IRS Tax Tips – Tax Help – Retirement Plan Changes for 2012

Posted on January 25, 2012 by Kursti Nakagawa

The best way to avoid incurring an outstanding tax debt is to avoid owing the taxes in the first place. That being the case, contributing to a retirement plan is often one of the easiest and most effective ways of accomplishing this. In addition to allowing for the accumulation of retirement benefits, retirement plan contributions can provide taxpayers with a variety of tax saving opportunities including tax credits, tax deductions and a reduction in taxable income.

To maximize available tax and retirement benefits, taxpayers should be aware of some significant changes that will affect retirement plan contributions for the current tax year.

The following changes have already been initiated or are expected to occur during 2012:

• Increase in Contribution Limits
The contribution limit for 401(k) and 403(b) plans as well as the Federal Government’s Thrift Savings Plan has been increased by $500. The new limit for each of these plans is $17,000 for taxpayers under age 50 and $22,500 for taxpayers age 50 and over.

• Increase in Income Limits for Tax Deductions
The income limits for allowing a tax deduction for traditional IRA contributions have been increased by $2000. The new income limits provide that deductions will be phased out between $58,000 and $68,000 for single taxpayers and between $92,000 and $112,000 for married taxpayers filing jointly.

• Increase in Income Limits for Roth IRA Contributions
The income limits for making Roth IRA contributions will increase by $3000 for single taxpayers and by $4000 for married taxpayers filing jointly. The new limits are between $110,000 and $125,000 for single taxpayers and between $173,000 and $183,000 for married couples.

• Increase in Income Limits for Receiving the Saver’s Tax Credit
The new limits provide a $1000 tax credit for single taxpayers with an adjusted gross income of up to $28,000 and a $2000 tax credit for married couples with an adjusted gross income of up to $57,500 when they contribute to a qualified retirement plan.

• Increase in Plan Transparency
Effective May 31, 2012, a Department of Labor regulation will increase retirement plan transparency by requiring that 401(k) plans disclose to plan participants the fees associated with participating in the plan as well as the cost of each investment option.

• Reinstatement of Matching Contributions by Employers
Employers are expected to continue reinstating matching 401(k) contributions.

If you are an individual or a small business looking for help with tax preparation, tax planning or tax debt resolution, visit us today at www.professionaltaxresolution.com to learn about our full range of tax and accounting services. Contact us by phone at (877) 889-6527 or by email at info@protaxres.com to receive a free, no obligation consultation.

Tax Tips for 2011 – 6 Last Minute Tax Saving Tips

Posted on December 27, 2011 by Kursti Nakagawa

This time of year, clients call for last minute tax guidance that will help them maximize their returns. While we advise our clients on a year round basis – not just at tax time – here are a few last minute tips you might find helpful.

Here are a few things you can do in the next couple of days that may save you some 2011 tax dollars:

1) Make a charitable contribution.
If the last minute contribution is for more than $250, it must be documented by a contemporaneous acknowledgement from the donor organization.

2) Make a contribution to an IRA, 401(k) or other retirement account.
Most retirement plans actually give you up until April 15, 2012 to make a contribution as long as you designate that the contribution should apply to the 2011 Tax Year.

3) Fund a Health Savings Account or a Medical Savings Account.
The money put into these accounts is tax deductible up to certain limits and is not taxed when it is taken out as long as it is used for medical expenses. Any funds put into either of these account types before December 31 can be counted as a tax deduction for 2011 even though will not used for medical expenses until 2012. At the end of each year, money in these savings accounts that has not been used to cover medical expenses during the current year can be rolled over for use during the next calendar year.

4) Pay your 2011 State Income Tax.
Although the deadline for paying your 2011 State Income Taxes is April 15, 2012, the State Income Tax Deduction can be claimed a whole year earlier if the payment is made before December 31.

5) Consider selling investments that are down if you have sold investments that have shown gains in 2011.
Although the entire amount of capital gains is taxed during the year they are realized, the maximum yearly deduction for capital losses is $3000. However, any capital gains realized during a calendar year can be offset by capital losses posted during the same year. This tax law essentially allows you to increase the allowable capital loss deduction by the entire amount of any gains realized during the same year.

6) If you own a small business, consider making equipment purchases.
A special tax code makes it an advantage to purchase business tools and equipment before the end of 2011. Although the cost of a capital expenditure usually must be depreciated over the predicted life of the equipment, a special tax code allows you to deduct the full amount of a purchase, up to certain limits, in the calendar year it is made. (https://boxmining.com/) This amount is $500,000 for 2011 but will drop to $139,000 in 2012 and then to $25,000 per year.

