PT Money » Tax and Government

What If You Cannot File Your Tax Return by April 15th?

Guest — Mon, 15 Mar 2010 11:00:42 +0000

The US tax deadline is approaching. We’re just one month away. If you haven’t filed your taxes by this point it probably means: (1) you owe taxes (and you’re waiting to pay at the last minute), or (2) you’re a procrastinator, or (3) you don’t have enough information. If you’re in one of those last 2 categories then here’s how you should approach this year’s filing:

File an Extension Using Form 4868 for an Automatic 6 Month Extension. This gives you until October 15th to file your tax return NOT pay your taxes. You can print the form and mail it following the directions on the form or use FreeFile to file the extension free electronically. This will save you up 25% or the 5% per month failure to file penalty on the tax debt amount. If you owe no taxes (but rather a refund) there will be no penalty assessed. However, if you don’t file, you cannot get a refund (if due) and you only have 3 years to file a return in order to get a refund.

Pay all or up to 90% of taxes owed (if you owe taxes). In fact, if the IRS does not get 90% of your estimated taxes owed on April 15th, the failure to pay penalty of .5% compounded monthly will take effect on the tax debt amount. Whenever the failure to file and pay penalty intersect in one month the total combined penalty is reduced by by the failure to pay penalty. If you cannot pay 90% of what you owe read situation 1 above.

Bottom-Line: If you cannot file your tax return on time, file an extension, instead of not filing anything at all. You can save up to 5% per month on any balance unpaid. Even if you are owed a refund, when you file you can lock in credits and deductions that will lower your tax liabilities instead of waiting for the IRS to file a return for you (which eventually will happen and they will not include all deductions and credits).

Learn more about filing your taxes for free this year.

This is a guest post from Matt Robinson at TaxDebtHelp.com. Matt has been helping Federal and state taxpayers find IRS tax debt relief for over 10 years now. His firm focuses on on tax debt solutions and has constructed a new self-help site for taxpayers to resolve minor tax problems.

Common Tax Deductions for Freelancers

PT — Thu, 11 Mar 2010 08:06:05 +0000

If you are a freelancer with your own business there are numerous tax deductions that you will want to be aware of. Why? Well, a tax deduction reduces the amount of taxable income you’ll have when you file your taxes. Here is a look at some of the most common tax deductions for freelancers:

Home Office Space Deduction

If you work from home you are entitled to write off your dedicated work space. You can write off a percentage of your mortgage or rent in relation to the size of the space that you use to conduct your business. A portion of your homeowners or renters insurance is also a deduction.

Percentage of Bills

If you are using your home to conduct your business, a percentage of your utilities, phone and internet can be deducted. If you have a dedicated fax and phone line for your business, that is also a business write off.

Technology Expenses

Most everyone who runs their own business today uses some type of technology to do so. You can write off any technology purchases you make and use to conduct your business including computer equipment, computer upgrades, fax machines, internet routers, printers, web cameras, zip drives and the list goes on. Any computer software you use for your business is also deductible.

Office Supplies

This includes purchase you made on everything from your desk, filing cabinets, desk chairs to paper, pens, paper clips or any other supplies you use to conduct your business. Envelopes and the cost of postage are also tax deductions.

Business Related Expenses

This includes everything from business cards and letter head to copyright and incorporation fees.

Education, Training and Subscriptions Fees

This can be a large array of items including seminar fees, workshop fees or any other type of educational course fee related to your business. Educational magazine subscriptions, other subscription fees for anything related to your business, professional affiliation or association fees are all considered tax deductible.

On-Line Fees

If you have a website, you can deduct the cost of your domain name(s) and web hosting fees.

Travel Expenses

Any time you travel for your business there are numerous tax deductions. These include transportation expenses like parking fees, mileage, airfare, taxis, buses and trains. Other travel deductions include hotel rooms, office space rental, meals on the road and even your cleaning or laundry expenses while traveling. Some of your travel expenses will be 100% deductible while others will only be 50% deductible – consult with a tax professional if you are unsure.

