I wanted to take a quick moment to review some of the basic tax law changes that will be relevant for those filing a 2011 return.

In the coming weeks, I might be presenting posts that break some of these important changes down even further.

But for now, I’ll just give the highlights of each change affecting the 2011 tax filing season.

The Bush tax cuts were essentially extended, leaving many things unchanged from last year to this year. Federal income tax brackets will remain unchanged, but the standard deduction will go up, while the child tax credit also remains unchanged.

This year’s biggest change came in the form of the payroll tax break to your withholding, essentially continuing the “making work pay” credit.

2011 Tax Law Changes

Here are some of the tax law changes we saw which will affect the 2011 filing year.

Payroll Tax Break – For 2011 one half (the employee half) of the Social Security portion of the payroll tax has been reduced to 4.2% That’s down 2% from the normal 6.2%. Don’t ask me how they are making up the difference. Anyway, you should have seen this change reflected in your paycheck all throughout 2011.

Of course, for any self-employed folks out there, you get the 2% break only on the employee half of your payroll tax. Accordingly, if you normally take the deduction for 50% of the self-employment tax on your 1040, then you will need to reconfigure based on the new percentages.

AGI for Saver’s Credit Increased – If you’ve previously been unable to participate in the Saver’s Credit, look again. The adjusted gross income (AGI) limits are now $56,500 (married filing jointly), $42,375 (head of households), and $28,250 (single).

Report 50% of Roth IRA Conversion – If you did a Roth IRA conversion in 2010 you had the option to report the conversion and pay the appropriate taxes in 2009, or spread your reporting out 50/50 over the 2011 and 2012 tax years. Now that returns for 2011 are due, you need to report 50% of the conversion as ordinary income on Form 1040 under Line 15a.

Standard Deduction Increased – For 2011, the standard deduction for married people filing jointly is $11,600, $5,800 for single, and $8,500 for head of household. Tax rates did not change as the government extended the Bush tax cuts.

Note that the last day to file taxes (federal personal income taxes) is April 17th, 2012.

I know there are other changes to consider when filing your 2011 tax return. If you know of any, please leave them in the comments below.

Previous year changes are on the next page.

2011 Tax Law Changes is a post from: PT Money: Personal Finance by PT.
2c3ca6358dbd4ad8b0c3714b040d53d9

Related posts:

1. 2011 Tax Brackets: What Is My Tax Bracket?
2. What Your 2011 Taxes Will Look Like When the Bush Tax Cuts Expire
3. Roth IRA Rules

File your taxes for free this year!

It’s tax time!  You should have received your W2s by now so you should be ready to file your taxes.  April 17th, the last day to file taxes this year, will be here before you know it. So get going.  Luckily, if you meet certain criteria, you may just be able to file your federal taxes for free online, even e-file.

Here are three ways you might be able to file taxes online free. Two of which I’ve used in the past:

1. TaxACT Free Federal Edition (TaxACT.com)

With TaxACT you can a e-file a 1040, 1040A, and 1040EZ for free. No income or age restrictions apply. Your state return, however, will be $14.95. Hopefully you’re like me and live in a State with no income tax. Otherwise, you’ll need to pay that fee. But it’s not very expensive compared to other sites.

I began using TaxACT back in tax year 2001. That was the first year I did my taxes by myself (my Father is a CPA with a tax practice) and so I wanted to do them as cheap as possible.

Back then you couldn’t e-file for free like you can today, so I would use the online software (from a library computer) and complete the 1040, print it out, and mail it in. I did this for 6 years, up until I got married. I even did my wife’s while we were dating using this service.

2. Free File (IRS.gov)

Free File is a free federal income tax preparation and electronic filing program developed through a partnership between the IRS and the Free File Alliance LLC.  The Free File Alliance is a group of tax software companies you can choose from when filing through Free File.

Your adjusted gross income (AGI) must be $57,000 or less to use this service. According to the IRS, 70% of all tax payers are eligible based on AGI.

I believe this is actually how I discovered TaxACT back in the day. At the time they were involved with this program.

Now it looks like several other companies are involved: Tax Simple, H&R Block’s Free File, Free1040TaxReturn, 1040.com Free File Edition, TurboTax® Freedom Edition, FileYourTaxes.com, FreeTaxUSA® IRS Free File Edition, 1040NOW.NET, yesicanefile.org, OnlineTaxPros.com, TaxSlayer, Online Taxes at OLT.com, eSmartTax By Liberty Tax Service, ezTaxReturn.com.

