of charitable organizations and deductions. The IRS continues to observe the misuse of tax-exempt organizations, such as creating an arrangment to shield income by donating an asset or part of your income and then getting it back by repurchasing it later on. Also make sure you’re deducting the proper amounts from monetary charitable donations – your tax preparer can help you with that.

Avoiding these scams now will sure make income tax preparation through your tax service easier next year!

Tax Tips and Deductions When Tying the Knot

2011-06-13T14:54:00Z

Wedding season is upon us! If you’re in the throes of planning your big day, with all of the other details and expenses to work through, tax return preparation is probably the last thing on your mind. But, take a minute to read through these tips, and it’s pretty likely you’ll save yourself some hassle down the road.

● What’s in a name: If a name change is taking place, make sure you report it to the Social Security Administration as soon as possible. It’s important to confirm that the names you will enter on your first joint tax return match the names on file with the SSA. Make sure you let your employers know of the name change (and address change, if applicable) to make sure you get your Form W-2 and Tax Statement from them in a timely manner.

● Joint filing: Even if you get married on Dec. 31, 2011, you are considered to have been married for the entire year. The IRS Withholding Calculator will help you figure the correct amount of withholding for a married couple. Making a change to your withholding now can eliminate or reduce a tax bill in the upcoming year. Use a Form W-4, Employee’s Withholding Allowance Certificate, to make the needed adjustments and give the form to your employer.

● Flowers, possibly; Honeymoon, probably not: If you donate your wedding dress to a women’s shelter or your flowers to a nursing home after the event, you may be able to deduct these expenses from your taxes. If you opt to make a charitable donation with the money you ask for in lieu of gifts, that’s another deductible expense. However, don’t go overboard. Other expenses, like trying to deduct catering costs by inviting clients and business associates as guests or piggybacking the honeymoon off a business trip are more questionable.

While none of this may seem very romantic, planning ahead for next tax season will save you time and stress down the road. It’s not a bad idea to talk to your tax accountant or tax preparer in advance to find out what other tips or deductions apply specifically to your situation. Of course, if you don’t have a professional on hand, find a local tax return service for more information.

BEER Act seeks to give $67 million in tax breaks to microbrewers

2011-05-26T14:54:00Z

It’s hard enough to start a small business, and a microbrewery seems even more complicated. With the recession of the last few years and stiff competition in the marketplace, all the alcohol-related regulatory hoops to jump through, and, of course, the financial investment, it’s a brave soul who ventures down this path.

Hopefully a new tax break, proposed by Senators John Kerry (D-Mass) and Mike Crapo (R-Idaho), will make it easier, both for those thinking about entering the microbrewery game and those already in it.

The Brewers Employment and Excise Relief (BEER) Act of 2011 was announced in the Senate earlier this spring. The act seeks to give microbreweries - those brewing less than six million barrels of beer per year - a tax break of some $67 million. The tax break would provide additional capital to reinvest in equipment as well as funds for additional workers to allow small brewers to expand their business.

This is good, especially since the craft brewing trend continues to grow. In fact, while the overall beer industry was flat in 2010, experts say the craft beer industry was up 11 percent in terms of volume that year.

If the bill passes, I betcha there will be a lot of microbrewers out there more excited than ever before to do their annual tax preparation. I can see it now - groups of happy, beer-brewer guys (you now the type!) leaving the tax office back-slapping and high-fiving all the way to the bar, er, bank. Tax return preparation and tax filing has never been so fun!

Will this mean a larger surge of microbreweries competing for an even bigger share of the market in 2011 if the bill passes? Only time will tell. Tell us what you think.

In the meantime, we’ll be pondering this question at the local pub over a glass of suds. Cheers!

Speak with a tax preparer following a divorce to determine which assets are taxable

2011-05-20T14:54:00Z

Undergoing a divorce can be financially and emotionally draining. In order to complete the process properly, it’s imperative the former couple consider the tax implications of their decision.

Many assets are divided or sold, so knowing which assets are taxable is important. For example, property that is transferred to one spouse as a result of a divorce is generally not taxable under current IRS rules, according to the New Jersey newspaper, the Star-Ledger. However, these assets must be transferred within six years of the date of the divorce, the newspaper adds.

Assets that are sold to a third party after a divorce may be taxable, however, and each former spouse will be required to pay taxes on the gain of their separate proceeds, the news source explains.

The rules on taxation can become more difficult when a couple has significant assets involved, such as stocks, bonds and other investments, so speaking with a tax preparer can help divorcing spouses better understand how the split will impact their returns. Couples should include a list of all joint accounts and assets, including mortgages, investments and debt.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Some student aid may be taxable

2011-05-11T14:54:00Z

College is becoming more expensive for Americans, leading many families to turn to outside resources, such as loans, scholarships and grants to help cover the costs. However, it’s important to keep in mind that sometimes this assistance may be taxable.

For example, young adults who receive scholarships, fellowships or grants for amounts that exceed their qualified expenses may have to claim the remainder of the award, according to Texas newspaper, the Star-Telegram. Under the current IRS rules, qualified education expenses include tuition, books, fees and course materials. However, it’s important to remember that room and board - a significant portion of a student’s overall college bill - are not considered qualified expenses.

Additionally, some education benefits are not taxed at all, such as veterans' rewards or matriculation at a service academy, the newspaper reports.

There are some ways to reduce the amount of taxable aid owed to the IRS. For example, if the student is considered a dependent on his or her parents’ taxes, they may claim a dependent exemption, which will help lower the burden of their taxable income. Additionally, parents should maximize credits and deductions to chip away at the amount they owe Uncle Sam.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

More than half of Americans pay no income taxes, study shows

2011-05-11T14:54:00Z

Many Americans fear receiving a tax bill during filing season, but a recent study reveals less than half of taxpayers actually have to pay Uncle Sam.

Data compiled by the Joint Committee on Taxation reveals 51 percent of Americans pay no income taxes, and a large percentage actually earn refunds each year by taking advantage of benefits, the Atlantic reports. Additionally, more than 15 million households receive more in refunds than they pay in taxes due to a large number of refundable tax credits, the news source adds.

Further, a large number of low-income families are able to reduce their tax liability by utilizing a number of credits and benefits.

There are a number of tax benefits available to households of all income brackets and circumstances, so individuals should be proactive about seeking out credits and deductions for which they may be eligible. Consumers should also keep organized records of supporting documents if they plan to claim certain benefits to avoid making errors during filing season. Speaking with a licensed tax preparer in advance may also help consumers understand which types of information are pivotal in order to claim these credits.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

New calculator allows consumers to estimate tax breaks

2011-04-25T14:54:00Z

Most Americans organize their tax documents well in advance of filing season, and try to formulate how many credits and deductions they may claim to reduce their liability. Knowing the total amount of money saved through tax breaks can be difficult to gauge, but a new calculator recently created may help individuals estimate this figure.

The calculator, designed by the White House, allows individuals to input specific information relating to their income, family size and filing status. The resource was primarily established to incorporate the most recent round of tax breaks relating to the extension of the Bush tax cuts, temporary payroll tax deduction and unemployment benefits, according to news station and ABC News affiliate WISN.com

However, the calculator should not be used as a replacement to speaking with a tax preparer during filing season, which may shed more insight into additional benefits individuals can claim.

In addition, there are many credits and deductions consumers often fail to claim, namely because they do not realize they meet the eligibility requirements. Consumers who educate themselves on different tax breaks and speak with a professional about their particular financial situation may prevent missed opportunities to claim additional benefits.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Audits may be best handled by a tax professional

2011-04-22T14:54:00Z

There are many different levels to an audit, and some may be cleared up by simply mailing supporting documents to the Internal Revenue Service. Others, however, may be comprehensive, and if this is the case, individuals may want to speak to their tax preparer about handling the audit.

“I never recommend that a client call the IRS themselves nor attend the audit,” tax professional Sharon Warren told Bankrate.com. “They can unwittingly reveal information that is not required and potentially cause more problems."

However, individuals should gather all relevant paperwork, pay stubs, income statements and supporting documents that were used to claim tax credits and deductions. Tax professionals will need this paperwork in order to represent the individual undergoing the audit.

While most audits are small inquiries that can be resolved quickly, taxpayers can avoid the additional scrutiny by visiting a tax preparer during filing season to reduce mistakes on their returns. It’s important to have receipts and invoices that support credits or deductions filed and consumers should closely review their tax forms to ensure no small typos or calculation errors were made. Additionally, consumers should maintain organized records for at least three years in the event the IRS requests supplemental information.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Audits-by-mail surpass in-person meetings

2011-04-20T14:54:00Z

The fear of an audit weighs on many taxpayers’ minds each year, but the actual process may not be as nerve-racking as some may think. In fact, new data shows the majority of audits are conducted by mail, rather than in person.

Approximately 78 percent of the 1.6 million Americans were who audited in 2010 completed the process by mail, a 13 rise from 2009, CNN Money reports. Additionally, the trend represents a 93 percent increase in audits by mail from 2003, the news source adds.

"When people think of audits, they think of being in an office and going to war with someone from the IRS," Georgetown University accounting and business law professor Thomas Cooke told CNN. "Years ago you could almost guarantee you would have to go in and see someone to do it, but this isn't the case anymore."

Individuals who receive an audit notice are advised to contact a tax preparer, who may speak with the IRS on behalf of the person. Oftentimes, undergoing an audit through a tax professional is preferable, as well-seasoned preparers are equipped to examine the consumer’s taxes and provide the IRS with the information they’re looking for more quickly.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

What is a tax extension?

2011-04-19T14:54:00Z

Filing by the tax deadline may be difficult for some Americans, especially if they travel frequently or have a large amount of paperwork to gather for their returns. Consumers who think they may miss the deadline should consider requesting an extension to avoid hefty penalties.

An extension gives individuals more time to file their taxes without incurring a failure-to-file penalty, according to USA Today. However, consumers who are granted an extension will still be required to pay the taxes they owe by the filing deadline. Individuals who do not pay their tax bill by the deadline will incur penalties and interest charges, significantly inflating their overall balance.

However, adults also have the option to file a short-term payment extension as well, which gives them an additional 120 days to pay their balance. Individuals should keep in mind that receiving this type of extension will not absolve them from paying failure-to-pay penalties or accrued interest, but it will prevent Uncle Sam from initiating collection procedures, such as tax liens or wage garnishment, the news source reports.

Consumers should educate themselves on the different filing deadlines and payment options available to them, which may encourage them to meet with a tax professional early on during filing season.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Many Americans forget about obscure tax breaks

2011-04-15T14:54:00Z

Most taxpayers are aware that a large number of tax benefits exist in a broad range of categories, from retirement and education to travel and job search expenses. But there are some tax breaks that often go overlooked because millions of Americans are simply unaware of them.

For example, bingo players and other gamblers may deduct their losses from last year up to the amount they won, according to the Christian Science Monitor. However, in order to claim this deduction, individuals must keep a thorough record of their gambling events.

Individuals who have suffered hair losses due to a medical condition may also be permitted to deduct the costs of a wig, the news source adds. However, some conditions apply. For example, the costs of a wig are deductible, but expenses associated with hair transplants, regardless of whether the hair loss is medical-related, cannot be claimed. The government currently considers hair transplants a form of cosmetic surgery.

Due to the fact that so many tax credits and deductions exist, it’s important for consumers to be extremely honest and open with their tax preparer about their financial situation. Individuals can also learn more about these benefits by educating themselves through tax preparation websites, tutorials and web-based materials.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Private mortgage insurance may be tax-deductible

2011-04-14T14:54:00Z

Homeowners who meet certain conditions may be allowed to deduct their private mortgage insurance premiums from their income taxes. Private mortgage insurance, or PMI, is a requirement for homeowners who are unable to put 20 percent down on their home.

A recent tax policy that allowed homeowners to deduct private mortgage insurance on loans taken out in 2007 has been extended through 2011. In order to qualify, homeowners must have taken out their mortgage on or after January 1, 2007, Bankrate.com reports. Additionally, some income limitations apply.

Individuals filing as single, head of household or married filing jointly will begin to see a phase-out of how much they may deduct when their adjusted gross income reaches more than $100,000. The AGI limitation drops to $50,000 for married couples filing separately, the news source adds. The deduction can be claimed on Schedule A, line 13 of a consumer’s tax forms.

