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TAX TIPS

PGA Tax Consultants TAX TIPS:

 

This newsletter shares tax tips and tax updates to all of our valued customers.  PGA intent is that you will find this information useful and enjoyable.

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Facts About Taking Early Distributions from IRA:

 

If you took an early distribution from your retirement plan, here are some things you need to know:

  1. Payments you receive from your IRA (Individual Retirement Arrangement) before you reach age 59 ½ are generally considered early or premature distributions.

  2. Early distributions are usually subject to an additional 10 percent tax.

  3. Early distributions must also be reported to the IRS.

  4. Distributions you rollover to another IRA or qualified retirement plan are not subject to the additional 10 percent tax. You must complete the rollover within 60 days after the day you received the distribution.

  5. The amount you roll over is generally taxed when the new plan makes a distribution to you or your beneficiary.

  6. If you made nondeductible contributions to an IRA and later take early distributions from that same IRA, the portion of the distribution attributable to those contributions is not taxed.

  7. If you received an early distribution from a Roth IRA the distribution attributable to contributions is not taxed.

  8. If you received a distribution from any other qualified retirement plan, generally the entire distribution is taxable unless you made after-tax employee contributions to the plan.

 

There are several exceptions to the additional 10 percent early distribution, such as when the distributions are used for purchase of a first home, certain medical and educational expenses or if you become disabled.

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Seven Things You Should Know When Selling Your Home:

 

  • Amount of exclusion. When you have gain from the sale of your home, you may be able to exclude up to $250,000 of the gain from your income. For most taxpayers filing a joint return, the exclusion amount is $500,000.

  • Ownership test. To claim the exclusion you must have owned the home for at least two years during the five year period ending on the date of the sale.

  • Use test. You also must have lived in the house and used it as your main home for at least two years during the five year period ending on the date of the sale.

  • When not to report. If you are able to exclude all of the gain from the sale of your home, you do not need to report the sale on your federal income tax return.

  • Reporting taxable gain. If you have gain which cannot be excluded, it is taxable and must be reported on your tax return using Schedule D.

  • Deducting a loss. You cannot deduct a loss from the sale of your home.

  • Rules for multiple homes. If you have more than one home, you may only exclude gain from the sale of your main home and must pay tax on the gain resulting from the sale of any other home. Your main home is generally the one you live in most of the time.

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Tips for Taxpayers Making a Move:

 

If you changed your home or business address, you’ll want to remember these six tips to ensure you receive any refunds or correspondence from the IRS.

  • Correct the address legibly on the mailing label that comes with you tax package

  • Write the new address in the appropriate boxes on your tax return;

  • Use Form 8822 (Change of Address), to submit an address or name change any time during the year

  • Give the IRS written notification of your new address by writing to the IRS center where you file your return. Include your full name, old and new addresses, Social Security Number or Employer Identification Number and signature.

  • If you filed a joint return, be sure to include the information for both taxpayers. If you filed a joint return and have since established separate residences, both taxpayers should notify the IRS of your new addresses

  • Should an IRS employee contact you about your account, you may be able to verbally provide a change of address

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  1. Be sure to also notify your employer of your new address so you get your W-2 forms on time.

  2. If you change your address after you’ve filed your return, don’t forget to notify the post office at your old address so your mail can be forwarded.

  3. Taxpayers who make estimated payments throughout the year should mail a completed Form 8822 (Change of Address), or write the IRS center where you file your return. You may continue to use your old pre-printed payment vouchers until the IRS sends you new ones with your new address. However, do not correct the address on the old voucher.

  4. The IRS does use the Postal Service’s change of address files to update taxpayer addresses, but it’s still a good idea to notify the IRS directly.

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Owe the IRS a Prior Year Return? 

 

Don’t delay; file your prior year return now! The failure to file a federal tax return can be costly; whether you end up owing more or missing out on a refund.

 

If you owe taxes, a delay in filing may result in a failure-to-file penalty and interest charges. The longer you delay, the larger these charges grow.

 

If you are due a refund and don’t file you could lose your refund. There is no penalty for failure to file if you are due a refund. However, you cannot obtain a refund without filing a tax return. If you wait too long to file, you may risk losing the refund altogether. The deadline for claiming refunds is generally three years after the return due date.

