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April 30, 2013

Planning Next Year's Tax Return

Was tax time stressful for you this year? Why don't you make things easier for next year's tax filing by getting ready for it now? There are a number of things you can do so that next year you can avoid the last minute race to get it done. Below are a few things that you can start doing now.

1. Store Your 2012 Tax Return and Supporting Documents in a Safe Place. You may need to refer to it as you're completing your 2013 tax return. Also, you may need a copy of it if you apply for a loan or any type of financial assistance. As a matter of fact, you should keep all your tax returns in the same safe place.

2. Organize Your Tax Records. You should have a centralized place where all tax-related records are kept. All family members should be told of this location so that they can automatically place their receipts in this location. It makes it much easier than having everyone scrambling at the end of the year trying to remember what charitable contributions they may have made, or charity events that they may have participated in, etc.

3. Consider Itemizing Deductions. If you usually claim a standard deduction, you may be able to reduce your taxes if you itemize deductions instead. According to the IRS, if your itemized deductions typically fall just below your standard deduction, you can 'bundle' your deductions. For example, an early or extra mortgage payment or property tax payment, or a planned donation to charity could equal some tax savings. See the Schedule A, Itemized Deductions, instructions for the list of items you can deduct. You may find that planning your tax approach will pay off at tax time next year.

4. Adjust your Tax Withholding. Now is a good time to review your withholding to make the taxes withheld from your pay closer to the taxes you will actually owe for this year. Here is a tip: If you normally get a large refund, that means that you are probably paying too much in taxes now. Wouldn't you rather have more money in your pocket now? Likewise, if you owed tax when you filed, you may need to increase the federal income tax withheld from your wages. Use the IRS Withholding Calculator to determine whether you need to complete a new Form W-4, Employee's Withholding Allowance Certificate.

We at ManagingMoney.com feel it is important to stay current on tax law changes and do our best to inform our readers so that we can help you Save Money and Make Money. We will, therefore, continue to provide you with helpful tips and IRS announcements throughout the year as they come available.

April 18, 2013

Miss the April 15th Tax Filing Deadline?

Did you miss the tax filing deadline? The only thing you can do now is to quickly cut your losses by filing now. On the positive side, if you were due a refund you will not have a penalty for filing a late return. If you do owe taxes you should file ASAP and pay as soon as you can to minimize any penalty and interest charges. Here are a few more thoughts to keep in mind as you sit down to file your taxes.

If you missed the April 15th deadline, you might have to pay penalties for late filing plus interest. Keep in mind that the IRS will consider a reduction of these penalties if you can show a reasonable cause for being late. Check the IRS website at www.irs.gov.

If you owe tax but you can't pay it all at once, you should pay as much as you can when you file your tax return. Then you will want to pay the remaining balance due as soon as possible to minimize any penalties and interest charges. If you need more time to pay your federal income taxes, you can always request a payment agreement with the IRS. Apply online using the IRS Online Payment Agreement Application.

Even if you are not required to file, you may be entitled to a refund. An example of this could be if you had taxes withheld from your wages, or if you qualify for certain tax credits. However, if you don't file your tax return within three years, you could completely lose your right to the refund.

Get started now. Go to the ManagingMoney.com Tax Center to compare the Top 3 National Online Tax Providers.

April 11, 2013

Paying Your Taxes On Time

Running out of time to pay your taxes? You have a number of options - but not paying your taxes is not one of them. The old adage - "Pay me Now, or Pay me Later" is a very appropriate saying when it comes to paying taxes. You could end up paying a lot more in penalties plus interest. If you have already done some preliminary work and find that you owe tax but don't have the money to pay it all when you file, you have a number of options. Below are some tips that can help you lower the amount of interest and penalties when you don't pay the full amount to pay on time.

1. File by April 15th and pay as much as you can.

Filing on time ensures that you will avoid the late filing penalty. Paying as much as you can reduces the late payment penalty and interest charges.

2. Consider getting a loan or paying by credit card.

The interest and fees charged by a bank or credit card company may be lower than IRS interest and penalties. Click Here for a few loan options to consider.

3. Request a payment agreement.

If you owe less than $50,000, you may be able to establish an installment agreement on-line, even if you have not yet received a bill for your taxes. Go to IRS.gov and complete and submit Form 9465, Installment Agreement.

It is always best to file on time, pay as much as you can by the tax deadline, and pay the balance as soon as you can. If you need extra time to file your taxes, you should also consider filing for a tax extension. Click Here for some tax extension providers.

April 9, 2013

Choosing the Right IRA

Setting aside money for your retirement is a smart thing to do - and tax time is a great time to get started. However choosing which Individual Retirement Account (or IRA), can sometimes be a difficult thing to do. The most popular types of retirement accounts are: Traditional, Roth, and SEP IRA. To qualify for an IRA contribution you must have earned income which is defined as: wages, salaries, tips, commissions, and bonuses but does not include income from dividends, pensions, or annuities. For those selecting a SEP IRA (Simplified Employee Pension IRA), earned income includes net income from self-employment. Below are a few thoughts to keep in mind when choosing your IRA:

Age and Contribution Amount:

For tax year 2012, the maximum IRA contribution for individuals age 49 and under is $5,000. Individuals 50 and over can make an additional "catch up" contribution of $1,000. If you are over age 70½, you are not eligible to contribute to a Traditional IRA, however you can contribute to a Roth IRA or SEP IRA. Your tax-filing status is another factor to consider in determining the amount you are able to contribute to a Roth IRA, or whether you could deduct a Traditional IRA contribution on your taxes.

Required Minimum Distributions:

Those who choose a Traditional IRA or SEP IRA are mandated to make minimum required distributions at age 70 ½. Those who select a Roth IRA do not have a minimum required distribution.

Tax Deductions:

Major differences among Traditional, Roth, or SEP IRAs is the payment of taxes when you take a distribution or withdrawal. With both a Traditional and SEP IRA, your contributions are tax-deductible, and you pay taxes when you take a distribution or withdrawal. With a Roth IRA, your contributions are not tax-deductible, but withdrawals are tax-free (with exceptions). If you believe your tax bracket will be lower in retirement, you should consider taking the tax deduction available now with a Traditional IRA. If, however, you believe that your tax bracket will be higher in retirement, you should avoid future taxation by contributing to a Roth IRA.

As your income increases, your ability to deduct a Traditional IRA contribution or contribute to a Roth IRA may decrease. For example, if you are married filing jointly, your maximum Roth IRA contribution amount begins to decrease (phase out) when your income exceeds $173,000 and is eliminated altogether when your income reaches $183,000.

For more information on Traditional, Rollover & Roth IRAs please visit ManagingMoney.com

 

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