Estate Planning and Tax Lawyer Blog

Do you or anyone in your family have a chronic illness? If so, you may want to check out the website www.RV4TheCause.org. Martin Shenkman, an attorney from New Jersey, is currently touring the country with his wife and dog giving out free advice to the public and professionals about estate and financial planning for those with a chronic illness. I will soon be blogging a series of blogs that deal specifically on issues of planning for clients with a chronic illness. It is a subject that is near and dear to me as I have Type 1 diabetes.

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It is that time of year when your children are getting ready to graduate from high school and head off to college. One thing that is always left off the list of to-dos is a Last Will and Testament, Living Will, Health Care Surrogate and Durable Power of Attorney for your child.
Your child is going to start accumulating assets from this point forward by setting up a checking account, if they do not already have one, and probably getting some sort of a job to supplement their spending habits in college. Without a Last Will and Testament naming someone to take ownership of their assets upon their untimely death, the State of Florida (or whatever state you live) has made a Last Will and Testament for them.
Unfortunately, accidents tend to happen while children are away at college and medical decisions need to be made for their benefit. Without a Health Care Surrogate or Living Will in place, you will not be able to have a say in how your child is taken care of.

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With an amended tax return, you can generally file again to correct your filing status, your income, or add credits or deduction that you missed. The Internal Revenue Service has some pointers for those about filing an amended tax return. When filing an amended tax return to correct Forms 1040, 1040A or 1040EZ, use Form 1040X, Amended U.S. Individual Income Tax Return. You must file it by paper because an amended return cannot be filed electronically. It is not needed to file an amended return due to math errors or because you forgot to attach forms such as W-2s or schedules. The IRS will automatically make the correction or send a request asking for any missing documents. Do not forget to enter the year you are amending at the top of Form 1040X. Generally, you have three years from the date you filed your original form or two years from the date you paid the tax, whichever is later, to file Form 1040X. You must file a 1040X for each return if you are amending more than one tax return. They must be mailed in separate envelopes to the correct IRS campus, which can be found in the 1040X instructions. You must attach a form or schedule to the amended return if the changes involve either. Wait until you receive your tax return before filing Form 1040X to claim an additional refund. If you owe additional tax for 2010, file Form 1040X and pay the tax before the due date to reduce the interest and penalty charged that could accumulate on your account. Also note that Form 1040X has been redesigned and now has just one column where the Correct Amount is the only amount entered.

Continue reading " Nine Facts on Filing an Amended Return " »

After filing your taxes, there will be many records that will documents items on your tax return. If the Internal Revenue Service selects your return for examination, you will need these documents. The IRS has some tips about keeping good records. You should keep tax records for three years. There are certain documents—such as records relating to a home sale or purchase, stock transaction, IRA and business or rental property—that should be kept longer. The IRS does not require you to keep records in a specific manner. However, it is important to keep any and all documents that may have an impact on your federal income tax return. Some records that you should keep include credit card and other receipts, bills, invoices, mileage logs, canceled, imaged or substitute checks, proof of payment, and any other records to help support credits or deductions claimed on your return. See IRS Publication 552 at http://www.irs.gov for more information on the types of records to keep.

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The Internal Revenue Service can assess a penalty if you fail to file, fail to pay or both when filing a tax return. The IRS has eight important points it would like to convey to taxpayers about penalties you may face if you do not pay timely or do not file. You may receive a failure-to-file penalty if you do not file your tax return by the deadline. You may receive a failure-to-pay penalty if you do not pay by the deadline. The failure-to-file deadline is generally greater than the failure-to-pay penalty. Even if you are unable to completely pay the taxes you owe, still file your tax return on time. The IRS will work with you to determine payment options for you. For filing late, the penalty is generally 5% of the unpaid taxes each month or part of a month that a tax return is late, to not exceed 25% of your unpaid taxes. The minimum penalty for filing your tax return more than 60 days after the deadline or extended due date is the smaller of $135 or 100% of the unpaid tax. You will usually have to pay a failure-to-pay penalty of ½ of 1% of your unpaid taxes for each month or part of a month after the deadline if you do not pay your taxes on time. This penalty could be up to 25% of your unpaid taxes. If a request for an extension of time has been timely filed and you paid at least 90% of your taxes by the filing deadline, you will not receive a failure-to-pay penalty if the remaining balance is paid by the extended deadline. If both penalties apply in any month, then the 5% penalty is reduced by the failure-to-pay penalty. The minimum penalty is small of $135 or 100% of your unpaid taxes if you file your return more than 60 days after the filing deadline or extended deadline. If you show that you failed to pay or file on time due to reasonable cause and not because of willful neglect, then you will not have to pay a failure-to-pay or failure-to-file penalty.

