Posted on by Jan Roberg

EIC Help Page

EIC help - questions and answers

 

It’s that time of year and we’re getting bombarded with questions about the Earned Income Tax Credit. Here’s some of the most popular questions and where to get the answers you need.

 

My ex has custody of my kids, but the divorce decree says that I get to claim the exemption. My ex says that she gets to because she has custody. I don’t get it, what should we do?

 

You’re in a situation where you “split” the exemption. Here’s information about how to do that legally:

Split Exemptions

 

According to my divorce decree, I’m supposed to claim the exemption for my child but my ex claimed her anyway. Should I send a copy of the decree to the IRS or the judge?

 

I’m not an attorney so I can’t give legal advice, but this post has information on IRS rules and court ordered exemptions:  Court Ordered Exemptions

 

My child’s daddy is out of the picture. My boyfriend has been living with us for three years now and he’s the primary support for my child. Can my boyfriend claim may child on his tax return because it will give us a bigger refund?

 

No. And here’s all the reasons why:  Boyfriend Can’t Claim Exemptions

 

I went to file my taxes and they got rejected. The IRS says that somebody else used my children’s social security numbers on their tax return. What do I do now?

 

Basically, you’re going to paper file your tax return. Here’s more information:  My Ex Claimed My Kid

 

What do I need to do to qualify for the Earned Income Credit?

 

There are some basic rules that anybody claiming EIC will have to meet, like having a valid Social Security number for one thing. Here’s a list of the rules:  Rules For Qualifying for EIC

 

What if I need more information?

 

The IRS has the EITC home page. (EIC and EITC are the same thing; earned income credit = earned income tax credit.) They have lots of worksheets to help you determine if you qualify for EIC if your children qualify, and where to get help preparing your return. Here’s the link:  EIC Help

 

Now if you can’t find the answer you’re looking for, you can always call the IRS – their phone number is 1 (800) 829-1040. Their phones have been slammed lately so you may be on hold for awhile. A few tips: call early in the morning – like 7 am, or later in the day – like after 6pm. And it’s better to call later in the week; Monday’s the worst day to call the IRS. Please be patient and kind to the IRS agent that is answering your question – they have special rules and procedures they are required to follow.

Posted on by Jan Roberg

The 2% Payroll Tax Cut

Capital Hill

Photo by James Manners on flickr.com

Do you make over $110,100 per year? If so, then you need to read and understand this.

That 2% payroll tax cut that Congress extended for January and February – did you know that if you make over $18,350 for those two months that you will have to pay back a 2% surcharge on that income next year at tax time?

Now I keep hearing, “Don’t worry, Congress will fix that.” But let’s get realistic – how often can you count on Congress to “fix” anything these days?

I think the biggest problem is that this got passed and most people don’t have a clue that they could have a very real problem when they file their taxes next year.

Let me give you an example. Let’s say that Fred Taxpayer earns $250,000 a year in W2 wages from his law firm. That works out to $41,667 for the 2 month period. 41,667 minus 18,350 equals $23,317. Fred is going to be taxed an extra 2% on that $23,317. Fred can’t take any deductions to write off against this tax, no tax credits or offsets. It’s just a straight 2% on the $23,317.

Now I hear what some of you are saying – that’s only $466 and if Fred already makes $250,000 a year you’re not feeling too sorry for him. The point is that it’s a stealth tax, shoved under the rug and not discussed openly. Surprise, Fred! Here’s an extra $466 you have to spend on taxes that no one told you about.

But for some folks, it’s even worse. Let’s say Fred gets his annual bonus in January. Fred did a really good job and got a $50,000 bonus from the firm. There’s another $1000 added to Fred’s tax bill. Remember, there are no deductions or tax credits to offset this tax. And, this is tax money that is in addition to the regular income tax he’s already going to have to pay.

If you’re a high wage earner, be aware that this is happening. Put the extra 2% that you’re theoretically saving and plug it into a savings account because you’ll have to pay part of it back later.

Oh, and for what it’s worth, the rank and file House and Senate salary is $174,000 a year. That means they’ll pay an extra $213. Most members of Congress don’t prepare their own taxes because “our tax system is too complicated.” I wouldn’t be surprised if some of them don’t even realize that they voted for this.