Everything Else

Other expenses you can write off include your health insurance (if you are paying for it through your business), annual credit card fees paid to a credit card used for business purposes, unpaid client invoices and fees from collecting money like Paypal or bank fees. If you rent a post office box or safe deposit box for your business those fees are also deductible. Tax software and tax preparation fees are deductible as well. Finally, client related expenses like the cost of a business lunch or gifts given to clients are also tax deductible.

As you can see, if you own your own business there are numerous tax deductions you need to be aware of. In order for you not to miss anything it will be important to carefully keep track of all of your expenditures throughout the year. Always make sure to document and keep receipts for all of your expenses. A great tool to do this with is Quicken.

This article is provided for Backtaxeshelp.com, a site designed to help you with IRS back taxes. Owing back taxes to the IRS is stressful, and negligence will only worsen the situation. Learn how to pay back taxes.

How to Find the Best Roth IRA Rates

PT — Mon, 08 Mar 2010 20:55:21 +0000

Have you ever wondered what the best Roth IRA rates are? Well, you are not alone. Many people looking to start investing for their retirement think the same thing. The problem is that Roth IRAs don’t really have rates like a savings account or CD. They are just investment vehicles (or accounts).

What is a Roth IRA?

The Roth IRA or Roth Individual Retirement Arrangement (or Account or Agreement) was created as part of the Tax Payer Relief Act of 1997. Yes, this is a US Government created retirement account. But the Government doesn’t control where the account is opened or what investments you put into the Roth IRA. They simply allow for the creation of the account and for the specific tax treatment to be applied to it. Translation: the Government doesn’t tax your retirement earnings in a Roth IRA. This tax treatment makes it essentially the opposite of a Traditional IRA or a 401K. Bottom line: it’s a good thing. Get on board.

It’s worth pointing out that a Roth IRA should be used for investing for retirement. That’s their intended purpose. Not fixed rate chasing. Contributions to a Roth IRA are limited each year ($5,000 in 2009) and certain income thresholds apply.

A Roth IRA is Not an Investment: No Rates

A Roth IRA is simply a place to stash your investments to give them a better tax treatment. However, you can put several types of investments in your Roth IRA, including some fixed-rate type investments. Your Roth IRA can contain the same types of investments that you do outside of your Roth IRA (i.e. taxable investing). Within a Roth IRA you can have money market funds, CDs, individual stocks, bonds, mutual funds, index funds, and in some cases, a savings account (some local credit unions allow this). It’s importance to note that most IRAs only have the option of the money market fund for your cash. These funds, although stable, are not FDIC Insured.

The takeaway here is that when looking into rates, you should look at what’s inside your Roth IRA. It’s what’s inside that counts! (sorry…couldn’t resist)

Check out some of the best rates on Savings Accounts and CDs.

How to Find Low Cost Investments for Your Roth IRA

While you can’t control the interest rates of return for most of your assets in a Roth IRA (see 2009 Recession as an example), you can typically control the amount of fees you’ll incur. As a general rule, the lower the need to have someone else actively manage the funds in the account, the more likely that the investment has low fees. Therefore, an index fund is going to have lower costs than say, a target-date fund or a mutual fund. If you want to avoid management fees, stay away from managed investments. Read anything by Mr. John C. Bogle for more on this. Like I said above, you can also invest in CDs and money market funds within your Roth IRA. But these typically are temporary holding places for your cash when you’re deciding on which stock or bond fund to invest in.

No Fee and Low Minimum Balance Roth IRAs

Not every institution (bank, credit union, brokerage) treats their Roth IRA the same. Some may have high minimum balance requirements. For the beginner this can be discouraging. Here are a list of the places you can open a Roth IRA, starting with some of the low-cost brokerages.

Low Cost Brokerages Offering Roth IRAs

ShareBuilder – No fees and no minimums. $4 automatic trades. $9.95 for all others. Connect it to your ING DIRECT Orange Savings Account.

Zecco – No fees and no minimums. Free Stock Trades! 10 free stock trades every month with $25,000 in assets or 25 trades per month. Otherwise, it’s just $4.50 per trade.

TradeKing – No fees and no minimums. $4.95 stock trades.

ETrade – No minimum balance requirement and no custodial fees if you use their electronic statements. $9.95 stock trades.

