Tax Deduction

Overlooked Tax Deductions

I’ll share a few overlooked tax deductions that people miss out on. I’ll group them by family, home, and finally business. I hope it makes it easier for you to find a deduction you can claim next time you file your taxes.

Family

It always starts at home, right? The good news is that taking care of your family can be a tax benefit come tax time.

• Personal property taxes: You may have received a state and local tax bill during the year for your personal property like a recreational vehicle. While it’s a chunk of change out of your budget, the good news is that state and local property taxes related to personal property is tax deductible.
• Medical expenses: You claim the amount of your medical expenses that exceeds 7.5% of your adjusted gross income. Double check to see if you’re overlooking anything. This tax season families with new babies may be able to deduct breastfeeding supplies like a breast-pump.
• Charitable contributions: Many of us keep receipts for charitable donations, but did you also include the supplies you’ve spent helping a non-profit organization?

Did any of the tax deductions mentioned above surprised you? Since we had our little girl this summer I’m happy about breast pumps being included for medical expenses.

Home

We spend so much time at our beloved homes. The roof over our heads can be an even bigger benefit when you consider some of the tax deductions overlooked.

• Moving expenses: If you had to move into a new place due to a job, you may be entitled to a deduction on your moving expenses. You have to meet the distance and time guidelines as outline by the IRS.
• Refinancing points: If you refinanced your house this past year, you may be able to deduct a portion of your points (it’s spread over the length of the loan). If you have a 15 year mortgage, you can deduct 1/15 of the points each year.  Points are pre-paid interest paid to the lender by the borrower to obtain a mortgage loan.  This interest can also be called loan origination fees, maximum loan charges, discount points, or loan discounts.
• Casualty-loss deduction: If you’ve been affected by one of the weather related disasters that happened this past year, you may qualify to get a tax deduction on your loss.

Don’t forget to look at your home mortgage interest you’ve paid as well. It can be a big deduction for some people.

Business

Whether you are looking for work, are working from home or at a company, there are some deductions that you need to be aware of.

• Home Office Expenses: I was surprised to learn that some entrepreneurs put off including their home office expenses with their deductions to ‘be on the safe side’. However if you’re entitled to it, you should claim it. Make sure you keep good record and you shouldn’t have a problem.
• Cell phones: If you have a cell phone used to handle business matters that bill could be tax deductible.
• Journals and Newspapers: Depending on whether or not your subscriptions are job related, this is another overlooked deduction.

What other business related tax deductions do you think you qualify for?

Tax Software to Your Aid

This is a big reason that we use tax software for filing. It’s another set of eyes that can guide you towards the legal tax deductions and credits that you already qualify for. Every year tax laws change and it’s extremely hard to keep up to date with all of these changes.

Thoughts on Tax Deductions

I’d love to hear your thoughts on getting the tax deductions you deserve. How many of you itemized your taxes last year? What deductions did you take? What’s your tax situation this year? Do you qualify for more tax deductions or less?

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Taxes for Beginners

A New Job and Your W4

If you’re a beginner at filing your own taxes, chances are high that you’ve started a new job, possibly your first in the “real world”. Congrats! But with adulthood and a full-time job comes the reality that a significant part of your pay won’t get to see the inside of your bank.

When you start a new job, your employer will have you fill out a W4, which is the Employee’s Withholding Allowance Certificate. This document basically wants to know your marital status and how many tax-withholding allowances you intend to claim.

Filling out your W4 correctly will go a long way in easing the pain of your first tax season.

A Large Refund Isn’t Always a Good Thing

Yes, a giant chunk of money is great. Who wouldn’t love the massive refund check, like the one’s you hear about on commercials this time of year? But if you receive large tax refunds year after year, you might want to rethink your money management.

Basically, a tax refund means that you paid the government too much money over the course of the last year. It’s like giving Uncle Sam an interest-free loan. So when you get your refund, the government is giving you back your money. If you make the right adjustments on your W4 in the previous year, you could keep more of your own money and put it to work for you throughout the year.

Filing the Easy 1040EZ Form

If you’re just starting out in life, it’s a good bet that you will qualify for the IRS 1040EZ Form. The major criteria for this form are that you haven’t made any money from investments, you make $100,00 or less per year, you don’t claim any dependents, and you didn’t earn more than $1,500 in interest.

