Here are eight steps that can help you determines your right filing status.  This is particularly helpful if you qualify for more than one filing status during the tax year.

1. Your marital status on the last day of the year determines your marital status for the entire year.

2. If more than one filing status applies to you, choose the one that gives you the lowest tax obligation.  This is easy to do with any good tax software that allows you to estimate your tax refund under different filing status.

3. Single filing status generally applies to anyone who is unmarried, divorced or legally separated according to the state law.

4. A married couple may file joint. The couple’s filing status would be Married filing jointly. Remember the last day of the year decides your status.

5. If your spouse died during the year and you did not remarry during 2011, you may still file a joint return with that spouse for the year of death.

6. A married couple may elect to file their returns separately.  Each person’s filing status would generally be Married Filing Separately.

7. Head of Household applies to taxpayers who are divorce(legally) or unmarried.  You must also have paid more than half the cost of maintaining a home for you and a qualifying person (dependent son, daughter, father, mother, dependent relative).  Note that cousins, foster parents, and unrelated dependents do not qualify nor does freeloading boyfriend or girlfriend.

8. You may file as Qualifying Widow(er) (Surviving Spouse) with Dependent Child.  If your spouse died during the year 2011 and you did not remarried.  You maintained a household that, for the whole taxable year, was the principal place of abode of a son, stepson, daughter, or stepdaughter (whether by blood or adoption).

Sal Scott

Unfortunately, the answer to this question is no. You simply can’t let your business run on autopilot and expect good results. Any successful business owner knows that numerous adjustments–from decisions about pricing to hiring and investing–must be made along the way in order to achieve success.

So, how do you handle the array of questions facing you?

One way is through cost accounting.

Cost Accounting Helps You Make Informed Decisions

Cost accounting reports and determines the various costs associated with running your business. With cost accounting, you track the cost of all your business functions including raw materials, labor, inventory, and overhead, among others.

Note: Cost accounting differs from financial accounting in that it’s only used internally, for decision making. Because financial accounting is used to produce financial statements for external stakeholders, such as stockholders and the media, it must comply with generally accepted accounting principles (GAAP). Cost accounting does not.

Cost accounting allows you to understand the following:

1. Cost behavior. For example, will costs increase or stay the same if production of your product increases?
2. Appropriate prices for your goods or services. Once you understand cost behavior, you can tweak your pricing based on the current market.
3. Budgeting. You can’t create an effective budget if you don’t know the real costs of the line items.

To monitor your company’s costs with this method, you need to pay attention to the two types of costs in any business: fixed and variable.

Fixed costs don’t fluctuate with changes in production or sales. They include:

• rent
• insurance
• dues and subscriptions
• equipment leases
• payments on loans
• management salaries
• advertising

Variable costs DO change with variations in production and sales. Variable costs include:

• raw materials
• hourly wages and commissions
• utilities
• inventory
• office supplies
• packaging, mailing, and shipping costs

Tip: Cost accounting is easier for smaller, less complicated businesses. The more complex your business model, the harder it becomes to assign proper values to all the facets of your company’s functioning.

Sal Scott

Individuals

The current tax rate structure ranging from 10% to 35% remains the same for 2012, but tax-bracket thresholds increase for each filing status. Standard deductions and the personal exemption have also been adjusted upward to reflect inflation. For details see Tax Brackets and Exemptions for 2012 below.

Alternate Minimum Tax (AMT)
Alternate Minimum Tax (AMT) limits decrease for all taxpayers at $33,750 for singles, $45,000 for married filing jointly, and $22,500 for married filing separately.

“Kiddie Tax”
For taxable years beginning in 2012, the amount that can be used to reduce the net unearned income reported on the child’s return that is subject to the “kiddie tax,” is $950. The same $950 amount is used to determine whether a parent may elect to include a child’s gross income in the parent’s gross income and to calculate the “kiddie tax”. For example, one of the requirements for the parental election is that a child’s gross income for 2012 must be more than $950 but less than $9,500.

For 2012, the net unearned income for a child under the age of 19 (or a full-time student under the age of 24) that is not subject to “kiddie tax” is $1,900, the same as 2011.