Homeowners who think they may qualify for the private mortgage insurance deduction should contact their tax preparer during filing season to ensure they meet the criteria and determine how much they may claim.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Survey shows small businesses struggle during 2010 filing season

2011-04-06T14:54:00Z

Small businesses report the 2010 tax year will be more difficult than in prior years, according to the results of a new survey.

The study, conducted by Discover Financial Services, shows more small companies are facing troubles when it comes to organizing and preparing their taxes. Data reveals more than 50 percent of the 750 small business owners polled said finding and organizing documents was more difficult this year, in comparison to 39 percent who gave the same response in 2007. Additionally, only 11 percent reported taking advantage of the new small business tax deductions this year.

In response to the increased difficulties, 68 percent of respondents said they sought the assistance of a tax preparer to file their returns.

Separate studies show many Americans, including young college students and individuals with sizable assets, are confused about the filing process, opting to seek out professional services to guarantee accuracy and maximize their returns. Industry experts have encouraged Americans to begin organizing their documents and make an appointment with a tax service sooner rather than later, amid the increased activity surrounding the new tax legislation and reforms.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Young adults confused over tax filing process

2011-03-15T14:54:00Z

Many recent graduates will be filing their taxes for the first time this year, and many have expressed concerns over their understanding of complex tax codes. In addition to confusion over tax forms, many are unaware of basic terminology, such as withholding status, or the difference between a credit or deduction.

A recent survey of the student body at the University of Houston revealed roughly 50 percent of respondents did not feel they had a firm understanding of how to file their taxes, with a large number still relying on their parents to fill out the paperwork, university newspaper The Daily Cougar reports.

"I just got married six months ago, but my dad still files my taxes for me," recent graduate Rachael Eckert told the newspaper. "My husband and I both have degrees, but I guess only accounting majors learn about (taxes)."

This year in particular, young adults should pay close attention to their tax forms, as new legislation and key tax credits, such as the American Opportunity Credit, will affect their returns. Recent graduates who are filing for the first time may benefit from consulting a tax service, which can provide guidance and help adults complete their returns error-free.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Determining whether scholarships are taxable

2011-03-09T14:54:00Z

Education costs are steadily increasing and more Americans are seeking out scholarships to help cover the high price of tuition. However, many have questioned whether scholarships are tax-free or must be included in their taxable income during filing season. The answer is: it depends.

Scholarships, as defined by the government, are funds intended to be used by an undergraduate or graduate student at an education institution. However, certain rules apply. In order to be tax-free, the student who has received the award must be a degree-seeking candidate at a qualified educational institution. Additionally, the funds must be used for qualified education expenses, such as tuition, fees, books and required course materials.

Some costs, such as room and board, travel, research and non-required materials are not considered qualified expenses under current tax laws, even if they are a condition of enrolling in a program. In these cases, scholarship funds used to pay for these expenses are taxable. However, some exceptions apply to this rule as well.

Scholarships received as payment for teaching or research that are granted by the National Health Service Corps Scholarship Program, Armed Forces Health Professionals Scholarship and Financial Assistance Program while the recipient is a degree-seeking candidate at a qualified institution are not taxable.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Utilize new tax refund application

2011-03-08T14:54:00Z

More consumers rely on their smartphones applications to make key financial transactions, save money and find products more conveniently. In recognition of this trend, a new app has been created to help taxpayers check the status of their tax refunds via their smartphones.

The new IRS2go app allows individuals with iPhones or Androids to safely determine if their tax refund has been processed or when it is expected to be sent out. The application, which is encrypted for safety and privacy purposes, prompts individuals to input their Social Security number, their filing status and their anticipated refund amount for the 2010 filing season.

Taxpayers who submitted their returns electronically will generally receive their refunds more quickly than those who mailed in their returns.

The app is one of the latest new updates to the filing process. The government, in an effort to encourage more consumers to e-file their returns and receive their refunds via direct deposit, will allow taxpayers to receive their tax refund across multiple accounts. Consumers who want to have their refund split up and deposited in up to three separate accounts will need to fill out and include Form 8888 with their returns this year.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Ruling says medical residents must pay Social Security taxes

2011-02-11T14:54:00Z

A longstanding battle between the government and hospitals was settled by the U.S. Supreme Court, which ruled in favor of the Internal Revenue Service. As a result, full-time medical residents, who were previously exempt from paying Social Security taxes, will be required to pay taxes in the future, Dow Jones Newswires reports.

The lawsuit began in 2005 after the IRS defined a full-time employee as an individual who works more than 40 hours each week, automatically including medical residents in that category. However, many teaching hospitals retaliated, citing that the residents should fall under the classification of a student since their activities in the hospital are centered around education, Dow Jones notes.

"At a time when our members are looking at reduced resources, we could have used these resources for other things, like patient care and education programs," Association of American Medical Colleges regulatory counsel Ivy Baer told Dow Jones.

As a result of the ruling, teaching hospitals and their medical residents will see some changes during filing season, as they will each be required to pay their share of Social Security taxes, with half being paid by the employer and the remainder being paid by the employee.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Determine your tax needs before filing

2011-02-08T14:54:00Z

Many taxpayers have already begun preparing their documents, gathering their receipts or invoices and calculating their tax liability for filing season. But when it comes down to it, individuals should also ask themselves what their particular tax needs are before deciding whether to file themselves or visit a tax preparer.

Some individuals may choose to file their returns themselves; however, the cost of tax software can be expensive and generally rises in price as Tax Day gets closer. Therefore, individuals may choose to seek the assistance of a professional, which cuts down on filing errors and also gives taxpayers the opportunity to discuss key financial or tax issues.

Also, the tax rules for certain holdings relating to stocks, bonds, retirement and other investments can be confusing and change often. Professionals can give guidance on the most up-to-date legislation regarding these holdings, allowing individuals to maximize their tax savings. Consumers who choose to visit a tax preparer should make their appointment well in advance and ensure they bring all the pertinent information with them. Additionally, consumers who have questions regarding tax issues should take the opportunity to resolve them and change their financial behavior accordingly.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Everyone can reap the benefits of certain tax credits

2011-01-14T14:54:00Z

A large number of tax credits are available to help consumers either reduce their liability or receive a bigger refund from Uncle Sam. However, many credits are restricted to those within certain income brackets or facing different obstacles. But there are some credits for which every American may be eligible.

Americans who make charitable contributions should make sure they reap the rewards during filing season by claiming it as an itemized contribution on their tax returns. Both cash and non-cash contributions made to charities and nonprofit organizations can be claimed as long as consumers keep detailed records and receipts of their donation.

Consumers who recently relocated for work may also be able to write off certain relocation expenses, under the condition the distance to their new work location from their former home is at least 50 miles longer than their previous commute. Additionally, consumers have to show they have been employed for at least 39 weeks out of 12 months in the vicinity of their new job.

Some tax credits related to energy efficiency will expire at the end of 2010, making it important for consumers to meet with their tax preparer before the year's end to determine whether certain energy-related purchases qualify for the tax break.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Veterans may qualify for military tax credit

2010-12-29T14:54:00Z

Although Tax Day is roughly five months away, the Minnesota Department of Revenue is reminding veterans who file Minnesota tax returns about a benefit available to them.

Veterans who served in a combat zone or hazardous duty area may qualify for the Credit for Military Service in a Combat Zone. For service in 2007 and 2008, the refund is equal to $59 for each month of service. However, for those who served starting on January 1, 2009, the credit is $120 for each month, according to the Echo Press.

“We thank all members of the military for their hard work and service this Veteran’s Day. Their dedication and sacrifice is an inspiration,” said Revenue Commissioner Ward Einess told the newspaper. “With the recently doubled military tax credit, we want to make sure all veterans receive the benefits they deserve.”

Veterans who want to claim credit should complete and file Form M99. Credits can be claimed for service in 2007 until October 15, 2011. Currently, more than 20,500 veterans have filed for refunds totaling more than $9,775,000, the newspaper reports.

Many states have different tax incentives for servicemembers. Veterans should meet with their tax preparer to determine whether they qualify for the credit.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Recovery Act rewards homeowners for going green

2010-12-28T14:54:00Z

Thanks to the Recovery Act, people who weatherize their homes can not only lower their heating bills but also reduce their tax liability.

The Act has been expanded into two home energy tax credits: Nonbusiness Energy Property Credit and Residential Energy Efficient Property Credit.

The Nonbusiness Energy Property Credit equals 30 percent of what homeowners spend on energy-saving upgrades up to $1,500 for the combined 2009-2010 tax years. Products people can use to improve their homes range from high-efficiency heating and air conditioning systems to installing skylights.

The Residential Energy Efficient Property Credit also equals 30 percent of what a homeowner spends on eco-friendly improvements, such as solar electric systems, wind turbines and fuel cell property.

However, not all energy-saving upgrades can give citizens a break on their taxes. People should check the manufacturer’s tax credit certification statement before buying any kind of environmental-conscience product. Homeowners who qualify can claim both credits when they file their 2010 income tax return.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Making complete payment on taxes can save Americans money

2010-12-10T14:54:00Z

By filing a tax return, taxpayers may be able to claim personal exemptions, deductions and credits that can lower their taxes. If a return is filed late or not at all, however, it can be rather expensive. If an individual owes taxes and is late returning them, they may be charged with interest rates that could raise the tax bill by 25 percent or higher.

By filing tax returns either within three years of the original due date of the return, or two years from the time the taxes were paid, the taxpayer may also qualify for a refund.

Citizens who receive the Earned Income Tax Credit have to file a return to claim the credit, even if they usually do not do so. The return must be filed within three years of the due date to get the credit. To reduce tax liability, consumers should claim credits or deductions as well.

Taxpayers can lose Social Security benefits on income from self-employment if they fail to file their tax return. The Social Security Administration depends on information for filed tax returns to determine Social Security benefits. Consumers can visit a tax preparer to make sure they are filing correctly and receiving the maximum tax benefits.
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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Take advantage of drywall tax break

2010-11-29T14:54:00Z

Thousands of homeowners have reported issues with defective drywall, placing a financial strain on many Americans. To provide some financial relief, the government recently announced it will offer a tax break to homeowners with problematic drywall, allowing them to deduct repair costs, according to The New York Times. Appliances that were damaged due to the drywall will also be tax-deductible.

Defective drywall has been known to cause illnesses in many homeowners. Some consumers have seen damage to their air conditioners, electronic equipment and wiring from bad drywall fumes. The cost of repairs could exceed $100,000, The Times reports. Under the new rules, taxpayers must itemize the deduction and can only claim the benefit if the repair costs exceed $500.

"This is welcome and long overdue news," Florida Senator Bill Nelson told The Times. "This tax relief is just another important step to help drywall victims piece their lives back together."

Consumers with drywall problems should consult with their tax preparer prior to making repairs to determine what type of information they should save. Consulting with a financial professional will also allow homeowners to determine whether they need to take additional steps to claim benefits.
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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Nearly 8.1 million new workers eligible for tax break

2010-11-03T14:54:00Z

More small businesses are taking advantage of the HIRE Act Tax Exemption, as evidenced by the most recent statistics from the Department of the Treasury.

According to the report, more than 8.1 million Americans who were unemployed for 60 days or more were hired by small businesses between February and August of 2010. Those businesses will now be eligible for tax exemptions and credits during filing season. Under the program, employers can exempt employee wages from their businesses' 6.2 percent share of Social Security payroll taxes for the rest of the year. Employers may also qualify for a $1,000 tax credit for each eligible employee who is retained for a one-year period.

"Targeted programs like the HIRE Act tax credit provide an incentive for private-sector employers to hire new workers sooner than they otherwise would," said Treasury Department chief economist Alan Krueger. "Since it's only in effect through the end of the year, the HIRE Act encourages businesses to accelerate hiring in order to get the maximum benefit from this temporary tax credit."

The government has established a number of programs and tax incentives aimed at boosting the economy and providing tax breaks to Americans since the onset of the recession. Consumers should speak with their tax preparer regarding their eligibility for new tax benefits.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

More than 3.5 million Californians eligible for healthcare tax credit

2010-11-02T14:54:00Z

As the cost of healthcare continues to rise, new tax credits associated with healthcare reforms are expected to play a central role in making medical care more affordable, especially for low- to middle-income families.