Not only is this form simple to fill out, but if you qualify by meeting the required criteria, the 1040EZ is free at TurboTax.com and TurboTax will easily guide you through you entries. Sure, you could spend $70 by using a tax professional to file your taxes. But if you qualify for the 1040EZ form, your situation probably isn’t complicated enough to justify the money spent.

Standard Deduction vs. Itemized Deduction

As a beginner to filing taxes, it’s important to understand the difference between the standard tax deduction and itemizing your deductions. Any deduction will reduce your amount of taxable income, but choosing the right path will save you the most money.

The standard deduction is just what it sounds like – it’s standard. It’s a set amount of money and just about everyone will qualify for it. For the 2011 tax year, the standard deduction amount for a single person is $5,800, married filing jointly is $11,600, and married filing separately is $5,800 each. You’ll want to use the standard deduction if your itemized expenses do not exceed these amounts.

Itemized deductions are expenses made on certain goods and services (such as medical expenses, mortgage interest paid, giving to charity, and job-related costs) that the government has declared as tax deductible. If all of your qualified itemized expenses add up to an amount greater than the standard deduction amount, then you should use the itemized deduction because that will reduce your taxable income by a greater amount.

One of the easiest ways to find out which deduction you should take is by using your tax software. Most tax software, including TurboTax, will walk you through all of your potential itemized deductions, calculate the totals, and show you which deduction will benefit you the most.

Don’t Wait Until the Last Minute

The final piece of advice to give a tax newbie is to make certain that you file on time. Don’t worry about an extension, don’t wait until the last minute, and don’t let tax fear and intimidation force you to ignore the inevitable. Taxes are due on April 17th this year.

Forget about your history of procrastination, your late night college cram sessions the night before finals, and your constant inability to be on time. Today is a new day! It’s time to plan ahead, prepare in advance, gather all of your tax information as soon as it’s available, and knock this tax stuff out of the park.

Good luck and happy tax season.

“Go ahead and deduct it.”

“I think there’s a tax credit for that.”

Although you might have heard or even uttered one of the sentences above, have you ever wondered or sought to understand its true meaning? While both tax deductions and tax credits can save you a significant amount of money on your taxes, they work in significantly different ways.

Tax Deductions and Credits

What is a Tax Deduction?

A tax deduction is a qualifying expense which reduces your taxable income. A common deduction on your federal income tax return (Form 1040) is for state income taxes you pay. An example of how this works:  Say, when considering all of your income and deductions except for state income taxes, you have $35,000 of taxable income. Furthermore, let’s assume you paid $1,000 in state income taxes for the year. By deducting the $1,000 in state income taxes, your new taxable income is $34,000.

What is a Tax Credit?

Unlike tax deductions, those eligible for tax credits subtract the amount of the credits from their tax liabilities (not taxable income).  A common tax credit is the child tax credit.  If you have a qualifying child, you can take a credit of up to $1,000 per child against your tax liability.  If, besides the child tax credit, you would otherwise have a total federal income tax liability of $2,500, a one child tax credit would reduce that liability to $1,500.

Is a Tax Deduction Better Than a Tax Credit? Is a Tax Credit Better Than a Tax Deduction?

If you were ever faced with a hypothetical choice between a $100 tax deduction and a $100 tax credit, you would want the credit. Unlike a tax deduction, a $100 tax credit reduces your tax dollar-for-dollar ($100).  On the other hand, a tax deduction reduces your taxable income by $100. The resulting amount of tax you save depends on your marginal tax bracket (in everyday language: your tax bracket).  If you are in the 25% tax bracket, a $100 tax deduction reduces your taxes by $25.

Itemized Deductions vs. Standard Deductions

Just about everyone qualifies for the standard deduction.  Although based on your filing status (e.g., single, married filing jointly, married filing separately, or head of household), all people with the same filing status receive the same standard deduction amount. (The only exceptions are for the elderly, disabled, or blind – they receive a somewhat higher standard deduction).

