Tips For You
Tax Time Again!
I agree – too soon! It’s time to begin collecting the information to your 2009 return.
Tough Year – Lots of Changes! We have more law changes for 2009 than for any
year I can recall. And, Congress isn’t done yet!
It’s a “good news, bad news” situation. Good News – I can help many of you save
more than ever. Bad news – you need more records than ever before, or you miss
out on some benefits. Getting an early start helps in two ways – the work is simpler
and you save more money.
Owe IRS? Some Suggestions. When you owe the IRS, they put big pressure on
you to pay immediately or to set up a payment plan. Watch Out! The fee to set up a
plan is $105! If you can pay your balance in three months or less, send what you can
now, wait for the next bill, send more, then pay the balance with the third billing. Save
the $105.
If you will need more time, ask for a payment plan. If you agree to have payment
debited directly from a checking account, the cost to set up the plan drops to $52.
IRS charges interest, plus a “late payment” penalty on all balances. Interest is
currently 5%. The penalty for paying late adds 6%, but is often cut in half for payment
plans.
Unemployed? New Health Care Subsidies. An employer of over 20 employees
must offer health care continuation coverage (COBRA) to involuntarily terminated
employees for up to 18 months. Employees pays the premium, plus administrative fee.
The coverage may still be more than many employees up to 9 months of coverage by
paying only 35% of the premium, with 65% paid by the government. There are many
other rules, but if this might affect you, please contact your employer. An even more
generous program, the Health Care Tax Credit (HCTC) began in April – those
eligible for HCTC might pay as little 20% of the full premium. Coverage can extend
through 2010 if needed. Check the IRS website for full details.
Over 70 ½? Required Distributions Waived. At age 70 ½ folks must take annual
distributions from IRA and retirement funds. For 2009, the requirement is waived. Do
what you wish. Need the money? Take it. If you don’t need the money, you might
have a planning opportunity. You may be able to take just enough to avoid changing
tax brackets. Late in the year is the best time for such decisions – we need to know
your income for the year.
Charged Your Tax? IRS accepts tax payments via credit card. I rarely recommend
this because of fees you must pay the credit card company – usually about 2.5% of
the payment. IRS has had a change of heart, and now says you may deduct this fee
on your next return! A little hitch – you must itemize deductions, and this fee is a
“Miscellaneous” deduction – no benefit unless these deductions exceed 2% of your
gross income.
Tax Free Vacation Money. Going on a summer vacation? You can rent out your
own home for up to 14 days while away. Stick to this time frame, and it’s legal to
pocket the money – no taxes. Local papers have listings for such rentals. You can
likely pay for a good bit of your own vacation. And – it’s legal!
Over 70 ½ - IRA to Charity. 2009 is the last year of a tax break for older folks
who give to charity. For your charitable contributions, do this: have your IRA
custodian send a contribution directly to the charity from your IRA. You only pay tax
on any additional distribution you take. You don’t even need to itemize your
deductions – the amount sent to the charity is not treated as income. You might have
a “double win” here – the reduction in your income may cause less of your social
security income to be taxable. Neat.
After Your Tax Return Is Filed - - -
All Done? Not quite. Some returns were extended; some of you still owe money; a
few refund checks go astray. And … when we’re done, IRS begins it’s work.
Loose Ends? Some didn’t complete the 2008 tax cycle:
Extended Return? Returns are due October 15. Payment was due April 15, and
carrying charges apply after this. Gather the missing paperwork quickly – a last
minute surprise can be expensive!
Refund late? IRS won’t help until 10 weeks after your file. 1-800-829-4477 is for
automated help. Or try 1-800 829-1954 – the refund hotline. The IRS website www.
irs.gov has a “Where’s My Refund?” link.
Find an Error? If you failed to claim an item on your return, we can file an amended
return. You and IRS each have the same time frame to question your return. It’s 3
years after the filing deadline. If you owe IRS you pay the tax plus some interest. If
IRS owes you, the same thing applies – you collect the tax savings plus interest.
Keep your Return Records. For now, put your return, records, receipts, and
cancelled checks in a safe place. You should keep the returns indefinitely; the records
should be kept for 5 years. You might need to dig them out, but chances are slim.
Will You Be Audited? Not likely. What does IRS do after you file? Soon they will
math reports from banks, brokers, and employers with tax returns. Most “audits”
arise when IRS finds a mismatch. They send a letter - - -
Uh-Oh – an IRS Letter! If you get a letter from IRS, call me. The letter may be
confusing. There are several types of notices and each requires a different response.
Don’t risk making an even bigger mess – I’ll be glad to handle it.
When IRS questions anything on your return they call this an “audit”. Most people
picture an “audit” as a face-to-face meeting with an IRS has just released statistics for
the fiscal year ending in September 2008. They received about 138 million returns,
and “audited” 1.39 of these. That’s only 1% of the total. Of these, less than 23%
involved meeting with IRS – the rest were handled by correspondence.
The correspondence “audit” usually arises from the IRS “matching” program. It
involves copying your records and verifying the return. Face-to-face audits are more
complex. We’ll need to meet and discus the issues. But, please remember, only about
1-in-400 of all returns are subjected to this sort of scrutiny.
Santos Associates, FEDERALLY AUTHORIZED TAX PRACTITIONERS,
can help you with your accounting, tax and financial planning needs. Call today for
an appointment & consultation. We are not attorneys, we can refer competent
council upon request.