The IRS made an announcement in Revenue Ruling 2011-18 that interest rates will be lowered for the calendar quarter starting October 1, 2011. The rates will be 0.5% for the portion of corporate overpayment exceeding $10,000; 5% for large corporate underpayments; 3% for underpayments; and 3% for overpayments (2% in the case of a corporation). The interest rate is determined each quarter by the Internal Revenue Service using the Internal Revenue Code. The interest rates are calculated from the federal short-term rate during July 2011 based on daily computing.
While tax returns are the last thing on your mind while you are enjoying your summer, it is a good time to start planning for next year’s tax return. Taking the time to organize your records makes preparing your tax returns easier. It may also help you remember relevant transactions, prepare a reply to an Internal Revenue Service notice, or validate items if you are chosen for an audit. The IRS has a few things they would like to taxpayers to know about their recordkeeping.
Taxpayers do not need to keep records in any particular way. Taxpayers need to keep any and all documents that may be related to your tax return for three years. Some items that may be important to keep are bills; credit card and other receipts; invoices; mileage logs; canceled, imaged or substitute checks or any other proof of payment; and any other records to support deductions or credits you claim on your return. You should also keep records that related to property for at least three years after you sell or dispose of property. Taxpayers who are small business owners must keep all employment tax records for four years after the tax is paid or becomes due, whichever is later.
Publication 552, Recordkeeping for Individuals, Publication 583, Starting a Business and Keeping Records, and Publication 463, Travel, Entertainment, Gift, and Car Expenses all have more information for taxpayers about recordkeeping. All of these can be found at www.IRS.gov.
For those individuals who are selling or have sold their home, the IRS has some important information to keep in mind. If you have own and used your house as your main residence for two out of the five years before the sale date, you are usually eligible to exclude up to $250,000 of the gain from your income ($500,000 for a joint return in some cases). If you have excluded the gain of another home during the two-year period before the sale of this home, then you do not qualify for the exclusion and the gain is taxable. If you are eligible to exclude the entire gain from the sale of your home, you do not need to include the gain on your tax return. If you are required to report the gain, you must include it on Form 1040, Schedule D, Capital Gains and Losses, but you cannot deduct a loss from the sale of your main home. You can determine the adjusted basis of your house by using worksheets provided in Publication 523. You may only exclude gain from your main home, which is the home you primarily live. You are also required to repay the first-time homebuyer credit if the property you purchased is no longer used as your principal residence within 36 months from purchase. The repayment is due the year the property is no longer your principal residence with your income tax return. Be sure that when you move that you update your address with the Internal Revenue Service and the United State Postal Service.
For those taxpayers who are among those that owe money to the Internal Revenue Service, there are a number of ways to pay with the new policies and programs that the IRS has announced. If you have received a tax bill for late taxes, it is advisable to obtain a loan to pay the balance of the bill rather than make installment payments. The IRS may grant additional time to pay based on your circumstances by filling out the Online Payment Agreement on the IRS website. Because credit card interest is most likely lower than the interest and penalties you will incur by the IRS, you have the option to pay your tax bill with your credit card. You may also pay by check, money order, cashier’s check, cash or electronic funds transfer. Although not advisable, you may work out installment payments with the IRS if you owe $25,000 or less in combined tax, penalties and interest. Even if you owe more than $25,000, you may still qualify; you are required to fill out Form 433F, Collection Information Statement, for the IRS to determine if you may qualify. If you do qualify for an installment agreement, then you will have to pay a one-time user fee. Consider changing your W-4, Employee’s Withholding Allowance Certificate, as well if you have a balance due.
The Internal Revenue Service has advice for soon-to-be-married and just-married individuals are rarely focusing on taxes after the wedding. First, it is important to notify any name change to the Social Security Administration so that when filing your next tax return the information will be correct. It is also important to report to the IRS if you have a new address by filling out Form 8822, Change of Address. Make sure to change your address with the United State Postal Service and report your name and address changes to your employer. Check the IRS Withholding Calculator to determine if you and your spouse will be placed in a higher income bracket. Be sure to select the correct tax form and choose the filing status that is best for you and your spouse to help save money.
