If there’s one thing everyone wants, it’s more time, and that’s exactly what we have this year. A once every four-year phenomena of the calendar known as Leap Year is providing us with 24 extra hours this February 29.
For some, the day will come and go with little to show for it. However, with a little forethought, people can use the extra hours to make a difference in their financial lives. Financial advisors suggest that consumers dedicate this gift of time to tackling the financial tasks they may have been putting off.
- Prepare federal income taxes. Gather all 1099s, W-2s, and receipts related to eligible deductions. Whether filing on your own or through a professional, these items will be needed to prepare an accurate return.
- Create or organize a home financial center. Since the financial documents are out, create files for each category. This step will help you stay organized all year long, and will make preparing next year’s tax return much simpler.
- Review all insurance policies. The time to become familiar with insurance policies is not when you make a claim. Insurance is not something to buy and forget, as life changes often dictate adjustments to the policy. Make an appointment with your insurance provider to confirm that your current needs match your coverage.
- Review retirement contributions. Due to the payroll tax cut, working Americans now have extra money in their paychecks. The best use of this money could be increasing the retirement contribution at work. Make sure to maximize the benefits of an employer match and age-related allowable contribution increases.
- Order your credit report and score—With good reason, people are very interested in their credit score. However, many do not realize that the score is based on the information in the credit report. In spite of it being free through www.annualcreditreport.com, studies revealed that 65 percent of Americans had not ordered their credit report in the last 12 months. The credit score didn’t fare any better, with 63 percent of respondents indicating they’d not ordered their score. Even though there will be a small fee charged to obtain the credit score, it will be money well-spent, as these three numbers dictate much of your financial future.
Those who use the extra time afforded by Leap Year to accomplish these five financial moves will wake up March 1st with a well-earned sense of accomplishment. The efforts they put forth on this bonus day will yield rewards throughout the year.
If you need assistance in putting your financial house in order, reach out to us today…call 800-560-4637.
Taxes and inflation erode the return you make on your investment portfolio. If you are in a 30% tax bracket and inflation is 4%, you need to earn 5.7% to earn nothing.
Any effective plan to minimize your income taxes requires an ongoing effort on your part. That means you have to plan and make adjustments year-round, not just when you fill out your tax forms. Most tax preparers are just scorekeepers. They are reactive rather than proactive. You should work with a firm available throughout the year, not just one time a year.
There are three broad categories of tax-favored investments that reduce your income taxes. These are: “Tax-Exempt”, which offers income that is not taxed by the federal government; “Tax Deferred”, which defers taxes on accumulation until it is withdrawn; and “Tax Advantaged” instruments, which provide a tax credit against taxes.
Municipal bonds and Tax Free Money Market funds are two types of tax exempt vehicles.
The most popular tax-deferred investments are 401k plans, and IRA’s – both Traditional IRA’s and Roth IRA’s. Other tax-deferred alternatives are annuities, life insurance, and individual stocks and mutual funds.
Tax advantaged alternatives legally shelter income from taxes by creating a tax credit versus a tax deduction. The 3 primary Tax advantaged vehicles are: Rental Real Estate, Low Income Housing and Historic Rehabilitation Properties.
Older annuity and life insurance contracts can be exchanged for newer, higher paying interest contracts by using a 1035 exchange. This IRS section allows you to re-position these investments without incurring any tax liability.
The tax law allows married couples to exclude up to $500,000 of capital gains on the sale of their personal residence. This benefit can be used every two years.
There are numerous options available for all of these strategies and a tax and financial professional should assist you in selecting one that properly fits your specific needs.
WASHINGTON — Refunds totaling more than $1 billion may be waiting for one million people who did not file a federal income tax return for 2008, the Internal Revenue Service announced today. However, to collect the money, a return for 2008 must be filed with the IRS no later than Tuesday, April 17, 2012.
The IRS estimates that half of these potential 2008 refunds are $637 or more.
Some people may not have filed because they had too little income to require filing a tax return even though
they had taxes withheld from their wages or made quarterly estimated payments.
In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If no return is filed to claim a refund within three years, the money becomes property of the U.S. Treasury.
For 2008 returns, the window closes on April 17, 2012. The law requires that the return be properly addressed, mailed and postmarked by that date. There is no penalty for filing a late return qualifying for a refund.
The IRS reminds taxpayers seeking a 2008 refund that their checks may be held if they have not filed tax returns for 2009 and 2010. In addition, the refund will be applied to any amounts still owed to the IRS, and may be used to offset unpaid child support or past due federal debts such as student loans.
By failing to file a return, people stand to lose more than refunds of taxes withheld or paid during 2008. Some people, especially those who did not receive an economic stimulus payment in 2008, may qualify for the Recovery Rebate Credit. In addition, many low-and moderate-income workers may not have claimed the Earned Income Tax Credit (EITC). The EITC helps individuals and families whose incomes are below certain thresholds. The thresholds for 2008 were:
- $38,646 ($41,646 if married filing jointly) for those with two or more qualifying children,
- $33,995 ($36,995 if married filing jointly) for people with one qualifying child, and
- $12,880 ($15,880 if married filing jointly) for those with no qualifying children.
For more information, visit the EITC Home Page on IRS.gov.