Continue reading " Eight Facts on Penalties " »

The IRS issued guidance that authorizes the tsunami and earthquake in Japan in March 2011 as a qualified disaster for federal tax purposes. The guidance allows recipients of qualified disaster relief payments to exclude payments from income on their tax returns. It also permits employer-sponsored private foundations to help employee victims in areas affected in Japan without affecting their tax-exempt status.

There are generally two categories for charities—public charities or private foundations. A private foundation that is employer-sponsored may make qualified disaster relief payments to employees affected by a qualified disaster. The payments include amounts to help cover personal, family, living or funeral costs, as well as those to repair or rehabilitate personal residences or repair or replace the contents not covered by insurance. The payments received to help cover these costs would not be included in the recipient’s gross income. For federal tax law purposes, the IRS has decided that the tsunami and earthquake in Japan that occurred in March is a qualified disaster. Qualified disasters are usually Presidentially declared disasters, as well as other catastrophic events.

This guidance, however, does not affect those interested in contributing to the victims of the Japan tsunami and earthquake. There are simple steps for taxpayers to take to make sure that their contributions are made to charities eligible to receive tax-deductible contributions. More information can be found on the IRS website at http://www.irs.gov.

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Every year, the Internal Revenue Service sends out millions of notices and letters to taxpayers for various reasons. The IRS has some things they would like you to know just in case a notice or letter shows up in your mailbox. First, do not panic. Most letters can be dealt with painlessly and simply. The IRS may send you a notice for numerous reasons. It may request payment of taxes, request additional information, or notify you of changes to your account. The notice will cover a specific issue about your account or tax return and will have specific instruction on what you are asked to do. If it is simply a correction notice, look over the correspondence and compare it with the information on your return. No reply is necessary unless a payment is due or the notice otherwise directs if you agree with the correction. If you do not agree with the correction made, respond as requested. A written explanation as to why you disagree and any documents and information you want the IRS to consider, along with the bottom tear-off portion of the notice, should be sent to the IRS address shown in the upper left-hand corner of the notice. If you have any questions, call the number in the upper right-hand corner of the notice and have a copy of your return and correspondence on hand when you call. It is also important to keep any and all correspondence with the IRS with your records.

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When receiving your tax refund, you have three options: direct deposit, paper check, or U.S. Savings Bonds. To request to receive your refund by direct deposit among up to three separate accounts or to buy U.S. Savings Bonds, use Form 8888, Allocation of Refund. You will receive your refund within six to eight weeks if you file an accurate paper tax return and within three weeks if you file electronically. You can check your tax refund status online by going to http://www.irs.gov and click on “Where’s My Refund?” You can also check your tax refund status by phone by calling 800-829-1954 or with IRS2Go, which is a smartphone application. If your refund is delayed, it may be for several reasons. Tax Topic 303 on the IRS website lists common errors made when preparing your tax return. If you receive an amount that is larger than what you expected, do not cash the check and follow the instructions that are on the notice. If you receive an amount that is smaller than expected, then you can cash the check. If you have questions about the amount, you can call 800-829-1040. If you are missing your refund, the IRS will help you in receiving a replacement check for a lost or stolen refund check. If it was undeliverable because you moved, change your address online and the IRS can reissue the undelivered check.