Medical Savings Accounts
Self-only coverage. For taxable years beginning in 2012, the term “high deductible health plan” means, for self-only coverage, a health plan that has an annual deductible that is not less than $2,100 and not more than $3,150, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $4,200.

Family coverage. For taxable years beginning in 2012, the term “high deductible health plan” means, for family coverage, a health plan that has an annual deductible that is not less than $4,200 and not more than $6,300, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $7,650.

Eligible Long-Term Care Premiums
Premiums for long-term care are treated the same as health care premiums and are deductible on your taxes subject to certain limitations. For individuals age 40 or less at the end of 2012, the limitation is $350. Persons over 40 but less than 50 can deduct $660. Those over age 50 but not more than 60 can deduct $1,310, while individuals over age 60 but younger than 70 can deduct $3,500. The maximum deduction $4,370 and applies to anyone over the age of 70.

Adoption Assistance Programs
For taxable years beginning in 2012, the amount that can be excluded from an employee’s gross income for the adoption of a child with special needs is $12,650. In addition, the maximum amount that can be excluded from an employee’s gross income for the amounts paid or expenses incurred by an employer for qualified adoption expenses furnished pursuant to an adoption assistance program for other adoptions by the employee is $12,650 (down from $13,360 in 2011).

The amount excludable from an employee’s gross income begins to phase out under for taxpayers with modified adjusted gross income (MAGI) in excess of $189,710 and is completely phased out for taxpayers with modified adjusted gross income of $229,710 or more.

Taxpayers adopting children are eligible for both the adoption credit (see below) and the adoption assistance exclusion of adoption expenses paid for through an employer’s adoption assistance plan. However, the same adoption expense cannot qualify for both the adoption credit and the adoption assistance exclusion.

Foreign Earned Income Exclusion
For taxable years beginning in 2012, the foreign earned income exclusion amount is $95,100, up from $92,900 in 2011.

Estate Tax
For an estate of any decedent dying during calendar year 2012, the basic exclusion amount is $5,120,000, up from $5,000,000 in 2011. Also, if the executor chooses to use the special use valuation method for qualified real property, the aggregate decrease in the value of the property resulting from the choice cannot exceed $1,040,000, up from $1,020,000 for 2011. The maximum tax rate remains at 35%.

Individuals – Tax Credits

Adoption Credit
For taxable years beginning in 2012, the credit allowed for an adoption of a child with special needs is $12,650. For taxable years beginning in 2012, the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $12,650. The available adoption credit begins to phase out for taxpayers with modified adjusted gross income (MAGI) in excess of $189,710 and is completely phased out for taxpayers with modified adjusted gross income of $229,710 or more.

Child Tax Credit
For taxable years beginning in 2012, the value used to determine the amount of credit that may be refundable is $3,000.

Earned Income Credit
For tax year 2012, the maximum earned income tax credit (EITC) for low- and moderate- income workers and working families rises to $5,891, up from $5,751 in 2011. The maximum income limit for the EITC rises to $50,270, up from $49,078 in 2011. The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children. In addition, for taxable years beginning in 2012, the earned income tax credit is not allowed if certain investment income exceeds $3,200.

Additional Child Credit
The $1,000 per-child additional child tax credit has been extended through 2012. The credit will decrease to $500 per child in 2013.

Individuals – Education

Hope Scholarship – American Opportunity, and Lifetime Learning Credits
The maximum Hope Scholarship Credit allowable for taxable years beginning in 2012 is $2,500.

The modified adjusted gross income (MAGI) threshold at which the lifetime learning credit begins to phase out is $104,000 for joint filers, up from $102,000, and $52,000 for singles and heads of household, up from $51,000.

Interest on Educational Loans
For taxable years beginning in 2012, the $2,500 maximum deduction for interest paid on qualified education loans begins to phase out for taxpayers with modified adjusted gross income (MAGI) in excess of $60,000 ($125,000 for joint returns), and is completely phased out for taxpayers with modified adjusted gross income of $75,000 or more ($155,000 or more for joint returns).

Individuals – Retirement

Contribution Limits
The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $16,500 to $17,000. Contribution limits for SIMPLE plans remain at $11,500. The maximum compensation used to determine contributions increases to $250,000 (up $5,000 from 2011 levels).