We can help you file your current and prior year tax returns. Contact us at 800-560-4NFS for an appointment to get started.
Congress has voted in favor of extending for the entire year of 2012 the temporary reduction in the employee’s portion of the Social Security tax. Currently, employees pay 4.2% of their wages in Social Security taxes, a rate that has been in effect since January 2011 and was scheduled to expire at the end of February 2012. HR 3630, the Middle Class Tax Relief and Job Creation Act of 2012, extends this 4.2% rate through the end of 2012. The House voted in favor of HR 3630 by 293 to 132; the Senate approved the legislation by a vote of 60 to 36. President Obama has not yet signed the bill into law.
Employers still pay the normal rate of 6.2% of wages into the Social Security program. For 2012, Social Security taxes are assessed on wages up to the annual wage base limit of $110,100.
Self-employed persons will pay a combined 10.4% in Social Security taxes, instead of the normal 12.4%, reflecting both the employer’s and the employee’s share of Social Security taxes.
This payroll tax holiday does not change Medicare taxes, which are assessed on all wage and self-employment income at a rate of 2.9%, with half paid by the employee and half paid by the employer.
The payroll tax holiday began has a one-year rate reduction for the employee-portion of Social Security taxes in 2011 (HR 4853, the Tax Relief Act). This was then extended for two months through the end of February 2012 (HR 3765). It has now been extended through the end of 2012 (HR 3630).
To prevent Social Security from losing tax revenue, Congress mandated that revenues be transferred from the general fund to the Social Security trust funds to make up for the tax reduction.
The rate reduction also applies to employees covered by the Railroad Retirement System.
The previous, two-month extension of the payroll tax holiday passed in December 2011 (HR 3765) contained a pay-back provision designed to prevent higher-income persons from timing the receipt of salary in January and February in order to obtain a reduction in Social Security tax. That recapture tax has been repealed by HR 3630 since the Social Security rate reduction applies to the whole year of 2012.
Prior to the payroll tax holidays of 2011 and 2012, the last time America saw a 4.2% rate for Social Security coverage was the years 1969 and 1970. (Source: SSA.gov.)
Tax planning tips for the payroll tax holiday
This is now the second, and perhaps final, year for the temporary reduction in the rate of tax paid for Social Security coverage. 2012 is also the last year (under current law) for the reduced tax rates on income. Thus 2013 may witness a double increase in taxation from the expiration of the Bush-era tax cuts and the expiration of the temporary reduction in Social Security taxes.
Wage earners may want to consider negotiating for bonuses to be paid out in 2012 so as to take advantage of the lower Social Security tax rate. Similarly, self-employed persons may want to accelerate income into 2012 by increasing revenues or deferring deductions. Deductions can be deferred, for example, by depreciating property over its normal depreciation schedule rather than expensing the entire amount through Section 179.
Accelerating income in this fashion can create a permanent tax reduction if the wages or self-employed income are over the $110,100 Social Security wage base, since any earnings over that limit are not subject to Social Security taxes.
WASHINGTON, D.C. – The Internal Revenue Service has been having more problems with delayed tax refunds.
Early in tax-filing season, the IRS warned that taxpayers who had filed prior to January 26 might see delays of a week beyond the projected date shown in the online “Where’s My Refund” tool (see IRS Warns of Tax Refund Delays).
However, since February 15, the “Where’s My Refund” tool has displayed a message indicating further delays. “We are aware that some taxpayers who have filed electronically and received an acknowledgement from the IRS are concerned when they visit ‘Where’s My Refund’ and are told that we have no information regarding their return,” said an update message on the page five days later. “This is a temporary situation, and we expect to resolve the matter in a few days. At that time, taxpayers will be able to get an expected refund date when they visit ‘Where’s My Refund.’”
Part of the problem appears to be with the new filters that the IRS installed this tax season to combat identity theft fraud, and which were blamed for causing the delays last month.
The IRS asked taxpayers not to repeatedly call the agency to inquire about their refunds, but apparently many taxpayers are concerned about the delays, especially when they are getting mixed signals from the “Where’s My Refund” tool.
“If a taxpayer received an acknowledgment message that their e-filed tax return has been received, they can be assured that the IRS has the tax return even though ‘Where’s My Refund’ does not reflect that,” said the IRS. “Taxpayers should not call the IRS unless specifically directed by ‘Where’s My Refund,’ as there is no new information to give them.”
The IRS apologized to taxpayers for the situation and said most of the refunds would be issued within 21 days. “We expect the vast majority of tax refunds to continue to be issued within the historical range of 10 to 21 days,” said the IRS. “The IRS is taking steps to update information so that Where’s My Refund has current information. The IRS apologizes for any inconvenience and will provide updated information as soon as possible.”
The IRS said that most of the delayed refunds were filed between February 2 and February 7, according to a local ABC News affiliate in Charleston, S.C. Other taxpayers were reporting delays of nearly a month, according to eCreditDaily.com.
When the IRS blocked tax refunds last year, the Taxpayer Advocate Service found that 75 percent of the taxpayers who complained to the service ultimately were found to be eligible for the blocked refunds, but taxpayers had to wait an average of nearly six months to receive them. The average amount of the blocked refunds was upwards of $5,600.
By Michael Cohn, Accounting Today