Learn About Tax Liability

Tax liability can have you make wrong choices. However, the IRS has been helpful to some people in difficulties such as these. For example, the unemployed and people running small business will benefit from the ‘fresh start’ initiative. In fact, their installment agreement will ensure that there is easier and rational payments made.

Doug Shulman, the IRS commissioner stated that the agency has a duty to work with troubled taxpayers to meet their tax liabilities. Taxpayers have to understand the penalties against defaults arising out of failure to pay taxes on time. For example, 5% of unpaid taxes will be imposed against returns filed late on a monthly basis.

» The analysis for such failures is done at a lower limit of 0.5% and upper limit of 25% each month.

Therefore, if you are unemployed or self-employed, you will have about six months delay for you to pay your taxes. This will only apply to taxes due in 2011 and only if you had requested for an extension through IRS form 4868.

This form however does not excuse you from paying due taxes.

The initiative permits the delay to run up to 15th of October. You will need to show that you have been unemployed for more than 30 days continuously in 2011 or before the 17th of April 2012. Incase of self employment, show that your business earnings has dropped for more than 25% because of the economy.

Form 1127-A can be found at the IRS website: IRS.gov, should help you apply for the program and is due in April 17th.

You should be aware of a couple of things. For example, the earning and time limits that will accrue penalties.

Another thing to be aware about is the compounding interest payable on unpaid taxes.

If you do not have a financial statement then you should know that the threshold for the part payment has been increased by the agency. The fines are lowered, the interest will still be compounding.

In such cases, the IRS will increase the time for your part payment when you owe $50,000. The time can be increased to 72 months. This extended time can only be permitted if you consent to a monthly direct–debit payment.

This agreement can be set up online. To get an approval, you will need to have filed your returns and avail your personal details.

It is necessary that you file your tax returns even if you may accrue tax liability. Try not to make decisions that are irrational. Consult with the IRS through their websites and understand their conditions to qualify for the initiative.

Paying for College: Student Loan Interest Deduction Explained

Interest on student loans can get overwhelming. Luckily, the IRS allows for the Student Loan Interest Deduction which can be taken by qualified filers. The deduction allows for any paid interest to be deducted from amount of income earned annually and provides a valuable tool to help balance finances for those in the throngs of repayment.

Eligibility

Any loan taken out for the sole intention of covering eligible expenses related to the pursuit of a higher eduction is considered a “qualified” student loan with deductible interest. The elegibility of expeneses includes those for which the Tuition and Fees deduction is applicable.

Those attempting to claim the deduction must be indepedent of caregivers and cannot be considered an dependent or exemption on any other tax return. The deduction also carries other conditions and must meet certain criteria related to annual income, a legal obligation to pay interest, and the amount of interest actually paid during the year one is filing.

Interest on student loans can get overwhelming. Luckily, the IRS allows for the Student Loan Interest Deduction which can be taken by qualified filers. The deduction allows for any paid interest to be deducted from amount of income earned annually and provides a valuable tool to help balance finances for those in the throngs of repayment.

Eligibility

Any loan taken out for the sole intention of covering eligible expenses related to the pursuit of a higher eduction is considered a “qualified” student loan with deductible interest. The elegibility of expeneses includes those for which the Tuition and Fees deduction is applicable.

Those attempting to claim the deduction must be indepedent of caregivers and cannot be considered an dependent or exemption on any other tax return. The deduction also carries other conditions and must meet criteria related to annual income, a legally-observed obligation to pay interest, and the amount of interest actually paid during the year in which one files.

Married couples can claim the interest deduction only when filing jointly. The IRS allows one to deduct up to $2,500 annually for any interest paid on student loans which meet federal requirements. Any amount of interest above the threshold of $2,500 doesn’t count, nor can any deduction exceed the actual amount of interest paid.

Interest generated via the various types of educational loans can qualify for the deduction, including: interest on the loan itself, interest on any consolidations, and interest accumulated via lines of credit. The most important qualifier for determining eligible interest involves the intention of money borrowed, any money was used for educational expenses is generally applicable.

