The Great Tax Season Easter Egg Hunt

This Sunday is Easter and even if you do not celebrate the holiday it is hard not to be overwhelmed by all the pastel eggs and bunny themed candy. Since the tax deadline falls exactly ten days after Easter, millions of Parents will likely spend the weekend searching for tax tips while their children search for colored eggs. To help all of you enjoy your holiday weekend, I have done the hunting for you and gathered the following list of tax Easter Eggs.

Get Free Help with your Tax Return

For those of you who have not yet prepared your tax return because of the associated costs, consider looking into the IRS’ Free File Alliance. The program helps taxpayers whose income is under $57,000 per year find free tax preparation help.

Use Last Years Return as a Guide

If you filed a tax return last year then you can use it as a guide to help prepare your new tax return. Unless you had a drastic change to your finances last year (bought a new house, got married, adopted a child, won the lottery, etc.) then you should be able to copy most of the information from your old return directly onto your 2010 return.

Do Not Assume you can e-File

Unfortunately, there are some instances when you will not be able to e-file your return, so do not make the mistake of waiting until 11:00 pm on April 14^th to finish your return. If you need to mail in your return then be sure to check the hours of your local post office to make sure your return will be post marked on the 14^th, otherwise you could be hit with a late filing fee.

Last Minute Rush… Always Triple Check

In the rush to get your return finished before the deadline you need to make sure and allow enough time to double, and triple check your return before filing it. I highly recommend finishing your return, then waiting at least a day to review it. If you look over your return right after you complete it then you are less likely to notice potential errors.

Amended Return

If you file your tax return then realize that you have made a mistake, you can always file an amended return. For more information you can check out Topic 308 - Amended Returns on IRS.gov.

File an Extension Right Now

If you are worried about getting your tax return finished before the deadline then you can always request an automatic 6-month extension. To do so, print out IRS Form 4868, Application for Automatic Extension of Time To File U.S. Income Tax Return and mail it to the IRS processing center. Just remember, it is an extension of time to file your return not an extension of time to pay the IRS.

Do Not Ignore the Problem for 6 More Months

If you file an automatic 6-month extension then you will have time to properly complete your tax return. However, do not make the mistake of just ignoring the problem for 6 months by waiting till the last minute. Start gathering your documents now, and if you are planning to get help from a professional then make an appointment within the next few weeks. Most tax offices are closed once tax season ends and it could become difficult to get help if you wait too long.

Last Minute Donations

Congress recently passed a law allowing donations made before April 15^th to the Haitian of Chilean relief efforts deductible contributions on your 2009 tax returns. Therefore, you can make donations now to reduce your tax liability from last year. If you filed an automatic extension then make sure you make a donation before the deadline, since the extension will not give you an extra 6 months to make 2009 deductible contributions.

Start Preparing for Next Year

If you have already filed your return, then it is never too early to begin preparing for next year. If you got a refund, then you could follow the advice I provided in a blog entry early last month on tax friendly ways to spend your return. For more information on tax planning for 2010, checkout this article I posted with 10 tips to reduce your tax liability in ’10.

10 Holiday Season Tax Tips

The holiday season is in full swing, and while your children’s heads may be filled with visions of sugarplums, yours is probably full of nightmares about the upcoming tax season. The holidays are expensive, and while hitting up the sales rack may save you a few bucks, the real savings this time of year come from strategic tax planning. Although most of us would probably prefer to be out in the snow than inside worrying about Uncle Sam and the IRS, you may be surprised to see how much money holiday season tax planning can save you.

1. ‘Tis the Season to Give

We all know that making a charitable donation can help lower your tax bill. Unfortunately, many families have cut back on charitable contributions this year because of the economy. However, after you review your financial documents you might need to make a few more donations to keep your tax liability low. The holiday season presents many excellent opportunities to give, from toy drives to coats for kids campaigns. Just be sure you are donating to a qualified charity, otherwise you might not be able to claim the deduction.

2. Purge & Organize Records

Getting your tax records organized before New Year’s Eve could be very beneficial in your tax planning efforts. Set aside some time to go through all of your financial documents and shred anything you no longer need. Then, you can calculate your total tax liability and determine if you need to take any last minute actions to reduce your adjusted gross income or increase the benefit of a tax credit.