Income Phase-out Ranges
The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $58,000 and $68,000, up from $56,000 and $66,000 in 2011.

For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $92,000 to $112,000, up from $90,000 to $110,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $173,000 and $183,000, up from $169,000 and $179,000.

The AGI phase-out range for taxpayers making contributions to a Roth IRA is $173,000 to $183,000 for married couples filing jointly, up from $169,000 to $179,000 in 2011. For singles and heads of household, the income phase-out range is $110,000 to $125,000, up from $107,000 to $122,000. For a married individual filing a separate return who is covered by a retirement plan at work, the phase-out range remains $0 to $10,000.

Saver’s Credit
The AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low-and moderate-income workers is $57,500 for married couples filing jointly, up from $56,500 in 2011; $43,125 for heads of household, up from $42,375; and $28,750 for married individuals filing separately and for singles, up from $28,250.

Businesses

Standard Mileage Rates
The rate for business miles driven is 55.5 cents per mile for 2012, unchanged from the mid-year adjustment that became effective on July 1, 2011.

Section 179 Expensing
For 2012 the maximum Section 179 expense deduction for equipment purchases is $139,000 (down from $500,000 in 2011) of the first $560,000 (down from $2 million in 2011) of business property placed in service during the year.

Transportation Fringe Benefits
If you provide transportation fringe benefits to your employees, for tax years beginning in 2012 the maximum monthly limitation for transportation in a commuter highway vehicle as well as any transit pass is $125 (down from $230 in 2011). The monthly limitation for qualified parking is $240 (up from $230 in 2011).

Work Opportunity Credit
The work opportunity credit has been expanded to provide employers with new incentives to hire certain unemployed veterans. Businesses claim the credit as part of the general business credit and tax-exempt organizations claim it against their payroll tax liability. The credit is available for eligible unemployed veterans who begin work on or after November 22, 2011, and before January 1, 2013.

While this checklist outlines important tax changes already in place for 2012, additional changes in tax law are more than likely to arise during the year ahead.

Sal Scott

The table below shows the main 2012 deadlines for filing 2011 tax returns and requesting extensions.

* Note: The traditional tax return filing deadline is April 15 of each year, but since April 15, 2012 is a Sunday and April 16, 2012 falls on Emancipation Day in the District of Columbia, the Tax due date has been moved to the next working day – April 17.

When can I expect my tax refund?  In most cases if you e-file and use direct deposit, the IRS estimates that you should receive your federal refund between 8 and 14 days after they accept your return (i.e. the IRS does not send you a notification requesting additional information or an audit notice). If you did not select the electronic deposit option, getting a paper check mailed to you adds about a week.  If your return was filed by mail, then your refund can take up to 6 weeks from the date the IRS receives a complete and accurate return. Once your return is accepted by the IRS, the IRS processes your refund based on the IRS E-file Refund Cycle Chart. Exact refund dates are based on IRS processing times and can be found in IRS Publication 2043 and IRS Topic 152 for both e-filed and mailed returns.

State refunds are processed by each individual state, so processing times will vary. As a general rule, you can expect your state tax refund within 30 days of the electronic filing date or the postmark date. To get the current status of your state tax refund, contact your state tax agency or search online for your state’s taxation website.

Sal Scott

I’m not going to be able to file my taxes in time. What should I do?

If you cannot meet that April 15 deadline, you are in good company. The IRS says it received requests for 11 million extensions, which amounts to about 8% of all tax returns. Taxpayers who ask for an extension get an extra six months to file—your new deadline will be Oct. 15. You can get some extra time without any hassle. Simply e-file for a Personal Tax Extension of your federal tax return with your accountant or You can also file for an extension on the IRS website.

Important things to remember when you request an extension

First, a federal extension does not automatically extend the deadline for your state income tax return. Also, an extension to file your federal taxes does not give you an extension to pay your actual tax bill. You still have to figure out your taxes and make an estimated payment. Estimating how much money you’re going to owe can take time, so please do not wait until April 15 to get started. Last year’s tax return could be a good starting point if you haven’t experienced any major life changes. If that is the case, you can probably pay the same amount in taxes for 2009 that you paid in 2008.

