We're in the tax-filing home stretch and I know that getting your taxes done quickly, easily and correctly is a full-time job right now. So March's tips, just like those posted the previous two months, will appear every day -- Monday through Sunday, including holidays.
In addition to helping you fill out your 2011 tax return, you'll find some tax planning ideas so you can get a start on reducing your 2012 tax bill.
This daily tax advice will continue through April 17, this year's extended filing deadline day.
You can find each day's new tip in the upper right corner of the ol' blog. But if you occasionally must tear yourself away from taxes -- say it ain't so! -- you can catch up on this and the other monthly tax tip compilation pages.
Many of the tips posted throughout filing season appear courtesy of Bankrate's annual tax guide. But some will be original Don't Mess With Taxes advice.
So now that you're through perusing January and February tax tidbits, let's flip that tax calendar page and take a look at the Daily Tax Tips for March 2012.
- Turn your hobby into a business -- Has your hobby become more than a pleasant way to pass your off-hours time? If you find you're regularly making money on your avocation, consider turning your hobby into a real business. That way you'll be able to deduct expenses directly from your new enterprise. Be sure, however, that you follow the IRS rules when it comes to business. If you aren't serious about running a real business, the IRS could disallow your deductions. The first thing the IRS wants to see is whether your new business made money. If, however, you aren't able to turn a profit in three of five years, the IRS will look at all other factors and circumstances of your business to see if you were serious, albeit cash-strapped, in your attempt. Such things as keeping good records, your time commitment to the business, whether you depend on the enterprise for your livelihood and your background and knowledge in the business area are all considered. If the IRS believes you're making a good-faith effort, it will let you keep trying. And hopefully your hobby-turned-business will be a success. (March 1, 2012)
- Tax credits can help pay college costs -- If you or a family member are in college, let Uncle Sam help pay some of those costs. Two education tax credits, American Opportunity and Lifetime Learning, offer ways to help pay various higher education costs. The great thing about these two educational benefits is that they are tax credits, providing a dollar-for-dollar offset against your tax bill. The American Opportunity tax credit is worth a possible $2,500. And there's a bonus: Up to 40 percent of the American Opportunity credit is refundable, meaning you could get up to $1,000 back from the IRS even if you don't owe any taxes. The Lifetime Learning credit lives up to its name. It could be as much as $2,000 and is available to undergrads, graduate students and folks already in the workforce who want to take some courses to improve their job skills. The American Opportunity credit is available on a per student basis, but the Lifetime Learning credit applies to up to $20,000 of a family's total educational costs. So if you or a family member is in college (or beyond), check out both of these educational tax credits to determine what kind of tax help you can get toward schooling costs. (March 2, 2012)
- Larger standard deduction amount available to older, blind taxpayers -- It's no fun getting older. Trust me. I know. But there is a bit of a tax advantage. Once you celebrate your 65th birthday, you get a bigger standard tax deduction amount. Even better, all you have to do is check a box on your Form 1040 or 1040A. A larger standard deduction amount also is available for taxpayers of any age who are legally blind. The same checkbox filing method applies to these taxpayers, too. The bottom line, an older married couple filing jointly and where both have vision issues could claim a standard deduction amount that's $4,600 more than their younger taxpaying counterparts. And those extra thousands of dollars are available just by checking some tax return boxes. Yes, in this case, it is just that easy. (March 3, 2012)
- Mortgage refinancing tax deductions -- Good for you for getting a lower interest rate when you refinanced your mortgage. Now it's time ot consider how your new home loan might affect your taxes. Did you pay points, the 1 percent of your loan amount payment that helps many get a lower rate? Those refi loan points are tax deductible, but in most cases not in full in the year they are paid. Instead, you must deduct the points over the life of your refi loan. One exception: If you use home refi money to make improvements to your home, the portion of points attributable to the improvement costs can be deducted in the year paid. The interest on your new loan is still deductible. The refi amount that paid off the previous mortgage is considered fully deductible home-acquisition debt interest. If you got a few extra dollars over your home's outstanding mortgage balance, that's home equity debt and interest on up to $100,000 of that also is tax deductible as an itemized expense. Be careful, however, if your refi loan is larger than the value of your home. Where the home loan amount is greater than the residence's fair-market value, you generally won't be allowed to deduct interest on the excess debt. (March 4, 2012)
