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By Rosemary White, August 13, 2010 5:49 am

The Internal Revenue Service (IRS) announced last week that’s it’s going to stop releasing information about back taxes, child support or delinquent federal student loans owed by taxpayers.  Referred to as “debt indicators”, this information has been sent in the past to tax preparers by the IRS as an acknowledgement after a tax return was filed electronically.  The Agency, apparently,  letting the preparer (and the taxpayer) know the client’s refund may be redirected to pay these debts.  These indicators have been used by larger tax prep. companies to provide refund anticipation loans.  Those loans have been heavily criticized by consumer groups because they generally come with high fees and interest rates.  They are frequently offered to lower income taxpayers who need their refunds ASAP.

So, why’s the IRS dropping the debt indicator?  Since refunds can be direct deposited into a taxpayer’s bank account fairly quickly, the Agency figures it can still withhold a refund if back taxes are owed, and the Feds can move the money quickly…sometimes within ten days.   It may also reduce the number of refund anticipation loans, which would be a good thing, Martha.  I’m old fashioned.  I mail in my returns…and will continue to do so until it’s no longer an option.  Until next time, here’s to good planning!

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By Rosemary White, June 22, 2010 5:11 am

There’s been a lot written in the last nine months about converting Traditional IRAs to a Roth in 2010.  Some folks are converting because the income limit has been eliminated.  Roth IRAs are attractive for many people because the assets in the Roth can be withdrawn tax-free.  And, those converting in 2010 can take two years to pay the income taxes that will be owed.  But it may not be a good idea for you to convert some or all of a Traditional IRA to a Roth.  Here’s why:

   *   Retirement’s just around the corner.  If you’ve got more time before retiring (say, at least 15 – 20 years) then it’s more likely your account will grow enough to make up for the income taxes you’ll have to pay upon conversion.  If you’re 58 or older, it may not make sense

   *  The tax bill would choke a horse.  This is how we used to phrase it back in Missouri.  If you don’t have the cash (in non-retirement accounts) to pay the tax bill, even if you spread the taxes over the next two years, then I’d think twice about converting.  If you use retirement funds to pay the taxes, then you’ll have to pay more taxes on the money you used to pay the taxes.   It’s an evil web

   *  A different tax bracket in retirement.  At this point, none of us knows if our tax bracket will be lower or higher once we’re retired.  The rule of thumb used to be:  “I’m won’t be working…just getting Social Security and drawing from my IRA, so I’ll be in a lower bracket.”  But that may not be the case.  Given the huge deficits that our country has had, now, for almost ten years, income taxes may be higher in retirement.  It’s certainly not out of the realm of possibility

   *  Converting may bump you into a higher bracket now.  Bummer.  But, seriously…you convert your $100,000 Traditional IRA to a Roth, you’re looking at a pretty big tax bite

You can always convert a portion of your Traditional IRA.  Just some food for thought.  Until next time, here’s to good planning!

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By Rosemary White, June 1, 2010 11:59 am

The news keeps coming out in dribbles and drabs.  Some you’re going to like and others will probably make you angry.  But that’s just the way it’s going to be when it comes to the Patient Protection and Affordable Care Act, the healthcare reform bill.  Many of us will have to stock up on Form 1099’s.  Huh?

Section 9006 of the law says that, beginning January 1, 2012, all businesses must issue 1099 tax forms not only to freelancers and vendors, but also to any individual, business or corporation from which they purchase more than $600 in goods or services in a tax year.  So, if you go on a business trip and your hotel bill is more than $600, you’ll have to give the hotel (and the IRS) a 1099 for your visit.  You buy new office furniture and spend $900?  Two more 1099’s.  I’m sure the Chamber will be squawking about this (probably already have).  You’ll have to have the taxpayer ID numbers for all these people/businesses.  There’ll probably be a whole new cottage industry that crops up to help us deal with this new requirement.

The government is doing this to have better reporting of income.  It’s as simple as that.  The IRS estimates there’s $300 billion of tax revenue that’s never reported or paid.  Think what a difference that would make.  And I’m sure all the details will get worked out in Congress (after the mid-terms this fall).  It’ll be fun to watch!  Until next time, here’s to good planning!