See more on my list of the best online discount brokers.

Large Brokerage Firms with Roth IRAs

Vanguard – This is where I have my Roth IRA. They have no fees as long as you’re in their funds and use electronic statements. And they have very low cost investment options. The only downside to using them is that their funds have high minimum balance requirements. Therefore if you don’t have at least $1,000 to invest initially, you’ll have to stick your money in their money market fund until you’ve built up enough to invest. See my walk through of the Vanguard Roth IRA account opening process.

Others you might want to check out are Fidelity, Schwab, and T.Rowe Price.

Quick Tax Tip About Roth IRAs

Did you know you can actually contribute to a Roth IRA up until you file your taxes in 2010 and have it count against your maximum contribution limit for 2009? That means you still have time to invest in a Roth IRA for 2009. Already filed you taxes? Just start saving to contribute towards your 2010 Roth IRA.

Get Your Additional Standard Deductions: Real Estate Taxes and New Car Sales Taxes

PT — Tue, 23 Feb 2010 17:25:11 +0000

As I was working through some initial tax returns this year, I noticed a couple of new things from some clients that I should probably point out to you guys:

1. Even if you file using the standard deduction, you can claim an additional standard deduction for real estate taxes, sales taxes paid on a new vehicle, and net disaster loss (not discussed below).

2. To claim these additions to the standard deduction, you are required to add on another form, the Schedule L.

This is important to note for a couple of reasons: (1) Your CPA might not ask you if you purchased a new vehicle this year, and (2) if you file our own taxes by hand, you’ll need to remember to include the extra schedule. Let’s look a little deeper into two of these additional standard deductions:

Additional Standard Deduction for Real Estate Taxes

Thanks to the extension of the Housing Assistance Tax Act for 2008, you are allowed to increase your standard deduction by what you paid in 2009 for state and local real estate taxes. This is up to $500 for a single filer, and $1,000 if married filing jointly.

The taxes you are deducting must be taxes you would have deducted had you itemized. Therefore, this excludes real estate taxes for business or foreign property.

Who This Helps? You might be saying, “PT, who the heck pays property taxes and doesn’t itemize?” Well, this additional deduction comes into play for people who owe just a little on their mortgage or who might own their home outright (little or no mortgage interest). It might also apply to people who’s home is their only itemize-able deduction. So if you are traditionally a taker of the standard deduction, but you still pay property taxes, keep an eye out for this additional deduction and make sure you get it.

Additional Standard Deduction for Sales Taxes on a New Vehicle

Thanks to the American Recovery and Reinvestment Act of 2009, you can increase your standard deduction by amounts you paid in state and local sales and excise taxes when you bought a new car, light truck, motor home, or motorcycle. The purchase must have been made after Feb. 16, 2009. And the amount you can include in the deduction is limited to the tax on the first $49,500 of the purchase price.

There is a phase out to this deduction at $125,000 for individual filers and $250,000 for joint filers.

Just like with the real estate deduction above, you can only deduct these taxes if they would have qualified for deduction had you itemized. Another way of saying “the same old rules apply.” No business vehicles can be included here.

If your state doesn’t have a sales tax, then double check to see if any other type of tax was applied to the purchase price of the vehicle. Those taxes might be deductible. Read more about the new car tax deduction.

Important Note: If someone else files you taxes for you, they might not think to ask you about a new car purchase. Make sure you provide this information to your tax preparer.

New Form: Schedule L

Lastly, make sure you complete and attach a Schedule L. Also be sure to check the box on line 40b of your 1040 (or 24b on the 1040A). See more about the new Schedule L.