The IRS has a nice tool to help you sort through this list to find a company that’s right for you based on your criteria. The IRS site says that some of these companies may even offer state return filing for free as well.

3. TurboTax® Federal Free Edition (TurboTax.com)

With TurboTax® Federal Free Edition you can file a 1040EZ and other “simple” returns. Your state will cost you $27.95. Yikes! I looked up the other “simple” returns and found that they cover the following:

• Form 1040 Schedule A – Itemized Deductions
• Form 1040A – Individual Income Tax Return
• Schedule B – Interest & Dividend Income
• Schedule EIC – Earned Income Credit
• Schedule SE – Self-Employment Tax

The good thing about this version is that you can e-file for free and there is no income threshold.  So if you live in a state with no income tax, have income higher than $57k, and don’t have any business income, then this is the service for you.

Additional Tips on Filing for Free

• The IRS has an extensive list of other available e-filers on the web.
• If you don’t qualify for the 3 above or you’re not comfortable using online services, try this method: go in for half with a friend on TurboTax in the box. Each piece of software is good for two computers. This is actually what I did one year. The box of software cost us $20 ($10 a piece).

Do you plan on filing your taxes for free this year?

Image by SeniorLiving.org

3 Ways To File Your Taxes For FREE is a post from: PT Money: Personal Finance by PT.
2c3ca6358dbd4ad8b0c3714b040d53d9

Related posts:

1. File Your 2009 Taxes for Free
2. Tuesday Tax Tip: Use IRS Free File to e-File for Free (Even with a High Income)
3. Are You Sure You Earned Enough to File Taxes?

H&R Block has long been known as the largest tax service company. They actually prepare 1 out of every 7 tax returns that are filed in the U.S. They do it with physical branches and with their online and offline tax software products. H&R Block meets you where you are at and gives you the choice: do you want to meet face-to-face with a tax professional, or do you want to do it yourself, either at home or online. If you need a local branch, odds are there is one within 5 miles of you right now.

If you just need tax software, you can quickly get it on their website at www.HRBlock.com. Increasingly, customers are taking them up on both services at once, as H&R Block features a “best of both” service where you get to complete your return using their online software and you follow it up with a tax pro just before filing. Their suite of products and services shows that H&R Block is committed to being the tax preparation provider that you choose each year.

H&R Block At Home Online 2012 Review

I used their software to prepare my 2008 tax return. The name has since changed (used to be called TaxCut), but the product is still the same, and the software is continually updated with tax law changes. The one knock I have against H&R Block is that they aren’t in the business of just tax software. So while they have a good product, it isn’t their only (nor primary) focus. They are first and foremost your local tax services branch. But I guess that has it’s advantages for some as well.

Their At Home product works just like you would think. You are required to enter in your personal information, then you are asked a series of questions to help you complete the return. You can stop and start and save your work. You can also jump around to various sections. There is a final error check, and then you are ready to file. Free e-file comes with each of their packages, but there is a fee to file your State return, like other tax software products.

Four Different Editions of H&R Block At Home Online

H&R Block At Home Online Free Edition (Free) – If this is your first time filing a tax return, or if you don’t mind entering all of your personal and important prior year information in again, then choose this edition. This version is aimed at those filers with a simple tax situation (i.e. no house, investments, or small businesses). E-file your State return for an additional $27.95

H&R Block At Home Online Software Basic ($19.95) – If you’ve filed with H&R Block last year then you will want this service. It comes with the ability to import your prior year information, so you are half way done with your return right from the moment you do the import. Like the Free edition, you really shouldn’t use this edition if you have a difficult tax situation involving a business, home, or investments. E-file your State return for an additional $34.95

H&R Block At Home Online Deluxe ($44.95) – This edition is aimed at the taxpayer who is also a home owner, or who owns investments (not including real estate). This edition will help walk you through the various itemized tax deductions like home mortgage interest, property taxes, and charitable contributions. If you have self-employment income, this still isn’t the edition for you though. E-file your State return for an additional $34.95

H&R Block At Home Online Premium ($64.95) – Finally, if you have self-employment income or own a business, or if you have real estate investments, you will need to step up to the premium edition of At Home. This is by far their best value. It not only contains the software to handle your difficult return, it also comes with one free session with a live tax professional (a $19.95 value). E-file your State return for an additional $34.95

At Home Guarantees and Audit Support

H&R Block goes to far as to provide guarantees for their At Home product. They guarantee that they will provide accurate calculations on your return or they will pay penalties and interest charges. They also provide a guarantee that you will get the biggest refund. If you get a bigger refund with another provider, they will refund your purchase. Finally, H&R Block offers free audit support to all of their online customers. So if you are ever audited, they will be there for you through the process right up until the actual audit meeting, and you can even hire them to help you there.