If you’d like something to back up my story, here’s a link to the IRS website outlining the new rules: http://www.irs.gov/newsroom/article/0,,id=251650,00.html

Posted on by Jan Roberg

Three Problems With Turbo Tax and How to Fix Them

Turbo Tax problems can be taxing

Working on your own taxes can be frustrating no matter what software program you’re using.

 

First, full disclosure: I love Turbo Tax. I used to tell people that I’d do TV commercials for it. I even seriously considered going to work for the company. I have worked for one of their competitors – and I still like Turbo Tax better. So when I title this blog post as “Problems With Turbo Tax”, you’re not going to find an exposé of all things bad with the company. This is just a heads up for people using the number one tax software in America.

 

Problem number 1: “The program won’t let me…” This is the one I hear most often, “The program won’t let me change the number, it won’t let me delete my neighbor’s child.” Turbo Tax is great when you’re in the act of preparing your taxes, but it’s not as easy to go back in and make a change if you’ve done something wrong and need to correct it. For example: one of the things I do is review tax returns that people have prepared for themselves before they send them to the IRS. (I charge a fee for that but it’s much cheaper than paying me to do your taxes for you.) One year, I reviewed a woman’s return and she had put a $4,000 tax credit on her return. That was wrong; the $4,000 belonged someplace else. I explained the problem and where the $4,000 needed to go. Granted, she wasn’t going to get that big refund she was expecting, but her return would have been right. Anyway, a few months later she was in my office again. She had received a notice from the IRS stating that she wasn’t allowed to claim that $4,000 tax credit I had warned her about. I asked her, “Why didn’t you change it like I told you to?” “Because Turbo Tax wouldn’t let me,” she said.

 

Dealing with that problem: First, you need to know that “Turbo Tax wouldn’t let me,” is not an acceptable excuse in Tax Court. Second, one thing that Turbo Tax does well is that they have real people who can answer your questions. You call the phone number and you get to talk to an Enrolled Agent who understands tax issues and the Turbo Tax software. You can tell her you’ve got a number on line 53 but it really belongs on line 29 but you can’t figure out how to make it work and she’ll guide you through it. You might pay a little more for Turbo Tax to get that service, but it’s there when you need it so don’t be afraid to use it.

 

Problem 2: Choosing the right product. Turbo Tax has 5 versions of its product, plus its online applications. In the store you can buy:

  • Basic – for simple tax returns with no itemized deductions
  • Deluxe – for regular 1040 returns with home mortgage interest and charitable deductions
  • Premier – which includes everything in Deluxe but also handles investment income and rental property
  • Home & Business – which is for sole proprietors
  • Business – for persons filing corporations, partnerships and LLCs

 

I cannot stress this enough, if you need the more expensive package, don’t be cheap – buy it. I’m always amazed when people call me for help because they want to depreciate their income property by hand because Turbo Tax won’t do it for them. Yes it does, if you buy the Premier edition. Of course I will gladly prepare a depreciation schedule for your property (for a fee), but if you don’t use the correct software when preparing your tax return, there could be other problems that you won’t realize like passive income limitations (sounds like I’m speaking Geek doesn’t it? I am.) The right software will keep you out of trouble. And there’s no excuse for buying the wrong one: go to their web site and do their quiz to determine which package is right for you.

 

Problem 3: Not updating the program before you e-file. This isn’t a Turbo Tax problem so much as it is a user error. You have to install the updates before you file your tax return or it could easily be wrong. Let’s be realistic about this. Turbo Tax tries to get its product to the shelves by December for customers to buy it. This is a pretty good business plan. The problem is; there’s always some last minute change to the tax code. Last year, Congress changed the tax rules on December 17th. They messed things up so badly that the IRS computers weren’t able to accept certain returns on the normal date. Intuit (the Turbo Tax Company) has to get its product out to the stores in time. The only way for them to get the product to the store shelves and have it work correctly is to have people install the updates to the software before they file their returns. If you didn’t install the update, your return could easily have been wrong. Installing updates is a normal part of doing taxes – I update my professional software almost every day. If you don’t have internet access and cannot install the updates, the box might not be your best option.

 

Now I wrote about these Turbo Tax issues because these are all problems that I have helped people with because they had filed taxes and there was a problem. If you file a bad return and the IRS sends you a letter, I charge a lot to fix it. All of these problems I mention are preventable. You will save yourself lots of money by buying the right program, updating before you file, and making use of the Turbo Tax 1-800 number provided in your box.