New studies reveal nearly 3.5 million Californians may be eligible for the federal tax credits through the purchase of policies from a statewide insurance platform beginning in 2014, according to The Los Angeles Times. California remains one of the "hardest hit" states affected by the financial crisis and recession. Research reveals 94 percent of Californians who stand to benefit the most from the credits come from families in which at least one member is employed, the newspaper said.

"These premium tax cuts will enable many hard-working Californians to afford health insurance," Family USA deputy executive director Kathleen Stoll told the newspaper. "They put significant extra cash into Californians' pocketbooks and provide real, concrete relief."

Confusion surrounding the healthcare reform timeline has many Americans uncertain about when they should purchase coverage and how their taxes will be impacted. Individuals should consult with their tax preparer during filing season to clear up any uncertainties.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Younger adults benefit most from housing tax breaks

2010-10-25T14:54:00Z

Certain age groups may benefit more from tax breaks, a new report reveals. A study conducted by the National Association of Home Builders shows younger households may gain more from housing-related tax deductions than older couples.

Younger families who have recently purchased a home are likely to carry larger mortgage debt and smaller equity than older Americans who have had years to chip away at their home loans. Additionally, families who are just starting out may have young children to support. The benefits of the deduction are greatest for those between the ages of 35 and 45. Individuals between the ages of 18 and 34 make up the second age group that benefits most from the deduction.

"Opponents falsely argue that the deduction is only for the wealthy, but it is clear that the mortgage interest deduction is also of great value to younger homeowners," NAHB Tax and Policy Issues assistant vice president Robert Dietz said. "Any tampering with this deduction would have a disproportionate impact, as a share of household income, on younger homeowners who have relatively higher mortgage interest payments."

Consumers should keep organized records of their mortgage information to make securing their housing tax deduction easier during filing season.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Know the consequences of marrying someone with tax debt

2010-09-01T14:54:00Z

When a couple decides to tie the knot there is a great deal of planning involved for the big day. But individuals should also make sure they get all of their financial skeletons out of the closet prior to getting married, and that includes outstanding tax debt.

If one partner owes back taxes, there are protections the other individual can take to avoid a backlash or being responsible for their partner's unpaid balance. According to Fox Business, individuals should consider refraining from opening a joint checking or savings account in the event that a levy is imposed and bank assets are seized by the federal government.

Following matrimony, couples may also want to file separately to avoid any situation in the future that could make one party responsible for the other's tax debt. However, this is just an added precaution as most partners are not responsible for debt that was incurred by their spouse prior to the marriage.

To understand how couples will be held responsible for back taxes owed by one partner, a visit to a tax preparer may clear things up and leave spouses feeling better informed. Tax preparers may also provide more insight on an individual's repayment options.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Major life change? Don't forget to update tax documents

2010-09-01T14:54:00Z

When a person lands, or loses, a job, the last thing they may think about is their taxes. But these events could all have an effect on your income returns during filing season, so it's best to sit down every few months and decide if it's time for a "tune-up," according to the Detroit News.

Given the state of the economy, individuals who have gained or lost a job recently need to determine how it may impact their taxes. For example, those who have gained employment may be pushed into a different income bracket or find that they may no longer qualify for credits they were previously eligible for, said the newspaper. In contrast, a job loss may increase or change the credits and deductions a person should claim.

Many workers choose the summer when their children are out of school to relocate for a new job. If the position is more than 50 miles from the location of their previous home, the worker may be able to deduct some moving-related expenses from their taxes.

Anytime a big event occurs that may affect a consumer's income, it's always a helpful idea to speak with a tax preparer. This will ensure that individuals receive the maximum benefits during filing season.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Do the new health care rules change an individual's tax status?

2010-08-31T14:54:00Z

One provision of the new health care laws - namely the law that allows parents to continue coverage for dependents up to age 26 - has many families wondering if this will affect their tax status.

One woman wrote into McClatchy Newspapers seeking advice from tax expert Jesse Weller about this issue. Currently, she is able to claim "Head of Household" status on her tax forms for her children until they reach the age of 23. As the laws now allow parents to keep dependents on their coverage until 26, the advice seeker asked if she could continue claiming them on her federal taxes up through that age.

Weller's response: No. He reported that even though the new laws will extend coverage to more young adults, they do not alter any of the tests that are used to assign an individual's dependency or tax filing status.

Many of the new laws enacted that relate to health care and employment can be confusing and complicated. But speaking with a tax preparer about how the changes might affect an individual's taxes can clear up any questions.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Study shows many individuals do not take advantage of eligible earned-income tax credits

2010-08-31T14:54:00Z

Tax credits and deductions are intended to provide some financial relief to Americans, but a recent report shows that many eligible individuals may not be claiming them during filing season.

Citing the results of study - conducted by the National University's Institute for Policy Research - low- to middle-income families in San Diego County, California, receive an annual earned-income tax credit of $315 million, reports the San Diego Union-Tribune. The funds help keep more than 177,000 above the poverty line. However, results show that roughly one-quarter of eligible individuals do not claim the credit on their taxes, the newspaper said.

Though this particular study is specific to one area, it serves as a reminder that there are many tax benefits that Americans are either unaware of or do not claim, reducing the amount of money they could be receiving or saving during filing season.

Addressing this with a tax preparer may be the best way to gauge the type of credits or deductions for which an individual may be eligible. Benefits extend to expenses associated with education, child care, charities, employment and even searching for a job.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs

Are there spousal limitations regarding Roth IRA conversions?

2010-07-13T14:54:00Z

The rules surrounding conversion from a traditional IRA to a Roth account can be difficult to understand, as evidenced by one advice seeker's question to Fox Business regarding her retirement account. The question involves whether or not both spouses can convert to Roth IRA accounts in the same year or if only one is able to make the shift.

While limitations exist regarding making tax-free contributions to a traditional IRA or the ability to contribute to a Roth, tax codes do not inhibit a spouse's decision to choose one account over the other because of their husband or wife's choice of retirement plan.

However, each spouse should be aware of the income rules and contributions that surround each type of account to ensure they are in compliance with tax laws during filing season. To ensure that there are no mistakes during income preparation, individuals and spouses should consult a tax preparer or service provider.

Working with a professional will also help Americans understand the impact of their decision to either convert to a new retirement account or keep the one they currently have.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Pay attention to the dates older Series EE and Series I savings bonds were issued to determine eligibility for tax breaks

2010-07-13T14:54:00Z

As college tuition gets more expensive, some Americans holding Series EE and Series I savings bonds may be wondering about the tax implications of cashing them in for educational purposes. According to government Web site Treasury Direct, individuals that hold these bonds may be eligible for an education tax exclusion if the bonds were issued after 1989.

In order to exclude all or part of the interest following the redemption of the bonds, the funds must be used to pay for "qualified higher education expenses at an eligible institution," according to the Web site.

The funds must be used for qualified expenses - tuition and fees, expenses for sports or activities associated with a student's degree program, and expenses that benefits the bond holder, spouse or dependent for whom an exemption is claimed. Costs associated with books or room and board are not considered qualified expenses.

Additional eligibility rules apply to this process and should be addressed in detail with an individual's tax preparer. A tax service will be able to go through the steps with the bond holder and help them fill out the necessary paperwork.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Some BP claim proceeds may be taxable

2010-07-13T14:54:00Z

Many individuals affected by the oil spill in the Gulf Coast are wondering how proceeds from British Petroleum claims will affect their taxes. While the details are still being worked out, long-standing tax codes dictate that - depending on how the funds are designated - some may be taxable while others may not.

For example, businesses and companies that receive funds to replace lost income or profits are generally taxable, as they would have paid taxes on their earnings had the disaster not occurred.

"If the ultimate plan of the payment is to replace what would have been income, it's generally taxable," certified public accountant Ralph Litolff told the Associated Press.

However, payments related to property damage are generally not taxed, as the proceeds are aimed toward "making the injured parties whole again," the AP reports.

Those affected by oil spills and natural disasters should always consult with a tax preparation service regarding the tax implications of any insurance or claims money awarded. Tax professionals can help consumers maximize their tax benefits and avoid costly preparation issues.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Burning up this summer? Purchase new energy-efficient appliances and get a tax break

2010-07-13T14:54:00Z

The heat of summer can bring on higher costs of running air conditioners and other appliances, in addition to increasing the wear and tear of certain machines. Consumers may benefit from purchasing new energy-efficient appliances which will not only improve energy consumption, but also provide them the chance to receive a tax break.

Tax credits are being provided to individuals that purchase new Energy Star qualified appliances. Consumers can purchase biomass stoves, heating, ventilating, and air conditioning (HVAC), windows, doors, water heaters, insulation and even roofing materials while receiving a credit for 30 percent of the costs up to $1,500. These benefits apply through December 31, 2010, on existing and principal residences only.

Other products purchases - such as solar energy systems and geothermal heat pumps - qualify for a credit of 30 percent of costs with no upper limit. This credit is extended to December 31, 2016, and applies to both principal and second homes.

Individuals planning on claiming the credits should keep all documentation of the purchase and make sure to inform their tax preparer that they intend to benefit from the federal program.

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Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Summer teenage workers should be aware of tax rules

2010-06-03T14:54:00Z

Most teenagers and college students spend their summers working. When filing season rolls around, parents and their kids should understand how summer jobs may affect their taxes.

Most teenage workers who depend on another individual may not have to worry about income tax preparation unless they exceeded the standard deduction amount of a single filer, according to Fox Business. For 2010, the deduction amount is $5,700. In order to claim exemption from filing, summer workers should pay attention to Line 7 when completing their W-4 at their workplace.

Special rules may also apply to parents who employ their children through a family business. Those who pay their children less than $5,700 may not have to withhold FICA taxes if their child is under the age of 18, Fox Business reports.

Because the rules and regulations pertaining to teenage and summer workers may be confusing or situational, it may be a good idea for parents to consult a tax service or preparer to ensure that information is accurate and complies with Internal Revenue code.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Homebuyer tax credit extended for military personnel

2010-06-03T14:54:00Z

Military service men and women who missed the homebuyer tax credit may be eligible for an extension. The incentive, which provides up to an $8,000 credit for first-time homebuyers and $6,500 for repeat owners will be extended to April 30, 2011, for military, foreign service and intelligence members.

"We honor those who serve our country and are glad that this bill acknowledges the unique circumstances they face," National Association of Exclusive Buyer Agents president Benjamin Clark said. "This bill ensures that members of the military have equal opportunity to participate in the homebuyer tax credit and offers relief to struggling military families by making the mortgage payment tax deductible."

The extension will apply to military personnel on a tour of duty outside the U.S. for at least 90 days between December 31, 2008, and May 1, 2010. The special rules also shield members from the 36-month recapture law if they are forced to relocate or sell their home purchased under the credit due to an extended duty of service.

Military personnel who plan to purchase a home under the extended rules should consult a tax preparer during filing season to ensure their income paperwork is accurate.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Americans should file an amended return upon noticing mistakes or errors

2010-06-01T14:54:00Z

Tax preparation can be a tedious process, involving scores of documents, financial and investment statements and additional credit- or deduction-related forms. Given the large amount of necessary information, sometimes confusing tax codes and ever-changing rules and regulations, it's easy to make small mistakes.

Tax law dictates that upon discovering an omission or error regarding an understatement of income or overstatement of deductions, filers should amend their returns, however they are under no legal obligation to do so, the Journal of Accountancy reports. Despite the ruling, taxpayers should consider amending their information to avoid an audit or other type of action.

Failure to correct false information could lead to fines or penalties from the Internal Revenue Service.

To avoid inadvertently providing false information to the IRS, individuals should maintain an organized file of their tax documents they will need during filing season in one centralized location. Those with a large amount of assets or who are benefiting from new credits or deductions should consider consulting a tax preparer who may be more familiar with tax code.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Taxpayers can take advantage of federal tax credits for energy efficiency

2010-05-12T14:54:00Z

Americans are often eager to take advantage of federal tax credits during filing season. Federal tax credits for energy efficiency are becoming an increasingly popular benefit that consumers are utilizing to reduce their tax bills and save money.

States have been awarded $300 million in federal stimulus funds as an incentive to consumers who are eager to upgrade their appliances to more energy-efficient models, the Salt Lake Tribune reports. Certain upgrades, such as enhanced attic insulation and new heating and cooling systems may allow taxpayers to receive a government credit, which reduce tax bills on a dollar-for-dollar basis, reports the newspaper.