- Tax help in caring for the kids -- A major challenge for working parents is finding good childcare for their youngsters while you finish up your hours at the office. The tax code can help. No, an Internal Revenue Service agent won't come baby sit the kids until you get home. But you can claim the child and dependent care credit to pay someone to do that. It won't cover every cent you spend on child care. Only the first $3,000 for one child's care or $6,000 for the combined care of two or more kids counts. And then just a percentage based on your earnings can be used to figure your actual tax credit. But every little bit helps. And during the summer, you can count the cost of day camp. Plus, it is a tax credit, meaning it can reduce your tax bill dollar-for-dollar. And if you don't have kids, hang on a minute. You did notice that the tax break's name is child and dependent care credit, right? That means you can use it to help pay for care of other, older dependents that need attention while you're at work. (March 5, 2012)
- Donating a vehicle to charity -- Got a jalopy that you don't want to mess with any longer? Consider giving it to charity. You'll avoid hassling with prospective buyers, help out a nonprofit and possible get a tax deduction, too. This being taxes, though, there are some things to consider. The deduction is available only if you itemize. Also, it's no longer as easy as it used to be to determine the value of your auto deduction. It used to be that you just looked up the fair market value of your old vehicle and claimed that on your Schedule A. But some taxpayers got greedy, claiming much more than their old autos were worth, so lawmakers tightened the donation valuation rules. Now your tax break also depends how the charity uses the vehicle. If it sells the vehicle, you can claim the price the charity got. If they group uses it to meet its mission, then you can claim the auto's fair market value. And if the charity sells the donated vehicle for significantly below market value or gives it away to a needy person, you can claim a $500 donation value if it was worth at least that amount. Remember that before you can enter in the amount of your tax deduction, you need to get the charity's substantiation of your gift. And in addition to getting a receipt, the general rules regarding charitable contributions also apply here, too. OK, so it takes some work to donate a car -- or truck or motorcycle or boat or RV or any other motorized vehicle -- to charity. But think about it. If you're feeling generous -- or don't want to spend what it would take to get the clunker in sellable shape -- giving it to a charity might be the better route. (March 6, 2012)
- Explore the Earned Income Tax Credit -- Today's tough economy has made a tax credit designed for middle- and lower-income workers a lot more valuable and available. The Earned Income Tax Credit, or EITC, gives eligible workers back a portion of their payroll taxes. It even can produce a tax refund for eligible filers who had no tax liability. The EITC is commonly thought of as a tax break for parents. It's true that working parents could get larger EITC amounts, up to $5,751 on 2011 taxes if they have three or more kids. But a single taxpayer with no children could get a tax credit of up to $464. One of the biggest challenges for filers is to make some money, but not too much. The top earnings limit is $49,078. That's the maximum amount of wages that a married couple filing jointly and who have three or more kids can make and still qualify for the EITC. At the other end of the earnings spectrum is a single taxpayer with no dependent children. If that filer makes no more than $13,660, he or she can file for the EITC. Check out the various earnings limits and other requirements (tax preparers have to fill out an IRS checklist attesting that the taxpayer meets the EITC standards), for you and your kids, and see if you can claim this credit. Folks who previously didn't qualify may find that because they took a lower paying job they now may be eligible. And yes, the EITC is complicated, but the payoff could be worth it. (March 7, 2012)