 

Final disclaimer—if you haven’t already purchased your tax software, let me recommend clicking on the “Do Your Own Taxes” page at the top and take a walk through my 1040.com program. It doesn’t have the famous name recognition, but it is a good, solid program. If it wasn’t, it wouldn’t be on my website.

_______________________________________________________________________

Posted on by Jan Roberg

The GOP Tax Proposals

This is from the American Institute of Certified Tax Coaches. They had a link on their site allowing me to copy and paste; this is not original work by me. But I thought it was informative and for me, if you put things into cartoons, I understand it better. If you’d like to learn more about their organization, here’s a link to their website: http://www.certifiedtaxcoach.org/

Tax Proposals by CertifiedTaxCoach.org
Tax Proposals Infographic by: Certified Tax Coach

Posted on by Jan Roberg

Tax Organizer

I’m not a big fan of tax organizers. I got started in this business many years ago because of a bad CPA (if he was even a real CPA). He had me fill out a 20 page long ‘organizer,’ which quite frankly, I figured that after doing all that work I could have just done my taxes myself pretty easily. But the worst part was that after I did all that work, the guy still did my taxes wrong!

Being a bit of a tax geek already, I caught the mistake before I mailed in my return. (Yes, back in the stone age when we used the US Postal service to mail our tax returns.) So when I confronted him about it he blamed his secretary for inputting my numbers incorrectly.

But here’s the thing. I didn’t hire a secretary to do my taxes. I hired a CPA. I sort of made the assumption that the guy signing the tax return would actually look at it somewhere along the line.

Anyway, I was so mad I wound up going to tax school etc., etc. Here I am with my own tax company. (Maybe I should thank the guy but I don’t even remember his name.)

Anyway, I don’t like organizers because I like to talk to people and get to understand their situation. I like to look at a person’s actual W2 or 1099 and not what the person wrote down on a piece of paper – it makes for fewer mistakes. I also think that if a person is paying me to do their taxes for them, my job is to make it easy. I had spent hours working on that 20 page organizer for that dude. That’s not easy!

But some people really like to use organizers. I always have some clients that ask for one. I like this one because it’s only 8 pages and it doesn’t ask you to copy your W2 information, just to list them and bring the documents to your appointment. Some pages you might not need – for example, page 7 is for rental income. Well, if you don’t have rentals, then you don’t need to fill out the page. I like that.

So while a tax organizer is no substitute for meeting with your tax preparer in person, if you like to get organized and make sure that you have all your ducks in a row before going to your appointment this is the one I recommend. It’s also helpful if you’re preparing your own tax return as well.

Here’s the link so you can download a copy of the organizer for yourself: http://robergtaxsolutions.com/wp-content/uploads/2012/01/2011-RTS-Organizer.pdf or check our downloads tab at the top of the page.

And here’s a request. Would you please do me a favor and let me know what you think? Do you like organizers, don’t like them? Do you like this one, or don’t like it? What’s your opinion? I’m afraid that my bad experience years ago gives me a jaded view. But if I get a lot of positive feedback about it, I’ll start printing them out and using them with all my clients. (I’m not so stodgy that I can’t learn to change. I learn new tax laws every year, right?) Thanks for your help.

Posted on by Jan Roberg

Court Ordered Exemptions and the IRS

Gavel On Sounding Block

 

I have to start with the disclaimer first: I’m an enrolled agent, I’m licensed by the Department of Treasury to represent persons before the IRS. I am not an attorney. According to the rules of my license, I am not allowed to give legal advice. But I get to talk about taxes until I’m blue in the face!

Why the disclaimer? Because if you’re a divorced parent, you may have to deal with a court order that outlines who can claim your child’s tax exemption. But the IRS has its own rules about who may claim a child’s exemption, and sometimes the courts and the IRS don’t agree.

Here are the IRS rules:

  • If your divorce decree went into effect after 1984 and before 2009, the noncustodial parent may be able to attach certain pages from the decree to the tax return to claim the exemption as long as the decree has no conditions (like paying child support) instead of requiring the custodial parent to sign a form 8332 (release of exemption).
  • If the divorce decree or separation agreement is after 2008, then the custodial parent must sign a form 8332 for the noncustodial parent to claim an exemption.