Deductions Versus Credits

Tax deductions differ from credits. Credits reduce the total of tax owed whereas deductions reduce the amount of income which can be taxed. The Student Loan Interest Deduction can be taken for up to $2,500 of any interest actually paid in the previous tax year. Deductions lower one’s revenue by the amount of the deduction. Therefore, the actual amount of income tax is lowered along with the tax burden and total bill which one pays.

Forms

Appropriate filing procedures for the Student Loan Interest Deduction are claimed as an adjustment to income, and therefor do not need to be itemized. Filers cannot take such deductions on Form 1040EZ. However, the deduction can be taken on line 18 of Form 1040A or on line 33 of Form 1040, both of which can be submitted via the free IRS efile process.

The cost of college seems never-ending to someone in the doldrums of student loan debt. However, interest paid can often be replenished via a tax return for those who qualify, which helps ease the burden. As with most tax scenarios, understanding the proper filing procedures and following the correct protocol can contribute to a much larger tax reimbursement.

Citations:

Katei Cranford is a writer who shares her expertise of financial situations for students and graduates.

Obama Believes That Taxes Help In Debt Reduction

President Obama believes that the U.S. can reduce its $15 trillion-plus federal debt by generating revenue from the increase in taxes.

While attending the Business Roundtable talks Obama stated that along with finding ways to cut spending, revenue had to also be dealt with. He believes that the people of America understand that this must be done in order to solve the country’s financial problems.

Taxes will be on everyone’s minds at election time.

The opponents of Obama- Mitt Romney, Ron Paul, Newt Gingrich and Rick Santorum, all are in opposition of increasing taxes. They argue that the creations of jobs and the economy’s growth will not benefit from the tax increases.

The GOP Republicans have led the way in White House budget crises by opposing any hikes in taxes.

No matter what the election outcome is in November, December is sure to bring any tax increase issues to the forefront.

The end of the year will bring to an end the tax cuts that were signed by then-President George W. Bush, along with the recently signed payroll tax cut.
Obama’s desire is to end the tax cuts signed by Bush for those individuals making a yearly income of more than $200,000. All the while he is pushing for a rule that would require at least 30 percent of a millionaire’s income to be paid in taxes.

Obama claims that his only desire is to create a balanced approach to reduce debt, not creating huge tax increases.

It is believed that the economy can be stabilized by making moderate tax adjustments, and by doing this, America can be back on top in the future.

How Education Tax Credits Can Beat High Education Costs

Many students are deterred from attending college, because of what they believe are insurmountably high education costs. It is important to know, however, that there are now two federal education tax credits can make the costs of higher education for yourself or your children a lot more affordable.  The names of the credits are the American Opportunity Credit and the Lifetime Learning Credit, and most students qualify for one or the other.

Qualification criteria are as follows: you must be paying your own postsecondary tuition and fees – or the fees that are incurred by your spouse or dependents. Either the parent or a student can claim the credit, but not both at once. In the case of a student who  was claimed as a dependent, it’s the parent who must file for the credit.

Each student is allowed to claim only one of the two available credits in any given tax year. For example, you are not allowed to claim the American Opportunity Credit to pay a portion of your tuition charges, and use the Lifetime Learning Credit to cover the rest of the expenses.

Federal policies do allow for parents to take credit on a per-student, per-year basis; this means that if you are paying tuition for two students in your family, you can claim a credit for each individual who is in school. It is possible that if a family claims two students, one will have the Lifetime Learning Credit while the other uses the American Opportunity Grant.

The American Opportunity Credit can be used to cover up to $2,500 in eligible expenses, per student, with up to forty percent of that refundable, which will decrease tax owed, or increase a family’s refund. The Lifetime Learning Credit, in contrast, is also worth $2,000 but the credit that it offers is limited to the amount of tax you owe, so you will not receive a tax refund.

If you, or someone in your family is considering postsecondary education, be sure to investigate how these two programs may benefit your student.