Customer Service

H&R Block proudly displays their customer support hotline (1-800-HRBlock) on their main support page. They also have the unique advantage of having local offices nearby to guide you through difficult questions. This can run you $19.95 though, unless you purchased the Premium edition. In that case, you get one free meeting. Their online portal has plenty of documentation to help you through the technicalities of using the online product.

H&R Block At Home Coupons

There are various ways to save when buying H&R Block At Home. You can always save 15% on all H&R Block At Home Software. For a limited time (till Feb. 28th, 2012) you can:

• Save 15% on H&R Block At Home Online Basic, Deluxe or Premium Packages!

Have you used H&R Block’s online product? What did you think?

H&R Block At Home Online 2012 Review is a post from: PT Money: Personal Finance by PT.
2c3ca6358dbd4ad8b0c3714b040d53d9

Related posts:

1. H&R Block at Home Premium Federal + E-file
2. H&R Block at Home Only $14 This Weekend
3. Win a Free Download of H&R Block Premium Edition Software

My TurboTax 2012 review hardly needs an introduction. These guys are the best-selling tax preparation software program year-after-year. Their software walks you step-by-step through the process of preparing your taxes. They take care of yearly tax updates and understanding the confusing tax code. All you need to do is decide which of their versions to use, then complete a series of questions, and file. Depending on the complexity of your tax situation, this can take anywhere from 15 minutes to 2 hours.

TurboTax 2012 Review

TurboTax provides their software in both offline (CD or download) and the increasingly popular online versions. Their software is perfect for the person who is fairly confident in preparing their tax forms, but who might need just that extra piece of assurance. Their software also allows you to complete your taxes at your own pace. Save your progress and return to complete it later. TurboTax is a product of Intuit, the same company that owns Mint.com, Quicken, QuickBooks.

Right up front I can tell you that I’ve used TurboTax in the past and I enjoy their product. But I know they are not for everyone. If you require the face-to-face time with a professional (as many people do), then you aren’t going to get it with TurboTax.

Other tax preparation software providers have physical branches where you can actually meet with a tax professional. TurboTax doesn’t offer that. Their focus is on the software alone. In addition, TurboTax generally isn’t going to provide the level of service that a CPA or Enrolled Agent can.

But if all you need is a piece of rock-solid, do-it-yourself tax preparation software, then you’ll be hard pressed to find a better product than what TurboTax can offer you. TurboTax offers four different versions of their product aimed at personal filers. Here’s a quick rundown of what each edition contains:

Different Versions of TurboTax

TurboTax Free Edition (Free) If you plan on filing a 1040EZ, 1040A, or simple 1040, then you might qualify for their free edition, regarless of your income. This version is very straight-forward: asks you a series of questions, checks for any errors, and then helps you e-file for free. If you have to itemize your return because you have a mortgage, child care expenses, charitable donations, or medical expenses, then you shouldn’t use this edition. This version comes with the same support and guarantees as the other paid versions. While the federal preparation and e-file is free, to e-file your State you will have to pay $27.95.

TurboTax Deluxe ($29.95) This edition is aimed at the average tax filer without investments, rental property, or self-employment income. This version will help you complete your itemized decuctions and find available credits. It also comes with ItsDeductible®, Audit Risk Meter™, and Audit Support Center (in case of an audit). Finally, it comes with a new feature: you can import prior year tax data or documents, even from other software packages. You can also import data from Mint.com with this edition. State filing with this edition will cost $36.95.

TurboTax Premier ($49.95) The Premier edition comes with everything you get in the Deluxe edition plus support to help you complete your tax forms related to investments and/or rental properties. Helps you quickly find deductions associated with your rential units. Also, you are able to quickly import your investment data from various institutions. State filing with this edition will cost $36.95.

TurboTax Home & Business ($74.95) Finally, if you have self-employment income, then you would be wise to consider the Home and Business edition of TurboTax. This edition will ask you different questions depending on the type of business you have setup: sole proprietor, 1099 contractors, single-owner LLC. It will help you zero in on business-related decutions like travel and your home office. This edition has seen some improvements in the following areas: deductions by industry notifier, W-2 and 1099 preparation for employees and contractors, help with depreciation method choices, and expense input on one screen, verses a page at a time. State filing with this edition will cost $36.95.

