Wednesday, June 23, 2010

Getting Married? Don't forget the IRS.

Getting married? Newlyweds can help make the wedded bliss last longer by doing a few things now to avoid problems at tax time.

First, report any name change to the Social Security Administration before you file your next tax return.

Next, report any address change to the Postal Service, your employer and the IRS to make sure you get tax-related items.

Finally, use the Withholding Calculator at to make sure your withholding is correct now that there are two of you to consider.

Wednesday, June 9, 2010

Estimated Tax Payments

Estimated tax is the method used to pay tax on income that is not subject to withholding. This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes and awards. You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough.

Estimated tax is used to pay both income tax and self-employment tax, as well as other taxes and amounts reported on your tax return. If you do not pay enough through withholding or estimated tax payments, you may be charged a penalty. If you do not pay enough by the due date of each payment period you may be charged a penalty even if you are due a refund when you file your tax return.

You must pay estimated tax for 2010 if you had a tax liability for 2009 and both of the following apply: you expect to owe at least $1,000 in tax for 2010 after subtracting your withholding and credits, and you expect your withholding and credits to be less than the smaller of 90% of the tax to be shown on your 2010 tax return, or 100% of the tax shown on your 2008 tax return.

To figure your estimated tax, you must figure your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year.

When figuring your 2010 estimated tax, it may be helpful to use your income, deductions, and credits for 2009 as a starting point. Use your 2009 federal tax return as a guide. You can use the worksheet in Form 1040-ES (PDF) to figure your estimated tax. If you estimated your earnings too high, simply complete another Form 1040-ES worksheet to refigure your estimated tax for the next quarter. If you estimated your earnings too low, again complete another Form 1040-ES worksheet to recalculate your estimated taxes for the next quarter. You want to estimate your income as close as you can to avoid penalties.

For estimated tax purposes, the year is divided into four payment periods. Each period has a specific payment due date. Generally, estimated tax payments are due on April 15, June 15, September 15, and January 15. If you do not pay enough tax by the due date of each of the payment periods, you may be charged a penalty even if you are due a refund when you file your income tax return.

Using the EFTPS system is the easiest way to pay your federal taxes for individuals as well as businesses. Make ALL of your federal tax payments including federal tax deposits (FTDs), installment agreement and estimated tax payments using Electronic Federal Tax Payment System (EFTPS). If it is easier to pay your estimated taxes weekly, bi-weekly, monthly, etc. you can, as long as you have paid enough in by the end of the quarter. Using EFTPS, you can access a history of your payments, so you know how much and when you made your estimated tax payments.

Please contact me for a free consultation and evaluation of your need to pay estimated tax payments.

Friday, June 4, 2010

Did you have a Net Operating Loss (NOL) in 2009?

Did you experience a loss from your business last year? If so, you may have a Net Operating Loss (NOL).

In certain situations, the IRS allows taxpayers to use the losses in one year to offset the profits of other years. This provision is achieved through the carryback (as far back as 5 years per the American Recovery and Reinvestment Act of 2009 ) and carryforward of NOLs. In other words, you can deduct an NOL from one year from your income in another year or years.

For example, if you had an NOL from 2009, your Adjusted Gross Income (AGI) was negative and you did not pay any income tax for 2009. But if you had higher income in 2004, 2005, 2006 or 2007, you can 'carryback' and net the 2009 NOL with the income from the previous year and receive a refund of taxes you paid in the previous year.

Or you can elect to carryforward the NOL, in which case you net the NOL with your 2010 income. If the NOL is not completely taken up by your 2010 income, it carries forward to 2011 and so forth, up to 20 years, until the entire NOL is used.
Please contact me for a full, free consultation to see if you have an NOL.

Thursday, June 3, 2010

Online Payment Agreements with the IRS

Paying your taxes in full and on time avoids unnecessary penalties and interest. However, if you cannot pay your taxes in full, you may request a payment agreement.

Individuals who owe $25,000 or less in combined tax, penalties, and interest can use the Online Payment Agreement (OPA) application to request a payment agreement. This application will allow you (or your authorized representative if you have given power of attorney) to qualify, apply for an installment agreement, and receive immediate notification of approval. There are fees to pay by installment agreement.

The online payment agreement process is fairly easy, but you also have the option to apply for an agreement by telephone.

The IRS will usually accept a payment arrangement that provides for paying your tax bill within five (5) years, so that is a good amount to suggest as a payment. (Divide your tax bill by 60 to arrive at a monthly payment amount.)

Notes: you must file all tax returns and pay all taxes when due if you are in a payment agreement.