Photo by smartvital

14 Tax Time Tips

PT — Fri, 19 Feb 2010 20:30:53 +0000

I recently asked PT Money readers to give their best tax tips. Here’s what they came up with:

14 Tax Tips for 2009

Always wait till you get all you 1099’s to file. SOme places like scottrade dont get them to you til after Feb 15th – Russell
If you want to sell a stock that you bought at multiple times, remember to sell your oldest stocks first. Otherwise you may be subject to the short term capital gains tax, which is higher (for most people) than the long term rate. – Geremy Heitz
Stagger your tax deductions – If you are close but not quite there to make itemizing worth it, bunch your deductions into every other year. Plan to itemize in 2010 and 2012, for example, but to take the standard deduction in 2011 and 2013. – Daniel
Use a tracking system such as Quicken to keep track of your tax-deductible expenses through the year, so that come tax time, Quicken can easily (and quickly) give you the numbers you need to itemize deductions. Intuit (make of Quicken) makes it easy for the transfer of information into TurboTax. – Jeremy Walter
Don’t forget about expenses associated with volunteer activities. That really helped us last year. – Kim
Don’t let your sister-in-law do your taxes while you’re not around so you don’t miss out on any other deductions. Be present when someone is helping you with your taxes- you never know what has changed to benefit your tax return. – Ann
Pay attention that Vehicle License Fee may be deducted from Schedule A, but make sure to include only the VLF portion of the bill, not the whole registration fee. – Trinity
Never do your taxes without TurboTax, you may miss out on deductions you are entitled to. – Patricia
Review your tax situation each year and adjust your W4 so you come out near $0. It’s terrible to get a big return, you gave an interest free loan! Also, send any refund returns first and wait to send returns when you owe. – Michael
If you are doing your own taxes, be sure to use your social network for help with questions regarding your taxes. You may know more tax accountants than you think you know, and their insights are very helpful in any small questions you may have. I’ve asked my friends in the past, and their advice always helps! – Maritza
I always trust my tax filing to turbo tax. It’s always up to the code and we won’t miss any possible single deduction. This software never disappoint me every time. – ira
Be *very* involved in your tax filing process, even if you file through a tax service. Taxes aren’t over your head, and you’re just as able to find out about deductions yourself as tax pros are. Keep your money matters in your own hands! – Sam
Here’s a tip: Always check to see if filing separately is better than jointly. I file jointly because it puts us in a lower tax bracket. – Guy
Don’t forget the tax deduction for state, local and excise taxes paid on the purchase of a qualified new vehicle from 2/16/09 to 12/31/09 (IRS guidelines) – Bill

Thanks for the tips everyone. Be sure to check out the taxes tag section of my website for more tax tip related articles.

The randomly selected winners of the TurboTax giveaway are: Kim, Trinity*, ira, Sam, and Bill*

*Premium Winner

TurboTax Giveaway: Deluxe and Premier Editions

PT — Tue, 16 Feb 2010 19:19:38 +0000

TurboTax has kindly offered up some free copies of TurboTax Deluxe and Premier Online Editions. I’m giving these away on the blog this week. To have a shot at winning a copy, just leave a comment below giving your best tax tip. I’ll randomly select 5 winners (2 Premier and 3 Deluxe) this Friday, the 19th. Please leave only one comment and make sure to include a tip.

The Deluxe Online Edition normally sells for $29.95 and the Premier Online Edition normally goes for $49.95. Both are perfect for regular individual tax preparation use. The Premier edition has a few more bells and whistles for investments and rental properties.

I look forward to reading your tips. Good luck.

What If You Can’t Pay Your Taxes This Year?

Guest — Tue, 16 Feb 2010 11:05:58 +0000

It was an eventful 2009 with the IRS taking on major companies and even countries to recover taxes and penalties owed by businesses and individuals. With the economy in a slump, and tax revenues falling, the IRS and many State governments are trying to close the tax gap (the difference between taxes owed and taxes paid) with increased tax collection efforts.

Here are a few guidelines with situations for avoiding and reducing IRS interest, filing penalties, and underpayment penalties this tax season:

If You Cannot Pay All Taxes Assessed or Owed By April 15th In Full

File Your Tax Return (unless you made less than minimum IRS requirement) - If you cannot pay all or part of your taxes then send what you can but always file your tax return otherwise a failure to file penalty of 5% per month will take effect on any taxes owed. If you fail to file for 5 months, this interest rate can be as high as 25%.

Pay What You Can Without Compromising Basic Necessities To Lower the 4% (subject to change per qtr) Underpayment Penalty – This is calculated by taking the federal short term interest rate of 1% and adding it to the general underpayment penalty for individuals of 3%. This gives you a combined penalty of 4%. The more taxes you pay, the less interest accrued.