3. The Office Holiday Party

Small business owners may get carried away while planning a seasonal party for your valued employees. Luckily, the IRS allows business owners to deduct some costs for parties and holiday gifts for your employees.

4. Gifts from Your Boss

If you work as a wage earning employee, then you might be getting a holiday or end-of-year gift from your employer. Most small gifts will not have tax implications. However, if your boss gives you a cash bonus, then you will have to claim it as income on your tax return.

5. Pay the Doctor

If you fell getting off the bunny slope, or threw out your back hanging Christmas lights on your house, then you may want to pay those medical bills sooner rather than later. If your yearly medical expenses exceed 7.5% of your adjusted gross income, you can deduct the expenses on your tax return. If your current expenses are a little shy of the deduction threshold, buying a new pair of glasses or an extra prescription could help reduce your tax liability.

6. Defer Now, Save Later

Self-employed taxpayers and small business owners may be able to defer some income until next year. Simply hold off on sending out a few invoices until after Christmas. This can reduce your taxable income for 2009 and give your clients the gift of more time to pay. Remember, this simply pushes the income off until next year, so this is not the best move for everyone. Wage-earning employees generally cannot take advantage of deferred income.

7. Smart Savings

If you have an IRA or retirement account that allows you to make tax-free contributions, then you check to see if you have maxed out your contributions for the year. If not, making a few extra contributions in December is a great way to lower your taxable income.

8. Look at Losses

In between shopping and decorating for the holidays, you should also take a few minutes to look over any stock market gains or losses for the year. If you have an especially high net capital gain, it might be beneficial to sell some stocks before the New Year begins. Capital losses can offset any capital gains, and you can deduct up to $3,000 in losses against regular income. Of course, you should never sell an investment for tax purposes alone, and you should speak with a tax professional.

9. Give Yourself an Extra Mortgage Payment

Although money is usually pretty tight around the holidays, if you can find a way to make an extra mortgage payment before the end of the year, you can save money on your taxes. Mortgage interest is 100% tax deductible, and the deduction is claimed when the interest is paid, regardless of when it was due.

10. The Un-welcome Gift Tax

If you are feeling extra generous and intend to give a large sum of money to a child or relative for the holidays, remember that the IRS taxes gifts over $13,000 per year (as of 2009). Speak with a tax professional if you need guidance on avoiding this nasty tax. Alternatively, the IRS does not place limits on funds used to pay for someone else’s education or medical expenses, and what better gift could there be than health and education?

Holiday Gift Ideas: Money-Themed Presents

This year, instead of giving gifts that your friends and family will only use a short time, David McPherson of ABC News.com is encouraging readers to give money-themed presents. These types of gifts can both encourage recipients to make smarter decisions about money, and some might even help lower their tax liabilities. Check out a few of their ideas below, of find the full article at ABC News.com.

1. Roth IRA: If you have a child now making money on their own, then consider setting up a Roth IRA in their name and funding it with an initial contribution. Then let decades of tax-free compounding go to work. The Roth IRA allows for tax-free withdrawals in retirement, and its advantages are greatest for the young.

2. Books: After a Roth IRA, the money-related gift that offers the highest potential rate of return is a book that teaches good personal finance habits early in life. The book that triggered my interest in personal finance shortly after I got married was "Making the Most of Your Money" by Newsweek columnist Jane Bryant Quinn.

3. Subscriptions: Worried that a 700-page tome on investing or personal finance might go over as big as a tacky Santa sweater? Then consider giving a one-year subscription to a personal finance magazine or maybe the Wall Street Journal, which offers a mix of day-to-day market coverage along with in-depth stories and columns on individual investing and other personal finance topics.

4. Financial planning gift certificate: Is somebody important to you in need of individualized financial help? Then consider paying for a few hours of time with a fee-only financial planner willing to work with clients on an hourly basis. Many of these planners offer gift certificates on their Web sites, and if you don't see one, ask.

5. 529 plan: Thinking about buying a savings bond for Junior's college fund? I say forget it, and instead help fund a 529 college savings plan. U.S. savings bonds are more trouble than they're worth with a long list of peculiar rules.

