IRS Announces That Some Taxpayers May Need To Wait Until Mid February To File Tax Returns

The Internal Revenue Service (IRS) has announced that the upcoming tax season will start on time for most people, but taxpayers affected by three recently reinstated deductions need to wait until mid- to late February to file their individual tax returns. In addition, taxpayers who itemize deductions on Form 1040 Schedule A will need to wait until mid- to late February to file as well.

According to the IRS Commissioner Doug Shulman. “We will do everything we can to minimize the impact of recent tax law changes on other taxpayers. The IRS will work through the holidays and into the New Year to get our systems reprogrammed and ensure taxpayers have a smooth tax season.”

If you are in one of the following situations then you will need to wait until mid to late February to file your return.

Claiming itemized deductions on Schedule A. Itemized deductions include mortgage interest, charitable deductions, medical and dental expenses as well as state and local taxes. In addition, itemized deductions include the state and local general sales tax deduction which was extended in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 that was enacted on Dec. 17. The sales tax deduction primarily benefits people living in states that do not have state or local income taxes.

Claiming the Higher Education Tuition and Fees Deduction. This deduction is for parents and students and covers up to $4,000 of tuition and fees paid to a post-secondary institution. You must use Form 8917 in order to claim this deduction. However, the IRS emphasized that there will be no delays for millions of parents and students who claim other education credits, including the American Opportunity Tax Credit and Lifetime Learning Credit.

Claiming the Educator Expense Deduction. This deduction is for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250. The educator expense deduction is claimed on Form 1040, Line 23, and Form 1040A, Line 16

Tax Deductions For The Unemployed

This article was originally posted last year while unemployment was hovering around 10%. What a difference a year makes because as of November 2010 unemployment is at 9.8%. So I thought this post would be appropriate for the unemployed.

Job search expenses can be deducted as miscellaneous itemized tax deductions if you look for a job in the same field at the same level as the one you left. The job search expenses are deductible even if you don't get the job.

You can deduct job-seeking expenses as long as the amount of all miscellaneous itemized tax deductions is more than 2% of your adjusted gross income (AGI). To figure your tax deduction, subtract 2% of your AGI from the total amount of these expenses. Job search expense deductions are also subject to the overall limitation on itemized deductions based on income threshold amounts.

To qualify, your job search must be for a job in your current, or most recent, trade or business and should be at a similar level of responsibility with duties similar to those of your most recent job.

• If you haven't held a job in that trade or business for an extended length of time, your job search will be considered for a new trade or business, and your deductions may not be allowed.



• If you held a college internship or valid job while in college and your search is for a job in the same trade or business, you will be able to deduct job search expenses.



• If you're just out of school and had no paying jobs while in school that were related to your trade or business, your deductions won't be allowed.

You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year. Also, If your employer pays the fees directly to the employment agency and you are not responsible for them, you do not include them in your gross income.

You can deduct amounts you spend for preparing and mailing copies of a resume to prospective employers as long as you are looking for a new job in your present occupation. Cost for preparing resumes includes typing, printing, postage, long-distance charges, advertising, and photographs required for your resume.

If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can only deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity compared to the amount of time you spend looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.

If you are receiving unemployment compensation, these amounts are considered taxable income. You will receive Form 1099-G showing the amount you were paid and any federal income tax you elected to have withheld. If you did not elect to have any taxes withheld from your unemployment compensation you may be faced with an unexpected tax burden.

If you were employer either filed bankruptcy or went out of business here is some information you should know. Your employer must provide you with a Form W-2 showing your wages and withholdings by January 31 of the following year. You should keep up-to-date records or pay stubs until you receive your Form W-2. If your employer or its representatives fails to provide you with a Form W-2 by February 15, contact the IRS in order to obtain a substitute Form W-2. If your employer is liquidating your 401(k) plan, you have 60 days to roll it over to another qualified retirement plan or IRA.

Highlights Of The New Tax Package

After all the fighting among the Democrats and Republicans, President Obama has extended the Bush Tax Cuts for another two years for a cost of 868 billion dollars. Below is a list of some of the provisions.

*Lower rates for taxpayers at every income level. The top rate, on taxable income above $379,150, would stay at 35 percent, instead of increasing to 39.6 percent. The bottom rate, on taxable income below $8,500 for individuals and $17,000 for married couples, would stay at 10 percent, instead of increasing to 15 percent. Cost: $186.8 billion.

*More generous itemized deductions for high-income households. Cost: $20.7 billion.

*A more generous $1,000 child tax credit. Cost: $71.7 billion.

*Marriage penalty relief, increasing the standard deduction for married couples. Cost: $18 billion.

*A more generous Earned Income Tax Credit for low-income families. Cost: $15.7 billion.

*A series of tax breaks for students and their families, including interest deduction for student loans and an exemption for employer-provided educational assistance. Cost: $3.3 billion.