 

There are several reasons taxpayers don’t file their taxes. Perhaps you didn’t know you were required to file. Maybe, you just keep putting it off or simply forgot. Whatever the reason, it’s best to file your return as soon as possible. If you need help, even with a late return, the IRS is ready to assist you. Here are some steps for filing your prior year return:

 

  1. Gather prior year tax return information. You will need Social Security numbers, income information and records for expenses, deductions and credits.

  2. Get forms and publications. Make sure you get the forms and publications for the year of the tax return you are filing.

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Things the IRS Wants You to Know About Identity Theft:

 

  1. If you receive a letter or notice from the IRS which leads you to believe someone may have fraudulently used your Social Security Number, respond immediately to the name and address or phone number printed on the IRS notice.

  2. If you receive a letter from the IRS that indicates more than one tax return was filed for you, this may be a sign that your SSN was used fraudulently.

  3. Another sign that you may be the target of identity theft is an IRS letter indicating you received wages from an employer unknown to you.

  4. The IRS has a department which deals specifically with identity theft issues. The IRS Identity Protection Specialized Unit is available if you have been in contact with the IRS about an identity theft issue and have not achieved a resolution.

  5. You can contact the IRS Identity Protection Specialized Unit by calling the Identity Theft Hotline at 800-908-4490 Monday through Friday from 8:00 am to 8:00 pm local time (Alaska and Hawaii follow Pacific Standard Time).

  6. The IRS Identity Protection Specialized Unit is also available if you believe your identity may be at risk of being stolen due to a lost or stolen purse or wallet or due to questionable activity on your credit card or your credit report.

  7. The IRS never initiates communication with taxpayers about their tax account through emails. If you receive an e-mail or find a Web site you think is pretending to be the IRS, forward the e-mail or Web site URL to the IRS at phishing@irs.gov.

  8. The IRS has many more resources available to help inform taxpayers about identity theft on the IRS Web site. You can also visit the IRS Identity Theft Resource Page, which you can find by typing Identity Theft Resource Page in the search box on the IRS.gov home page.

  9. The Federal Trade Commission is also available to assist taxpayers with identity theft issues. You can reach them at 877-ID-THEFT (877-438-4338).

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The Five Filing Status Possibilities:

 

Everyone who files a federal tax return must determine which filing status applies to them. It’s important you choose your correct filing status as it determines your standard deduction, the amount of tax you owe and ultimately, any refund owed to you.

 

There are two things to consider when determining your filing status:
First, your marital status on the last day of the year determines your filing status for the entire year. Secondly, if more than one filing status applies to you, choose the one that gives you the lowest tax obligation. Here are the five filing status options:

Single. This will generally apply to anyone who is unmarried, divorced or legally separated according to your state law. Married Filing Jointly. A married couple may file a joint return together. If your spouse died during the year, you may still file a joint return with that spouse for the year of death.

 

  1. Single. This will generally apply to anyone who is unmarried, divorced or legally separated according to your state law.

  2. Married Filing Jointly. A married couple may file a joint return together. If your spouse died during the year, you may still file a joint return with that spouse for the year of death.

  3. Married Filing Separately. A married couple may elect to file their returns separately.

  4. Head of Household. This generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.

  5. Qualifying Widow(er) with Dependent Child. You may be able to choose this filing status if your spouse died during 2006 or 2007, you have a dependent child and you meet certain other conditions.

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Facts to Help Determine Your Correct Filing Status:

 

Determining your filing status is one of the first steps to filing your federal income tax return. There are five filing statuses: Single, Married Filing Jointly, Married Filing Separately, Head of Household and Qualifying Widow(er) with Dependent Child. Your filing status is used to determine your filing requirements, standard deduction, and eligibility for certain credits and deductions, and your correct tax.

 

Some people may qualify for more than one filing status. Here are eight facts about filing status that the IRS wants you to know so you can choose the best option for your situation.

 

  1. Your marital status on the last day of the year determines your marital status for the entire year.

  2. If more than one filing status applies to you, choose the one that gives you the lowest tax obligation.

  3. filing status generally applies to anyone who is unmarried, divorced or legally separated according to state law.

  4. A married couple may file a joint return together. The couple’s filing status would be Married Filing Jointly.

  5. If your spouse died during the year and you did not remarry during the tax year, usually you may still file a joint return with that spouse for the year of death.

  6. A married couple may elect to file their returns separately. Each person’s filing status would generally be Married Filing Separately.

  7. Head of Household generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.

  8. You may be able to choose Qualifying Widow(er) with Dependent Child as your filing status if your spouse died during last 2 years, you have a dependent child, have not remarried and you meet certain other conditions.