By contrast, itemized deductions are numerous and their amounts vary by individual. Common itemized deductions include:

• Certain medical and dental expenses above a certain threshold
• State income taxes
• Property taxes
• Charitable contributions
• Mortgage interest

There’s a bit of a hitch with itemized deductions, however. You can only benefit from itemized deductions to the extent they exceed your standard deduction.   Said another way, each taxpayer is permitted to take the higher of their standard or itemized deductions – but not both.

Say you are married and filing jointly.  In such a case, your standard deduction is $11,600. Let’s further say the total of your itemized deductions is $11,700. Since your itemized deductions exceed your standard deduction by $100, you take the itemized deduction.  Further, if you are in the 25% bracket, your itemized deductions save you $25 more vs. simply taking the standard deduction.

On the other hand, had your itemized deductions totaled any amount less than the standard deduction you qualify for, you wouldn’t bother taking the itemized deduction – you’d just take the standard.

Whether an expense qualifies for an income tax deduction or tax credit, be sure to take maximum advantage – both lower the taxes you’ll pay.  Don’t worry about trying to figure out which ones you should take, TurboTax will easily guide you and get you the tax refund you deserve.

When are you filing your taxes?  Have you taken advantage of any tax deductions or credits yet?

Finance

Here are a few tips to help you get started:

Reduce Your Credit Card Debt

Did you know that 14 million Americans are still paying off their holiday bills from 2010? Or that the average household currently has about $15,000 in credit card debt? As you rethink needs versus wants in 2012, regain control by paying down the balance of the credit card with the highest interest rate first.  There are free sites out there like Mint.com that will help you establish a budget and goals.  Alternately, look into doing a balance transfer which will help you consolidate high-interest rates to less expensive cards.

Save More & Spend Less

Get this: About 60% of overall purchases are spontaneous, and the average cost of an impulse buy is about $100. Stop the madness!  You can put more cash in your pocket in 2012 by separating your wants from your needs.  Need cash immediately or want to kick start your savings? File your taxes now! Tax refunds are averaging about $3,000 and if you choose e-file and direct deposit you may get that money back in your pocket in as few as 7 days versus 4 – 6 weeks for a paper return. You can also save on fees and learn about your fiscal health by using TurboTax.

Boost Your Credit Score                  

These days, you need a score of about 720 or higher to get the best rates. Score high and you can save thousands of dollars; score low, and it’s not only tough to get a loan, but also rent an apartment or even land a job. Make 2012 the year you improve your credit score. You can do this by paying your bills on time (that accounts for 35% of your score), paying down your debts (the amount you owe is 30% of your score), and keeping the credit card spending under control. You should utilize no more than 30% of your available credit and ideally only 10%.

Fund An Emergency Account

Fewer than four in ten Americans have a fully funded rainy day account! That’s a scary prospect, given how fragile this recovery is. You need a cushion: if possible, at least six months to a year’s worth of salary set aside in an accessible account (such as a money market account) to cover unexpected expenses or replace interrupted income.

Get Serious About Retirement

First, run the numbers to see just how much money you’re going to need to live comfortably in your retirement. Then, get to work. Stash away as much as you can into an employer-sponsored plan (the contribution limits have gone up from $16,500 in 2011 to $17,000 in 2012; $22,500 for those 50 years of age or older), and take full advantage of company matches.  You should also consider spending less, working longer and redefining your vision of retirement.

Earned Income Tax Credit

Earned Income Tax Credit Eligibility

To qualify for the EITC, you must have a Social Security Number, work for pay, and earn less than a certain dollar threshold (amounts detailed later).  There are many other requirements including USA citizenship/resident alien status and limitations on investment and foreign income, but those are typically not issues for people otherwise qualified for the EITC.

Work for Pay

Unemployment income doesn’t help you qualify for the EITC. Neither does bank interest.  In order to receive any money via the EITC, you must work. You can have a traditional job as an employee or you can be your own boss and earn money from self-employment.  But one way or another, you’ve got to earn some money in order to qualify for the EITC.