Taxpayers interested in the credits should ensure that any energy-efficient upgrades fall under federal guidelines. Taxpayers should also keep all receipts in one central location in order to provide the necessary documentation during tax preparation, the newspaper reports.

Consumers who take part in certain energy-efficient home improvements can receive a tax credit up to 30 percent off for costs up to $1,500 through December 31, 2010, according to the U.S. Department of Energy.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

IRS warns taxpayers of phishing scams

2010-05-12T14:54:00Z

The increased flow of personal and tax information makes consumers more vulnerable to fraud and identity theft during filing season. The Internal Revenue Service is urging taxpayers to be wary of phishing scams that may jeopardize their financial security.

Scammers use the period following the April 15 tax deadline to send out official-looking emails that appear to be sent from the IRS in order to manipulate taxpayers into revealing personal information, reports the St. Louis Globe-Democrat. Taxpayers should be aware that a legitimate IRS notification will come in the form of a letter or notice that arrives by mail.

"Because so many people prepare and file their taxes electronically, they may wrongly assume the IRS will contact them online about their taxes," Michael Devine, IRS spokesman, told the newspaper. "The IRS never sends unsolicited emails about your taxes."

Taxpayers who have received emails supposedly from the IRS should not reveal any personal information and contact the agency to report phishing.

Email phishing is a longstanding tool criminals use to commit identity theft. This crime affects nearly 11 million Americans annually. Taxpayers should not open any attachments or respond to such online correspondence in order to better protect their privacy.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

2009 tax bills hit record lows

2010-05-11T14:54:00Z

An analysis shows that tax bills in 2009 dropped to their lowest levels since the 1950s, according to USA Today.

Figures from the Bureau of Economic Analysis shows that federal, state and local taxes only accounted for 9.2 percent of personal income, USA Today reports. Historical rates have placed tax burdens hovering around 12 percent.

"The idea that taxes are high right now is pretty much nuts," Center for American Progress economic policy leader Michael Ettlinger told the newspaper.

Americans' burden was reduced for a number of reasons. Nearly one-third of the stimulus package was allocated toward tax cuts, which workers took advantage of during filing season, the newspaper reports. Over the years, higher exemptions, lower rates and more credits have also eased the size of large tax bills. Consumer spending also declined, which consequently decreased the sales taxes they paid.

Taxpayers may benefit each year by taking advantage of the credits, deductions and exemptions offered by the Internal Revenue Service. Workers who are unsure about their eligibility for certain benefits may receive assistance through tax services or their preparer.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Americans should take advantage of little-known tax breaks

2010-05-11T14:54:00Z

Each year, taxpayers are eligible to receive tax breaks from the Internal Revenue Service for a number of reasons, ranging from home energy efficiency to charitable contributions. However, Americans should also keep the lesser-known credits in mind during tax preparation.

One overlooked tax benefit is the master's exemption, which allows homeowners who rent out their primary or vacation property for 14 or fewer days each year to collect the income tax-free, reports the Wall Street Journal.

"The property doesn't have to be a first home, but the exemption can be taken only once a year," Monmouth University CPA Douglas Stives told the newspaper.

The gift tax is another exemption that allows one individual to present another with $13,000 in cash or property on a tax-free basis each year, according to the IRS. The IRS also eases the tax burden of travelers by deeming their frequent-flier miles nontaxable, says the newspaper.

Many taxpayers should keep these tax breaks in mind during filing season and make sure to include them during preparation. Americans can view a list of exemptions and credits on the IRS Web site or consult their tax preparer regarding exemptions for which they may be eligible.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Haven't received your tax refund? Find it on the IRS Web site

2010-05-11T14:54:00Z

Income tax refunds are eagerly awaited by millions of Americans each year, but knowing when they will arrive may reduce some of the anxiety.

First, it's important to understand the timeline between filing taxes and receiving a refund check. Tax preparers who mailed their information should expect to receive their return within a six week period after their forms were received by the Internal Revenue Service, according to the Wall Street Journal. Those who filed by the April 15 deadline should have already received their returns.

Taxpayers can utilize the IRS Web site to view if the refund was sent or the date it is expected to be mailed. Americans can also find out if their check was returned to the IRS and update the mailing address the agency has on file. In order to gain this information, taxpayers can use the Where's My Refund application and provide their Social Security number, filing status and refund amount expected.

Americans look forward to receiving their refunds to pay off debts, plan a vacation, increase investments or simply have some extra money to work with. Nearly 54 percent of Americans expect to receive a refund this year, according to Bankrate.com.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Taxpayers may benefit from new Roth IRA conversion rules

2010-05-08T14:54:00Z

Individual retirement accounts are common investments for those interested in building their nest eggs. As of January 1, 2010, the Internal Revenue Service has changed the guidelines surrounding the conversion or rollover of a traditional IRA or qualified employer plan to a Roth IRA.

Under the new rules, the $100,000 modified adjusted-gross-income limitation that prevented many from converting or rolling over their accounts has been eliminated, according to the IRS. Additionally, taxpayers who convert or roll over traditional IRAs or employer plans, such as a 401(k), to a Roth IRA in 2010 can choose to report and pay on all conversion income in 2010 or report half the conversion income in 2011 and the remainder in 2012, the IRS reports.

Though Roth contributions are not tax-deductible on income tax returns, many Americans prefer Roth IRAs to traditional or employer plans because they allow income to build tax free, according to the Post-Crescent, a Wisconsin newspaper.

The economic downturn has made Americans more diligent about building their retirement income. Taxpayers who are considering converting or rolling over their traditional IRAs or employer plans should keep these new changes in mind during tax preparation.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Americans may benefit from preparing for next year's tax season now

2010-05-06T14:54:00Z

Americans may benefit from preparing for next year's tax season now.

Tax season does not have to be a stressful period for the millions of taxpayers that file each year. Tax preparation may run more efficiently if Americans begin preparing their information sooner rather than later, according to the Chicago Tribune.

Taxpayers will benefit during next year's filing season if they keep their tax information organized by creating separate folders for documents relating to retirement and college accounts, medical expenses and property tax bills, the newspaper reports. Keeping paperwork in separate folders in one location may reduce the stress of trying to compile it all last minute.

Americans should also keep track of their deductions to maximize their tax benefits and ensure that they claim everything they are eligible for on their return, reports the Tribune. Taxpayers should also pay close attention to their retirement accounts and make any necessary changes that will increase their benefits and provide a tax break, such as contributing more to their 401(k), the Tribune suggests.

By keeping track of all pertinent information throughout the year, taxpayers will reduce the burden of trying to meet the April 15th filing deadline.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Many tax refunds to be used for debt, savings

2010-04-08T14:54:00Z

Consumers have become more focused on paying down debts and being financially responsible, and a recent survey suggests that behavior will carry over into the current tax filing season.

The survey by job hunting Web site CareerBuilder.com found that 56 percent of workers plan to use their tax refund to pay off debt they have built up.

Also, 34 percent said that they plan to put their tax refunds into savings, while 12 percent will make home improvements and 11 percent will take a vacation. Only 7 percent said that they planned to invest their tax return, while 2 percent indicated that they planned to buy a car.

Despite improving signs for the economy as a whole, the survey also found that many people are still having a hard time making ends meet. According to the poll, 78 percent said they live paycheck to paycheck, compared to 61 percent who said this in May 2008.

The Internal Revenue Service has indicated that the size of the average tax return has increased over last year, with help from provisions in the federal stimulus bill.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Reminder: Rent payments must be counted as income

2010-04-07T14:54:00Z

One effect of the recession was the large number of Americans who were forced to alter their living arrangements by moving in with relatives and others in order to make ends meet. For those who have been collecting rent from younger family members and other tenants during the recession, that money must be reported as income during filing season.

Recent data from the Mortgage Bankers Association shows that 1.2 million households disappeared between 2005 and 2008, in many cases because younger Americans were moving back in with parents in response to economic difficulties.

The MBA also notes that rental income is any payment received for the occupation of use or property, including advance rent payments, security deposits and money paid for canceling a lease.

Elsewhere, the Internal Revenue Service reminds landlords that any services or other work provided in place of rent payments are also to be reported as taxable income. For example, if a person offers to paint a room in exchange for a discount on the rent, that work must be reported at its fair market value.

For people who may have only recently welcomed family members back into their home, talking with a skilled tax preparer is the best strategy if they are also collecting rent.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Government reminds homebuyers of expiring tax credit

2010-04-07T14:54:00Z

The U.S. government is reminding taxpayers that they still have just under a month left if they are interested in taking advantage of the popular credit for homebuyers.

As April got underway, the U.S. Treasury Department issued an announcement noting that homeowners still have 30 days to benefit from the tax credit. The credit had been initially set to expire at the end of November, but was extended by Congress as a way to provide additional stimulus for the economy.

Under the credit, homebuyers must have a property under contract by May 1, 2010 and the home must be closed on before July 1, 2010.

"The First Time Homebuyer credit has helped nearly two million families achieve the American dream of owning their own home. The expanded tax credit has been one of the great successes of the Recovery Act. Potential homeowners across the country should know about it and should take advantage of it," said Deputy Treasury Secretary Neal S. Wolin.

The provision, which was approved under the federal stimulus act, provides an $8,000 credit for first-time home purchases, or $6,500 for those who are long-time residents of their home but choose to buy a new one.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Recent flooding gives some taxpayers more time to file

2010-04-06T14:54:00Z

In an effort to spare homeowners in affected areas any undue stress during tax filing season, the Internal Revenue Service has indicated that people in areas that experienced flooding-related disasters in March will have more time to complete their returns - within the federally designated areas.

In March, several parts of the country, particularly the Northeast, were hit hard by torrential rains that resulted in heavy flooding in places like Rhode Island and southeastern Massachusetts. West Virginia and New Jersey also experienced recent federal disaster declarations in response to the flooding.

According to the IRS, people with a home or business located within the federally-designated disaster areas for flooding will not have to file returns until May 11. The IRS added that any qualified taxpayer who receives a penalty should call the telephone number on the form to have it removed.

Wherever they may live, taxpayers who have been victims of a natural disaster can often find some help under the National Disaster Relief Act of 2008.

That legislation allows people in federally designated disaster areas to claim related casualty losses even if they do not itemize their deductions. Taxpayers who are affected by a natural disaster can also consult with their tax preparer for additional information.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Taxpayers may have options as filing deadline approaches

2010-04-06T14:54:00Z

When tax filing season comes, most Americans know they are required to complete their returns by April 15 and pay any outstanding debts to the U.S. Treasury Department, although people do have the option of filing for extensions.

This week, a tax attorney in New York, William Funk, also reminded people that if they had have had a personal tragedy or crisis or other situation that resulted in the need for psychotherapy, they may also be able to have any civil penalties lifted by the Internal Revenue Service.

"The IRS often makes allowances for people in difficulties, but takes a dim view of those who don't file. Last year the IRS assessed more than $6 billion in civil penalties against taxpayers who failed to file. Penalties for non-filing can be up to 25 percent of tax due, but they may be reduced or eliminated when evidence of treatment for a mental illness constituting a 'reasonable cause' for non-filing can be shown," said Funk.

Funk also noted that for some people, psychotherapy may be tax deductible as one of the many medical expenses that are qualified under the tax code.

Even if people are not planning to see a therapist, they can also consult with their tax preparer and the IRS to work out a payment plan or request an extension.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Small business owners can claim variety of deductions

2010-04-05T14:54:00Z

For people who own small businesses, tax filing season can be an opportunity to get a financial boost from the various deductions and credits that many entrepreneurs can take advantage of. People who are self-employed or who own companies can deduct their expenses for home offices, transportation, and costs associated with business travel.

A recent travel column in USA Today noted that taxpayers must provide receipts if they are deducting a meal or business-related entertainment expense that is $75 or higher, and that lodging expenses also require a receipt.

The newspaper column added that entrepreneurs can write off 50 percent of the cost of a business meal, as well as entertainment costs.