- Disaster help from the IRS. Really! -- When disaster strikes, you might be able to get some recovery help from an unexpected source: the Internal Revenue Service. In most instances, unforeseen casualty losses can be claimed as itemized deductions. This includes damages and losses sustained because of burglaries and thefts, fires, tornadoes, hurricanes, blizzards, other severe storms, earthquakes, mudslides and even drought. And when a disaster is so severe that it's declared a major disaster area by the president, you get additional choices on when to file the tax claim. You can claim the losses in the tax year in which they occurred. Or you can file an amended return and claim the major disaster losses in the prior tax year. This could get you much-needed money for repairs sooner. Of course, you need to run the numbers for both years to make sure you get the larger disaster tax relief amount. And you'll have to file extra forms and meet the disaster loss eligibility guidelines. But when you're trying to get back on your feet after a disaster, the effort could definitely be worthwhile. (March 8, 2012)
- Claiming unreimbursed employee expenses -- Did you literally give a little extra to your job? Maybe it was that weekend you went into the office and had to buy a toner cartridge for the printer. Or the binders you picked up for the handouts at the monthly planning meeting. If you weren't reimbursed for these and other work-related expenses, you can claim them as miscellaneous itemized deductions on Schedule A. The one big problem with this plan is that these deductions can't be counted unless they exceed 2 percent of your adjusted gross income (AGI). That means if your AGI is $30,000 your miscellaneous expenses must be more than $600 before they are deductible. Note the word "more." That means only the amount over $600 are deductible. Before you discount this deduction possibility, take a look at all the allowable employee expenses you can include in the miscellaneous category. Potential deductions include dues to professional societies and unions, coursed to improve your work skills, job hunt expenses, licenses and regulatory fees and work clothes and uniforms, as well as their upkeep costs. Find a full list of what can (and can't) be claimed as a miscellaneous deduction in IRS Publication 529. And download in addition to Schedule A, download Form 2106, Employee Business Expenses, or Form 2106-EZ, Unreimbursed Employee Business Expenses, detail your deductions. (March 9, 2012)
- How your home can cut your tax bill -- Owning a home is exciting, scary, expensive and tax saving. You can deduct the interest on the loan you got on your primary home (that's the one where you live most -- and for most of us, all -- of the time) as long as your loan isn't more than $1 million. If your castle really is an expensive mortgaged castle, the Internal Revenue Service limits your deductible interest. Mortgage interest also is deductible on a second home. And if you got a home equity loan or line of credit, interest on up to $100,000 of that loan is deductible, too. Points, that 1 percent of your loan amount you paid to get a lower rate (yes, this was more common when home loan rates were much higher) also count as deductible mortgage interest. Even points you pay to refinance your home can count, but you have to spread refi points deductions over the life of the new loan. Property taxes you pay to your local tax collectors also is deductible. Here you're not limited to two homes; Uncle Sam allows you to write off the property taxes on all your real properties, regardless of how many you own. The best home tax break comes when you sell. If you're a single homeowner, up to $250,000 in profit you make on the sale of your home is tax free. The tax exclusion amount is $500,000 for a home-selling married couple who files a joint return. Finally, remember that you must itemize to claim your home's mortgage interest and property taxes. (March 10, 2012)
- Penalty-free retirement plan withdrawals -- Under certain hardship circumstances, you can take money out of your retirement plan before you turn 59½, but you'll still owe taxes on the withdrawal and, in most cases, a 10 percent early distribution penalty. There are a few cases, however, when you can avoid the penalty. They include when you must pay unreimbursed medical expenses; buy medical insurance when you're out of work; you have a permanent disability, either physical or mental, that prevents you from getting a job; you are a military reservist called to active duty; or you are facing an IRS levy. Yeah, none of those is very appealing, which is part of the reason that the penalty is waived. The IRS has a chart you can use as a guideline as to when early distributions from various retirement plans are penalty-free. Here's hoping you never need your IRA or 401(k) money early for any of these situations, but if you do, at least you won't owe the IRS extra money, too. (March 11, 2012)