Can see how this can be tricky? If you don’t sign the 8332 form , and your ex doesn’t have the proper divorce decree documents, then your ex doesn’t get the exemption as far as the IRS is concerned. You’re going to win this one on the IRS battlefield. You may have to take it to the battlefield, but if you do then you will win.

But what does a person do when there’s a court order for her spouse to claim the exemption on the children, but the husband has no right to claim the children as far as the IRS rules are concerned? What do you do if a local judge says, “You’ve got to let your ex husband claim your children for taxes? I order you to sign the 8332 form.”

I spoke with a local attorney about what could happen to a person who followed the strict IRS rules and claimed the children’s exemptions for herself when the divorce decree allowed the spouse to claim – the answer I got was to have the person call her attorney. You see, the IRS rules are all about how the IRS will settle the issue. I’m an expert at how the IRS will settle the issue. But if you’re dealing with a court order, and if your ex decides to take you back to court to enforce the exemption rule, and you defy a court order to allow him to claim the exemption, then it’s quite possible for you to see the inside of a jail cell. I don’t want anybody reading this blog to wind up in prison. So even though you should win a tax case, you should really talk to your attorney before you go against your divorce or custody decree. Make sure that you’re within your rights in your jurisdiction.

If you are the custodial parent and you are required to let your ex claim your children, remember that the exemption only includes the exemption and the child tax credit. As the custodial parent, you keep the Head of Household designation, the Earned Income Tax Credit (if you qualify), and the Child Care Credit (if that’s relevant.) See my post about splitting a child’s exemption:  Split Exemptions

If your ex claimed your child and shouldn’t have, read my post, “My Ex Claimed My Kid” for tips on how to fight back:  My Ex Claimed My Kid

Divorce is tough on everyone. It’s really tricky when you’ve got federal and state rules that don’t always mesh together either. The bottom line is that the IRS does not want to be involved in domestic disputes. If your divorce decree says that the Dad will pay child support and claim the exemption while Mom has the custody, then the IRS does not want to get involved in whether or not Dad paid that child support. That’s why the IRS rules are the way they are. Basically, they’re kicking that issue back to the local jurisdictions. If Dad wants Mom to sign the 8332, then his child support should be paid up to date. If Dad’s done everything right and Mom is still refusing to sign the 8332, then the IRS is saying it’s not their problem – Dad can go back to court and work it out from there-locally.

We used to have a saying when I was a kid: “Don’t make it a federal issue.” I don’t remember where we got it from, probably some TV show. I just remember we just always used to say it. But that’s kind of what the IRS is saying to divorced couples claiming their kids today, “Don’t make it a federal issue.”

If you’ve got a situation where the IRS rules and the court rules don’t line up, do consult your attorney about how your situation can, will, or should be handled.

_______________________________________________________________________

Here are some links that might help

EIC questions of any kind:  EITC Help

How to find free tax preparers:  Free Tax Help

How to find your local IRS office:  Contact Local IRS Office

 

Posted on by Jan Roberg

Can My Boyfriend Claim My Child by a Different Father on His Tax Return for the Earned Income Credit?

A boyfriend cannot claim your child for EIC.

No matter how good a “Daddy” is, the IRS has very strict rules about who can claim the EIC tax credit.

 

 

Short answer: No.  Do not let your boyfriend claim your child that is not his for the Earned Income Tax Credit.

 

Long answer: Noooooooooooooo! Sorry about the bad joke. But really, no he can’t and here’s why:

 

First, and most importantly, it’s against the law. Seriously – claiming a child that you don’t have a right to claim on your tax return is income tax fraud and that’s a federal crime.

 

But how would he get caught? Good question. The most likely way he’d get caught is if someone else tried to claim your child on their tax return, like the child’s real father or a grandparent. Someone might have a problem with you or him and turn you in to the IRS. It’s one of the most common questions I see on the internet: “How do I turn someone in?” I’ve worked on a couple of cases where an older child has accidentally turned someone in by filing paperwork for school which somehow got into IRS records. You don’t want to take the risk.

 

But the most dangerous person as far as your boyfriend is concerned is you. Let’s say you decide to let your boyfriend claim your child and claim the EIC tax credit because it works out to be more money if he does it. You’re breaking the law too, but when push comes to shove you can break into tears and say he forced you etc., etc. It’s not against the law to not claim your child on your tax return, and proving that you “conspired” with him to commit tax fraud would be hard to do. So let’s say that the boyfriend dumps you and goes out and buys a nice engagement ring for his new girlfriend with that tax refund. I’m guessing that would make you hopping mad, right? Furious! You want to get even, don’t you? What better way to get even with that scumbag than to report him to the IRS. You see why he should be afraid? Very afraid!