Income Limits

For the 2011 tax year (the tax return you’re about to file), your earned income (what you receive due to your work), and your adjusted gross income (AGI, the sum total of all of your earnings less certain deductions) must be less than:

• $43,998 ($49,078 married filing jointly) with three or more qualifying children

• $40,964 ($46,044 married filing jointly) with two qualifying children
• $36,052 ($41,132 married filing jointly) with one qualifying child
• $13,660 ($18,740 married filing jointly) with no qualifying children

Qualifying Children

As you can see above, the relevant income limits are much more generous if you take care of at least one qualifying child.  Your child qualifies if he or she meets all of the following conditions:

• Has a valid Social Security Number
• Is your child (natural, adopted or foster), grandchild, sibling, step-sibling, half-sibling, niece, or nephew
• Younger than you and younger than 19, unless a student (in which case your child must be less than 24), or totally and permanently disabled (in which case there is no age limit)
• Lives with you in the United States for more than half of the year
• The child doesn’t file a joint tax return.

For more information or to help determine your eligibility for the Earned Income Tax Credit, use EITC Finder app by Intuit.

Claiming the EITC

The EITC Finder  app and TurboTax can help you claim the Earned Income Tax Credit.  Note that unlike many other tax credits, the EITC is a refundable tax credit. This means that the EIC can not only eliminate any income tax liability you might otherwise face but, to the extent your tax credit exceeds your liability, you can pocket the difference. It is for this reason that the EITC is one of the most important tax considerations.

Make sure to review the table above and use the EITC Finder app– if your income is below the relevant threshold, .  It just might mean an extra $2,000 or more in your pocket. Few other tax maneuvers can earn you that kind of cash!

earned income credit app

According to  the IRS, an estimated 20 to 25 percent of qualified workers fail to claim the EITC each year.  Intuit has just launched the free app called the EITC Finder to help determine if you can reap the benefit of one of the most missed tax credits, which may put up to $5,700 in your pocket.

The Earned Income Tax Credit is a tax credit for people who work, but have low wages.  The tax credit not only reduces the amount of tax you owe, but it also may give you a tax refund even if you didn’t pay enough income taxes.

In order to claim EITC, you must meet specific criteria, which is where the new app comes in to simplify the process of helping you determine your EITC eligibility by guiding you through a few simple questions about your marital status, dependents, and wages.

If you are eligible, the app estimates how much will be applied to your federal and state tax refund.   The EITC Finder then tells you how to easily claim your credit by preparing and filing your tax return with one of the free products offered through IRS Free File program, which includes more than a dozen brand-name tax software products donated by private companies, including Intuit’s TurboTax Freedom Edition.

The app, available for iPhone, iPod touch and Android, also provides nonprofit organizations and others that serve lower-income tax filers with an easy and flexible way to help their clients determine EITC eligibility anytime, anywhere with Internet access.

The EITC Finder is now available in both English and Spanish from the App Store, Android Market or Amazon App Store .

More Help if You Need it

Intuit’s Free File product offer , TurboTax Freedom Edition, is specifically targeted to EITC-eligible taxpayers and all filers with an adjusted gross income of $31,000 or less. It is also available to active duty military personnel with an adjusted gross income of $57,000 or less in 2011.

Since 1998, Intuit has donated more than 22 million tax returns to low-and moderate-income taxpayers. In 2010 alone, Intuit donated more than 2.15 million federal and state tax returns via the IRS and state Free File programs.

Find Tax Assistance in Your Community

The Intuit Financial Freedom Foundation works with nonprofit partners across the country to help more taxpayers access its Free File product offering. These include the nation’s network of IRS Volunteer Income Tax Assistance programs, where taxpayers can get help from a volunteer to prepare and file their taxes for free. The Intuit Financial Freedom Foundation is partnering with sites in 11 states and 48 communities to bring TurboTax Freedom Edition to taxpayers this year.

Even if you had a chance to catch our commercials highlighting our professionals, here’s a chance find out more about one of our stars, Joy Shaw, CPA.

Joy Shaw, CPA

What is your area of expertise and how long have you been an expert in that area?

“I am a tax professional with over 30 years experience in tax and accounting.  I received my Bachelors in Accounting from the University of Illinois and passed the CPA exam in 1980.  I worked in public accounting at Coopers and Lybrand for 12 years (10 years in tax) specializing in high net worth individuals, banking, and consolidated tax filings.”