- Cash in on uncommon charitable tax breaks -- You can give more than just cash to your favorite charity and the good news for you is that your atypical generosity is probably tax deductible, too. Did you drive your car to help a nonprofit's mission, such as delivering food to shut-ins or taking a scout troop on a field trip? Then add up those miles. They're worth 14 cents each and can be added to your charitable donations on Schedule A. The value of your time when volunteering isn't deductible, but any unreimbursed out-of-pocket expenses for a charity's projects or operations also can be written off as itemized deductions. And most organizations would be thrilled to get a gift of appreciated stock. You can deduct the market value of the gift on the day you donate it. Plus, you don't have to worry about paying any capital gains because if and when it's sold, it will be the charity making that transaction and getting the cash to use as it needs. Even donations to the U.S. Treasury to reduce the public debt are tax deductible gifts. Remember, though that all the usual charitable giving rules -- such as the recipient must be an IRS-approved group and always get receipts regardless of the amount donated -- still apply. (March 12, 2012)
- Taking advantage of miscellaneous deductions -- Did you incur unreimbursed employee expenses? Where they so much that you decided to look for another job? Those are just two miscellaneous deductions you can claim on Schedule A. Others include tax preparation fees, as well as several investment related fees, such as the cost of the safe deposit box you rented to hold your investment shares and data. The one big problem with this potpourri of deductions is that before you can claim them, they must come to more than 2 percent of your adjusted gross income (AGI). That means if your AGI is $50,000 you must have more than in AGI must come up with more than $1,000. And even then, if you have $1,050 in qualifying expenses, only the $50 is deductible. But don't despair. Check out all the possible miscellaneous deductions in IRS Publication 529. Also take advantage of bunching, the tax planning technique of shifting deductible expenses into one tax year to maximize them. Of course, this will mean the next year you'll have to claim the standard deduction. But that's better than not getting to claim any miscellaneous expenses every filing season. (March 13, 2012)
- Adoption tax breaks help pay some growing family costs -- Congratulations on the addition to your family. If your new son or daughter joined your family via adoption, Uncle Sam has more than just well wishes. He could help you pay some of those costs. As you well know, the adoption process can be long and complicated. The same is true for the adoption tax credit, which is a dollar-for-dollar reduction of your tax bill, and the exclusion from income of any company-provided adoption benefits. The type of adoption -- whether it was done within U.S. borders or internationally -- as well as when it becomes final could affect when and how you make your tax claims. There also are income limits based on your modified adjusted gross income (MAGI); for the 2011 tax year that's $185,210. But once you jump through all the tax hoops, you can claim for both the credit and the exclusion your qualified expenses. These include reasonable and necessary adoption fees, court costs, attorney fees, traveling expenses (including amounts spent for meals and lodging while away from home) and other expenses that are directly related to and for which the principal purpose was the legal adoption of your child. Even better, for 2011 tax returns, the adoption tax credit is refundable, meaning you could get money back from the IRS even if you don't owe any taxes. (March 14, 2012)
- Deducting private mortgage insurance -- If you didn't make a down payment of at least 20 percent on your home loan, you probably had to buy private mortgage insurance, or PMI. You had to pay for this insurance policy although it pays your lender if you default on the loan. In most cases, PMI payments are not deductible. However, since 2007 some homeowners have been able to deduct PMI premiums as an itemized expense. It's considered interest and is entered on line 13 of the 2011 Schedule A, right there with other home-related tax breaks, such as mortgage interest and points. (Property taxes are in the "taxes" section just above.) The 2011 tax year is the last chance to write off PMI payments unless Congress renews the itemized deduction. You also must meet the requirements to claim PMI, which include the timing of the loan -- it must have been issued on or after Jan. 1, 2007 -- and your income. The PMI deduction begins phasing out when your adjusted gross income, or AGI, is more than $100,000 ($50,000 for married persons filing separate returns). Make $109,000 or more ($54,500 if you're married filing separately) and you can't claim any PMI deduction. (March 15, 2012)