According to the Internal Revenue Service, deductible travel expenses can include taxi fare, tips paid for services like meals and lodging, and dry cleaning and laundry, as well as many other related expenses. The IRS also points out that travel expenses for conventions can be deducted as long as a person can demonstrate a business benefit from attending.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Retirement planning important for all taxpayers

2010-04-05T14:54:00Z

When filing season comes around, people often find out that the decisions they make about retirement savings can also have tax implications.

The most common example in this area is the question of whether to invest in a traditional IRA or a Roth IRA, given the considerable differences that exist between these two options.

With a traditional IRA, a person can contribute $5,000 in a given year tax year, and the amount is deductible. A Roth IRA allows investors to get their tax benefits upon retirement, since their savings can be withdrawn tax-free.

In a recent article in the Cleveland Plain Dealer, financial expert Bill Russo was quoted as saying that traditional IRAs are likely to remain popular in the coming years because of questions confronting investors - such as whether tax rates will be higher when retirement time does come. He also noted that the Bush-era tax cuts will be expiring on December 31, 2010, which will result in higher tax brackets in 2011.

People who are hoping to maximize their retirement planning - as well as the size of their refunds - may do well to consult with a skilled tax preparer who can provide valuable assistance in navigating the complexities of the tax code.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Taxpayers should hang on to financial documents

2010-04-03T14:54:00Z

When tax filing season comes around, many people scramble to get their personal documents together, including the previous year's return and in many cases, older ones.

However, this can also invite questions about how long one should hang on to old tax data, not to mention other things such as receipts and miscellaneous documents.

In the Financial Tuneup column on the New York Times Web site, Jennifer Saranow Schultz notes that the Internal Revenue Service requires taxpayers to be able to produce income from the past three years as long as it has been reportedly correctly.

The column adds that in case more than 25 percent of an individual's gross income was not accurately reported, they will need to provide six years of such information. However, Schultz and the experts she spoke with generally advised people to hang on to their documents for as long as seven years even if their returns are all in order.

People are generally advised to keep all of their tax documents in order and in a secure place throughout the year, and if they have concerns about whether they should keep a specific document, a skilled tax preparer is a good person to consult with.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Small business owners should take note of new tax credit

2010-04-03T14:54:00Z

The Internal Revenue Service has announced a new tax credit aimed at helping more employees of small businesses get health insurance coverage. The credit is part of the sweeping health care reform legislation that was signed into law in March.

According to the IRS announcement, the credit is available to small businesses that pay at least half of their employees' single coverage costs.

"This credit provides a real boost to eligible small businesses by helping them afford health coverage for their employees. We urge small businesses and tax-exempt employers to look closely at this important tax break - which is already effective - to see if they already qualify," said IRS Commissioner Doug Shulman.

The maximum credit is 35 percent of premiums paid in 2010 by an eligible small business, according to the IRS. In 2014, the maximum credit would increase to 50 percent of the premiums paid by the employers, with 35 percent credits applying to tax-exempt organizations.

The credit is geared at companies that have fewer than 25 full-time employees averaging less than $50,000 in pay per year, although some larger companies may qualify.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Taxpayers advised not to be careless at filing deadline

2010-04-03T14:54:00Z

The Internal Revenue Service has taken a number of steps this filing season to make things as easy as possible for taxpayers who may be rushing or experiencing stress as they try to finish up in time for the April 15 deadline.

A recent IRS announcement offered some basic tips that people can follow as they finishing up their tax-filing procedures.

Overall, one of the most important things is to avoid missing the deadline, since this could result in penalties, including a failure to file fee, as well as interest charges. One solution to this situation could be to request an extension for more time to file, and to pay as much as possible by April 15 to minimize any additional interest and penalty charges.

The IRS announcement also provides a list of tax breaks available under the economic stimulus bill so that people can be sure they are taking full advantage of all the deductions available to them. People can save additional time by filing their taxes electronically and by arranging for their refunds to arrive via direct deposit.

Another thing that may be useful for consumers to consider is hiring a professional tax preparer who is well-versed in the nuances of the tax code.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Extension can apply to businesses as well as individuals

2010-04-02T14:54:00Z

Taxpayers who have difficulty getting their returns in order by April 15 have the option of filing for an extension, as do business owners who may have far more paperwork and regulatory matters to go through than individuals.

With that in mind, a recent Associated Press report offered some guidance to small business owners who may need to file for an extension.

For example, the wire service notes that tax changes brought on by the economic stimulus bill may result in a number of business owners seeking extensions so they can be sure they are in full compliance with the tax code as well as aware of all the deductions and credits they may have coming to them.

The report notes that an extension does not exempt business owners from having to pay their taxes by April 15, and that those who are facing extremely serious financial hardship may be able to file Form 1127, which is the Application for Extension of Time for Payment of Tax Due to Undue Hardship.

Otherwise, the Internal Revenue Service often allows individuals and business owners to apply for an installment plan that allows one's tax obligation to be paid down on a monthly basis.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

IRS reminds taxpayers to avoid errors this filing season

2010-04-02T14:54:00Z

Taxpayers who are rushing to get through filing season may find that even small errors can cost them valuable deductions or even put them at a higher risk for an audit.

A recent reminder from the Internal Revenue Service offered taxpayers some tips on the things they should be keeping an eye out for before they send in their returns.

For example, the IRS notes that it's fairly common for people to enter incorrect Social Security numbers or forget them altogether. It's also common for people to misspell their names or those of dependents, or to incorrectly label their filing status. Another common error is for people to enter the wrong bank account number for their return to be sent to.

Taxpayers can also frequently make math errors when doing their returns, especially when computing things like taxable income and estimated payments, or other things such as the Earned Income Tax Credit. Finally, some people forget to sign and date their return.

Overall, people may find it in their best interest to work with a skilled tax preparer who can help them avoid errors and maximize their returns.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

IRS offers tips to disabled taxpayers

2010-03-05T14:54:00Z

The Internal Revenue Service is reminding people with disabilities that there may be a number of strategies they can follow to minimize their tax obligations for any given filing season.

According to the IRS, people who are legally blind may be able to claim a higher standard deduction than others on their tax return. However, those who itemize their deductions are not able to claim the standard deduction, nor can they do so if they file separately from a spouse who itemizes his or her deductions.

Also, taxpayers with disabilities are advised that work expenses related to their ability to perform their job duties are also potentially deductible. Such deductions would apply to both mental and physical disabilities.

Another thing to remember is that taxpayers above the age of 65, as well as certain disabled people, are eligible for a tax credit, while various disability-related payments, including Supplemental Security Income and Veterans Administration disability benefits, are not counted as part of one's taxable gross income.

Finally, the IRS notes that people with disabilities can further ease their tax burden if they itemize and have medical expenses to deduct. It's also worth checking with a tax preparer to see if one qualifies for the Earned Income Tax Credit.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

IRS handles millions of tax returns each year

2010-03-05T14:54:00Z

Taxpayers who are wondering about the daunting task facing the Internal Revenue Service during any given filing season can take a look at some recently released statistics from the tax agency.

According to the recent data, the IRS processed 142.4 million individual tax returns for the 2008 filing season, which marked a 0.5 percent decline from 2007.

Some of the decline was likely due to a recession that saw economic activity significantly curtailed and an unemployment rate that only recently fell back down below 10 percent. With that in mind, the nation's adjusted gross income saw a 3.7 percent decline between 2007 and 2008 to $8.2 trillion.

The IRS also noted that during that same period, taxable income was down 5.1 percent to $5.6 trillion, and total income tax collected was down 6.2 percent to about an even $1 trillion.

Another good reason to consult with a tax preparer and have a return completed is that the large majority of people tend to get refunds. For example, only 13.8 percent of returns in 2007 saw a tax liability, which was said to be largely unchanged from the 2006 figures.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Making Work Pay credit one part of the stimulus bill

2010-03-05T14:54:00Z

The various provisions in last year's economic stimulus bill will command the attention of many tax preparers this filing season, and the Internal Revenue Service is working to provide people with the information they will need to know.

For example, a recent announcement on the IRS Web site offered some pointers on the Making Work Pay Tax Credit, which was one of the provisions in the stimulus bill aimed at lowering the average worker's tax bill somewhat.

The IRS notes that the Making Work Pay provision offers a refundable tax credit of up to $400 for individuals and $800 to married couples filing jointly. Typically, the credit has been handled by employers on a worker's automated withholdings.

Some taxpayers will find that they are able to claim any remaining Making Work Pay funds that they may have not used yet.

The IRS also noted that last year, the credit was spread out over nine months, while for 2010, it will be spread out over 12 months. With that in mind, some workers may see a slight change in the amount of their paychecks. The IRS went on to remind people to be sure to verify whether sufficient taxes are being withheld from their pay to avoid any unexpected costs at filing time.

For more on calculating the Making Work Pay Tax Credit, visit this calculator provided by Liberty Tax Service.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Policies for dependents explained under tax code

2010-03-05T14:54:00Z

One common way for families to lower their tax burden at filing season is through deductions for children and other dependents. With that in mind, the Internal Revenue Service is offering some guidance on the regulations regarding dependents under the tax code.

According to the IRS, even a person who is claimed by somebody else as a dependent may be required to file a tax return under certain circumstances. Such factors would depend on the amount of earned or unearned income from the tax year, along with other things like one's marital status.

Also, people who are claimed as dependents by another person cannot claim a personal exemption on their own tax return.

The IRS adds that a person's spouse cannot be considered their dependent. Instead, when filing jointly, both spouses are entitled to claim one exemption, while those filing separate returns can claim the exemption for their spouse only if the spouse had no gross income and was not reported as another person's dependent.

Finally, people who are claimed as dependents must be U.S. citizens, resident aliens or U.S. nationals, although there are some exceptions under the tax code for adopted children. Dependents can also be residents of Canada or Mexico.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Accuracy can help minimize chance of an audit

2010-03-04T14:54:00Z

One common, but usually unfounded, concern that taxpayers share during any given filing season is the fear that they could end up facing an audit from the Internal Revenue Service.

Fortunately, audits only affect a minute percentage of taxpayers, although there are generally considered to be some red flags that can help increase a person's chances of facing one.

For example, a recent Boston Globe article noted that there is a degree of randomness to the process of deciding whether to audit a taxpayer, while adding that 1.4 million tax returns were examined for the fiscal year that ended on September 30, 2009.

That said, the Globe also pointed out that some factors that tend to increase the risk of an audit include W-2 and 1099 forms that are inconsistent with one's tax return, deductions associated with a home office - especially if they are not properly documented - and having a high income or international bank accounts.

Given the general complexity of the tax code, it makes sense for people to consult with a skilled tax preparer to ensure that their returns are as accurate as possible and to also be sure that they are taking advantage of the full range of credits and deductions that may be available to them.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

IRS offers guidance on bankruptcy filings

2010-03-03T14:54:00Z

The economy has seriously damaged the personal finances of millions of Americans, and some of them may be reminded of that situation this filing season as they consult with their tax preparer on Internal Revenue Service policies regarding bankruptcy.

According to the IRS, people who file for bankruptcy will find that their tax obligations will vary depending on the chapter under which they file.

Typically, people who have a debt cancelled, such as a credit card or mortgage balance, must report that forgiven amount to the IRS as income, which can result in unforeseen tax obligations in some cases. However, the IRS notes that debts cancelled as part of a bankruptcy proceeding are not seen as income under the tax code.

While the recession is widely seen as clearing up, people may be surprised to know how common bankruptcy filings have been in the past year.

The American Bankruptcy Institute recently highlighted data showing that in 2009, 1.47 million people filed for bankruptcy, marking a 32 percent increase over the figure recorded in 2008. During this same period, business bankruptcies also posted a substantial gain.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Time running out for those with unclaimed 2006 refunds

2010-03-03T14:54:00Z

People who are thinking about skipping out on their obligation to file a return this year may want to reconsider, especially when weighing the size of the returns they may be passing up.

According to a recent announcement from the Internal Revenue Service, nearly $1.3 billion in unclaimed refunds from the 2006 filing season are still waiting to be distributed to an estimated 1.4 million taxpayers who never ended up filling out returns.

The IRS noted that people must file a return for the 2006 tax year by April 15, 2010 and that the average unclaimed refund stands at $604. If a return is not filed in order to claim a refund within three years, that money ends up as the property of the United States Treasury.

Another thing for taxpayers to remember is that their returns from 2006 will end up being held or applied to balances owed if they also failed to file returns for 2007 or 2008.

