Our “pay-as-you-go” tax system requires that you make payments of your tax liability evenly throughout the year. If you don’t, it’s possible you could owe an underpayment penalty. Some taxpayers meet the “pay-as-you-go” requirements by making quarterly estimated payments. However, when your income is primarily from wages, you meet the requirements through wage withholding and you […]
Avoiding Underpayment Penalties
has provided several means of assisting taxpayers in meeting the “pay-as-you-go” requirement. These include: Payroll withholding for employees; Pension withholding for retirees; and Estimated tax payments for self-employed individuals and those with other sources of income not covered by withholding. When a taxpayer fails to prepay a safe harbor (minimum) amount, they can be subject […]
Transform Nondeductible Interest to Deductible Interest
The only interest that is still deductible as an itemized deduction is home mortgage interest and investment interest. If you are like so many others with large consumer debt such as credit cards, car payments, etc., you are paying interest that is not deductible. If the amount of consumer interest you pay each year is […]
Keeping Old Tax Records
Taxpayers often question how long records must be kept and the amount of time IRS has to audit a return after it is filed. It all depends on the circumstances! In many cases, the federal statute of limitations can be used to help you determine how long to keep records. With certain exceptions, the statute […]
Understanding Your Marginal Tax Rate
Ever wonder what the term “tax bracket” means? It refers to the top marginal tax rate that individuals are being taxed, not the average. Knowing your marginal rate is important, because any increase or decrease in your taxable income will affect your tax at your top marginal rate. Thus, if you are in the 25% […]
Keep a Low Audit Profile
According to a recent news article in a large metropolitan newspaper, the IRS may be auditing fewer returns but they are getting smarter about choosing those they do audit. Their goal, of course, is to focus scrutiny on the most “audit worthy” returns – those with potential for big adjustments. As taxpayers, all of us […]
Years of Inflation and the AMT Pose a Growing Tax Threat
Your tax will be the higher of the tax computed the regular way or the Alternative Minimum Tax. Anticipating when the AMT will affect you is difficult, because it is usually the result of a combination of circumstances. In addition to those items listed above, watch out for transactions involving limited partnerships, depreciation and business […]
Child Credit
The Child Credit was first introduced in 1998, when taxpayers were allowed to claim a $400 tax credit for their qualified children who were under the age of 17 at the end of the tax year. Per prior tax law changes, the child credit has increased to $1,000, and the $1,000 credit was made permanent […]
Get a Big Refund this Year?
The IRS estimates that approximately 70 million Americans annually receive tax refunds averaging around $1,800. If you are among those who received a refund, you are probably celebrating. While some consider a large refund cause for celebration, it’s actually a financial mistake that becomes particularly costly for those who get refunds year after year. What’s […]
Understanding AGI Limitations and Phase Outs
AGI is the acronym for Adjusted Gross Income. It is generally the sum of a taxpayer’s gross income less adjustments that are permitted by law (but before deductions and exemptions). Those who file Form 1040 can find their AGI at the bottom of page 1 of the tax return. Many tax benefits and allowances, such […]