If you need tax advice, contact us at (877) 889-6527 or by email at info@protaxres.com for a free, no obligation consultation with a CPA today. If you already owe a tax debt or are simply trying to avoid incurring tax debt in the future, our experienced professionals can help. Click the links for more information about our tax planning and preparation and tax debt resolution services.

IRS Tax Code and Money Earned Abroad – Could it Change?

Posted on December 23, 2011 by Kursti Nakagawa

Money earned abroad by American corporations is free from U.S. taxes until it is returned to the United States. However, once these foreign earnings are repatriated, they are taxed at a rate of 35%. The current tax code allows multinational companies to avoid this tax, but only if they invest in certain domestic assets such as bank deposits, stocks and bonds. If the foreign earnings are reinvested into the companies themselves, they are taxed at the corporate tax rate of 35%. Currently, a group of multinational companies who have joined together to form what is called the Win America Coalition, is lobbying Congress to reduce the tax rate on earnings they bring home from overseas. This group of companies, which consists mainly of the Silicon Valley technology giants together with some pharmaceutical companies, is asking for the tax rate on repatriated foreign earnings to be reduced from 35% to just over 5%. They claim that a reduction in the tax rate would increase hiring and stimulate job growth by allowing companies to invest in themselves. While some members of both major political parties are in favor of such a tax cut, others are against it. The pros and cons are outlined below.

Reasons for favoring a tax cut on repatriated foreign earnings:

• Due to a flawed U.S. tax code, profits of U.S. companies continue to be invested around the world instead of at home.

• Even though companies are allowed to keep funds earned abroad in U.S. banks, they are not able to put the funds to work in the U.S. economy without being subjected to a 35% tax rate.

• Reducing the tax rate for repatriated funds earned abroad would inject billions of dollars into the U.S economy, thus creating jobs.

Reasons for opposing a tax cut on repatriated foreign earnings:

• Domestic companies that do not have overseas operations say it is unfair to give multinational companies a lower tax rate.

• Some analysts say that job growth created by a tax cut would be lower than some estimates predict because foreign earnings are already invested in U.S. stocks and bonds and deposited in U.S. banks.

• Independent tax analysts have said that when a similar tax cut was initiated in 2004, most of the repatriated funds were spent on shareholder dividends, stock buybacks and executive pay rather than on any type of expansion that would have created jobs.

According to recent report by the Senate’s Permanent Subcommittee on Investigations, large multinational companies are already investing nearly $250 billion in United States financial institutions in order to avoid paying the 35% tax rate on repatriated foreign earnings. The question is whether a reduction in the current rate would promote changes in the distribution of these funds that would be beneficial to the economy.

Do you have a tax planning or preparation question? Are you thinking about your 2011 taxes and want to avoid owing the IRS a tax debt? Call for a free, no obligation tax consultation with our CPA’s today (877) 889-6527 or email us at info@protaxres.com

Start of 2012 with clear and accurate tax advice – contact us today!

IRS Tax Tips for the Unemployed – What to Know When Money is Tight

Posted on November 14, 2011 by Kursti Nakagawa

If you are unemployed you are probably worried about many other things but there are some tax consequences and conversely some tax breaks that result from being unemployed.

Here are some facts that unemployed taxpayers will need to know when filing a 2011 tax return on April 15 2012.

1. Severance packages, Accumulated sick leave, Vacation, and Holiday pay are all taxable income. It is another terrible reality of being terminated. These amounts will have taxes deducted and be declared on your W2 as income.

2. Unemployment benefits are also considered taxable income. At tax time you will have to pay taxes on this income even though it was not deducted at the time the checks were issued to you.

3. You can be proactive and ask the government to withhold 10% of the unemployment payments you receive weekly in order to prepay the resulting tax liability.

To do so, complete IRS Form W-4V and submit it to your state unemployment department. The state unemployment department will provide form 1099-G to the IRS by Jan. 31 to show how much you received in benefits. The IRS will be looking for this number on your tax return.

4. Withdrawals from retirement plans and IRAs are generally taxable. The news is worse if you are under 59 ½ or younger. In that case you may be subject to a 10% early-withdrawal penalty on top of which your state may assess a penalty as well.
Ask your Tax professional, but there are some exceptions to this penalty. For a self help tutorial on the subject check out Publication 575 at www.irs.gov.

5. There is one way to use retirement funds – although only temporarily – without penalty. To do so, roll over your retirement fund or pull money out for 60 days or less and then re-deposit the entire amount into a qualified retirement plan. Using your funds only temporarily like this does allow you to escape the hefty penalties.