In late 2009, the IRS announced that the penalty for failing to file an income tax return had increased somewhat. For those who file more than 60 days after the due date, including extensions, the penalty is now either $135 or 100 percent of the unpaid tax, whichever is smaller.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Home office work can be a mixed bag from a tax perspective

2010-03-03T14:54:00Z

People who have home offices can often take advantage of a variety of deductions when filing season comes around. However, it makes sense to talk to a knowledgeable tax preparer since there may also be some unforeseen expenses, notes a recent media report.

An article by Bankrate.com warned that one thing to watch out for with home office deductions is depreciation benefits, since these can result in an additional tax burden for people when they decide to later sell their house.

The financial Web site noted that even people who do not claim depreciation of a home office may find themselves on the hook under certain circumstances for taxes when the property is sold.

Still, those who maintain a home office can take advantage of a number of deductions associated with the cost of doing business, from purchasing supplies to maintaining phone lines and computer lines. However, certain rules also apply for example to computers that are used for both personal and business purposes.

According to the Internal Revenue Service, the self employment tax rate is 15.3 percent, with 12.4 percent going to Social Security and 2.9 percent for Medicare.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

IRS offers guidance on Social Security benefits

2010-03-02T14:54:00Z

Even though a person has stopped working full time, it doesn't mean that they have fewer details to pay attention to at tax filing time. For example, those who are receiving Social Security benefits are advised to consult with a tax preparer to help maximize their returns.

According to a recent reminder from the Internal Revenue Service, the amount of Social Security benefits considered to be taxable will depend heavily on an individual's income and marital status. For example, those who depended on Social Security benefits as their primary income in the past tax year will typically find that those funds are not taxable and may not even need to file a return.

However, those who work part time or have other sources of income will find their earnings taxable beyond a certain base level in any given year.

The IRS notes that for 2009, that base amount was $32,000 for married couples who file jointly, and $25,000 for individuals.

To determine whether they have a tax obligation, people can compare the sum of one-half of their Social Security benefits with all of their income from the previous tax year.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

W-2 forms a crucial part of tax filing process

2010-03-02T14:54:00Z

This far into the filing season, workers should have all of their paperwork together as they prepare to make arrangements with their tax preparer.

However, in the event that one has not received their W-2 form, it's time to take action, especially with the filing deadline rapidly approaching. Employers were required by federal law to provide their workers with W-2 earnings statements by February 1.

According to the Internal Revenue Service, those who have yet to receive their W-2 should contact their employer immediately to determine if the form was mailed, and if so, when. One possible cause of a delay may be that the form was returned because of an inaccurate address.

Those who have still not received their W-2 may need to contact the IRS for assistance and will need to provide details like the employer's name and location, and the dates of employment, as well as an estimate of the wages that were earned.

Even if a person does not have their W-2 form available, they are still required to file a return, notes the IRS. If this is the case, one option is to use Form 4852, the substitute for the W-2, which will require an estimate of the year's earnings and potentially extra time for the IRS to verify the information.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Tax code offers provisions to help parents of young children

2010-03-02T14:54:00Z

All parents know that the costs associated with children can be extremely expensive over time. Fortunately, the tax code offers parents a variety of ways to help minimize such expenses.

A recent reminder from the Internal Revenue Service explains that children can typically be claimed as dependents starting with the tax year in which they were born. Parents of children under age 17 can also benefit from the child tax credit.

Parents can claim a maximum amount of $1,000 for each eligible child. Those with legally adopted children are eligible for the credit as well, and a dependent must have spent at least half of the tax year living in the household for the tax benefit to apply.

The child tax credit is lower in households where the combined income of a married couple meets or exceeds $110,000, or where the income of a single parent is $75,000 or above.

The IRS also advises parents that they may be eligible for the child and dependent care credit if they pay somebody to care for a child under the age of 13 while they are engaged in a job search that ultimately proved to be successful. For parents of college-aged children, a number of other tax benefits may apply to help defray educational expenses.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

If unsure about deductions, consult a tax preparer

2010-03-01T14:54:00Z

A recent news report serves as an example of the many potential deductions taxpayers may benefit from under the tax code, although it's always best to consult with a skilled professional before claiming things that may raise red flags.

A recent article from Kiplinger's cited a variety of unusual tax deductions that had been allowed by the IRS because they pertained to business expenses or other deductible areas, such as medical expenses.

For example, the financial news Web site noted that one couple had been allowed to write off the cost of cat food because they relied on feral cats to keep their junkyard free of rats and snakes. Other unusual business deductions were said to be body oil for a professional bodybuilder and a deduction for the free beer a service station owner offered his customers in a promotion.

When it comes to moving expenses, which are generally deductible when accepting a new job, another family wrote off the cost of moving their pet.

While it's never a good idea to get too creative with deductions because of the red flags they could raise with the IRS, it's perfectly legitimate for consumers and their tax preparers to be thorough in their examination of the tax code for every opportunity they may have to lower their overall burden.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Mistakes can increase risk of audit

2010-02-11T14:54:00Z

The Internal Revenue Service has long reassured taxpayers that the vast majority of them have a slim chance of ever experiencing an audit during any given filing time, especially if their income is not particularly high.

However, there are always certain exceptions to such trends, especially when taxpayers make mistakes that can end up being considered red flags.

For example, a recent article by Investopedia.com laid out some of the risk factors that could raise a taxpayer's chance of being audited.

Among them are overestimating the value of non-cash charitable donations like old cars, clothing and food. Typically, the Web site suggests that people should value such items at between 1 and 30 percent of their original purchase price, and in cases where an item is valued at above $5,000, a letter from an appraiser is required.

Other tips include being careful to avoid any math errors, remembering to sign the return, being sure to report all income from all sources, and avoiding excessive home office deductions.

With these things in mind, the importance of submitting the most accurate return possible is one more reason to consult with a professional tax preparer this filing season.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

More workers may get a hand with retirement savings

2010-02-10T14:54:00Z

With the job market and economy starting to improve, a growing number of workers are also finding themselves fortunate enough to be with a company that offers a retirement plan and contributes regularly to it.

According to recent data from Hewitt Associates, 80 percent of companies that eliminated or scaled back their contributions to employee 401(k) programs during the recession are now planning to restore that benefit.

The study also found that employers are more likely to give workers the option of having their retirement contributions automatically increased over time. Part of this is due to general concern among many companies that workers may not be as well-equipped to retire with sufficient assets as they once were.

According to the Internal Revenue Service Web site, people can deposit up to $16,500 for the 2009 and 2010 tax filing years, while participants over the age of 50 may be able to benefit further from so-called catch-up contributions.

Under a traditional 401(k) plan, contributions and gains are not subject to federal tax until the time comes for distribution. This differs from the Roth IRA, which does not feature tax-deferred contributions. People who want to ensure that they are taking full advantage of their retirement savings options would do well to consult with a professional tax preparer.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Don't forget mileage deductions at tax time

2010-02-10T14:54:00Z

People who use their own car or other vehicle for business purposes can deduct a variety of expenses, including mileage, at tax filing season.

For the current filing season, the standard mileage rate now stands at 55 cents per mile. People also have the option of deducting their actual car expenses. The IRS Web site notes that these guidelines apply to automobiles, vans, pickup trucks, and panel trucks.

Those who choose to deduct actual expenses as opposed to the standard mileage rate can report depreciation of the vehicle, as well as gasoline and oil, any applicable lease payments, insurance, and registration fees.

Taxpayers will also find that they can only deduct a certain portion of their vehicle costs if they drive it for both business and personal use. For example, the IRS cites the example of a sales representative who drives their vehicle 12,000 miles per year for business and 8,000 for personal use. Under that formula, only 60 percent of a vehicle's operating cost is deductible.

Also, limits apply on what can be deducted from expenses involving employer-provided vehicles. For example, taxpayers must generally be self-employed to deduct interest on car loans, while personal property taxes can generally be deducted on employer-provided vehicles if a taxpayer itemizes.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Tax regulations vary for teenagers, other young people

2010-02-09T14:54:00Z

Just because a person is under age 18, it doesn't mean that they won't have certain tax obligations at filing time.

For example, current IRS rules state that a dependent must file a tax return if they have a part-time job or some other source of earned income that results in earnings of at least $5,700. If that individual is blind, different limits apply.

For unearned income, which includes things like interest and dividends, a person must file a return if they are under 65, not blind, and made at least $950.

People who have both earned and unearned income in any given tax year but are not sure if they need to file a return can consult the IRS Web site for a work sheet that will help them determine whether they need to do so.

A separate IRS rule states that a child can earn up to $1,900 in investment income (as of 2009) without having it taxed at the parent's rate. For parents and children who require more information about such matters, consulting with a skilled tax preparer is a good place to start.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Long-term care insurance costs can be deductible

2010-02-09T14:54:00Z

It can be a complex and costly process to obtain security during one's retirement years, but people may want to speak with their tax preparer about one specific part of the tax code that may prove helpful in this area.

LTC Financial Partners, an insurance company, recently reminded consumers that their long-term care insurance premiums may be tax deductible this filing season. With that in mind, the company is suggesting that people who do not have such coverage should consider getting a policy this year to tax advantage of the tax benefits next year.

"These deductions are not a one-time thing. They recur. You can take them each and every year that you pay premiums; and the deductible limits have been increasing annually," said CEO Cameron Truesdell.

Truesdell went on to note that people over the age of 70 may be able to deduct as much as $3,980 of their qualified annual premiums, with the tax benefit falling to lower levels the younger a policyholder is. For example, somebody aged 40 or under can typically only write off $320 of their annual long-term care insurance costs.

The company also noted that couples can claim a maximum deduction of $8,000 at filing time, and that state tax benefits may also apply in some cases.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Taxpayers can expect higher standard deduction this filing season

2010-02-08T14:54:00Z

The federal stimulus bill contains many tax-related provisions to help people make ends meet during the recession, including a higher standard deduction for people who do not itemize.

According to the IRS, the standard deduction is higher for many taxpayers this year than it was in the 2008 filing season. Along with an annual increase in the standard deduction, taxpayers will also be allowed to deduct qualified real estate taxes, state or local sales tax on new vehicle purchases after February 16, 2009, and net disaster losses in a federally declared disaster area.

The IRS goes on to report that the standard deduction varies according to one's filing status and in some cases, things like one's age or a visual disability. State and local real estate taxes can be added to the deduction for up to $500 for individuals and $1,000 for those who file jointly.

Also, certain taxpayers will find that they are not eligible for the standard deduction, reports the IRS.

For example, a married person whose spouse itemizes deductions but files a separate return would fall into this category, as would an individual who was a nonresident alien or who held dual citizenship status for part of the year. The IRS also cites a couple of other situations on its Web site where a person would not be eligible for the standard deduction.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Tax code can help defray college education costs

2010-02-08T14:54:00Z

Families that have students in college should be sure to check with their tax preparer in the coming filing season to learn more about the various deductions and other benefits that may be available to them.

The IRS Web site offers various details about initiatives to help students defray the cost of a higher education.

For example, 529 Plans offer a tax-free way for families to save for expenses like computers, books, fees and school supplies, among other things, such as services for special needs students. The IRS notes that contributions to such plans are not deductible, but come with no income limit for contributions. The distributions are tax-free when used for eligible expenses for a student.

"With many families struggling to afford college, we want every eligible taxpayer to know about their options and take advantage of all the tax breaks they can. 529 plans have become a very attractive way to save for college, and our Web section is designed to help people get information about these plans," said IRS Commissioner Doug Shulman.

Students can also defray education costs with help from an American Opportunity Credit, which was included in last year's federal stimulus bill. This credit applies to 100 percent of the first $2,000 a student spends on eligible supplies and other expenses, as well as 25 percent of the next $2,000 for a full credit of $2,500.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Major life changes can mean new tax issues

2010-02-06T14:54:00Z

The IRS is advising people that whether they have been married or divorced in the past year, there are certain tax implications to take into account at filing time.

According to the agency's Web site, newlyweds who took their spouses last names and file returns with that new name may find that IRS computers are not always able to match it with their Social Security number. This is also said to be the case with people who hyphenate their names.

Those who have recently been divorced and change back to their former name could also run into issues at tax filing time. With that in mind, to avoid either scenario, people must contact the Social Security Administration to inform them of the name change.