Holiday Gift Advice for Employers and Employees

Last week the Roni Deutch Tax Center – Tax Help Blog posted a season entry with holiday gift advice for employers and employees. Since there is so much confusion over presents and holiday bonuses from employers I wanted to make sure and share this informative article with my readers. You can find a snippet of the entry below, or checkout the full text at the Roni Deutch Tax Center – Tax Help Blog.

Seasonal Presents for Employees

As the holiday season swings into full force, it has become very common for employers to give out presents to their employees. For the most part, employees will not have to worry about claiming the value of these gifts on their tax returns unless it is a cash bonus. Additionally, employers can write off these expenses if they meet certain restrictions.

The Intent of Giving

In the case of Duberstein v. United States, the Supreme Court determined that the common law understanding of the term "gift," is different than the business tax related definition. The court found that some gifts given by employers were often intended to reward past performances or serve as incentives for future performance. In order to be excluded from payroll taxes a gift given by an employer must be made generously with "respect, admiration, charity or like impulses."

De Minimis Fringe Benefits

According to the Internal Revenue Code Section 132(e)(1), a de minimis fringe benefit is "any property or service the value of which is so small as to make accounting for it unreasonable or administratively impracticable after taking into account the frequency with which similar fringes are provided by the employer to the employer's employees." In plain English, a de minimis benefit is a gift given by an employer that is not subject to payroll taxes and is a deductible business expense.

Turkey, Ham, or Gift Basket Rule

You may have heard of the turkey, ham, or gift basket rule when it comes to taxes on employer provided presents. Essentially, non-cash holiday gifts of property given to an employee will not need to be considered part of an employees wages and will therefore not be subject to payroll taxes. The Federal tax code even allow for items such as flowers, books, gift baskets, etc. to be given to employees. The IRS asserts however, that these gifts must be of a "low fair market value," but does not provide any clear rules on what that monetary limit is.

Continued at RDTC.com…

Happy 4th of July

Since most people are taking tomorrow off to begin their holiday weekend early, I wanted to make sure to wish all of my readers a happy Independence Day in my posts today. Be sure to be safe, and enjoy the patriotic holiday!

Would A Payroll Tax Holiday Boost The Economy?

From MSNBC.com:

As the April 15 tax deadline approaches, two freshmen House members are offering a new version of a hardy tax code perennial: a six-month “holiday” from payroll taxes that they say would benefit both small businesses and the working poor.

Under the bill offered by Rep. Aaron Schock, R-Ill., and Rep. Walt Minnick, D-Idaho, employers and employees of businesses with 50 or fewer workers would pay no Social Security and Medicare taxes for six months. Currently, both employers and employees are required to pay the 6.2 percent Social Security tax and the 1.45 percent Medicare tax throughout the year.

According to the congressional Joint Committee on Taxation, payroll taxes are a bigger burden than income taxes for more than four out of five tax filers.

Lower-income workers would especially stand to benefit from a suspension of the taxes: according to the Joint Committee on Taxation, more than 60 million tax filers with incomes under $40,000 had tax returns in which their payroll taxes were greater than their income taxes.

A way to help low-income workers?

And according to the Tax Foundation, a nonpartisan think tank, more than 45 million tax filers had no income tax liability at all. A payroll tax cut is one of the few ways to reduce such workers’ federal taxes.

The tax holiday proposal would affect about 5 million firms and 34 million workers, according to Bill Rys, the tax counsel for the National Federation of Independent Business, which is backing the idea.

(The federation also backed Schock in his House race last year with a contribution of $2,000 of the total of $2.6 million which Schock raised.)

The payroll tax hiatus has been proposed in past recessions. Joel Slemrod, the director of the Office of Tax Policy Research at the University of Michigan Business School, says in his book "Taxing Ourselves" that “some Democrats responded to Republican income tax proposals in 2001 and 2003 by advocating temporary cuts in the Social Security payroll tax instead” as a way to help low-income people.

Among those supporting the idea of temporarily suspending the payroll tax in 2003: then-presidential hopeful Sen. John Kerry, D-Mass., and Sen. Mary Landrieu, D-La.

The Schock-Minnick bill would require small-business owners to invest the savings from the payroll tax holiday in hiring new workers or buying machinery or other investments to make their firms more productive.