Confused about which version to choose? Review this comparison chart to find out which TurboTax is right for you.

Various Guarantees

TurboTax didn’t become the most popular tax software by accident. They put together a good product and they stand behind it. They want their customers to be satisfied. They make a committment to their customers to not only be easy and 100% accurate, but to also provide the maximum (biggest) refund. All of their versions come with a money-back guarantee. All of their online versions are free to use up until the point that you actually file. So there’s not harm in giving them a spin. If only to see what you’ll be ending up with this year.

Customer Support

Customer support will never match the services offered by a paid professional. But like I said above, TurboTax isn’t in the professional tax support business. That, however, doesn’t stop them from providing excellent customer service. They have four primary channels for you to use to contact them about their software or even tax and filing questions.

I tested out their online chat support. Even though it said it would take up to 30 minutes, I was instantly connected with a support person via chat who quickly answered my questions.  Share your experience with TurboTax in the comments below…

TurboTax 2012 Review is a post from: PT Money: Personal Finance by PT.
2c3ca6358dbd4ad8b0c3714b040d53d9

Related posts:

1. TurboTax Giveaway: Deluxe and Premier Editions
2. Tuesday Tax Tip: Free Tax Question Answered by TurboTax
3. H&R Block At Home Online 2012 Review

The charts below will show you the latest income limits that apply to the Traditional and Roth IRAs.

Contributing to an IRA is a smart move. There are two major varieties for the typical tax payer to take advantage of: Traditional or Roth. The Traditional IRA gives you a tax deduction on contributions, while the Roth IRA lets you take distributions from the account in retirement without paying taxes.

• To figure out which type of IRA is right for you (and which broker to open it with) visit Mint.com and use their free IRA Wizard.  It doesn’t take long and offers a wide variety of options.

They are both excellent tools to help you build a solid portfolio enabling you to support yourself when you can no longer work. I highly recommend you use one or both to help you save for retirement today.

But there are limits (based on your income) that might affect your ability to use one of these accounts to your fullest advantage. Let’s look at each one closely.

Traditional IRA Income Limits for 2012

The IRS has chosen to limit your ability to fully deduct your contributions to a Traditional IRA based on your income. First, they split filers into two groups: those who are participating in a company retirement plan (i.e. 401K) and those who are not. Once tax payers are split into those two major categories, the IRS further refines the groups by filing status. In all cases Modified Adjusted Gross Income (MAGI) is used to define income.

If you do participate in your employers plan and…

If you file your taxes as Married Filing Jointly or as a Qualifying Widower in 2012, your income needs to be below $92,000 for you to be able to fully deduct your contributions to a Traditional IRA. If your MAGI is between $92,000 – $112,000 then you are in the “phase-out” range and the amount you can deduct starts “phasing out”. At $112,000 you are unable to deduct the contributions you make to a Traditional IRA.

If you file as Single, Head of Household, or Married Filing Separately (not living with your spouse) in 2012, your MAGI needs to be below $58,000 to completely deduct your contributions. Your phase out range is between $58,000 and $68,000.

If you file as Married Filing Separately (living with your spouse) in 2012, your MAGI needs to be $0. Your phase out range is between $0 and $10,000.

If you do not participate in your employers plan and…

If you file your taxes as Married Filing Jointly (and your spouse is covered by an employer plan) in 2012, your income needs to be below $173,000 for you to be able to fully deduct your contributions to a Traditional IRA. If your MAGI is between $173,000 and $183,000 then you are in the “phase-out” range and the amount you can deduct starts “phasing out”. At $183,000 you are unable to deduct the contributions you make to a Traditional IRA.

If you file as Married Filing Separately (and your spouse is covered by an employer plan) in 2012, your MAGI needs to be $0 to completely deduct your contributions. Your phase out range is between $0 and $10,000.

If you file as anything else and your spouse (if you have one) is not covered under a plan, then have no income limits to your ability to deduct the contributions to your Traditional IRA.

Historical Traditional IRA Income Limits

For those who participate in their employers retirement plan:

For those who DO NOT participate in their employers retirement plan:

Now let’s take a look at the Roth IRA and associated income limits. Thankfully, they are not as complex.

Roth IRA Income Limits for 2012

The IRS tax regulations limit your ability to contribute to a Roth IRA also by using your MAGI. They have three different categories based on your filing status.