*A deduction for tuition and related expenses for higher education, for 2010 and 2011. Cost: $1.2 billion.

A tax credit of up to $2,500 for students' higher education expenses. Cost: $17.6 billion.

*The top capital gains tax rate of 15 percent. Cost: $25.9 billion.

*The top tax rate on dividends of 15 percent. Cost: $27.3 billion.

*Through 2011, enhanced jobless benefits for people who have been unemployed for long stretches. Cost: $56.5 billion.

*A series of incentives for selling, using and producing alternative fuels, including ethanol. Many of the provisions expired at the end of 2009. They would be extended through 2011. Cost: $11.3 billion.

*A $250 deduction for out-of-pocket classroom expenses by teachers, for 2010 and 2011. Cost: $390 million.

*A federal income tax deduction for state and local sales taxes, taken mostly by people who live in the nine states without state income taxes, for 2010 and 2011. Cost: $5.5 billion.

*The ability of older Americans to withdraw up to $100,000 a year from Individual Retirement Accounts, tax-free, to donate to certain public charities, for 2010 and 2011. Cost: $979 million.

*A business tax credit for research and experimentation expenses, for 2010 and 2011. Cost: $13.3 billion.

*Tax breaks for capital improvements to restaurants and other retail buildings, for 2010 and 2011. Cost: $3.6 billion.

*A tax break for active investors in foreign-based banking, securities and insurance firms, for 2010 and 2011. Cost: $9.2 billion.

*Increased depreciation and expensing for capital investments by businesses. Cost: $21.8 billion.

*Spares more than 20 million middle-income households from tax increases averaging $3,900 from the Alternative Minimum Tax in 2010 and 2011. Cost: $136.7 billion.

*Imposes a lower estate tax for the next two years, allowing couples to pass estates as large as $10 million to heirs tax-free. The balance would be taxed at 35 percent. Cost: $68.1 billion.

*Provides a one-year Social Security tax cut for all wage earners, from 6.2 percent to 4.2 percent. Cost: $112 billion.

Bush Tax Cuts: Estate Tax

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) otherwise known as the Bush Tax Cuts made sweeping changes to wealth transfer taxation. The act gradually phased out the estate and generation-skipping transfer (GST) taxes and completely eliminated both in 2010, leaving only the gift tax (at a reduced rate) in that year. After 2010 the estate, gift, and GST taxes return in full force under the rules that existed before the 2001 act.

The Estate Tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death. The total of all of these items is your "Gross Estate." The includible property may consist of cash and securities, real estate, insurance, trusts, annuities, business interests and other assets.

After the net amount is computed, the value of lifetime taxable gifts (beginning with gifts made in 1977) is added to this number and the tax is computed. The tax is then reduced by the available unified credit. Presently, the amount of this credit reduces the computed tax so that only total taxable estates and lifetime gifts that exceed $1,000,000 will actually have to pay tax. In its current form, the estate tax only affects the wealthiest 2 percent of all Americans.

Most relatively simple estates (cash, publicly traded securities, small amounts of other easily valued assets, and no special deductions or elections, or jointly held property) do not require the filing of an estate tax return. A filing is required for estates with combined gross assets and prior taxable gifts exceeding $1,500,000 in 2004 - 2005; $2,000,000 in 2006 - 2008; and $3,500,000 effective for decedents dying on or after January 1, 2009.

Year End Financial Planning Moves

I decided to repost this article since it appears that the Bush Tax cuts will be extended for another two years and unemployment is still around 9.6%. 2010 remained a tough year financially for many Americans. Despite the fact that the econmic data has indicated that the US economy has turned the corner and is out of the Great Reccession. You could not turn on the news with out hearing about business closures, layoffs, and foreclosures. Lets be honest, between lost jobs, shrunken paychecks and disappearing bonuses it's been a time of more pain, less gain. But the year is not over and there are tax-savvy moves you can still make to pull some financial cheer out of an otherwise dreary 2010.

Gather Your Stock Market Losses.

Almost everything you own and use for personal or investment purposes is a capital asset. Examples are your home, household furnishings, and stocks or bonds held in your personal account. When you sell a capital asset, the difference between the amount you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss. Capital gains and losses are classified as long–term or short–term. If you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term. If your capital losses exceed your capital gains, the amount of the excess loss that can be claimed against ordinary income is $3,000. In what's often called tax loss harvesting, investors can sell assets that have generated large losses in after-tax accounts and use those losses to offset taxable income or even future gains. The losses can be used to offset capital gains as well as up to $3,000 of regular income each year. Any amount exceeding the $3,000 threshold can be carried forward to offset gains in the following year. IRS rules allow an investor to buy the asset back after 31 days — and still claim the tax loss.