The IRS notes that a form SS-5 will be needed, from either a local office or online, to inform the SSA of a name change, and that the process typically takes about two weeks.

The agency goes on to point out that people who adopt a spouse's children after getting married will also want to provide a Social Security number on their tax forms for all such dependents, and that they themselves may need to apply for an Adoption Taxpayer Identification Number.

With many major life changes carrying various implications under the tax code, consulting with a professional tax preparer is always advisable.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

IRS advises taxpayers to be wary of misinformation

2010-02-05T14:54:00Z

One benefit of hiring a skilled tax preparer is that people are less likely to fall for misinformation about their fiscal obligations and the tax code in general.

In fact, this problem is so common that the IRS has a document available on its Web site laying out the full range of misleading and frivolous things that people may have heard over the years.

For example, the IRS notes that anyone who has received a specific amount of income as determined under federal law must file a return and pay taxes on it. In other words, participation in the tax system is not voluntarily.

Also, taxpayers are warned that there is no authority under federal law that allows them to file a so-called "zero return" that would allow them to avoid paying their income taxes.

Other myths that have been circulated about the tax system over the years include the claim that the IRS must prepare returns for people who fail to file, and that people are not actually required to comply with an administrative summons issued by the agency.

While a significant amount of information is available on such matters from the IRS, people can also consult with their tax preparer if they have any additional questions.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Some mistakes more common than others at tax time

2010-02-05T14:54:00Z

Many people are already consulting with their tax preparers and reading up on the many changes that were made to the tax code over the past year.

However, the IRS is reminding people that it can be very easy to make a number of mistakes during filing season that can result in missed deductions, late refunds or other setbacks.

For example, the IRS Web site suggests that electronic filing can make a tax return less prone to errors, and that people who file paper returns sometime end up forgetting to enter their Social Security number on the peel-off label that comes with it.

Other common mistakes are said to include failing to enter income, deductions and credits on the correct lines or with the right totals, forgetting to sign the return, and forgetting to include all required forms with one's return - especially in the event that a taxpayer has more than one job.

People are also advised to be sure to keep copies of their signed return and any relevant schedules for their own records, and to make any payments out to "United States Treasury."

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Workers may not know they qualify for EITC

2010-02-04T14:54:00Z

This filing season, the IRS is taking steps to ensure that everyone who qualifies for the Earned Income Tax Credit (EITC) is able to benefit from it.

The EITC has been widely credited with helping working families keep more of their income, and has been especially useful to many of them in light of recent economic conditions that have forced millions of people to struggle just to make ends meet.

With that in mind, a recent report in the Buffalo News told the story of one local man whose family ended up with an extra $1,500 in their tax return after they learned that they qualified for the EITC. The man told the newspaper that he "didn't realize that the average working adult could qualify for it."

The newspaper also noted that the IRS is working with different nonprofit and consumer groups this year to make sure that eligible workers know that they are able to benefit from the program, which is also said to boost the economy by allowing people to spend more in their respective home towns.

With these things in mind, people who are unsure if they are eligible for the Earned Income Tax Credit should consult with their tax preparer and can also find more information on the IRS Web site.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Tax code has benefits for job seekers

2010-02-04T14:54:00Z

For people who tried to find new jobs in the past year, the tax code may offer a number of different benefits for them this filing season.

For example, the IRS reports that various job search expenses can be deducted, as long as the search is conducted within one's current occupational field. Funds spent at an employment agency are deductible, as long as one is not paid back later by an employer.

Taxpayers can also deduct the amount they spend mailing copies of their resume, or if they have travel expenses related to their job search - although personal expenses incurred during such trips cannot be deducted. All such deductions are contingent upon looking for work within one's current field.

If a significant period of time elapses between the end of one's employment and the start of a job search, the deductions may not apply. Other deductions are available for moving expenses associated with moving away to take a new job.

Also, those who spent time receiving unemployment benefits in 2009 will not have to pay federal tax on the first $2,400 due to a provision in the federal stimulus act.

However, it should be remembered that first time job seekers cannot claim expenses.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Workers can benefit from Earned Income Tax Credit

2010-02-04T14:54:00Z

For families who have been struggling to make ends meet due to tough economic times, one potential bright spot this tax filing season could be the Earned Income Tax Credit (EITC).

A recent announcement from the IRS notes that the credit has been expanded in the past year so that larger families will be able to qualify for a greater tax benefit. Specifically, a provision in the federal stimulus bill created a new category for families with three or more children, including a higher maximum benefit.

According to the IRS, 24 million people received $50 billion in tax benefits last year, with an average benefit of about $2,000. The 35-year-old credit is also said to be one of the federal government's most significant benefits for working families and taxpayers.

"As part of the economic recovery efforts, there have been important changes to expand EITC to benefit taxpayers. Today, more than ever, hard-working individuals and families can use a little extra help. EITC can make the lives of working people a little easier," said IRS Commissioner Doug Shulman.

The IRS also reports that about one in four eligible taxpayers fail to claim the credit, which is why it holds an EITC Awareness Day each year to help call attention to it. People who may qualify for the credit should consult with their tax preparer and also consult the IRS Web site for information on income requirements.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Gambling winnings and losses have tax filing implications

2010-02-04T14:54:00Z

One thing that people should remember during tax filing season is that if they won money while gambling over the past year, it is considered to be fully taxable income by the IRS.

The IRS Web site reports that casual gamblers who won money must file a Form 1040 and include all of their winnings, whether they came from lotteries, raffles, horse races or casinos.

Also, payers may issue a Form W-2G to those who win money, and in some cases, notes the IRS, winnings may be subject to an estimated tax payment.

When it comes to gambling losses, the IRS explains that those who itemize their deductions an claim them as a miscellaneous deduction - although the losses cannot be greater than the amount of winnings that a taxpayer reports.

Another thing to remember is that like many other tax matters, proper documentation is required when handling gambling losses or winnings at filing time. For example, any relevant receipts, tickets and other such information should be kept, and gamblers are also encouraged to keep their own records, such as a diary, of their activities.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

At tax time, an early start is usually the best policy

2010-02-03T14:54:00Z

When it comes to tax filing season, one good strategy for people to remember is to try to avoid waiting until the last minute.

A recent report in Vermont's Rutland Herald newspaper notes that this advice is particularly relevant in the current filing season because of the various tax code changes and new deductions that were introduced under last year's stimulus bill. Everything from new car purchases to unemployment benefits to energy efficient products will be relevant in the current filing season.

The newspaper cited the general complexity of the tax code, as well as its recent changes, as a good reason for people to consult with a professional tax preparer as opposed to going it alone.

Another reason to get a head start on filing season is that a number of states undertook their own efforts to improve their economic situations over the past year, and it may take time to become familiar with any such changes that could apply.

Overall, getting an early start at tax filing time is a good way to ensure peace of mind and to avoid any stress and rushing around that can come from waiting until the last minute.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Be wary of tax issues when settling credit card debt

2010-02-03T14:54:00Z

The recession has seen millions of Americans struggling with high credit card debt, and in some cases, they have been able to reach settlements with their lenders to help them avoid further financial peril.

With that in mind, a report by CreditCards.com notes that people who do reach debt settlements will often receive a 1099-C form because forgiven and cancelled credit debt is seen as taxable income by the IRS.

The Web site notes that people who save at least $600 through a debt settlement will have their creditors file a 1099-C form for cancellation of debts with the IRS, as required by federal law. For those who have their debts reduced by a substantial amount, the tax obligation could turn out to be large at filing time.

Many Americans have sought out debt relief services in recent months, in light of an unemployment rate that remains at 10 percent. Recent changes to federal law now protect people from abrupt increases to their interest rate, as well as the penalty fees that can come with late payments. However, such provisions come too late for a number of people who have struggled with debt throughout the recession.

Regardless of whether a person has had credit debts forgiven or cancelled in the past year, or whether they have collected unemployment benefits, it's wise to consult with a tax preparer to understand any tax obligations that may present themselves at filing time.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Complex tax code requires a skilled preparer

2010-01-26T14:54:00Z

Navigating the nuances of the tax code can be a complex process that many people find is best handled by a skilled tax preparer.

Despite calls from many quarters for simplification of the tax code, IRS Commissioner Doug Shulman suggested in a speech this week that such efforts are unlikely to succeed in the foreseeable future. Instead, he suggested that the agency should be more focused on working smarter and more efficiently.

"We must be realistic. In today's global and diverse economy, business and tax laws are going to remain complex. However, that does not mean we have to surrender to complexity or be reduced to tilting at windmills," said Shulman, adding that the IRS is "trying to evolve our programs to deal with an ever more complex world."

People are likely to find this year's tax code somewhat more complex than in past years because of the increased number of deductions made available to them in the federal stimulus bill that became law last spring.

With these things in mind, consulting with a professional tax preparer is especially useful because of the potential to maximize one's deductions and other benefits.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Financial difficulties are no reason not to file taxes

2010-01-26T14:54:00Z

With tax filing season approaching, some people may find themselves making some common mistakes that can easily be avoided with help from a professional tax preparer.

One of the most common difficulties people can get themselves into is failing to file returns. This may turn out to be more common this filing season than in the past because a larger number of people have been out of work or struggling with their finances in general.

With that in mind, the IRS Web site provides more information on why it is important to complete a tax return even if a person is unsure they can pay their obligations outright. According to the IRS, the failure to file penalty is 5 percent of the tax due for each month the return is late, up to a total maximum penalty of 25 percent.

There is also a failure to pay penalty which is 0.5 percent for each month the tax is not paid. The difference between these two penalties alone is a good reason for people to complete their returns in a timely fashion.

Those who do face difficulty paying can often work out a monthly payment plan with the IRS.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Professional tax preparer can help maximize returns

2010-01-26T14:54:00Z

One of the most popular items in the tax code this filing season will be the credit for homebuyers, although not everyone may immediately understand all of its provisions without consulting a professional to handle their return.

With that in mind, a report in Business Week recently offered people some advice on things they should be aware of when it comes to the credit, which was extended in late 2009 to help provide a further boost to the economy and especially the real estate sector.

According to the report, there are actually separate credits for first-time homebuyers and people who have owned a home in the past, and neither of them should be confused with the credit from 2008 that was described as being "a long-term loan."

Among the items to watch for, according to the report, are income levels and limits on a home's sales price, as well as provisions such as those barring rental homes and rental properties from receiving the credit.

"The first-time home buyer's credit has been expanded so that more homeowners now qualify for a tax break," said John Hewitt, CEO of Liberty Tax Service. "People who have owned a home and used it as a principal residence for a 5-consecutive-year period during the 8-year period ending on the date of purchase of a new personal residence may qualify as first-time homebuyers and receive a credit of up to $6,500."

Several million consumers are expected to benefit from tax credits on home purchases this filing season - and to maximize their returns, many will be consulting with a professional preparer.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Tax credit aims to ease higher education costs

2010-01-26T14:54:00Z

This filing season, many parents and students will be able to defray higher education expenses somewhat with help from a federal tax credit that was part of last year's stimulus bill.

An announcement from Pennsylvania Democratic Congressman Chaka Fattah, the author of the provision, reminded people in lower and middle income tax brackets to prepare their documents and receipts to take advantage of the $2,500 American Opportunity Tax Credit.

"We need to raise the bar of expectation for all of our young people and other aspiring students - and the American Opportunity Tax Credit is a significant step toward making college affordable to all," said Fattah.

The government budgeted up to $14 billion for the credit, which covers up to $2,500 in eligible expenses for out-of-pocket educational expenses paid for during the calendar year 2009. The credit refundable up to $1,000.

"A student can now claim this credit four years instead of two," said John Hewitt, CEO of Liberty Tax Service.

Fattah's announcement noted that the eligible expenses under the tax credit generally apply to things like books, tuitions, fees, and related expenses that may not be typically covered under scholarships and grants. Students can get more information about the credit at the IRS website or by consulting with a professional tax preparer.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Business owners offered pointers on a successful filing season

2010-01-26T14:54:00Z

For millions of taxpayers, the coming filing season is a complex process that can be stressful without help from a skilled tax preparer. For those who own their own businesses or are self-employed, the process can have far more steps to navigate through.

With that in mind, a recent Associated Press report offered small business owners some tips on how to get organized and prepare to file their returns as April approaches.