 

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To File or Not To file:

 

You must file a tax return if your income is above a certain level. The amount varies depending on filing status, age and the type of income you receive.

 

For example, a married couple both under age 65 generally is not required to file until their joint income reaches $17,900. However, self-employed individuals generally must file a tax return if their net income from self employment was at least $400.

 

Check the “Individuals” section of the IRS Web site at IRS.gov or consult the instructions for form 1040, 1040A, or 1040EZ for specific details that may affect your need to file a tax return with IRS this year.

 

Even if you don’t have to file, here are six reasons why you may want to file:1.

 

  1. Federal Income Tax Withheld. If you are not required to file, you should file to get money back if Federal Income Tax was withheld from your pay, if you made estimated tax payments, or had a prior year overpayment applied to this year's tax.

  2. Recovery Rebate Credit. If you did not qualify or did not receive the maximum amount for the 2008 Economic Stimulus Payment, you may be entitled to a Recovery Rebate Credit when you file your 2008 tax return.

  3. Earned Income Tax Credit. You may qualify for the Earned Income Tax Credit, or EITC, if you worked, but did not earn a lot of money. EITC is a refundable tax credit meaning you could qualify for a tax refund.

  4. Additional Child Tax Credit. This credit may be available to you if you have at least one qualifying child and you did not get the full amount of the Child Tax Credit.

  5. First time Homebuyer Credit. If you bought a main home after April 8, 2008, and before July 1, 2009 and did not own a main home during the prior 3 years, you may be able to take this refundable credit.

  6. Health Coverage Tax Credit. Certain individuals, who are receiving certain Trade Adjustment Assistance, Alternative Trade Adjustment Assistance, or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a Health Coverage Tax Credit when you file your 2008 tax return.

Top Five Facts about Dependents and Exemptions:

 

  1. Dependents may be required to file their own tax return. Even though you are a dependent on someone else’s tax return, you may still have to file your own tax return. Whether or not you must file a return depends on several factors, including: the amount of your unearned, earned or gross income, your marital status, any special taxes you owe and any advance Earned Income Credit payments you received.

  2. Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,500 on your 2008 tax return. Exemptions amounts are reduced for taxpayers whose adjusted gross income is above certain levels, which is determined by your filing status.

  3. Dependents may not claim an exemption. If you claim someone as a dependent, such as your child, that dependent may not claim a personal exemption on their own tax return.

  4. Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return and were not the dependent of another taxpayer.

  5. Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children.

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Offset Education Costs:

 

Education tax credits can help offset the costs of higher education for yourself or a dependent. The Hope Credit and the Lifetime Learning Credit are two education credits available which may benefit you. Because they are credits rather than deductions, you may be able to subtract them in full, dollar for dollar, from your federal income tax.

 

The Hope Credit

  • The credit applies for the first two years of post-secondary education, such as college or vocational school. It does not apply to the third, fourth, or higher years of undergraduate programs, to graduate programs, or to professional-level programs.

  • It can be worth up to $1,800 ($3,600 if a student in a Midwestern disaster area) per eligible student, per year.

  • You're allowed a credit of 100% of the first $1,200 ($2,400 if a student in a Midwestern disaster area) of qualified tuition and related fees paid during the tax year, plus 50% of the next $1,200 ($2,400 if a student in a Midwestern disaster area).

  • Each student must be enrolled at least half-time for at least one academic period which began during the year.

  • The student must be free of any federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year.

 

The Lifetime Learning Credit

  • The credit applies to undergraduate, graduate and professional degree courses, including instruction to acquire or improve job skills, regardless of the number of years in the program.

  • If you qualify, your credit equals 20% (40% if a student in a Midwestern disaster area) of the first $10,000 of post-secondary tuition and fees you pay during the year, for a maximum credit of $2,000 ($4,000 if a student in a Midwestern disaster area) per tax return.

 

You cannot claim both the Hope and Lifetime Learning Credits for the same student in the same year. You also cannot claim either credit if you claim a tuition and fees deduction for the same student in the same year. To qualify for either credit, you must pay post-secondary tuition and certain related expenses for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. Students who are claimed as a dependent cannot claim the credit.

 

These credits are phased out for Modified Adjusted Gross Income over $48,000 ($96,000 for married filing jointly) and eliminated completely for Modified Adjusted Gross Income of $58,000 or more ($116,000 for married filing jointly). If the taxpayer is married, the credit may be claimed only on a joint return.