Donate to a Charity

There are many people and organizations in need today, so it's a good time to review your charitable donations for the year. Donations can take the form of cash, electronics, cars, jewelry, paintings, stocks, real estate or clothing. Any donation of $250 or more requires a receipt as documentation. Property valued at more than $5,000 requires a written appraisal confirming its fair market value. There are also dollar limits: cash contributions cannot exceed 50% of adjusted gross income while property donations cannot top 30% of AGI. Contributions that exceed these limits can be carried over to the following tax year. President Obama has proposals on the table to put further limits on deductions for charitable contributions as a means of raising cash to cover the country's swelling deficit and health care reforms. So, taxpayers may want to max out their charitable contributions this year while limits are still generous.

Go For Energy Efficiency

Going green can offer a pretty nice payback at tax time. The IRS is offering tax credits to individuals and businesses that make or use energy or energy-efficient products in 2009 and 2010. But you have to spend in 2010 to take the credit against this year's taxes. A homeowner buying energy-efficient windows, doors, water heaters or biomass stoves, and those purchasing insulation, metal or reflective asphalt roofs and solar-energy systems can receive credits of 30% of the cost up to $1,500 in total. People purchasing geothermal heat pumps, solar panels and wind generators can get credits of 30% (up to $1,500) for each item through 2016. People buying plug-in hybrid electric cars can get tax credits of between $2,500 and $7,500.

Bush Tax Cuts Explained Part 2

28 more days before the Bush Tax cuts expire, and the House has passed an extension for middle class taxpayers whose incomes are under $250,000. The senate must still vote on the tax cuts, and the president must sign the bill before the tax cuts can take effect. With that being said lets continue to examine what are the Bush tax cuts and what were those changes that has caused so much debate

Alternative Minimum Tax Credit
The Alternative Minimum Tax (AMT)was created in 1969. The purpose was to ensure that everyone especially the most affluent pays at least some tax. The problem with the AMT is that its tax rates are based upon 1969 incomes. As a result, according to the Tax Policy Center, 46% of households with incomes between $75,000 and $100,000 will be subject to the AMT tax by 2010. What the Bush tax cuts attempted to do was to raise the exemptions rates so that fewer taxpayers would be forced into the amt system.

Dependent Care Credit
The Bush Tax Cuts increased the percentage and the amounts of the child and dependent care credit. The 35 percent maximum percentage and $3,000/$6,000 maximum credit effective since 2003 would revert in 2011 to a 30 percent maximum percentage and $2,400/$4,800 maximum credit - again, unadjusted for intervening inflation since 2003. The employer-provided child care credit is also scheduled to sunset in 2011.

Education IRAs
The Taxpayer Relief Act of 1997, allowed a taxpayer to establish an Education IRA, a trust or custodial account to pay a single named beneficiary's qualified education expenses (QEEs). Annual contributions were limited to $500 per beneficiary per year. The annual contribution limit was phased out for single filers with $95,000-$110,000 of modified AGI (MAGI) ($150,000-$160,000 if MFJ). Contributions had to end when the beneficiary reached age 18.

Under the Bush Tax Changes, the maximum annual contribution to an Education IRA is increased to $2,000, accounts may now also be used for elementary and secondary education expenses, whether incurred in a public, private or religious school. Additional amendments:

* End the MAGI-limit marriage penalty.

* Permit contributions for special-needs beneficiaries over age 18, and their accounts to continue after age 30.

* Include entities as contributors.

* Lengthen the contribution period until the return due date.

* Extend the time for returning excess contributions.

Employer-provided Educational Assistance
This change makes the $5,250 annual exclusion for employer-provided educational assistance permanent for both undergraduate and graduate courses, effective for tax years beginning in 2002. The current provision was due to expire for courses beginning after 2001.

Student Loan Interest
This new tax law modified the deduction for student loan interest. The new law repeals both the (1) limit on the number of months of interest for which a deduction can be taken and (2) nondeductibility of voluntary interest payments.

Further, the income phaseout ranges for eligibility for the deduction were increased from $50,000 to $65,000 for single taxpayers, and from $100,000 to $130,000 for MFJ taxpayers; these ranges are adjusted annually for inflation after 2002.

Qualified Higher Education Expense Deduction
Under this change, taxpayers are permitted an above-the-line deduction for qualified higher education expenses (QHEEs), defined as under the Hope credit. In 2002 and 2003, taxpayers with AGI that does not exceed $65,000 ($130,000 MFJ) can deduct up to $3,000 of QHEEs per year. The deduction does not phase out; it is lost completely when the AGI threshold is reached.

In 2004 and 2005, the deduction increases to a $4,000 maximum at those same levels of AGI; taxpayers with AGI of $60,000-$80,000 ($130,000-$160,000 MFJ) can take a maximum $2,000 deduction. Special rules bar use of the deduction in conjunction with the Hope or Lifetime Learning credit, an Education IRA distribution or a distribution of earnings from a qualified tuition plan.