If you file your taxes as Married Filing Jointly or a Qualifying Widower in 2012 then your income (specifically, your MAGI) needs to be below $173,000 for you to be able to fully contribute to a Roth IRA. If your MAGI is between $173,000 and $183,000 then you are in the “phase-out” range and the amount you can contribute starts “phasing out”. At $183,000 you are unable to participate in the Roth IRA.

For those who file as Single, Head of Household, or Married Filing Separately (not living with your spouse) in 2012, your MAGI needs to be below $110,000 to fully contribute. Your phase out range is between $110,000 and $125,000.

Finally, for those of you who are filing Married Filing Separately (living with your spouse) in 2012, your MAGI needs to be $0. Your phase out range is between $0 and $10,000.

Historical Roth IRA Income Limits

Every year, the income limits are evaluated against inflation and incomes to determine if a change is needed. In the past five years there has only been one instance where the limit did not change for the two major categories.

More About MAGI and Contribution Limits

Want to know what your MAGI is? First, find your AGI. Check out your tax return. Your AGI is at the very bottom of page 1. It’s essentially your income minus your “above-the-line” deductions.

Now take that number and add back in your IRA deduction, student loan interest, tuition and fees deductions, any domestic production activities, any foreign earned income exclusions, any foreign housing deduction, any excluded qualified savings bond interest, and finally, any excluded employer-provided adoption benefits. Thanks to Jim from Financial Ducks in a Row for explaining how to determine your MAGI.

Tax saving tip: Note that 401K contributions (which is a deduction you take to get to AGI) doesn’t get added back in to determine your MAGI. Use this knowledge to your advantage. If you are close to reaching your phase-out limits then add more contributions to your 401K to drop your MAGI so that you can continue investing.

Wondering what it means to “fully contribute” to your IRA? In short, your 2012 contribution limit is $5,000 annually. Those 50 and older can tack on an additional $1,000 for a total contribution of $6,000. For more on this, see the Traditional and Roth IRA contribution limits.

Traditional and Roth IRA Income Limits for 2012 is a post from: PT Money: Personal Finance by PT.
2c3ca6358dbd4ad8b0c3714b040d53d9

Related posts:

1. Traditional and Roth IRA Contribution Limits for 2012
2. Roth and Traditional IRA Contribution Limits for 2010
3. Roth IRA: Contribute to a Roth IRA up Until the Date You File Your Taxes

It’s that time of year again when our minds start turning towards what taxes we will owe come April 15th (or April 17th this year).  One of the critical pieces of the tax code are the federal income tax brackets. These were created to facilitate the taxing of different levels of income.

Our progressive tax rate structure (i.e. as income increases, taxes increase) requires that we define the starting and stopping points for the application of different rates.

The first federal income tax brackets came into affect in the United States back in nineteen thirteen, when the income tax became a permanent fixture in our government. The initial tax brackets, although very simple and low, were not unlike our current set of tax brackets. The initial rates ranged from 1%-7% and were applied to incomes from 0$ to $500,000 plus. It wasn’t until the 1940s until we saw the first unique tax bracket created for single filers and those married filing separately.

Over the years the federal income tax brackets have grown to as many as 50 different brackets, based on income. And rates on top earners grew to a massive 94% on incomes above $200,000. Thankfully, in the late 80s much was done to simplify the tax bracket structure. Since then, we’ve settled in on anywhere from 5 to 7 rates across various incomes. It should be noted that the income is based on taxable income (this number on line 43 of the Form 1040) and the income ranges vary from year to year based on inflation.

If you are currently doing your tax planning for the tax year 2011, you should look at the tax brackets below to help you in your calculations. With a little bit of planning, you might be able to reduce your tax burden in the current year or defer it to the next, depending on what your desires are.

2011 Federal Income Tax Brackets

2010 Federal Income Tax Brackets

You may be wondering “what is my tax bracket?” That’s a great question to ask because it shows you are curious about how much of your earnings are going to the U.S. Government to pay for the protection and services that they provide. I think we tax payers sometimes fall asleep at the tax-paying wheel and don’t pay attention to our taxes paid because they are taken out of our paychecks without much fuss. Knowing your tax bracket will help you to make educated decisions about money moves that will affect the taxes you pay at the end of the year.

Your federal income tax bracket is the rate at which your highest level of income is taxed. This rate is called your marginal tax rate. Keep in mind that your marginal rate doesn’t mean that you pay that exact percentage across all of your income. It just means that you are paying that amount on your highest level of income. Therefore, if you are in the 28% tax bracket, you don’t pay 28% of your income in taxes. You just pay 28% on everything over $82,400.

