Don't Overlook Valuable Tax Credits

Category: Tax Law and Planning

Courtesy of James Jimenez, CPA of Fass and Associates in Parsippany, New Jersey:

DON'T OVERLOOK VALUABLE TAX CREDITS

Tax credits are one of the most powerful ways to lower your income tax bill. A tax credit reduces your taxes dollar for dollar. A tax deduction, on the other hand, only reduces your taxable income, so your benefit is determined by your tax bracket. For example, a tax deduction of $1,000 will lower your tax bill by $280 if you are in the 28% tax bracket. A $1,000 tax credit will lower your tax bill by $1,000. Here are some of the most common tax credits; most are subject to income limits.

Child credit. Taxpayers who have dependent children under age 17 may be eligible for a child tax credit of $1,000 per child.

Dependent care credit. Expenses paid for the care of dependent children under 13 and certain other dependents may qualify for a tax credit.

Education credits. Qualified college and vocational school expenses for eligible students may qualify for a credit. Under the Hope credit, up to $1,650 per student can be claimed for tuition and fees paid during the first two years of post-secondary education. Under the lifetime learning credit, up to $2,000 per family is available for post-secondary education expenses and for education expenses to acquire or improve job skills.

Earned income credit. This credit is intended for low-income taxpayers. The size of the credit depends on the amount of your earned income (wages and self-employment income), investment income, and your filing status.

Adoption credit. A credit of up to $10,960 per child is available for qualified adoption expenses.

Business credits. There are a number of credits that are specifically available to businesses.

Tax Deductions Not to be Forgotten About - Look here before you file

Category: Tax Law and Planning

Courtesy of James Jimenez, CPA of Fass and Associates in Parsippany, New Jersey:

Don’t Miss These Often Overlooked Deductions

If you itemize deductions on your tax return, every additional deduction you find will save you money. Here’s a sampling of often-missed deductions. As you review the list, be aware that certain miscellaneous deductions are deductible only to the extent they exceed 2% of your adjusted gross income (AGI), and medical expenses are deductible only to the extent they exceed 7.5% of your AGI. Also, itemized deductions are limited for higher-income taxpayers.


Often-missed deductions:

• Disaster losses not reimbursed by insurance.
• Job-hunting travel and telephone expenses.
• Employment agency and job counseling fees.
• Costs for resume preparation.
• Union or professional association dues.
• Specialized work clothing or small tools used at work.
• Points paid by you on a new home loan.
• Points paid by a seller on your behalf.
• Points paid on refinancing your home mortgage (deductible pro rata over the life of the loan).
• Remaining undeducted points on a prior refinancing when you refinance again.
• Your actual expenses or 14¢ a mile for driving in doing charitable work (larger deduction if driving is in conjunction with 2005 hurricane charity work).
• Gambling losses, but only to the extent of your winnings.
• Fees paid for the preparation of your tax return. "

And an extra from me, certian legal fees.

Waiting for your Refund?- IRS to Review Anti-Fraud Program the Freezes Refunds

Category: Tax Law and Planning

From Yahoo News: IRS to Review Anti-Fraud Program - "WASHINGTON - IRS Commissioner Mark Everson ordered a review Tuesday of a tax fraud detection program criticized for freezing thousands of refunds without notifying taxpayers.

Everson said the tax agency will soon announce new procedures to advise taxpayers when a refund has been frozen. The agency will also revise its fraud screening procedures so that it withholds fewer refunds owed to innocent taxpayers."

Of course, why are you expecting such a large refund in the first place? One way to look at a refund is an interest free loan to the government. After all - all a refund is is a return of your own money that you haven't been able to spend because you voluntarily gave too much to the government in taxes. See my prior post Review your withholding - A Tax Refund is an Interest Free Loan to the IRS about adjusting your withholding to maximize your paycheck.

The article goes on to claim that: "Refunds claimed on tax returns determined to be fraudulent remain frozen for a number of years until the IRS sees the taxpayer file a number of legitimate returns.

The tax agency said it's fighting a rising tide of refund fraud, which it now estimates to be more than $500 million a year. A significant portion involves false earned income tax credit claims, which can amount to $4,400 on a tax return, the IRS said.

Nearly 75 percent of the pool of frozen refunds studied by the taxpayer advocate were low-income families claiming the earned income tax credit, designed to reduce poverty among the working poor.

The IRS issues more than 100 million refunds each year, and the Questionable Refund Program withholds less than 1 percent for further scrutiny. The IRS said about 200,000 refunds are held longer than a week, but many of those can be held for months or years."

The IRS admits is does not normally inform taxpayers they are suspected of fraud during the time they are investigating the return - with the result that unless you keep pushing for where your refund is, you may not know why you don't have it.

Having said that, statistics show that the frozen refunds are only a drop in the refund bucket: "The IRS issues more than 100 million refunds each year, and the Questionable Refund Program withholds less than 1 percent for further scrutiny."