Reduce the Failure to Pay Penalty from .5% on taxes owed to .25% monthly with an IRS Installment Agreement or IRS Payment Plan. This essentially saves you 50% percent in terms of the normal failure to pay penalty per month. Even though it is compounded monthly, this brings the annual nominal yearly interest rate down from 6% to 3%. Fill out IRS form 9465 or use the Online Payment Agreement Application if you owe less than $25,000. If you will have $25,000 in tax debt you will need to include Form 433-A (Collection Information Statement or CIS) with Form 9465. It is recommended if you owe over $25,000 to work with a tax professional here as the CIS can be challenging.

Bottom-Line: You save up to 3% (nominal) annually with an Installment Agreement (paid monthly), avoid the 5% per month failure to file penalty by filing, and reduce your underpayment interest amount by paying what you can afford if you are unable to pay all or some of the taxes owed.

This is a guest post from Matt Robinson at TaxDebtHelp.com. Matt has been helping Federal and state taxpayers find IRS tax debt relief for over 10 years now. His firm focuses on on tax debt solutions and has constructed a new self-help site for taxpayers to resolve minor tax problems.

In Defense of the CPA

PT — Thu, 11 Feb 2010 18:38:09 +0000

I’m Getting Back Into Taxes

I haven’t disclosed this much on the blog, but I’m actually a Certified Public Accountant (CPA). I used to work in a CPA firm back in my 20s. Filing taxes was a part of the annual routine.

While I haven’t been a “practicing” CPA for several years now, I’m actually going to be doing some taxes this year to supplement our income. I’ll be lending my services to a family member’s CPA firm. I’m looking forward to getting back into the work and learning a few things along the way.

On my mind lately has been the reasons why having a CPA do your taxes is important. Why it matters, and for who, is what I’m going to try and explain below. I realize this may come across as self-serving. My apologies before hand.

Why Use a CPA to Prepare Your Taxes

Licensing - Practicing CPAs are licensed through their particular state. In order for the CPA to maintain this license, he/she must generally do 2 things: complete continuing education (e.g. take a course on the latest tax deductions) and run his/her business according to specific standards.

These standards provide assurance to you that you’re getting a quality service. If you ever have a question about your CPAs legitimacy, contact your state’s board of public accountancy and request information about your CPA.

Consistency and Stability- A CPA is going to be there for you year after year. Practicing CPAs are in it for the long run.

Doors are Always Open – A CPA performs many types of financial services, not just taxes. Therefore, their doors are always open for tax questions, tax planning, and for any audit help you may need. Other tax preparation services are going to close their doors from May to December. Who’s going to help you when you get that audit letter? A CPA can.

Record Retention- A CPA is going to maintain your tax information much like a doctor holds on the patient’s medical records. A CPA will act as your own personal filing cabinet through the years. You’ll even get your own copy of the return and supporting documents in a nice little folder for you to file away yourself if you want. Digital is also becoming more prevalent.

Tax Planning – The best part about having a CPA is the tax planning advice he can provide throughout the year. There are certain year-end tax moves you can make each year that will save you hundreds in tax dollars. Software and tax preparation companies aren’t around to help you with those things.

Professionalism - Like I mentioned above, a CPA is licensed with the state. They’ve gone through a ton of accounting classes, a tough exam, and must maintain continuing education credits each year. Only a person who wants to be a professional is willing to go through what it takes to be a CPA. Of course, CPAs are still just people. But I’ll take the CPA designation over any other for tax filing purposes.

Your Time – The last good reason I’ll give you is your time. I’m not going to lie and say that you won’t have to spend a little time preparing your tax files to bring to a CPA. But they will save you the time it takes to enter in all the information, and file the return. And each year it gets quicker as you’ll learn what to bring to your CPA.

When Not to Use a CPA

Generally speaking, you don’t need to use a CPA if you’ve got a simple return. If you only file a 1040EZ, or if you file a 1040, but take the standard deduction, a CPA wouldn’t be necessary. There are plenty of free tax filing services that you can use to quickly prepare and e-file your taxes. I’ve actually used free tax software to file my own taxes for the past 6 or 7 years. Only now, when I’ve got some small business details, will I rely on the second eye of a practicing professional.