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If you cannot pay the full amount of the taxes that you owe by April 18, 2011, still file your tax return on time and pay as much as you can to avoid interest and penalties. Contact the IRS to ask about alternative payment options available to taxpayers. Three options are additional time to pay, installment agreements, and pay by credit card or debit card. Based on your situation, you may be granted a short extension to pay your taxes in full. The Online Payment Agreement application is available at http://www.irs.gov or by calling 800-829-1040 to request a brief amount of time to pay. Those taxpayers that receive an additional 60 to 120 days to pay their taxes will usually pay less in interest and penalties than if paid over a greater amount of time. Using the Web-based Online Payment Agreement, you can apply for an IRS installment contract on the IRS website which allows taxpayers who owe $25,000 or less in combined tax, penalties and interest to self-qualify, apply for and receive immediate notification of approval. You can also make a request by completing a Form 9465, Installment Agreement Request, making your request in writing or calling 800-829-1040. For those taxpayers with a balance over $25,000, a complete financial statement to determine the monthly payment amount for an installment plan is required. You can also charge your taxes on your Discover, Visa, MasterCard or American Express credit cards. You can pay by debit card as well, as long as it’s a Visa, or NYCE, Pulse or Star Debit Card. Contact one of the following service providers listed and follow the instructions to pay by credit card or debit card. The processing companies are: Link2Gov Corporation at 888-PAY-1040 or www.pay1040.com, RBS WorldPay, Inc. at 888-9PAY-TAX or www.payUSAtax.com, or Official Payments Corporation at 888-UPAY-TAX or www.officialpayments.com/fed. There is no IRS fee, but the processing companies may charge a fee.

Continue reading " Three Ways to Pay Your Federal Income Tax " »

Taxpayers have a few extras days to make contribution to traditional Individual Arrangements this year. Emancipation Day, which is a legal holiday in the District of Columbia, will be observed on April 15, 2011, which moves the filing due date for your tax return and making contributions to your 2010 IRA to April 18, 2011. There are several things that the Internal Revenue Service wants you to know about setting aside retirement money in an IRA. It is possible that you may deduct some or all of your contributions to your IRA. There is a possibility of being eligible for the Savers Credit, formally known as the Retirement Savings Contributions Credit. You can make contributions to your traditional IRA during the year or by the due date for filing your return for the year, meaning that most people must make their contributions by April 18, 2011. If making the contribution during 2011 by April 18, then you need to designate the year targeted for the contribution.

Until you receive distributions from your IRA, the funds in your IRA are generally not taxed. To determine your deduction for IRA contributions, use the worksheets in the instruction for Form 1040A or Form 1040. The most that can be contributed to your traditional IRA for 2010 is usually the smaller amount of $5,000 ($6,000 for taxpayers 50 or older by the end of 2010) or the amount of taxable compensation for the year. To determine your eligibility for a tax credit equal to your contribution, use Form 8880, Credit for Qualified Retirement Savings Contributions. To claim this credit or to deduct an IRA contribution, you must use Form 1040A or Form 1040.

To contribute to a traditional IRA, you must be 70 ½ by the end of the tax year and must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment to contribute to an IRA. If you file a joint return, generally only one of you needs to have taxable compensation. For additional rules and information on contributing to your IRA account, refer to IRS Publication 590, which can be downloaded at http://www.irs.gov.

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For taxpayers still working on your tax returns, the IRS offers ten tips to help. Taxpayers should file electronically using the IRS e-file. The IRS e-file is now the norm, not the exception, with 70% of all individual taxpayers using it to submit their tax returns to the IRS. Carefully check identification numbers for each person listed because missing, incorrect or illegible Social Security numbers can reduce or delay tax refunds. Make sure to double-check that you have properly determined the amount due or your refund when filing a paper return. If you are using the paper return or the Free File Fillable Forms, make sure to ensure that you have used the correct figure from the tax table. Make sure to sign and date your return. Do not forget that both spouses need to sign a joint return, even if only one individual had income. If someone prepared the return, they must sign it as well. When mailing a paycheck, be sure to make the check payable to “United States Treasury” and enclose it with, but do not attach it to, the tax return or the Form 1040-V, if used. Include the Social Security number of the first person listed on the return, a daytime phone number, the tax year and the type of form filed. The electronic payments options available are safe, secure and convenient methods to pay your taxes. Taxpayers need to file a return of request an extension by April 18, 2011. More helpful information is available on the IRS website at http://www.irs.gov.