Another personal rate you might want to know is your effective tax rate. You calculate this by dividing your total tax by your taxable income. Pull out last years return and see what you get. Someone in the 28% federal income tax bracket could have an effective tax rate as low as 17%. Now that you know a bit of tax bracket history, the rates for this year, and some helpful calculations, you can begin planning for that big tax payment or refund next year.

2011 Tax Brackets: What Is My Tax Bracket? is a post from: PT Money: Personal Finance by PT.
2c3ca6358dbd4ad8b0c3714b040d53d9

Related posts:

1. 2011 Tax Law Changes
2. What Your 2011 Taxes Will Look Like When the Bush Tax Cuts Expire
3. Why You Should Seek Year-End Tax Planning Services

Don't you wish you could claim your morning coffee as an FSA expense?

Mrs. PT reminded me last night about how we used to sit down and reconcile our medical spending to our flexible spending account reimbursements.

This is a task we used to do annually to ensure we’d used all of our flexible spending account funds.

We no longer do this since we’re self-employed and use a health savings account instead. However, the FSA is still a relevant and useful account for many people.

Our process was as follows: We would review our current balance, get reimbursements for unclaimed expenses and, if needed, search for ways to use the remaining fund by the end of the year. Before I delve more into this process, let’s review what a Flexible Spending Account is.

What is a Flexible Spending Account?

With a flexible spending account you determine an amount that you will be using for eligible health and medical expenses for the year.

This amount then gets deducted from your paycheck on a pre-tax basis (your gross pay). Not all at once mind you. It’s divided amongst all of your pay periods for the year. What’s important to realize here is this money isn’t taxed which is why this is such a great benefit (it lowers your adjusted gross income)!

As you incur eligible expenses you can apply to the company that handles your FSA to get the money back. Usually a receipt is used as proof. With my company’s provider I can fill out the form online and upload PDF’s of the receipts. It doesn’t get much easier (check with your HR/Benefits department to learn what your company system is).

A flexible spending account is a nice way to maximize some tax advantages and save more money.

Use it or Lose it

As you know, most flexible spending accounts are “use it or lose it” type plans. You decided at the beginning of the year how much you’d like to contribute, tax-free, to your flexible spending account. Then, you spend the rest of the year dipping into that savings to try and spend it all.

If you don’t spend it all, not only to you miss out on the tax savings, but you lose your remaining funds. Not good! This is obviously the reason anyone talking about flexible spending accounts is going to advise you to be ultra conservative when estimating your spending.

Checking the Balance

Most employers use a third-party company to run the employee flexible spending account. My company used PayFlex. They had a website where I could sign into my account and review my flexible spending account balance. If I’d spent all of my flexible spending account funds, I could stop at this step. If not, I would need to claim some more spending.

Find Unclaimed Expenses

Have you spent money on qualifying medical expenses this year and not applied for reimbursement for those funds? Well, now is the time to do it. Some companies will allow you to go past 12/31 to actually claim expenses for reimbursement, but you must have spent the money prior to 12/31.

I used to keep all my receipts from medical expenses in one spot. At this time each year I would sort through those expenses and make sure they are claimed against my flexible spending account funds.

Tip: If you don’t have your receipts, you could just as easily do a search for those expenses using your online bank account. Or, you could connect your bank account to an online aggregator, like Mint.com. The aggregator will help you categorize your spending, making it easier to find unclaimed medical spending.

Don’t let those funds go to waste. Get out there and spend it wisely. And keep this in mind when adjusting your next year’s contributions.

Adjusting Next Year’s FSA Allotment

If you find yourself with too much money in your FSA, maybe it’s time to consider reducing your allotment.

You usually get to adjust your flexible spending account only once a year, when your company has it’s benefits enrollment sign-up. It can be tough to figure out your health expenses but it’s worth the tax advantage.

But what happens if you discover you’re expecting after your enrollment period passes? Your health expenses will most likely be going up and it would be nice to adjust your flexible spending allotment.

You’re in luck!

There are a few situation in which you are allowed to change your election after the enrollment period ends. This includes marriage, divorce, and having a child (or adoption).

Flexible Spending Account Changes

In 2011, as a part of Obamacare, the federal government pulled back a lot of the allowable, eligible expenses that traditionally could be expensed through the flexible spending account. In the past, you could expense over the counter medicine, and even things like band-aids and sunscreen. That is no longer the case. Now you have to pretty much stick to prescription medicine, glasses and contacts, and hospital and doctor related expenses not covered by insurance. Additionally, Obamacare adds a $2,500 limit to the flexible spending account starting in 2013.