But if you lost your job, Purchase a new home with the first-time homebuyer’s credit, or had a baby,  you’ll need more information to determine your tax bill. Why is it so important to come up with this ballpark estimate? You will pay a penalty if you underpay your taxes by more than 10 percent.

What do I do if I can’t afford to pay my taxes?

The No. 1 thing to do—even if you can’t pay all the taxes you owe—is to file your return. “If there is one message to get to consumers, I cannot emphasize enough how important it is to file your return,” says an IRS spokesman.

The Expert’s advice: File your return as soon as possible, preferably before midnight on April 15. Why? Failure to file your taxes is a federal offense that could have significant legal ramifications. And if that isn’t reason enough, another incentive to file your taxes on time is a financial one. That’s because the IRS can impose a penalty of 5% of the tax you owe for each month you do not file your return. The maximum penalty is 25% of your tax bill.

Try to pay as much of the bill as you can. But if you don’t have the cash, you may be able to work out a payment agreement with the IRS. In the past few years, the IRS says it set up installment agreements for 2 to 3 million returns. It should take less than 10 minutes to figure out if you are eligible for an installment agreement on the IRS website. You can also call the IRS at 1-800-829-1040 to discuss your payment options.

Filers who pay the IRS via an automatic installment plan typically owe less than $25,000. Also, if you are interested in a payment plan, you should be in good standing with the IRS, and you should expect to pay off your bill within five years.

Installment agreements can be costly, so think before you leap. The IRS charges a one-time fee of $105 for setting up the installment plan, or $52 if you have the payments debited directly from your bank account. The interest rate fluctuates, based on the amount you owe.

If I need to amend my tax return, does that need to be done by April 15?

If you sent in your tax return already and realized you forgot to claim something, you can amend your return. It is much more common than you think and the IRS actually states that those claiming the home buyer credit this year should modify their returns if they haven’t already claimed the credit and meet the guidelines. Use Form 1040X (PDF), Amended U.S. Individual Income Tax Return, to correct a previously filed Form 1040 (PDF), Form 1040A (PDF),Form 1040EZ (PDF), Form 1040NR (PDF), or Form 1040NR-EZ (PDF). If you used TurboTax to file your return you can follow these instructions to amend your return. To avoid any penalties and interest, you need to file Form 1040X and pay the tax by April 15 of the following year.

If you are filing for an additional refund, the IRS advises you to wait until you have received your original refund.

Sal Scott
]]> http://scottandmorris.wordpress.com/2010/04/13/filing-an-extension-and-what-to-do-if-you-cannot-pay-your-taxes%e2%80%a6/feed/ 0 scottandmorris http://scottandmorris.wordpress.com/2010/04/07/how-to-reduce-your-tax-bill-by-lowering-your-taxable-income-and-claiming-more-deductions/ http://scottandmorris.wordpress.com/2010/04/07/how-to-reduce-your-tax-bill-by-lowering-your-taxable-income-and-claiming-more-deductions/#comments Wed, 07 Apr 2010 14:33:11 +0000 scottandmorris http://scottandmorris.wordpress.com/?p=75 Continue reading →]]> Recently a lot of you filed your taxes and much to your disappointments you ended up owing taxes. Yea I know, a lot of my newly acquired clients had to pay back and it hurts, but While paying taxes is not itself a bad thing, after all they did not give an interest free loan to Uncle Sam, what really hurts is that if they had undertaken a few actions earlier in the year they could have avoided or significantly reduced their tax bill. These tax reduction strategies are simple, possibly good investments and ones that you can put in place today. I know my clients have.

Increase Your 401K/IRA Retirement Account Savings Rate. This is probably the easiest and most effective way to reduce your taxable income because all contributions to a 401K or IRA plan are tax-deductible, as is all the investment growth. An increase of just a few percent will lower your taxable income, enabling you to fall into a lower tax bracket and hence face a much lower tax bill (or refund). The maximum amount an employee can contribute to a 401(k) is $16,500 and for individuals over the age of 50, they can make extra catch-up contributions of $5,500. So if you can manage it, make a higher retirement savings account contribution. Not only will it reduce your taxable income, it will help ensure a more comfortable retirement.