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By Rosemary White, May 28, 2010 4:11 am

I’m really upset that NBC has cancelled Law and Order, the 20-year crime show whose scripts are often “ripped from the latest headlines”.  I watched one last week where I was able to figure out the plot way before I usually do.   The police were suspicious when several very wealthy people met their demise in 2010.  Some deaths seem accelerated, one seemed prolonged in 2009 until New Year’s had passed.  They were all connected to a CPA who would, conveniently, manage the estate assets for the heirs.  So, were the heirs in on the scam?  Their motive:  A 0% estate taxes if their last surviving parent died in 2010!

Everyone in my business has been joking for a while that 2010 is definitely the year to die, if you’ve got more than $1,000,000 in assets.  The elimination of the estate tax was high on president George W. Bush’s agenda back in 2001.  But in order to get Congressional approval, he had to agree to its elimination for only one year (2010) before the tax returned in 2011, at the 2001 rates:  estates over $1,000,000 will face an estate tax of up to 55%.   Roughly two percent of heirs in the U.S. are faced with estate taxes.  My conservative friends do like to rail about them (even though their estates may never be large enough to be affected.  And, with proper planning, there’s really no need for anyone’s family to face estate taxes.)  The Obama Administration may not push to extend the 0% rate.  The government, after all, does need all the dough it can get.  Or, maybe, Congress will just let the 2001 rates return on January 1, 2011.  After all, the executive and legislative branches have been kinda busy these last few months.

And the prosecutors on Law and Order?  They eventually were successful in getting someone to squeal on that CPA and one of the greedy heirs.   It was a great episode.  Just another reason why NBC is nuts to have cancelled the show.  Just one more season and Law and Order would have been the longest running series in television history.  But then they cancelled “Medium” last year and it’s now going strong on CBS.  Hey, CBS….want another one? 

I hope you and your family have a great Memorial Day holiday.   It’s a time to thank those who have served our country….both in the past and now.  Until next time, here’s to good planning!

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By Rosemary White, April 13, 2010 12:56 pm

I know a lot of you have already filed your 2009 federal and state income taxes…..maybe even gotten your refund already.  Good for you!  I must admit I only got my numbers to my accountant late last week.  I was getting a little nervous until my county was declared a federal disaster area because of all the recent flooding.  So I’ve got until May 11^th to get my returns filed, which is probably a once-in-a-lifetime reprieve for all us procrastinators.  But there is a more common reason why you don’t need to panic if you aren’t able to file your return on time:  you are owed a refund.

The IRS reports that nearly 90% of the returns processed thus far are owed an average of $3,036.  That’s a pretty nice chunk of change although a lot of people might be better off getting a smaller refund but having less taxes taken out of their paychecks (but that’s another topic for another time).   And, if your refund takes more than 45 days to be processed, the IRS will tack on some interest.  But don’t delay filing for more than three years.  Because of a statute of limitations on refunds, you’ll forfeit your refund if you wait that long.

If you think you’re in line for a refund but guessed wrong, you’ll be in hot water.  If you file late and you owe, there’s 5% interest on the amount owed for each month that you fail to file, up to a maximum of 25%.  Yikes!  Until next time, here’s to good planning!

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By Rosemary White, April 10, 2010 12:59 pm

With less than a week to go to file your income taxes (unless you’re in a federal disaster area) you really don’t have a whole lot of time to finish your return.  (I do have to wonder why you procrastinate like this every year….but that’s a topic for a future blog.)  I thought I’d toss out some other last-minute ideas in case you’re still scouring your office for receipts.  I hope these help get your brain in gear:

• Got a new job in the same career but you had to move more than 50 miles away?  Congratulations.  You can deduct your moving expenses on Form 3903
• File jointly, don’t itemize, but own your home? Eureka!  You can deduct up to $1,000 of your property taxes (this should be made permanent)
• If you installed replacement windows, a new water heater or an energy-saving skylight, you can claim a $1,500 credit
• If you live in a federal disaster area due to flooding, ice jams, etc., you can claim the total amount of your losses.  In the past, you could only take losses greater than 10% of your Adjusted Gross Income .
• If you sold any securities at a loss in 2009 and you had owned those shares for at least a year, you can use those losses to offset any capital gains you may have gotten when selling for a gain

I hope these help.   All the best getting your returns filed.  Until next time, here’s to good planning!

