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.

Proposed Changes From Taxes

The current administration’s proposed budget for 2013 includes some items from 2012 taxes with a wish list of ideas added. Although Congress isn’t obligated to accept all items on the list, in the past, it has accepted some of the ones proposed. Since the U.S. tax code has not had a major overhaul in more than two decades, some analysts expect public debates on everything from tax brackets to tax return filing.

Some of the proposed budget includes changes from 2012 taxes, including individual taxes, corporate taxes, international provisions, and manufacturing tax breaks. Although there are others, the ones listed are the most significant to the average American individual and American corporations. These plans are to be gradually integrated into the budget over the next decade.

Changes to individual 2012 taxes include cutting payroll taxes and gradually ending the tax cuts from the Bush administration. Other individual tax changes proposed include carried interest, the Buffet Rule for millionaires, and an itemized tax cap for those making more than $200,000 per year or families with incomes over $250,000. Some of the changes take place during the current year, so tax return filing may be more challenging. Taxpayers need to have up-to-date information before filing their 2012 taxes.

The administration would like to drop the 35 percent currently charged to corporations down to the upper 20 percent tax range. The United States now has one of the highest corporate tax rates in the world. Although this won’t change tax return filing for individuals, the change will lower what corporations pay from the 2012 taxes.

There are other changes from 2012 taxes that will affect tax return filing for American corporations. These include the administration’s proposal to close a loophole in sheltering overseas intangible property profits, moving expense deductions for companies that move their overseas operations back to the United States, adding a minimum tax on profits from overseas, and restricting tax deferrals from other countries.

Some of the proposed changes may affect 2012 taxes. Seek professional assistance from the IRS, a CPA, or tax return filing professional. If you choose to calculate your own taxes, update your software and research the most current tax codes before filing.

The IRS is Making Immense High-Tech Strides

Electronic Filing Services Are Taxpayers’ First Choice!

This tax season, the IRS has devised a plethora of useful virtual features to facilitate the taxpaying process greatly.  Tara Lynn Wagner of NY1 reports as follows:

“Once again, it’s that time of year when people’s thoughts turn toward taxes. The good news is that help has arrived for all those persistent procrastinators, however.

In 2012, taxes will not be officially overdue until after April 17 – two days later than the traditional filing deadline. This is per IRS spokeswoman Dianne Besunder.

Ms. Besunder further advised that prompt filing yields correspondingly faster refund receipt – especially for electronic filers.  According to Besunder, a whopping 79 percent of US taxpayers filed via electronic means last tax season.

Using electronic filing services also offers taxpayers the advantage of enhanced accuracy in addition to much speedier returns. Besunder stated that overall error incidence of e-filed returns is only one percent – as opposed to traditional paper-based filings’ cumulative inaccuracies of 20 percent.

The best news is that  taxpayers whose gross annual income falls below $57,000 may utilize IRS electronic filing software for free. Registration via the official IRS website at IRS.gov is the only requirement.

Virtual Service (“VS”) is an innovative IRS pilot program that is currently in the beta testing phase. VS permits taxpayers to talk with IRS reps via video conferencing from 10 major IRS locations throughout the US.

For further details about VS, various IRS YouTube videos, and social media networking resources, call 1-800-829-1040 or visit IRS.gov.

Top 10 Tax Tips for the Year

Tax filing season has started and the documents you need should be in the mailbox soon. While the return is not due until April 17 this year, here are 10 tax tips to ensure you are ready to file.

1. Start gathering records now. This includes receipts, canceled checks and other supporting documents.

2. Watch for W-2s and 1099s. You will need them.

3. For answers to questions, look at the IRS website.

4. Use Free File. If your income was $57,000 or less you qualify for free file. You must access this service trough www.irs.gov. The IRS has collaborated with many companies that offer software to make all the calculations and file your taxes at no cost. There are also online forms that look like the standard forms that can be completed and filed online.

5. Use IRS e-file. This is a safe and easy way to file your return. It was used by 106 million people last year and is now require of many tax preparers. If you owe money, you can pay immediately or by the deadline. If you are due a refund, it can be directly deposited to you ban within 10-14 days.

6. Consider all options. Prepare it yourself or have a preparer file it for you.

7. Use direct deposit. It will save several weeks over the time to send a paper check.

8. Find all you need at the website www.irs.gov. Publications, forms and tips are all available.

9. Read IRS Publication 17. This comprehensive resource highlights all you need to know to file a return.

10. Take time to review. Do not rush. A mistake will slow down your return’s processing. Ensure all SSNs and math are correct. If you need help, ask. There are volunteer sites as well as help through www.irs.gov for all your tax questions and tax tips.

How long should you keep your tax documents?

Your tax documents are very important documents that you may need to refer to way after the time you actually file your return. More importantly, the IRS may need to refer to these documents at some point in the future and you therefore need to make sure that you do not dispose of your tax documentation once you have filed your returns thinking that you will never need the documents again.

Whilst most people are aware that they need to keep their tax documents for a certain amount of time many are not sure how long they should keep them for. Of course, it is impractical to hoard your tax documents forever, as otherwise you may find that you can no longer move in your office of home due to the amount of folders, paperwork and documentation that you have!

However, it is important to keep your documents for at least a set minimum number of years and if at all possible for as long as you can – something you could do if you have some sort of storage facility available to you such as an unused garage where you could store old tax folders (although you must ensure that the facility you use is secure due to the personal information that your tax documentation can contain).

One thing to bear in mind when deciding how long to hang on to tax documents is that tax offices in different states will hang on to your documents for varying amounts of time. For example, in some states the IRS is able to carry out an audit within three years of your tax returns being filed, which means that after that period they will most likely get rid of the documents. In other states they may have four years from the date of the return to carry out an audit should they decide to do so. You should make sure that you find out what the timescales are in your state and hang on to your records for at least the same amount of time as the IRS so that you have something to refer to in the event of an audit.

However, another thing to consider is that if you get rid of your tax documentation once the IRS also gets rid of it there will be nothing to refer to in the event that you need the information for other purposes in the future, which is why some people like to hang on to their tax documents for as long as they are able to.

Andrew writes frequently about personal finance as well as issues effecting both consumers and small businesses, covering everything from credit cards to mortgages to how to setup an umbrella company .