- Beware the costly, complicated alternative minimum tax -- It's a given that all taxpayers want every other taxpayer to pay their rightful shares. That's why the alternative minimum tax, usually referred to at the AMT, was created more than 40 years ago. It was enacted to make sure the wealthy didn't avoid taxes via loopholes. But now this parallel tax that has its own set of rates (26 percent and 28 percent) and requires a separate computation affects folks who really aren't that rich because the AMT isn't indexed for inflation. So Congress takes action every so often to make temporary changes to keep millions of middle-class taxpayers from facing the AMT threat. The main temporary change, or "AMT patch" as it's called on Capitol Hill, is to hike the amount of income excluded from AMT consideration. Still, if it looks like you might be an AMT victim, you'll have to figure your ordinary income taxes, then your possible AMT bill and, if there's a difference, you must pay the AMT in addition to your regular tax. The Internal Revenue Service eases this AMT tax paperwork insult to the injury of paying the added tax somewhat thanks to its Alternative Minimum Tax Assistant, an online program that will help you determine if you owe more. For the 2011 tax year, the AMT patch is in place. But there's no AMT relief -- yet -- for the 2012 tax year. Stay tuned to see when (if?) Congress finally gets around to protecting the latest batch of potential AMT victims. (March 16, 2012)
- Keeping electronic tax records -- If you're tired of all your tax clutter, consider transferring your tax documents to an electronic format. The Internal Revenue Service has accepted electronic records since 1997. The main requirement is that tax documents "exhibit a high degree of legibility and readability when displayed on a video display terminal and when reproduced in hard copy." Basically, the IRS won't accept sloppy documentation in any form. Several smartphone apps enable copying of receipts and business cards connected to tax claims. Also check out Shoeboxed and NeatReceipts. Transferring your tax paperwork to electronic versions could also pay off in added green in your bank account when you have the proper records to sustain your tax-cutting claims. (March 17, 2012)
- Health insurance deductions for self-employed workers -- Medical coverage costs go up every year. If you're self-employed, acquiring health insurance is a major expense. But as a small business owner you might be able to get some help from your Uncle Sam. For most self-employed workers, medical insurance premiums are deductible as an above-the-line deduction directly on Form 1040. In addition to health insurance premiums, self-employed taxpayers also can deduct dental policy payments, as well as long-term care insurance premiums on line 29 of Form 1040. The deduction also applies to insurance premiums paid by the self-employed worker for a spouse and dependents. And the deductible insurance also can cover a child who was 26 or younger at the end of 2011 even if he or she was not the worker's dependent. This tax break is available to self-employed individuals who report a net profit on Schedule C, Schedule C-EZ or Schedule F, as well as to partners and S corporation taxpayers. If you file Schedule C, C-EZ or F, the policy can be either in the name of your business or in your name. Partners can establish the medical policy either in the name of the partnership or in the name of the partner. And corporate taxpayers who are more-than-2-percent shareholders can hold the policy in either the name of the S corporation or in the name of the shareholder. More self-employment medical coverage details can be found in IRS Publication 535. (March 18, 2012)
- Cut your taxes without itemizing -- Most taxpayers don't itemize, but many still might be able to claim some above-the-line deductions. Each year around a dozen or so of these tax deductions appear in the last section of page 1 of Form 1040. It's here you might be able to deduct at least part of your traditional IRA contribution, college tuition and fees, moving expenses, alimony payments you sent to an ex, out-of-pocket educator costs or self-employed health insurance payments. These and other amounts are subtracted from your total income to arrive at your adjusted gross income. And since that AGI amount is the last line on the tax return's page 1, that's how these write-offs came to be called above-the-line deductions. If you file the shorter Form 1040A four of the deductions -- IRA contributions, tuition and fees, educator expenses and student loan interest -- are deductible on that form, too. You might have to complete some worksheets or another form, but there are no percentage of income hurdles like you'll find on Schedule A. Plus, if you don't have enough to expenses to warrant itemizing, these above-the-line adjustments will let you take your standard deduction and still claim some welcome tax breaks. (March 19, 2012)