According to the wire service, getting organized is one of the most important steps a business owner can take, especially in light of the many receipts, invoices and other documents that will be needed for a complete tax return.

The AP also advises people to keep track of all the mail they receive, especially if it happens to be from the IRS or state tax department - largely because some business owners simply fail to open their mail in a timely fashion. Another tip is to pay attention to what one's CPA has to say and to not be afraid to ask any necessary questions.

"Struggling businesses may benefit from a recent tax change by carrying back their net operating losses to a profitable year, allowing the business to get a refund of much needed cash," said John Hewitt, CEO of Liberty Tax Service. "The American Recovery and Reinvestment Act of 2009 provided that all businesses with average gross receipts of less than $15 million could elect to carry back net operating losses from 2008 for three, four or five years instead of the normal two years."

Overall, tax time can present many complexities for those who are unprepared, but working with a skilled preparer is a good place to start when it comes to getting more organized and getting the largest refund possible.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Stimulus bill said to offer various tax benefits

2010-01-25T14:54:00Z

Many Americans had a difficult 2009 because of factors like the recession and unemployment. However, various provisions in the federal stimulus bill are aiming to give people a hand this filing season while also providing a measure of support for the economy.

Some examples of the stimulus-related tax benefits available to people this filing season were laid out in a recent report from Kiplinger's.

The report noted that for those who received unemployment benefits in 2009, the first $2,400 can be excluded from tax obligations this filing season. Also, those who purchased new vehicles after February 16, 2009 and before January 1, 2010 may find that they can deduct the state, local or excise tax they paid as a result. Kiplinger's notes that this only applies to the first $49,500 paid on a vehicle, although people also have the option of deducting for more than one new vehicle.

Finally, the financial news provider adds that other deductions contained in last year's stimulus bill include a credit for up to $1,500 in eligible energy efficient home improvements, while a second credit reportedly benefits those who invested in renewable energy-related products at home.

Given the many benefits contained in the federal stimulus bill, consulting with a professional tax preparer may be an ideal strategy for maximizing one's deductions and benefits this year.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Legislation will allow Haiti donations to apply to coming tax filing season

2010-01-23T14:54:00Z

Millions of Americans have donated generously to help out with earthquake relief efforts in Haiti, and members of Congress are now trying to take some steps to reward their generosity while encouraging further giving.

This week, lawmakers unveiled the Haiti Assistance Income Tax Incentive Act, which will allow U.S. taxpayers to make cash donations to relief efforts in the country until March 1, 2010, but to claim those contributions on their 2009 income tax returns.

In a statement, Senate Finance Committee Chairman Max Baucus noted that similar legislation was approved in the aftermath of the 2005 tsunami in the Indian Ocean. Baucus introduced the bill with his Republican counterpart, Senator Charles Grassley, and several other colleagues.

Without the change, taxpayers would have had to wait until the 2010 filing season to receive the tax benefits of their donations.

People who made other charitable donations over the past year should also check with their tax preparers to ensure they are receiving the full deductions they are entitled to under the law.

"There is so much we can still do to help the Haitian people," said John Hewitt, CEO of Liberty Tax Service. "The government has acted quickly to provide a tax incentive that can help while filing this year's return. Liberty Tax pledges ongoing support and initiatives for Stop Hunger Now, an organization that has quickly responded to the crisis through its partnerships in Haiti."

Besides offering donations for each return prepared at participating Liberty Tax locations, many of the offices are holding benefit fundraisers. There are a number of ways that individuals and corporations can make a difference, and make it quickly through Stop Hunger Now. Those interested in contributing monetary donations through Stop Hunger Now for the Haitian relief effort can visit the Liberty Tax Web site for more information.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Many taxpayers have too much withheld from pay

2010-01-23T14:54:00Z

People don't have to wait until tax filing time to take a simple step that could put more money in their pocket throughout the year.

A recent report from Motley Fool notes that about 75 percent of American taxpayers currently overpay on their taxes, as evidenced by the $2,400 average return that people get each spring. The financial Web site noted that this amount is comparable to a $200 monthly interest-free loan that taxpayers give each year to the federal government, even if they do get it back in a lump sum.

With this in mind, the article suggests that people take a look at last year's tax return, their pay stub and a fresh W-4 form to ensure that they are paying the right amount in taxes - while also taking care to avoid any potential penalties for underpayment.

People may look forward to receiving a large refund at filing time, but there are many things that can be done with the money other than having the government hold on to it for the year.

"A big refund at tax time may mean that the IRS is using that money interest free all year. Owing at tax time is not pleasant, but can be minimized. A withholding adjustment can be the key to resolving either of these tax dilemmas. Our online Liberty Tax Withholding Calculator can help consumers figure out if it's time to adjust withholding, and how to accomplish that task. Adjusting the amount of withholding by recalculating allowances claimed can easily alter the amount of taxes a consumer elects to have withheld from their paycheck throughout the year," said John Hewitt, CEO of Liberty Tax Service.

By consulting with a professional tax preparer, people can also benefit from a number of strategies and find even more deductions they may be able to benefit from.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Stimulus bill just one way to benefit at tax filing time

2010-01-23T14:54:00Z

With tax filing season now here, consumers have a variety of different strategies that can help increase their deductions and maximize their returns.

A recent report from Bankrate.com laid out some of the many options that taxpayers had at their disposal over the past year that could end up benefiting them during the current filing season.

For example, those who bought homes or hybrid cars are among those eligible for federal tax benefits, as are people who added energy efficient retrofits to their home.

The Bankrate report also warns people that if they had two jobs or are married, they may have received more than intended under the Making Work Pay tax credit, which could have a negative effect on their tax return.

Overall, the federal stimulus bill contains a variety of tax incentives covering many different areas, which is why along with visiting a professional tax preparer, it also makes sense for people to familiarize themselves with the benefits contained in this legislation before filing their returns.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Tax preparers can help spot changes in IRS code

2010-01-22T14:54:00Z

One of the benefits of working with a professional tax preparer is that people are far less likely to miss out on new deductions and other changes they may be able to boost their refund with.

With that in mind, a recent Associated Press report offered a look at some of the new details that taxpayers can keep an eye out for as they head into the filing season.

According to the report, tax brackets have gone up by about 5 percent since 2008, potentially sparing many people from having to pay more money. Others are said to involve a broad range of matters from home purchases to educational expenses.

Other changes cited by the AP include an increase in the personal income tax exemption to $3,650, a $150 increase from 2008, along with revised limits on the earned income tax credit and a new category for families with at least three children.

"One example of is that the 'American Opportunity' Education Tax Credit has modified and expanded the Hope credit by making it available to more taxpayers. The costs of course materials now will qualify for the credit which will now allow up to $2,500 of the cost of college tuition and related expenses," said John Hewitt, CEO of Liberty Tax Service.

Taxpayers have significant changes to look out for this year in part because of last year's federal stimulus bill, which included provisions such as the popular homebuyers tax credit and credits to encourage energy efficient retrofits to one's home.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Vast majority of taxpayers unlikely to ever face an audit

2010-01-21T14:54:00Z

Each filing season, many taxpayers find themselves nervously wondering about whether they could end up facing an audit from the IRS. Fortunately, it turns out the odds are vastly against this happening to them.

Audits can be expensive, time consuming and stressful matters that are often brought on by inconsistencies or other errors in a tax return. They are also an important example of why it is important for people to meticulously hold on to their tax returns from previous years, as well as other relevant documents and receipts.

Still, stress over the possibility of an audit is often unwarranted. According to a recent report by the Associated Press, people who earn under $200,000 per year have only a 1 percent chance of ever facing an audit.

"The most important thing is to respond quickly to any IRS notice or correspondence. The IRS must give the taxpayer reasonable notice before contacting other sources about the taxpayer's tax liability, and provide the taxpayer a record of contacts and the time they were contacted. In all cases, the IRS must adhere to the U.S. Constitution and tax code. All taxpayers have the right to appeal if they don't agree with the proposed changes to the tax return in question," said John Hewitt, CEO of Liberty Tax Service.

Even those earning above that figure have a relatively remote chance of ever facing such a situation, with the AP noting that only 3 percent of earners in this category have a chance of being audited. That figure reportedly doubles for those earning more than $1 million per year.

When it comes to keeping one's taxes in good order, a skilled professional is often a good place to start.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Professional tax preparers can provide valuable guidance

2010-01-21T14:54:00Z

A professional tax preparer can help people navigate the intricacies of the tax system, especially when it comes to certain deductions and procedures that may not be widely understood by many.

For example, a retired parent recently sent an inquiry to a finance columnist with the Newark Star-Ledger newspaper about a cash gift of $25,000 they had given their adult son.

In her response, columnist Karin Price Mueller acknowledged that IRS regulations can be "tricky" about such matters. According to Mueller, taxpayers can give a gift to any individual of up to $13,000 without having to file a Form 709, which is a gift tax return form.

She went on to cite a financial expert who said that a married couple can give up to a $26,000 gift to an individual, but that at that point, they will need to file separate gift returns. With that in mind, one solution she offered was each parent to give their own separate checks.

"Millions of taxpayers overpay their taxes each year. They may continue to overlook deductions or make the same mistakes year after year. How tax changes and credits affect a taxpayer may be determined by their income levels and other individual factors. Spending time with a professional who will investigate every possible break and deduction for you, then offer advice based on your individual tax situation may keep you from overpaying," said John Hewitt, CEO of Liberty Tax Service.

When it comes to potentially complicated tax questions such as these, people often find that a paid professional can provide the guidance they need to make the most of their return.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

Taxpayers can benefit more from hiring a professional preparer

2010-01-14T14:54:00Z

Taxpayers got a reminder of how helpful a professional preparer can be this week when the commissioner of the IRS, Douglas Shulman, acknowledged in a televised interview that he uses one himself at filing time.

A report from the Capitol Hill newspaper The Hill cites Shulman's recent comments during a recent appearance on C-SPAN's "Newsmakers." On the program, Shulman reportedly said that he used a professional preparer "for years" because he "finds it convenient," while also noting that he finds the tax code to be "complex."

Shulman also noted that he and President Barack Obama have expressed support for simplifying the tax code, but pointed out that this is ultimately the responsibility of Congress. The report quoted the commissioner as saying that about 60 percent of Americans currently use tax preparers.

Those who do set out to handle their own yearly tax filings may find that they are more prone to errors that can cost them money, such as missing out on a wide variety of different deductions.

"Life changes like buying a home, and getting married or divorced can have tax consequences. It’s important to plan ahead for changing tax situations, and hiring a tax professional can be the answer,” said John Hewitt, CEO of Liberty Tax Service. “All of our Liberty Tax offices provide free advice, and free checking of self-prepared returns. Our tax professionals are available year-round, so there’s always help after the tax season ends."

Taxpayers may especially benefit from tax preparers this year in light of the federal stimulus bill, which offered enhanced tax benefits for a variety of things, such as home energy efficiency investments.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

IRS offers guidelines on homebuyer tax credit

2010-01-14T14:54:00Z

Millions of Americans have taken advantage of a popular $8,000 government tax credit aimed at encouraging home purchases, and there are still several months left to benefit from it. However, not all taxpayers will know everything they need to about the credit as filing time approaches.

With that in mind, the IRS offers some information on its Web site for people who bought a home last year, or who plan to close on a home by June 30 of this year. The credit was initially set to expire in late 2009, but Congress chose to extend it based on its popularity and positive effect on the economic recovery.

According to the IRS, the credit applies only to properties used as a primary residence and it applies to taxpayers regardless of whether they owe any tax. The credit is also contingent on homeowners keeping the property in question as their primary residence for three years.

"The first-time home buyer’s credit has also been expanded so that more homeowners now qualify for a tax break. People who have owned a home and used it as a principal residence for a 5-consecutive-year period during the 8-year period ending on the date of purchase of a new personal residence may qualify as first-time homebuyers and receive a credit of up to $6,500," said John Hewitt, CEO of Liberty Tax Service.

In 2008, the Housing and Economic Recovery Act established a $7,500 tax credit for first-time homebuyers that was comparable to a no-interest loan that would be repaid over 15 annual installments starting in 2010. However, the 2009 stimulus bill increased the amount to $8,000, and ensuing legislation extended the life of the credit into this year.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.