“I have been at intuit for over 18 years, where I have done tax technical training, worked as a Tax Analyst Programmer, Tax Development Manager for Small Business products, Federal Individual and State Individual products, and Electronic Filing Import.  I presently work as a Tax and Customer Experience leader for the Tax Review Board.”

What do you like about being a Tax Expert for TurboTax?

“I love being a tax expert for TurboTax, because we get to help 20 million taxpayers get their taxes done.  We also are able to stay abreast of tax laws and hear about tax changes before many tax preparers in the industry.  I also love being able to contribute to making the tax law changes easier for the general public to understand.”

What do you like to do in your spare time?

“I like running, aerobics, dancing, reading good mysteries, Sudoku, puzzles, and spending time with my husband and 3 children.”

What is the top tax question that you hear and what is your answer?

“The most common question I get asked is how to save money so you don’t have to pay as much in taxes.  My answer is to contribute to your retirement funds, either 401K or IRAs, take advantage of all your eligible tax credits like education, child care, and earned income credit.”

Our TurboTax professionals have a wealth of experience.  Check back soon to find out about more of our Super Stars!

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So where will you spend the Super Bowl?

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Free Tax Filing

IRS Free File Alliance is a public-private partnership between the federal government and private tax preparation companies, including TurboTax maker Intuit.

People with an adjusted gross income (AGI) of $57,000 or less can select from more than a dozen online tax preparation services.  That means about 70 percent of all taxpayers, or 95 million people, are eligible to use these free services.

Intuit has supported the Tax Freedom Edition for nearly a decade. In that time, we’ve donated more than 22 million federal and state tax returns through TurboTax Tax Freedom Online, to low and middle-income taxpayers.

For tax year 2011, anyone who qualifies for EITC, or is on active duty military with an AGI of $57,000 or less, or has an AGI of $31,000 or less can use TurboTax Online Tax Freedom Edition. Please note, Turbotax Online Freedom Edition is not to be confused with our Free file available on TurboTax.com if you don’t meet these qualifications.

This year, TurboTax Online Tax Freedom Edition includes free tax advice from CPAs, IRS Enrolled Agents and tax attorneys via phone or chat. TurboTax is the only tax software to offer live one-to-one tax advice to everyone.

Through the TurboTax Online Tax Freedom Edition site, TurboTax also offers free state tax preparation to qualified taxpayers who file returns in 22 states: Alabama, Arizona, Arkansas, Georgia, Idaho, Indiana, Iowa, Kentucky, Michigan, Minnesota, Mississippi, Missouri, New York, North Carolina, North Dakota, Oklahoma, Oregon, Rhode Island, South Carolina, Vermont, Virginia and West Virginia.

Additionally, anyone, regardless of their income, can use the Free File Fillable Forms at irs.gov. It’s a free, simple forms utility that’s basically the electronic equivalent of a paper 1040 along with associated schedules and forms. You just type in the numbers and it does the math for you.

“We are really excited to build upon our success from last season,” said Jason Smerican, senior product manager.  “We have the benefit of going through the full tax season this year and can’t wait for even more customers to experience the convenience of doing their taxes from their iPad.”

Mobile Apps

With the first apps in the market, to allow people to prepare and file their tax returns all from their mobile devices, TurboTax apps make it easier than ever for taxpayers, anytime, anywhere.  You can estimate your tax refund, prepare and e-file your tax return, and track the status of your tax return after you file, all from your mobile devices.  Unlike other tax apps, TurboTax apps are specifically designed and optimized specifically for an app user experience.

The new suite of apps includes:     

• SnapTax: Designed for taxpayers with simple tax returns (1040EZ), SnapTax lets you snap a photo of your W-2 with the camera in your phone and then, automatically transfers information right onto your tax return. You then answer a few simple questions, review your tax return and tap “File My Taxes” to e-file in minutes.  Available for iPhone or Android devices.

•  TurboTax for iPad:  Improved for tax year 2011, TurboTax for iPad, now includes the ability to easily transfer information from your prior year tax return and automatically import income information directly from 400,000 employers, banks and financial institutions. Free one-on-one tax advice from highly-qualified tax experts is now available if you use TurboTax for iPad and SnapTax as well.