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By Rosemary White, April 6, 2010 9:19 am

If you didn’t have a calendar handy, so you could count out 26 days from April 15^th……those of you in Massachusetts and Rhode Island have until midnight, May 11^th, to file your state and federal income taxes due to the record-breaking flooding of last week.  Sorry I wasn’t more specific in my last blog.  This is probably why I shouldn’t be posting before 9:00 a.m. but it’s usually the first thing I think of every Tuesday and Friday morning.

And, for you MA filers, the Department of Revenue says, if you file a paper return (which I will continue to do until the tax police come and take away all my writing accoutrements), write the words “2010 Flooding” in red ink, at the top of your first page.  You’d think, if a return arrives between April 16^th and May 11^th, the DOR people would figure it out, but hey…..  Obviously, you can’t do this if you file electronically.   Anyway, more tax-saving ideas on Friday.  Until then, here’s to good planning!

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By Rosemary White,

Live in a water logged county declared a federal disaster area last week by President Obama?  If so, you’ve got 26 more days to get your federal and state income taxes filed…that’s both the federal and state tax forms.  The extra time is being given to:

   *  Any individual whose principal residence is in a disaster area

   *  Any business entity whose principal place of business is in a disaster area

   *  Any business or individual whose income tax records are in a disaster area

   *  A spouse of an affected taxpayer, solely with regard to a joint return of the husband and wife

   *  An estate or trust that has tax records in a covered disaster area

The affected counties in Massachusetts are Bristol, Essex, Middlesex, Norfolk, Plymouth, Suffolk and Worcester.  In Rhode Island, the counties are Kent, Newport, Providence and Washington.  If you can file by April 15th, it’s certainly OK to do so.  No sense delaying the inevitable unless you have to.  But you won’t be penalized if you don’t.  Also, there are no forms to fill out.  The IRS computer system automatically identifies taxpayers located in the covered areas and will apply the filing and payment relief.  Good luck.  Until next time, here’s to good planning!

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By Rosemary White, March 30, 2010 9:29 am

It’s not something I hear very frequently, but it can happen.  You e-filed your tax return early because you want to get your hands on that refund.   But your return gets rejected by the IRS because someone else has claimed your 10-year-old as a dependent.  That person would have had your kid’s name, date of birth and Social Security number.  If you’re divorced, chances are really good you know who the culprit is:  your ex-spouse.

If your child lives with you for most of the year, this should be a slam dunk.  So, unless you filed a Form 8332, releasing your claim to deduct the child, I’d say your ex had a bad year and is desperate for tax deductions.  So, you’ll now have to mail in your tax return and the reasons why you are entitled to the deduction.  The IRS will follow up with both of you and there will probably be an audit.  That’s just great.  Just another reason, this one most obvious, why you’re glad you got extracted from that marriage!  If this issue raised concerns, check out IRS Publication 501 in the exemptions of dependents section.  Good luck.  Until next time, here’s to good planning!

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By Rosemary White, March 19, 2010 4:58 am

The countdown has begun.  If you haven’t filed your 2009 income taxes already, you’ve got just under 30 days to do so.  Here’s a few things to consider which may help cut your tax bill:

  *  If you have any kids in college, the American Opportunity Tax Credit lets you claim a $2,500 education credit per student per year for the first four years of college.  This is much more generous than the Hope Credit which is $1,700 for the first two years and the Lifetime Learning Credit, $2,000 per return.   You can only use one credit per year

  *  Bought a new car, light truck, motorcycle or motor home after February 16, 2009?  Then deduct the sales tax you paid on the purchase, on the first $49,500 of the vehicle’s cost

  *  If you collected unemployment in 2009, the first $2,400 will be income tax-free, something that will help millions of Americans, and may save up to $672 per taxpayer.  In a household where both spouses collected unemployment, the first $4,800 is tax-free

  *  If you were looking for a job in the same field as your last position, then your expenses for career coaching, resume services, travel, etc. can be deducted as a miscellaneous expense.  Your total miscellaneous expenses will have to exceed 2% of your adjusted gross income (AGI), so make sure you don’t forget a thing

  *  If you were unemployed last year and had to pay for health insurance costs (like COBRA), you may find that your health insurance expenses will put you over the 7.5% of AGI that you need to deduct such costs.  This may also be true since your income was probably way down.  Again, take the time to find every expense and check out IRS Publication 502 for a list of other qualifying expenses (eyeglasses, etc.)

I hope this helps.   More tips next week.   Until then, here’s to good planning!