- Taking the tuition and fees tax deduction -- If you're paying college costs, then a little bit of tax return homework could help. At the bottom of page one on both the Form 1040 and Form 1040A you'll find the tuition and fees deduction that's worth $4,000. A nice thing about this tax break is that you don't have to itemize to claim it. It's an above-the-line deduction that reduces your adjusted gross income directly on your tax return. But there still are some things to note. First, the deduction is true to its name; it can be used to only to cover higher education tuition and fees. Married couples must file a joint return to take this deduction. There are income eligibility limits. And if you're a college student who is claimed as a dependent on your parents' return or even just can be claimed, you can't take the deduction yourself even if you paid your tuition with your own money. Finally, although you don't have to fill out Schedule A to claim the tuition and fees tax deduction, you do have to complete Form 8917. But that's not a bad trade for a tax deduction worth four grand. (March 20, 2012)
- A tax-deduction apple for teachers -- School district budget cuts mean that many teachers find themselves buying classroom supplies. They might be able to get a tax break at filing time. The educators' expenses deduction is worth $250. There's no need to itemize to claim this deduction; it's one of the dozen or so above-the-line deductions found at the bottom of the first page of Form 1040. It's also can be claimed by Form 1040A filers. While $250 might not cover much of a teacher's out-of-pocket classroom purchases, at least there's no percentage threshold to meet as was the case when these costs had to be counted as miscellaneous expenses on Schedule A. And other public and private school employees also might be able to use this deduction. In addition to teachers, eligible educators who can claim the deduction include grades kindergarten through 12 instructors, counselors, aides and principals. (March 21, 2012)
- Deducting student loan interest -- Financial gurus will tell you that there is good debt and bad debt. From a tax standpoint, good debt is that which provides a tax break. That definition puts borrowing to pay for higher education in the good debt category. In addition to helping you get an education that can pay off in your career, a student loan could pay off at tax time via a deduction of up to $2,500 of the interest you paid on that loan. As with every tax break, there are rules. Here the loan must be to pay for higher education classes for you, your spouse or a dependent. The eligible student must be enrolled at least half-time in a program that leads to a degree, certificate or other educational credential. And the school must be an IRS-approved educational institution. There also are income limits. The deductible loan interest is phased out for single, head of household, or surviving spouse filers with modified adjusted gross income between $60,000 and $75,000. The income phaseout range for married couples filing jointly is $120,000 to $150,000. As for how much you can claim, your Form 1098-E or acceptable substitute form will tell precisely how much interest you paid last tax year. If it's more than $2,500 that excess isn't deductible. If it's less, you can only claim the actual amount of student loan interest you paid. But at least you don't have to itemize to claim the interest. You'll enter the amount directly on Form 1040 or 1040A (the tax break isn't available to Form 1040EZ filers) where it's part of the other above-the-line deductions. (March 22, 2012)
- Maximizing medical deductions -- Being sick stinks. Paying taxes stinks. But when the two converge, you might be able to use some of your medical costs to cut your tax bill. Many medical expenses are tax deductible. But, of course, you have to follow the IRS rules. First, you must itemize instead of claiming the standard deduction amount. Then your medical costs must be more than 7.5 percent of your adjusted gross income. That's a big percentage tax threshold for many taxpayers to meet, but the IRS accepts some medical expenses that you might not have considered. They include travel expenses to and from medical treatments, alcohol- or drug-abuse recovery programs, an extra pair of prescription eyeglasses or contact lenses, false teeth, hearing aids, artificial limbs and health care insurance premiums you pay with already-taxed money. Even some work to your home to accommodate your or a family member's disabilities might count, as well as cosmetic surgery procedures that treat real medical issues, not just feed your vanity. All of these many medically deductible possibilities could help you make a surgical cut of your tax bill. (March 23, 2012)