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Five Important Tax Credits:

 

Check it out! You might be eligible for a tax credit. A tax credit is a dollar-for-dollar reduction of taxes owed. Some credits are even refundable. That means you might receive a refund rather than owe any taxes.

 

Here are five popular credits you should consider before filing your 2009 Federal Income Tax Return:

 

  1. The Earned Income Tax Credit is a refundable credit for low-income working individuals and families. Income and family size determine the amount of the credit. For more information, see IRS Publication 596, Earned Income Credit.

  2. The Child and Dependent Care Credit is for expenses paid for the care of your qualifying children under age 13, or for a disabled spouse or dependent, to enable you to work or look for work. For more information, see IRS Publication 503, Child and Dependent Care Expenses.

  3. The Child Tax Credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses. For more information on the Child Tax Credit, see IRS Publication 972, Child Tax Credit.

  4. The Retirement Savings Contributions Credit, also known as the Saver’s Credit, is designed to help low- and moderate-income workers save for retirement. You may qualify if your income is below a certain limit and you contribute to an IRA or workplace retirement plan, such as a 401(k) plan. The Saver’s Credit is available in addition to any other tax savings that apply. For more information, see IRS Publication 590, Individual Retirement Arrangements (IRAs).

  5. Health Coverage Tax Credit Certain individuals, who are receiving certain Trade Adjustment Assistance, Alternative Trade Adjustment Assistance, or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a Health Coverage Tax Credit when you file your 2008 tax return.

 

NOTE: There are other credits available to eligible taxpayers. Since many qualifications and limitations apply to the various tax credits, you should carefully check your tax form instructions, and talk with your tax preparer.

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Top Ten Facts about the Tuition and Fees Deduction:

 

The Tuition and Fees deduction of up to $4,000 is available to help parents and students pay for post-secondary education. Below are ten important facts about this deduction every student and parent should know.

 

  1. You do not have to itemize to take the Tuition and Fees deduction. You claim a tuition and fees deduction by completing Form 8917 and submitting it with your Form 1040 or Form 1040A.

  2. You may be able to claim qualified tuition and fees expenses as either an adjustment to income, a Hope or Lifetime Learning credit, or – if applicable – as a business expense.

  3. You cannot take the tuition and fees deduction on your income tax return if your filing status is married filing separately.

  4. You cannot take the deduction if you are claimed, or can be claimed, as a dependent on someone else's return.

  5. The deduction is reduced or eliminated if your modified adjusted gross income exceeds certain limits, based on your filing status.

  6. You cannot claim the tuition and fees deduction if you or anyone else claims the Hope or Lifetime Learning credit for the same student in the same year.

  7. If the educational expenses are also allowable as a business expense, the tuition and fees deduction may be claimed in conjunction with a business expense deduction, but the same expenses cannot be deducted twice.

  8. You cannot claim a deduction or credit based on expenses paid with tax-free scholarship, fellowship, grant, or education savings account funds such as a Coverdell education savings account, tax-free savings bond interest or employer-provided education assistance.

  9. The same rule applies to expenses you pay with a tax-exempt distribution from a qualified tuition plan, except that you can deduct qualified expenses you pay only with that part of the distribution that is a return of your contribution to the plan.

  10. IRS Publication 970, Tax Benefits for Education, can help eligible parents and students understand the special rules that apply and decide which tax break to claim. The publication is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

 

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Tax Benefits for Job Seekers:

 

Did you know that you may be able to deduct some of your job search expenses on your tax return? 
Many taxpayers spend time during the summer months updating their résumé and attending career fairs. If you are searching for a job this summer, you may be able to deduct some of your expenses on your tax return. Here are six things the IRS wants you to know about deducting costs related to your job search. 

 

  1. To qualify for a deduction, the expenses must be spent on a job search in your current occupation. You may not deduct expenses incurred while looking for a job in a new occupation.

  2. 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.

  3. You can deduct amounts you spend for preparing and mailing copies of your résumé to prospective employers as long as you are looking for a new job in your present occupation.

  4. 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.

  5. You cannot deduct job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one.

  6. You cannot deduct job search expenses if you are looking for a job for the first time.

 

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The material contained in this website is provided for general information purposes only and does not contain a comprehensive analysis of each item described. Before taking (or not taking) any action, readers should seek professional advice specific to their situation. No liability is accepted for acts or omissions taken in reliance upon the contents of this website.

 

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