While moving can be expensive, the Internal Revenue Service has tips on deducting some expenses if your relocation is due to new employment or a new job location. To deduct your moving expenses, the move have occurred within one year from the date you started work at a new location and the job location is at least 50 miles farther from your previous residence than your former job location. You are required to work full time for 39 weeks during the first twelve months after you have moved to the area of your new employment location, or 78 weeks during the first 24 months if you are self-employed. You may deduct your expenses before you have fully satisfied the requirement if your income tax return is due. You may deduct the expenses for lodging while moving to your new residence, as well as transportation expenses, the cost of packing, crating and transporting your personal property, along with the expenses of disconnecting or connecting utilities. Use Form 3903, Moving Expenses, to determine your deduction for moving expenses. You will also most likely have to include any reimbursement your employer may provide for moving expenses. Be sure that when you move that you update your address with the Internal Revenue Service and the United State Postal Service.
The Internal Revenue Service has provided free services and products to assist Spanish-speaking taxpayers at IRS.gov/expanol. Some features that you will be able to find this summer will be answers 24 hours a day, seven days a week. Tax forms and publications are available on the website to download at any time. Information on how to electronic file, as well as the status of a taxpayer’s tax refund, are available on the website. You can find eligibility for the Earned Income Tax Credit on the website. Getting assistance during financial difficulties can be found in “Centro Tributario para Asistir a Contribuyentes Desempleados” or by entering different keywords for your specific circumstance in the search box. Staying up to date on tax laws is easy by accessing the website, or even by using Twitter @IRSenEspanol.
If the headline does not get you, what will. I’ve blogged in the past about the term “portability” of the estate tax that was introduced in the 2010 tax bill passed last year.
The portability concept really is an estate tax break for married couples, especially second, third and fourth marriages. The reason is that married couples won’t have to split their assets evenly amongst themselves to ensure they fully use both estate tax credits available. Prior to this year, a proper estate plan evenly divided a couple’s assets between them so that they each would utilize the estate tax credits. The downside to this was that clients had to continuously monitor the value of their assets and redistribute their assets should one spouse’s asset increase faster than the others. This task is much easier said than done as most clients do not review their estate plans on a regular basis.
With portability in place, you no longer have to divide assets, you just have to file a 706 upon a client’s death. The 706 return is the estate tax return. Although no estate tax is required, the return puts the IRS on notice that the unused estate tax credit from the first spouse is being “transferred” to the surviving spouse so that they may use it upon their death.
To read more on portability, please read “How To Use The New Tax Break For Married Couples.”
I just read an article talking about the best places to retire. This article focused on the cost of living and tax impact. There are many reasons why people retire in the locations they do. Weather, cost of living, health care availability and asset protection being a few of them.
When it comes down to it, it is a personal decision why you live where you live. Growing up in Ohio, a lot of Ohioans move to Florida due to the weather being better in the winter. It is as simple as that. Other clients though have built significant weather over their working years and have tax considerations and asset protection considerations to think of. I spoke with a client yesterday who was thinking of retiring and their biggest concern was asset protection – which is a state by state determination.
If taxes and cost of living are important to you and where you may retire, read Forbes’ article “The Best Retirement Places.”
It seems more and more individuals are filing income tax extensions on April 15th so that they do not have to file their income tax returns until October 15th. The October 15th deadline will be here before you know it.
I have spoken to several CPAs and they all agree that clients really should have all of their information to their CPAs within the next few weeks to give their CPAs time to create and edit the tax return. With children going back to school now, the tax return can easily get put onto the back burner. Make sure it does not as penalties and additional interest will start to accrue if nothing is filed by October 15th.