What Not to Use: Tax Prep Services

I’m a firm believer that if you’re going to spend money to have someone do your taxes, take them to a CPA. Every place else is going to be a crap shoot when it comes to the level of professionalism. Tax preparer IRS penalties are high, but they aren’t the deterrent that losing your license would be. If you are going to use other services, please make sure they have some standards (like H&R Block) and do a background check with the better business bureau.

Photo by llawliet

Information for this post was provided by Larry G. Taylor, CPA, a CPA in Branson, MO. Larry provides tax, financial, and investment services. Visit www.larrytaylorcpa.com for more information.

H&R Block at Home Only $14 This Weekend

PT — Thu, 11 Feb 2010 17:08:27 +0000

H&R Block is showing you some love this Valentine’s Weekend. They are offering up a $14 rate for their tax filing software. Their Deluxe and Premium versions can be had normally for $30 and $50, respectively. So this is a nice discount. Here’s more from H&R Block:

H&R Block may not be known for romance, but the company has packed its 55 years of tax expertise into all H&R Block At Home™ products. And H&R Block At Home™ is written in plain English to eliminate tax jargon, simplify DIY tax preparation and instill confidence that the return is done correctly. What’s not to love about that? To take advantage of this sweet deal, visit http://www.hrblock.com/valentine.

To take advantage of this pricing you must purchase the software from H&R Block over the weekend, the 12th to the 14th.

If you need the deluxe and premium software versions, this looks to be a good deal. However, if you have a simple return you take take advantage of the free 2009 tax filing services.

File Your 2009 Taxes for Free

PT — Fri, 05 Feb 2010 23:18:30 +0000

This is an updated list of some of the top places to file your 2009 taxes for free.

It’s tax time! This is a big weekend for filers. Will you be filing your taxes this weekend? I may try and do my taxes prior to the Superbowl kicking off. That should give me some nice motivation to hurry it along.

You should have recieved most of your tax forms and information by now (what to do with an incorrect 1099). Go gather up all your required documents (see tax prep checklist), grab your beverage of choice, crank open your PC or Mac, and let’s get started.

Before you send everything over to a CPA, or download some expensive filing software, check out these free filing options from some of the top companies:

TaxAct Online 2009 Free Edition- TaxAct is a personal favorite. I used it for several years to file my taxes for free. They have a great online interface and allow you to work on your return, come back to it later, and print them when you’re ready to file. I never once had an issue with their online software. Solid product. Things have changed over the years though. TaxAct now offers the following for free:

Prepare, Print & E-file FREE for Everyone!
All e-fileable forms for every situation
FREE e-mail and audit support

CompleteTax Free – I’ve never used Complete Tax. They appear to have a similar business model as the others listed here. And they have a free version which is offered to those who meet these guidelines:

1040EZ Federal form only
Earned Income Tax Credit (EITC)
Single, and Married Filing Jointly filing status
No children or dependents

H&R Block at Home Free Edition- H&R Block took TaxCut and repackaged it as H&R Block at Home this past year. I actually used TaxCut Premium last year to file. Didn’t have any problems to report. They did a great job with my return. Here’s my review of H&R Block at Home. They offer the following with their free file service:

Free Federal e-file
Step by step guidance makes it easy for first time users
Double-checks for errors
Some forms supported
Will not prepare returns containing self employment, stock transactions, rental property, farm or K-I income

QuickTax Free Online Edition - QuickTax is for Canadian filers, eh, and includes the following with the free service:

Free support by email
No downloads and no software to install – do your taxes in your Web browser
Your info is totally safe! QuickTax uses the same security features major banks do

TurboTax Free Edition- It’s no secret that TurboTax is the leader in the industry. They consistently help file more tax returns each year than all the other tax software services combines. Their free edition is no slouch. It offers:

FREE preparation, FREE printing, FREE efiling for your simple tax return
Guides you like a GPS through your simple tax return
Double-checks your return to make sure it’s accurate

Enjoy the weekend, the big game, and the free tax filing.