- No Making Work Pay credit, Schedule M in 2011 -- If you're still trying to track down a Schedule M to file with your 2011 tax return, you can stop. That form was used for tax year 2009 and 2010 filings to claim the Making Work Pay tax credit. As you probably recall, that refundable tax credit provided up to $400 per individual worker and up to $800 for a married couple filing a joint return. When Making Work Pay expired on Dec. 31, 2010, the payroll tax rate cut took its place for the 2011 tax year. The temporary (for now) 2 percentage point reduction in the employee portion of the Social Security payroll tax also is in effect through 2012. Some taxpayers actually made out better with the Making Work Pay tax credit, but filling out Schedule M was a hassle and caused a lot of problems, for filers and the Internal Revenue Service alike. With the payroll tax rate cut, however, there's no worry about an extra form to fill out with your 2011 filing. (March 24, 2012)
- Deducting long-term care costs -- Around 70 percent of older Americans are expected to eventually need long-term care services. We're not talking medical treatments. This is basic day-to-day life stuff, such as doing housework, shopping for groceries or clothes, preparing and cleaning up after meals, obtaining and taking medications, completing personal hygiene tasks and managing money. Because of the current and increasing costs of such care, many people buy long-term care insurance, which isn't cheap either. But you might be able to recoup some long-term care expenses at tax time. Both expenses incurred for qualified long-term care and the insurance can count as itemized medical deductions. Of course, there are eligibility requirements for both the type of services provided and the person needing them. And the deductibility of the premiums for long-term care insurance is limited based on the policy owner's age. But still, if you or a friend or relative now receive long-term care or expect to in the future, it's worth looking into whether the expenses could help reduce your tax bills. (March 25, 2012)
- Taking required minimum IRA distributions -- Uncle Sam won't let you hang onto your tax-deferred retirement accounts forever. He eventually wants the taxes on these accounts -- traditional IRAs, 401(k)s and similar workplace and self-employed retirement accounts. The date that the IRS has circled in red for every taxpayer with at least one of these accounts generally is the account owner's 70½ birthday. When you reach that age, the IRS expects you to start taking required minimum distributions, or RMDs, from the tax-deferred accounts. Actually, you get a bit of leeway; you have until April 1 of the year following your 70½ birthday to take your first RMD. How much is your RMD? It depends on several factors, including your age, marital status and your spouse's age. The IRS had developed three tables that individuals can use to determine their RMDs. The most common is the Uniform Lifetime Table. All three are found in IRS Publication 590. (March 26, 2012)
- Recovering excess FICA taxes< -- Every worker is well aware of FICA and how much of each paycheck goes to that line item on pay stubs. FICA is the notation for the Federal Insurance Contributions Act, which authorizes collection of payroll taxes for the Social Security program. For 2011 and 2012, every worker has 4.2 percent of his or her pay taken out for Social Security up to the annual wage base amount. Remember, this is 2 percent less than usual thanks to the temporary payroll tax cut. For 2011 that's $106,800. The 2012 inflation-adjusted wage base is $110,100. The maximum you could put into the program in 2011 was $4,485.60; for 2012, the maximum FICA tax is $4,624.20. When you have one employer, your boss stops collecting Social Security taxes when you earn more than the wage base. But if you have multiple jobs and your total combined income goes over the limit, you probably overpaid your Social Security taxes. You can get this overpayment back when you file your 1040 or 1040A. Your excess retirement tax is considered by the IRS as part of all the taxes you've already paid. Work sheets can help you compute the amount of an excess Social Security credit and were to claim it on your tax return are found in IRS Publication 505. Remember, though, that the 1.45 percent of your pay that goes toward Medicare is not limited by your earnings. So regardless of how much you make, all of that tax stays in Uncle Sam's hands. (March 27, 20120