The Flexible Spending Account is a great tool. Although becoming less ‘flexible’ due to, IMO, new over-reaching government regulation, it’s still a great way to save money on medical expenses. Use it or lose it.

Can you list any other ways to spend your unused flexible spending account funds?

Image by quinn.anya

Flexible Spending Account [FSA]: Use It or Lose It is a post from: PT Money: Personal Finance by PT.
2c3ca6358dbd4ad8b0c3714b040d53d9

Related posts:

1. Flexible Spending Account: Don’t Forget to Update it When You Have a Baby
2. Save Money on Health Care: Health Savings Account vs Flexible Spending Account
3. How Much Do You Contribute to Your Health Care Flexible Spending Account?

Just a few days left to do some year end tax planning.

It’s time once again to start giving some thought to paying taxes.

I always like to do a little analysis at the end of the year to see if there are any year-end tax moves I need to make to help out my situation.

I suggest you do the same, either with a CPA, or with the free tool, TaxCaster.

Since I’m self-employed now, I have a few things to consider this year. I incorporated at the beginning of last year as an LLC. Also, I filed with the IRS to be considered an S-Corp. Because of this structure, I’ll need to make sure I pay payroll taxes and prepare a W-2 or Form 1099 for myself.

Then, my corporate return is due on March 15, 2012. That will spit out a K-1, which I’ll use, in combination with the W-2 or 1099 to complete my 1040 on Tuesday, April 17, 2012, the last day to file taxes.

Before the year is through, I plan on doing the following so that I can maximize my tax deductions and shift more of the tax burden to 2012:

Paying my property taxes. These aren’t due until January. But I can pay property taxes now and I’ll be able to deduct them on my 2011 return. Property taxes are big in Texas, where we have no state tax. So this is a nice deduction to add to my itemized list on Schedule A.

Prepaying my January mortgage payment. I did this last year and it worked out nicely. The payment you make in January is actually for December interest, so it’s theoretically sound to deduct the interest from this payment in December, as long as you actually pay it then. By paying it early, my lender should pick up on it and reflect this in my Form 1098, showing the amount of interest I paid for the year. Like property taxes, mortgage interest is deductible on Schedule A.

Giving more to my Church and other charities. We try to be better givers throughout the year. But we often find ourselves playing catch-up at the end. This is definitely the case for 2011. A year in which we had a lot of uncertainty and fluctuation in income. Things are starting to feel more stable and positive, so I’m sure we’ll be able to give more before the end of the year. Yes, I do realize this doesn’t show much faith or generosity on our part (i.e. giving mostly when things are good). But we are all a work in progress, right? Charitable contributions are deductible if they are made to qualifying organizations. They are reported on the Schedule A.

Make a contribution to our health savings account (HSA). With self-employment came the need for an individual health insurance plan. We chose a high-deductible, HSA eligible plan. I’ve had our current health plan since April, and an associated HSA (from my previous plan) for over a year. I opened this HSA with an initial contribution of $1,000 and have put several thousand in it over the last year for baby expenses. I’m going to pour a little more into that account before the year is out. As a family, we can contribute $6,150 annually. That contribution is treated similar to a contribution to a Traditional IRA. This could save us a nice sum. HSA contributions and distributions are reported on Form 8889.

Investing in some equipment for my business. In the past I’ve chosen to reinvest some of my earnings from the year back into the business. Last year I actually already made a couple of these purchases: a new monitor and a wireless keyboard. Both have helped to make my home office a more productive place, and helped to reduce my taxable business income. This year I accelerated one business expense: rent. I prepaid three months rent at my new office.

Opening and contributing to an Individual 401K. That’s right, I just opened an Individual 401K for my business. I’m going to contribute the maximum before the end of the year. This will reduce my current year tax burden by a significant sum.

What tax planning moves are you making before the year is out? I’d love to hear your approach.

(photo by redstamp.com)

Year-End Tax Strategies and Moves is a post from: PT Money: Personal Finance by PT.
2c3ca6358dbd4ad8b0c3714b040d53d9

Related posts:

1. Ten Financial Moves to Consider Before the Year Ends
2. Pay Your Property Taxes and Sales Taxes Prior to Year End
3. What If You Can’t Pay Your Taxes This Year?

The tax-free qualified charitable distribution provisions were renewed this year, but the deadline for your contributions is December 31, 2011.

This provision allows individuals 70 1/2 years and older to exclude from their gross income up to $100,000 of their qualified charitable distributions (QCDs) when paid directly from their IRA or Roth IRA to a qualified charitable organization.