 

So what could happen to my boyfriend if he did get caught? The maximum EIC for one child is $3050 ($5036 for two, and $5,666 for three.) First, he’d have to pay that back. Let’s say we’re just talking about one child, he’ll have to pay back $3050 right off the bat. Then he’d also have to refund the $1,000 child tax credit, so now we’re up to $4050. Now he’ll also have lost the head of household status which gave him a lower tax rate plus he’s lost the exemption so we’re looking at maybe $5,000 (or more if we’re talking about more children). Then the IRS will tack on fines, another 25% or $1250 for late payment fees, and most likely another 20% or $1,000 for under-reporter penalties so you’re looking at about $7250 in taxes owed. Ouch!

 

It’s also possible that he could be criminally prosecuted. Personally, I have never worked an EIC case that has gone on to the criminal division, but it does happen. What good is your boyfriend to you if he’s sitting in jail?

 

Don’t create problems for yourself by committing tax fraud. It seems like easy money and the temptation is great. You probably even know people who’ve done it and never had any problems. But if you want to feel safe and secure and get a good night’s sleep, file a correct and proper tax return.

 

You may also be interested in these posts:

My Ex Claimed My Kid: Now What Do I Do?

Eight Basic Rules to Qualify for the Earned Income Tax Credit

_______________________________________________________________________

If you need an answer right away, here are some links that might help.

 

Answers to EIC Questions

 

How to find free tax preparers

j

How to find your local IRS office

 

Posted on by Jan Roberg

Checklist of Tax Filing Documents

tax documents need for filing

It helps to have all of your tax paperwork together before you start preparing your return.

 

It’s that time of the year again when we get to file our tax returns. If you’re expecting a refund, you’re probably anxious to get all your paperwork together so that you can file. For those of you who expect to pay, you’re probably not too thrilled about it. Whether you’re hiring a professional or preparing your own return, make sure you have all of your paperwork together before you start.

 

Here’s a list of some of the more common documents associated with filing. Not every person will have every form, but this list should just help jog your memory so that you don’t forget something you need. The list:

  • W-2 wage and income statement – that’s your statement of wages, you’ll need a W-2 for each job you held. For lots of people, this is the only thing you need for filing your return. Make sure you have all of your W2s though; the most common problem is that Christmas season job part-time you had last year where you got paid in January of this year. Make sure you get all of your W2s before filing to avoid an IRS letter.
  • W-2G is for gambling income. The W2G is the second most frequently lost tax form (only the Social Security SSA-1099 beats it.) If you’ve received one of these statements, you need to include it on your tax return. If you don’t, you will get a letter from the IRS. Gambling losses, up to the amount of winnings, can be deducted on your Schedule A. The catch is, you have to report it. You can’t just leave it off if it’s deductible.
  • You need all of your 1099 forms – there are several types:
    • 1099-INT for interest – you get this from your bank. If you earned less than $10 in interest, you probably will not get one
    • 1099-DIV for dividends – you’ll get this from stocks you own. Sometimes they’ll come from a broker (like Edward Jones) and sometimes they’ll come straight from the stock issuing company (like Ameren).
    • 1099-B for sale of securities – and this is going to be different this year. The laws about reporting stock sales have changed so don’t be surprised if your report is looking a little different. Some companies (like Edward Jones) send out a combined form that has your 1099-INT, 1099-DIV and 1099-B all in one statement and it can be 12 or 20 pages long, or longer. Be sure to give all of the pages to your tax preparer – if you don’t, you’re cheating yourself out of your own money.
    • 1099-R for annuities, pensions and other retirement plan withdrawals—once again, even if your pension isn’t taxable, you need to report it on your tax return.
    • 1099-G is for government payments like a state tax refund or unemployment benefits. If you live in Missouri, the state doesn’t send you a 1099G for your refund anymore; you have to go online to get it. Here’s the website: 1099G
    • 1099 MISC is for miscellaneous income, like commissions or non-employee compensation. If you have income shown in box 7, you’ll be required to file a Schedule C for self employment income.
    • SSA-1099 is for Social Security income – a note about the SSA 1099 form: it has to be the most frequently lost form on the planet. It’s usually the first one mailed out and I think it kind of gets lost in the shuffle. If you receive Social Security benefits, or are assisting someone who does, please make sure that this form is included with the other tax documents. For some people, it’s not taxable – but you need to include the figures from this form when preparing your taxes to determine if it is taxable or not. You get the 1099SSA form at about the same time that you get the information about what your benefits will be for the next year. You need the 1099SSA to do your taxes, not the future benefits statement.
  • 1098 tells how much interest you paid on your mortgage—important for itemizing deductions
  • 1098-E shows interest paid on a student loan—so you can claim a student loan interest deduction
  • 1098-T shows the amount of tuition paid at an educational institution–you need this to claim those college tax credits
  • If you purchased a new home this year, you’ll want to have a copy of your settlement statement—there are little things that might help with your deductions
  • K-1 forms – if you are a member of a partnership, joint venture, S corporation, estate or trust. Those forms aren’t required to be completed until March 15th (partnerships not until April 15th) so you may not be able to file your personal return before then. It’s a good idea to make your tax appointment once you have all of your other forms together. The K-1 information can be added at a later date.