Continue reading " Ten Tips for Last-Minute Filers " »

You can get an automatic six month extension of time to file from the Internal Revenue Service if you cannot make the April 18 tax filing deadline. Following is important information that you should know about filing an extension. If you have completed your tax return but cannot pay the full amount of tax, do not file for an extension. Pay as much as you can and file your return on time. The IRS will then send you a bill or notice with the remaining balance due. You can apply online for a payment agreement at http://www.irs.gov and click on “Apply for an Online Payment (OPA)” on the left side of the homepage under Online Services. Call the IRS at 1-800-829-1040 if you are unable to make any payments to discuss options available to you. If you need extra time to file so you can get all of your paperwork to the IRS, remember that the extension does not apply to the amount owed. You will be required to pay interest on any amount not paid by the deadline, plus the possibility of having to pay penalties. To request an extension, you have to submit Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, to the IRS by the April 18, 2011 deadline or make an extension-related electron card payment. For more information, see Form 4868. Both free file options are available on the IRS website to file an extension. If requesting an extension by your computer, you may choose to pay your balance due by authorizing an electronic funds withdrawal directly from your checking or savings account. You will need your bank routing and account numbers. To obtain Form 4868, simply download if off the IRS website, order it by calling 800-829-3676, or stop by your local IRS office.

Continue reading " Seven Things about Getting More Time to File your Tax Return " »

Following are some do’s and don’ts for good advice regarding leaving IRS assets to your heirs. Before naming IRA beneficiaries, check with your estate planning attorney. Your will and the beneficiary form should be in agreement and an estate planning attorney can inform you on what to avoid, like leaving the IRA outright to your estate or a minor child. When leaving your assets, think about a charity as a possible beneficiary. Your estate will benefit from a charitable deduction and the charity will obtain the assets tax-free. Switch to a Roth IRA if you will not need to use any assets from your traditional IRA during your lifetime. Your assets will compound tax-free for your heirs and they will not owe any income tax on withdrawals when they inherit the assets. Discuss how to handle your IRA assets with your spouse. Do not fail to name or update beneficiaries for your IRA. The IRA administration will decide who will obtain the assets if no one is named. Do not forget to switch or change beneficiaries after a divorce, death or other major life event. Also, be sure to name beneficiaries on your application form when you switch providers. Do not name your estate as beneficiary because they will be required to take distributions within a specified period of time. Do not name a minor child as beneficiary. Minor children cannot be named a beneficiary of a retirement plans, so consider setting up a trust.

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Interim guidance has been issued by the Internal Revenue Service to employers about information reporting on each employee’s annual Form W-2 of the cost of the health insurance coverage they sponsor for employees, which can be found at http://www.irs.gov/pub/irs-drop/n-11-28.pdf. Comments on this interim guidance are being requested by the IRS. This new reporting to employee is for their information only, to notify them of the cost of their health coverage, and does not cause excludable employer-provided health coverage to become taxable. Employer-provided health care remains excludable from an employee’s income, and is not taxable. Employers are required to report the cost of employer-provided health care coverage on Form W-2 due to the Affordable Care Act. Last fall, Notice 2010-69 had made this requirement optional for all employees for the 2011 Form W-2. With the interim guidance provided, the IRS provided relief for employers filing fewer than 250 W-2s by making the requirement optional and continuing this option until further guidance is issued. Notice 2011-28 offers guidance for those employers subject to the requirement for 2012 Form W-2s, including information on how to report, what coverage to include and how to determine cost of the coverage.