Questions for the Tax Lady: November 9th, 2010

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question: Roni, I'm going to be moving soon and I have boxes full of old pay stubs and receipts that I've had for at least ten years. How long should I hold onto these tax records? Do I need to move them all to my new place?

Answer: Ah, yes, I think we all have boxes of records we no longer need but are terrified to throw away. There are different rules for how long you need to keep various tax-related records. For your paystubs, anything over a year old, you can shred.

Question: I do not want to have a large tax bill next April. What are the easiest end-of-the-year tax planning moves to make?

Answer: The best thing you can do right now to ensure your tax bill will be manageable: Do a tax dry run. Use the information you have now – like income, tax payments, educated estimates about expenses and deductions – and see what your tax bill looks like. You may want to try using a tax calculator to see what your estimated tax bill looks like.

If your dry run shows you will owe a big chunk of change, you can make some charitable contributions, make your January mortgage payment before the end of the year, or take advantage of soon-to-be-expiring tax credits for making green upgrades to your home. You still have plenty of time to make these simple money-saving tax moves and reduce your tax bill come April.

If you are looking at a big fat refund check, adjust your tax withholding and enjoy the extra cash now, when you probably need it most. Then next year, adjust your withholding to just cover your projected tax bill, and keep more cash in your pocket every month.

25 Best Places to Retire

The economic downturn has been especially difficult on retired taxpayers. Fortunately, there are some places in this country that are friendly to retirees. CNN Money.com put together a list of the 25 best places to retire at. You can find a section of the story below, or check out the full list here.

1. Durham, NC

Population: 223,284

% over 50: 25%

Median home price: $163,000

State income tax: 7.75%*

Where to take classes: Duke University

Durham would rank as a retiree Mecca even without Duke University's stellar lifelong-learning program. Residents enjoy four seasons -- but without them being too extreme. Homes are affordable, the area is dotted with golf courses and parkland, and the region is home to a renowned university medical center.

This former tobacco town also is a budding cultural haven. Duke's Nasher Museum of Art has a growing contemporary art collection. Concerts and Broadway hits, such as Billy Elliot and the Lion King, frequently make their way to the newly built 2,800-seat Durham Performing Arts Center.

2. Hanover, NH

Hanover, NH

Population: 8,516

% over 50: 25%

Median home price: $401,000

State income tax: 5%*

Where to take classes: Dartmouth College

New England is chock full of charming villages. But few are as welcoming to retirees as Hanover, home of Dartmouth College and its 20-year-old senior education program.

Outdoor enthusiasts can kayak on the Connecticut River or hike in the White Mountains. Winter, of course, brings 94 inches of snow on average, so residents make the most of the cold (five ski hills are within an hour's drive) or head south.

Continue reading at CNN Money.com…

Tax Info For New Grads

Spring is here and many students are getting ready to graduate from college. Let me commend all you grads for your outstanding accomplishment. You have laid the foundation for a successful life ahead. As you get ready to land your first job, there are a few things you should know about filing your income taxes. Klipinger.com published a great article a couple years ago, but here’s the most relevant and up to date information:

First, you need to file your taxes. One of the first things to find out is whether your parents qualify to claim you as a dependent or if you can claim your own $3,650 exemption. To find out, answer these questions: Will you be under age 24 at the end of 2010? Were you a full time student for at least five months of the year? Did you live with your parents more than half the year without proving more than half your own support? If the answer is yes, your parents can still claim you as a dependent and that means they get the $3,650 exemption. If you are older or provided more than half your financial support, then the exemption is yours.

What do most college students have in common? Student loans. Once you start claiming your own exemption, you can also start deducting the interest you paid on your student loans. You can deduct up to $2,500 in student loan interest by filing the regular 1040 form. This deduction phases out if you earned more than $60,000 for single filers ($120,000 for joint filers) so talk to a tax professional to be sure you qualify.

If landing your new post-college job means a move you may be able to deduct those expenses. So long as the job makes you move more than 50 miles from your previous home and your new company does not reimburse you for the costs, you should be able to claim the deduction for the costs of a moving van, mileage, and any other normal moving expenses. You don’t have to itemize to claim this deduction, just make sure you keep receipts and records.

Cost-Saving Moving Tips

Now is a great time to buy a new home! However, to qualify for the $8000 tax credit, you must know that time is of the essence. To qualify for the tax credit, you need to be in a signed contract by April 30th and you’ll have until June 30th, 2010 for the sale to close. One of the extra expenses of a new home is the cost of moving. A recent Kiplinger’s article provides some great tips on how to save on your move into your new home. Take a look at a couple of money-saving tips below and don’t forget to go to my Tax Help Blog to check-out whether you qualify to deduct some of your moving expenses on next year’s tax return.