6. Loans and gifts from family and friends are not taxable income. This is one bright spot for the many cash strapped taxpayers out there. In addition, Bank loans or credit card cash advances are also not subject to tax.

7. Money received from a credit card company or an insurance carrier to cover your monthly payments while unemployed is not taxable income.

8. Public assistance, welfare and food stamps, are not taxable income either.

9. Having any Debt written off or forgiven may result in that amount being subject to income tax. The unemployed often find themselves with debt being forgiven and an unfortunate tax consequence as a result. While not working, you have no income and likely do not have the ability to repay existing debt. If a creditor writes off a balance you owe or reduces your balance by forgiving some of the debt, you will be liable for income taxes on the amount forgiven. Be on the look out, you will receive a Form 1099 by Jan. 31 indicating the debt forgiven amount that is taxable.

10. If you file bankruptcy none of the forgiven debt is taxable income.

11. If you are insolvent, you may escape a tax liability to the extent of insolvency.

To determine this, add up the value of all of your assets on the eve of the debt forgiveness. Then add up the value of all of your debt. Subtract the debt from the assets. If the result is a negative number, then you are insolvent to that extent.

Here is an example: You have assets of $100,000 and a debt of $120,000 with a resulting insolvency of $20,000. A credit card company forgives a balance of $30,000. In this case you would have to pay taxes on $10,000 which is the difference between your insolvency and the balance forgiven.

Tax Benefits. Now to the Few Potential Positives To Being Unemployed.

1. Your decrease in income will likely throw you into a lower tax bracket and you may enjoy a refund from amounts paid in before your unemployment.

2. If your earned income is low enough, you may qualify for the Earned Income Tax Credit (EITC) as well as the additional Child Tax Credit, which will result in an even bigger refund of the amounts you paid into the system before unemployment.

3. Job search expenses are deductible.

4. If you go back to school, you may qualify for the American Opportunity Credit or an education deduction for college tuition, books, fees, and computer equipment.

5. If you get a new job and the job requires a move; you may be able to deduct moving expenses. For more information, read the self help guide – “IRS Publication 521” to determine if you meet the time and distance requirements. This guide can also help you to determine which expenses are deductible.

6. If you have a tax debt from prior years and are already on an installment plan, you will likely be able to put off repayment because you are unemployed. Call the IRS and let them know your situation. As a temporary status, they can reclassify you as “temporarily uncollectible”. Typically this gives you a year of delayed repayments before they begin collection efforts again. If another year passes and you are still unemployed, the IRS will renew the “uncollectible” status. Of course those hefty penalties and interest will continue to accrue, but you will be temporarily relieved of the burden of the IRS debt.

At Professional Tax Resolution we provide all of the services necessary to help you plan your finances or resolve a tax debt issue that already exists. Our professionals will get a comprehensive understanding of your situation, stop any immediate collection actions, and help you handle the pressure you might be feeling.

Call (949) 596-4143 or click “Learn More” for a free consultation with our CPA.

If You Have Unreported Income You May Get a Letter from the IRS

Posted on November 10, 2011 by Kursti Nakagawa

Understanding The IRS “Soft Notice” Pilot Program to Encourage Income Reporting Compliance

In 2007, the IRS launched a pilot program designed to decrease the tax gap by identifying unreported income. Under this pilot program, which is still in effect, IRS notices are issued to taxpayers when there is a discrepancy between the income reported on their tax returns and the income reported directly to the IRS by various financial institutions and employers. These “soft notices” do not identify specific discrepancies or calculate amounts due. They simply ask taxpayers to review their returns and to file amended returns if errors are found.

In spite of the fact that these “soft notices” do not require any specific response or action on the part of the taxpayers who receive them, they should be taken seriously. The IRS designed these letters to encourage compliance through self-correction and should be considered as advanced notification that IRS software has picked up a disparity in reported income.

Although the “soft notice” pilot program collected more than one million dollars in its first year and it can be expected to continue for many more to come, the IRS has not collected enough data to determine its long term benefits.

If you received a letter from the IRS or an IRS Notice and are seeking guidance, call us toll free at (877) 889- 6527 for a free, no obligation consultation with a CPA. Professional Tax Resolution Inc., is an honest firm with strong values. We want our clients to understand all of the options they have and never promise that we can do something we can’t.

Tax Settlement can be achieved though many methods but often the most effective way is by reducing how the liabilities were incurred at the time and avoiding them in the future.