 

And of course, you’ll want to have all the documents to support your deductions like real estate taxes, charitable contributions or deductible business expenses.

 

It’s a good idea to have a copy of last year’s return with you also.

 

Don’t forget to bring the social security cards for you and your children to your tax appointment.

 

One last thing—have a blank check so that you can use the routing and account numbers for direct depositing your refund.

Once you have everything together, you’re ready to go!

 

Posted on by Jan Roberg

Eight Basic Rules to Qualify for the Earned Income Tax Credit

Family Shoot 5

Photo by Stuart Richards on flickr.com

To qualify for Earned Income Tax Credit or EITC, you and your spouse (if you’re married and filing a joint return) must meet all of the following rules:

  1. You must have a valid Social Security Number. [If you are foreign born and have an ITIN number, you cannot get an earned income credit, but if you become a citizen and obtain a social security number, you may go back up to three years and amend your old returns using your social security number to qualify for EIC.]
  2. You must have earned income from employment, self-employment or another source. [Alimony counts as earned income, child support does not. Social security, pension payments, and veteran’s benefits do not count as earned income.]
  3. You cannot use the married, filing separate status to file your return. [If you are separated and have been living apart for the last six months of the year, you may be able to use the head of household filing status and still qualify for EIC. Do not claim head of household status if you are still living with your spouse. That’s a form of EIC fraud and can get you into big trouble.]
  4. You must either be a U.S. citizen or resident alien all year or a nonresident alien married to a U.S. citizen or resident alien and choose to file a joint return and be treated as a resident alien. [If you are in the US military and stationed out of the country on active duty, you still count as being in the United States for EIC purposes.]
  5. You cannot be the qualifying child of another person. [Let’s say you are a young mother still in school and living with your parents. If your parents can claim you as a dependent on their tax return, then you cannot claim an earned income credit for your child. You will be able to allow your parents to claim your baby as a dependent on their tax return though.]
  6. You cannot file a Form 2555 or 2555-EZ (related to foreign earned income). [Basically, if you’re using this tax form, you’re living and working outside the country so you wouldn’t qualify to claim EIC anyway.]
  7. Your Adjusted Gross Income and earned income must meet the limits shown for 2011:
    Earned Income and adjusted gross income (AGI) must each be less than:

    • $43,998 ($49,078 married filing jointly) with three or more qualifying children
    • $40,964 ($46,044 married filing jointly) with two qualifying children
    • $36,052 ($41,132 married filing jointly) with one qualifying child
    • $13,660 ($18,740 married filing jointly) with no qualifying children
  8. Your investment income must meet or be less than $3,150 for 2011. [Investment income is basically bank interest, capital gains or dividends from stocks. You might have a partnership interest or own a corporation and receive investment income there. These types of income can prevent you from claiming an Earned Income credit.]

Those are the basic rules that everyone must meet to qualify for an Earned Income Credit. If you have children or are self-employed, you have more hoops to jump through.