Itemize to claim more deductions. Rather than just take the standard income tax deduction- $5,700/$11,400 (single/joint) – try and itemize your deductions. It may take longer, but if you have more than just a straightforward tax situation and/or own property this approach to your taxes could have a big impact on your tax bill. I know, because I get about two-three times the standard deduction amount when itemizing my tax deductions.

Take advantage of stimulus payments – Many Americans will be eligible for claiming one or more of the economic stimulus tax credits, deductions and/or payments passed in 2009/2010. These will either reduce your taxable income (deductions) or give you cash back (credits). Many of these tax breaks like the home buyer credit and green energy deduction are also available this year and if you can take advantage of them, do so. It will most definitely have an impact on your tax bill and in some cases you can get the credit paid out to you in the year you claim it.

Decrease pay check withholding. A lot of times when a life event occurs, like buying/selling a house or children going to college, folks forget to adjust their employer paycheck withholdings. A lot of my new clients learnt the importance of understanding this the hard way with a hefty tax bill, due to not withholding enough taxes during the year. Take the time to ensure that the correct taxes are being withheld so that you don’t have an unexpected tax bill on April 15th. On the flip side, you also don’t want too withhold too much and have a big refund in the subsequent year – because you are just giving a free loan to the IRS. Using last years returns and various IRS Withholding calculators should help you determine the right of amount of taxes to withhold.
Get a $3000 Capital Gain Loss Tax Deduction. With most investor portfolio’s still recovering from losses in 2008-2009, selling a few loser stocks for a net capital loss is a good way to get a $3,000 (or $1500 for single filers) offset on their income tax return. Investors can carry unused capital losses forward for as long as they live. This means you can recoup some of those losses against future tax returns, and potentially reduce your tax liability for a number of years.

Claim those Charitable donations – Don’t forget that charitable gifts and donations are tax deductible. With the tough economic climate charities are hurting more than ever so help those in need and save some money at tax time to boot. Remember though, to deduct any charitable donation of money (cash, check, credit or payroll deduction), regardless of amount, a taxpayer must have a bank record or a written communication from the charity (normally a receipt or tax invoice) showing the name of the charity and the date and amount of the contribution. Please contact your accounting for more details on taxes and forms required around charitable contributions.

Sal Scott

President Barack Obama has proposed a new round of stimulus spending in 2010, focused on middle class families struggling to pay bills and care for their families. The initiatives in the new stimulus package are a product of a middle class task force headed by Vice President Joe Biden, and will also be included in Obama’s budget request due to be submitted to Congress next week. Biden defined middle class as a family of four with an annual income of about $85,000. The initiatives proposed include:

A doubling of the child care tax credit for families earning under $85,000. This is equivalent to increasing the current deduction limit from 20% to 35%. Families making under $115,000 would also see at least some increase in their tax credit as well.

A $1.6 billion increase in federal funding for child care programs to help working parents pay for child care in fiscal 2011, which begins Oct. 1, to benefit an additional 235,000 children.

Capping student’s federal loan payments at 10% of income above a basic living allowance, to make payments more affordable. The president also proposed forgiving all remaining debt after 10 years of payment for those in public service work – and 20 years for all others

Allocation of $100 million to assist families caring for aging relatives by providing help with transportation, adult day care and in-home aids.

Expanding tax credits to match retirement savings. This proposal would also require many employers to provide the option of a workplace-based 401(k) retirement savings plan. Employers who don’t offer 401(k) retirement plans to offer direct-deposit IRAs for their employees (unless they opt out), with exemptions for the smallest firms. The cost to employers would be offset by new tax credits.

The president said that creating new jobs and reducing unemployment is the “single-most important thing we can do to rebuild the middle class. We also need to reverse the overall erosion in middle-class security, so that when this economy does come back, working Americans are free to pursue their dreams again.”

The White House say the new proposals are aimed at just that – the “sandwich generation” that is now struggling to care for both children and parents. The theme fits into the planned economic message of Obama’s prime-time address to the nation on Wednesday, which promises to provide a sharper focus on jobs and is likely to cover financial regulations, energy, education, immigration and a push to change the political tone in Washington.

Sal Scott

Yeah folks – I know this may not sound like much of anything- but every cent not going to Uncle Sam seems to make a lot of sense for your pockets.

Sal Scott