- Choosing between Schedule C and C-EZ -- Your business is just getting off the ground, so you haven't made much money yet. Don't worry; it takes time. But while your business is growing, your tax filing duties might be a bit easier. If you're a sole proprietor, depending on your earnings and expenses you may be able to file a much simpler form. As a solo entrepreneur, you report your business income and deductions via either Schedule C or Schedule C-EZ, filed as an attachment to your Form 1040 personal income tax return. As the name indicates, the C-EZ is a streamlined version of the more-detailed Schedule C. So which form should you file? Check out the forms' titles. Schedule C is for reporting "Profit or Loss from Business." Schedule C-EZ covers "Net Profit from Business." If you report a business loss, you can't use the short form. The C-EZ also is for sole proprietors who, in part, have no more than $5,000 in business expenses, don't depreciate any business property and don't claim business use of a home. Of course, the ease of Schedule C-EZ could cost you if you do have a lot of legitimate business expenses to claim on the longer Schedule C. So evaluate your business' annual tax situation and don't short-change yourself just for filing simplicity. (March 28, 2012)
- Deduct your home office -- If you work from home, it could be tax worthwhile to claim the home office deduction. Some people avoid this tax break, fearing it could make them an IRS audit target. But as long as you follow the home office rules and document your claim, you'll be OK. The key requirements are that your home office area (yes, it can be just part of a room) must be used regularly and exclusively for your business needs. Opening your laptop at the kitchen table every other week to do some work won't cut it with the IRS. It's obviously easier for a self-employed worker to claim a home office deduction, but if you are a paid employee and do work for your company at home, you might be able to also take this tax deduction. In this case, in addition to meeting the same home office standards as self-employed taxpayers, your home office use must be for your employer's convenience. Self-employed taxpayers will figure their home office deduction on Form 8829 and report that amount on Schedule C. Employees can use the work sheet in IRS Publication 587, Business Use of Your Home, and then claim the allowable amount as itemized deductions on Schedule A. (March 29, 2012)
- Tax-favored ways to pay for college -- The cost of higher education increases every year. Let your good old Uncle Sam help out. There are a variety of tax-favored ways that can cover at least some college costs, from wonderful dollar-for-dollar tax credits to deductions from your income to tax-free savings options. They include 529 tuition plans, Coverdell education savings accounts, American Opportunity and Lifetime Learning education tax credits, the above-the-line deductions for tuition and fees deduction and student loan interest and even time-honored U.S. savings bonds used to pay for school. Of course, each option has its own set of requirements and rules and if you use one, you might not be able to use another -- remember, the IRS frowns on tax double dipping. But it's worth doing your education tax breaks homework to see which option can help you pay for your or a dependent's college education in a tax-efficient way. (March 30, 2012)
- Home office depreciation tax savings and potential tax cost -- Having a home office is commonplace nowadays as more people take the entrepreneur route. That means more taxpayers are claiming the home office deduction. By doing so, such workers get to write off on Schedule C a portion of our household expenses, including mortgage interest, maintenance, real estate taxes, insurance and utilities. Home offices also can be depreciated, adding to tax savings. When a business property or asset has what is known as a useful life of more than a year, it typically is depreciated. That is, the cost of the asset is spread across several tax years with a portion of the total cost deducted each year. But your home office depreciation could cost you when you sell your residence. The depreciation must be recaptured; that is, you figure how much of a tax break the home office got you and pay tax on that amount at a 25 percent rate when you sell your home. Even if you didn't claim the depreciation, you still owe. Tax law says you much count depreciation that was allowed, that's the depreciation amount you claimed on your returns, or allowable, this is the depreciation amount you could have claimed but for some reason did not. So remember that when you're considering whether to claim depreciation when you take the home office deduction. (March 31, 2012)
Missed a tip or two?
Again, thanks for continuing on the ol' blog's filing season tax tip journey.