Other posts that might interest you are Tax Tips for Single Moms: http://robergtaxsolutions.com/2011/01/tax-tips-for-single-moms/

And also My Ex Claimed My Kid: http://robergtaxsolutions.com/2011/01/my-ex-claimed-my-kid-now-what-do-i-do/

Posted on by Jan Roberg

The Curmudgeon’s Guide to Year End Tax Tips for Real People

Happy New Year Flag 2012

Photo by Deborah Malec on flickr.com

If you Google “year end tax tips” you’ll get over 4 million entries. Granted, I’ve littered the field with a few of my own blog posts as well, but to be perfectly honest, most of those “tips” you find on the internet are pretty worthless to a “normal” taxpayer. I’m talking about regular people with W-2 type income or retirement money.

Now, forgive me if I sound a little cranky, but if you’ve waited until after Christmas to do any kind of tax planning, well, you’re a little late. Consider yourself scolded. And when you file your 2011 tax return, you’re going to plan ahead for 2012 like the intelligent person that you truly are. (I mean come on, you are reading my blog right? Obviously you’re attractive too!)

In the meantime, these are the top five last minute tax tips for non-business owners offered by the IRS. Note that the strategies are offered by the IRS, the commentary is from me. It’s not that the IRS suggestions are bad—they’re good suggestions, you just need to look with your eyes open.

  1. Charitable contributions – I love charities, I want you to donate to charity, but as a tax strategy, this might totally suck. If you are not already claiming itemized deductions on your tax return, then donating to charity probably will not help your taxes. Every year – seriously, every single year that I have prepared tax returns – I meet someone who donated to charity thinking it was a tax deduction and got nothing from it. The absolute worst case was a guy who donated his car, thinking he’d get everything back on his tax return. Wrong! He got nothing. Zero, zip, zilch, nada. (Although I understand that the woman at the charity who talked him into it was really pretty, although he didn’t get a date out of it either.) Donating to charity is a very good thing, but use your brain when donating. http://robergtaxsolutions.com/2011/12/charitable-donations-how-much-should-you-tithe-why-do-it/
  2. Energy efficient home improvements — The first thing you need to know is that the maximum credit you can get for this in 2011 is $500. If you’re doing the work anyway, great, but I wouldn’t go out of my way now to try for a tax credit this late in the game. http://robergtaxsolutions.com/2011/11/what-you-need-to-know-about-the-2011-home-energy-tax-credit/
  3. Portfolio adjustment — This is where you call your financial advisor and see if you need to do any tweaking before the end of the year. With the stock market being kind of crazy, you could have big gains or big loses. But don’t just go selling off stock, it’s important that you make sound financial decisions. I often have clients tell me that they sold losing stocks and they should be able to claim huge losses on their returns. Problem is, there may have been a huge loss during the year, but they’ll have a huge gain because they’ve held the stock for several years. Having your tax and financial person coordinate together is your best strategy. http://robergtaxsolutions.com/2011/08/five-tax-issues-for-these-crazy-financial-times/
  4. Max out 401(k) contributions — For the vast majority of us, we set up our 401(k) last November and can’t change anything. Personally, I’ve never worked for a company where you could walk into the HR department and say, “Hey, I want an extra $3,000 plopped into my 401(k) this week.” For those of you who are able to make last minute adjustments, you’ve got about 3 days. Anything going into your 401(k) must be in by December 31. http://robergtaxsolutions.com/2011/11/how-much-can-i-contribute-to-my-401k/
  5. Qualified charitable contributions seniors — This is for seniors who must make required minimum distributions (RMD). If you’re one of those people who takes your RMD at the very last minute, you can have your RMD go to a charity instead. This makes your RMD not taxable to you, and you don’t need to itemize to make it work. If you’re a senior and you do not need your RMD, and you have a charity that you really like, this is a perfect way to deal with it. http://robergtaxsolutions.com/2010/12/last-minute-tax-tips-for-seniors-ira-charitable-rollover/

Okay here’s the preachy part, I’m giving you fair warning. If you plan ahead, you don’t have to worry about last minute tax strategies. You’ve already figured out your best 401(k) contribution, you’d have already sent your qualified charitable contribution, and you’d have already spoken with your financial advisor about what your best strategy for the year is. It says this on my business cards, but it’s true—if you don’t have a tax strategy, then you’re probably paying too much. You don’t have to be rich and you don’t have to be a business owner to benefit from a little planning ahead. If your tax person isn’t helping you plan ahead for next year, it’s time for a new tax person.