The QCD amount may also be used to satisfy any outstanding required minimum distributions (RMD) that an individual must otherwise receive from their IRAs for 2011.

To be considered a qualified charitable distribution, the charity must be set up as a 501(c)(3) organization under IRS guidelines and the IRA trustee must make the payment directly from the IRA account to the qualified charity. Any distribution that is received by the IRA owner prior to delivery to the charity cannot qualify.

An important note: QCDs cannot be made from Simplified Employee Pensions (SEP-IRAs), Savings Incentive Match Plans for Employees, or from 401(k) plans or 403(b) plans.

In addition, the IRS has given married couples the chance to double the QCD amount that may be excluded from their gross income. A couple filing jointly on their tax return has the option to exclude $100,000 per spouse; that’s a whopping $200,000 before the end of the year.

Another benefit of this tax-free treatment is that the $100,000 maximum QCD will not apply to an individual’s overall charitable deduction limit.

This means that you can exclude from your gross income up to $100,000 through QCDs and still be able to make regular charitable contributions up to 50% of your adjusted gross income.

You cannot, however, deduct QCDs as a charitable contribution.

You might be asking why this is so important. The answer is simple; it’s less paperwork to deal with and less time consuming, it makes the process of giving to charity less expensive, and it offers a tax-effective strategy for taxpayers who want to make charitable contributions but choose not to itemize deductions (i.e. take the standard tax deduction).

This provision is a great way for individuals to dramatically lower their pre-tax dollars and a great incentive to give to charity before the year is up.

Deadline for Qualified Charitable Distribution Approaching is a post from: PT Money: Personal Finance by PT.
2c3ca6358dbd4ad8b0c3714b040d53d9

Related posts:

1. Don’t Forget These 10 Tax Deductions

If you had to tell me right now how much you pay into Social Security each month could you do it? Many people can’t. If you are employed, you are paying 4.2% (temporarily down from 6.2%) of your income into Social Security.

Did you know your employer is also paying money into your Social Security on your behalf? They are currently paying 6.2% of your income into the system. That makes a total of 10.4% of your pay going towards social security.

If you make $4,000 a month at your job, then you and your employer are contributing $416 a month to your social security. That’s a pretty decent size chunk, right?

Low Expectations for the Status Quo

Here’s the question that creates a contrast: what do you expect to get from social security by the time you retire? I’d be willing to bet that many of you don’t factor in social security when it comes to your own retirement planning. I don’t.

Let’s go to Facebook…

1. Do you think Social Security will be around when you retire?
2. If so, do you factor in social security when doing your retirement planning?

Social Security as a factor in retirement planning.

As an aside, if you were required to pay that 4.2% each month by check do you think you’d think differently about Social Security? I think our current payroll tax system helps to disguise what’s going on.

So what’s wrong with Social Security? I think U.S. Senator Marco Rubio said it best when he said,

“When Social Security first started, there was 16 workers for every retiree. Today there are three workers for every retiree and soon there will be only two for every retiree.”

There’s your major problem. Too many people need their promised benefits and not enough people are paying into the system. Now you see why people joke that it’s a ponzi scheme.

The Personal Social Security Account

So how do we fix Social Security? Newt Gingrich has risin to the top of the group of Republicans vying for the Presidency. If Gingrich stays on top for long you’ll begin hearing a lot more about his proposed plan to fix Social Security, at least for young people.

Gingrich basically wants young people to have a choice to take a portion (he previously stated half or 3.1%) of their contribution to Social Security and put it into a private savings account.

Gingrich’s plan is at least partially based on a model that has worked. Galveston (TX) County employees opted out of the Social Security system back in the 70s. They formed their own retirement savings plan and, while not perfect, it has outperformed Social Security in many ways.

I like this idea because it’s not a full-on privatization of social security, and thus would stand a better chance of getting support from both political parties. I also like it because it brings transparency and more personal responsibility into the Social Security system. Lastly, I like it because it partially removes the Government out of the place of power when it comes to my own retirement money.

What about you? Want an extra 3.1% to save for your retirement each month?

Image by DonkeyHotey

Want an Extra 3.1% to Save for Your Retirement Each Month? [Personal Social Security Account] is a post from: PT Money: Personal Finance by PT.
2c3ca6358dbd4ad8b0c3714b040d53d9

Related posts:

1. Can You Count on Social Security?
2. Ideas for Your Social Security Tax Break
3. Should You Overestimate Your Retirement Needs?