1. Don’t Pay Full Freight. Are you going cross-country? A move for a 3-bedroom home could cost as much as $8,000! Try to move in the off-season, between October and April and you can save 10%. Get several written estimates with rates per hour (for a local move) or per pound (for an interstate move). Bids should cover every room in your house and should be done in person.

2. Kick the tires. If you're moving across town, ask around for recommendations and then go to the Better Business Bureau's Web site to make sure there haven't been any complaints filed against your prospects. If you're moving across state lines, your first pit stop is the web site of the American Moving & Storage Association, a trade group. From the home page, click on "Find a ProMover Now," and as many as six movers will call to set up an in-home estimate. If you have a firm you want to use for an interstate move, you can make sure it's licensed with the Federal Motor Carrier Safety Administration and view the company's complaint and safety record by clicking "Search Movers & Complaint History."

3. Let Uncle Sam help pay for it. If your move is job-related, you may be able to deduct some of your moving expenses whether or not you itemize your deductions. You must move within a year of your first day at the new job. In addition, your new office has to be at least 50 miles farther from your old house and office. If you qualify, you can deduct the cost of moving your household goods and traveling, but not meals. Some moving-related expenses that can be deducted for a job-related move include:

• Packing and transportation costs for moving household goods
• The cost of shipping goods from a place other than your former home (such as a storage unit)
• Any storage bills, or fees for disconnecting or reconnecting utilities
• All move-related travel expenses (such as mileage, tolls, lodging, parking fees, etc.)
• Expenses of shipping or relocating your car and pets to your new home

Continue reading Kiplinger’s full article here.

5 Least Tax-Friendly States to Live In

With tax season coming to an end, some taxpayers are satisfied with their tax bill or refund, while others are wondering if they might have paid more or less had they been living in another state. Using information collected by the Tax Foundation, Wallet Pop made a list of the five least tax-friendly states to live. I have included the first two states below, but be sure to checkout the full list here.

1. New Jersey. Not only does New Jersey have the worst NBA team record this year, they have the worst tax record as well. Taking into consideration state and local property, sales and income taxes, those in the Garden State pay out a whopping 11.8% in taxes.

It was no surprise that voters booted existing Governor John Corzine (D) out of office last fall in favor of GOP challenger Chris Christie. Voters cited the economy and the state's high tax burden as their biggest concerns -- a particularly timely gripe since taxes in the state had just gone up (again).

New Governor Christie initially received praise for his handling of what was, all agreed, a fairly substantial economic challenge. He cut spending and made some painful decisions on raising taxes to get the state's budget in order. But his "we're all in this together" stance took a beating when he refused to extend the tax rate to top earners.

Hopefully, the tax burden will turn around in the next four years ... or Christie may find himself joining in a revolving door of New Jersey governors.

2. New York. The Empire State just missed the dubious honor of getting the top spot with a total burden of 11.7% -- just 0.1% behind its neighbor, New Jersey. New York is generally regarded as an expensive place to live because of the cost associated with living in New York City, which has a total population of more than many states (about 19 million). But tax woes aren't limited to the city: The state of New York has been struggling to close an estimated $9 billion deficit. That means no tax cuts for residents. In fact, adding to its already high tax burden, New York is likely to see some additional taxes on everyday items shortly -- a tax on soda tops the list.

Questions for the Tax Lady: March 22nd, 2010

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: My divorce was finalized in November of 2009. Since I was married for most of the year do my ex husband and I need to file a joint return?

No. As long as you were divorced before December 31^st, 2009 then the IRS considers you a single taxpayer for the whole year. You should therefore file an individual return.

Question #2: I have moved since I filed my last tax return. Is there a special form or something I should include with my new tax return to notify the IRS of the address change?

There is not really any need or specific protocol for notifying the IRS about a recent move. When you file your tax return just make sure you list your current address. The IRS will see the change, and automatically update their records.

Questions for the Tax Lady: October 5th, 2009

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: How are my property taxes calculated?

Answer: Your property taxes are determined based on your local government’s “assessed” value of the property. The exact rate, and assessment rules will vary widely depending where you live, but there are a few general property tax rules. Generally, a local government agency will either base the taxes off of the home’s most recent sales price, or they might have an assessor regularly determine the current market value of the home. Some government agencies update their records every year, however most simply rely on recent sales prices, which may date back decades.

Question #2: Roni, I recently moved to a new city in the same state. How do I notify the IRS of the change?

Generally speaking, you will not need to worry about officially notifying the IRS about a recent move. If you are a wage earning employee, then you will want to make sure and notify your employer who will likely give you a new IRS Form W2 to complete. Otherwise, next time you file a tax return make sure to list your current address. The IRS will see the change, and automatically update their records.