• TaxCaster: Now available for iPad as well as iPhone and Android devices, TaxCaster is a free and easy way to estimate your tax refund.  With this interactive and engaging app, you can quickly and easily enter information using visual icons and sliders to see where you stand before you file. 

• MyTaxRefund: After e-filing, you can check the status of both your federal and state tax returns with this free and easy mobile app available now for iPad, as well as iPhone, Android devices.  MyTaxRefund also tells you when to expect to receive your federal tax refund based on IRS projections.

• TurboTax Card Mobile- Free to TurboTax customers who choose to receive their tax refund on a TurboTax Prepaid Visa® Card, the TurboTax Card Mobile app is available for both iPhone and Android devices.  The app allows you to track your federal tax refund, activate your card, check your balance and transactions, locate ATMs and more!

 TurboTax Online products are also accessible to mobile users.

All TurboTax online products, including Free Edition, are now compatible when accessing through a browser on the iPhone, Android, Kindle Fire, iPad and other tablets. With an improved mobile experience, if you are using a browser, you can move between your mobile device and your computer giving you more freedom and choice to prepare your taxes whenever and wherever you want.

TurboTax Goes Mobile

To check out new videos of the tax apps, click here to see TurboTax for iPad and SnapTax in action.

Pricing and Availability

All apps from TurboTax are free to download.  TurboTax for iPad and SnapTax customers pay when they are done.  All pricing for TurboTax mobile apps is available on the App Store, Android Market, or Amazon App Store for Android.

What could be better?  The ability to accurately and easily estimate, prepare, and e-file your taxes or track your tax refund all while being mobile.  So what device do you use to file your taxes?

Check out SnapTax and TurboTax for iPad on YouTube here:

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Retirement

On the road to retirement, there are some decisions you’ll have which can impact your taxes along the way. Your 401(k) and IRA accounts – should you choose the traditional pre-tax flavor or Roth?  The Roth plan requires post-tax contributions, but allows tax free growth and distribution, in most cases.  If the distribution is the result of a conversion or certain rollover in under 5 years after conversion and you are under 59-1/2, you may have to pay an additional 10% tax penalty.  With pre-tax plans, you contribute to the plans with your funds without any taxes deducted so the distributions are taxable.  So which one do you choose?

One approach to consider is to look at your marginal tax rate, and see how far into that bracket you are. For example, a single filer will be in the 15% bracket from $8,500 of taxable income right until $34,500. If you find that after deductions, exemptions, credits, etc, your taxable income is $38,000, it may not make sense to be in pre-tax retirement accounts for all your retirement savings. Since only the amount above $34,500 is taxed at 25%, by putting exactly $3,500 into a pretax 401(k) or IRA, you’ll reduce your taxable income so the last dollar is taxed at 15%, and none at 25%.

If your company offers a 401(k) with a company match, see if they also offer a Roth 401(k). If not, at least be sure to deposit enough to get the match, and then use a Roth IRA to top off your savings. If the Roth 401(k) is an option, you are usually able to change between this and the standard pre-tax 401(k) on a pay cycle adjustment. The process can be fine tuned a bit by using a traditional IRA and converting some of it to Roth, as needed. A bit of attention to your taxable income and your paystubs and you should be able to take advantage of the difference between these two tax rates.

On the retiring side, you can implement a similar strategy. As a single retiree, finding yourself with a mix of pre and post tax investment accounts, by choosing the pre-tax 401(k) and IRA to make withdrawals right up to the taxable income of $34,500, and Roth or other post tax money for anything above this, you can aim to live right on the edge of 15% through retirement.

With the 2011 standard deduction ($5800) and exemption ($3700) adding to $9500 right off the top, this is about all the median earner needs at retirement. If your withdrawals are a bit lower than this, consider the strategy of converting just enough IRA money to top off that 15% bracket.

It’s not as difficult as it might appear. By looking at last year’s return and adjusting slightly for this year’s numbers, you should have a good idea where 2011 will put your taxable income. Underestimate a bit, and convert just enough IRA money to Roth to hit your goal.

If in April, your return tells you went over, just recharacterize enough to get the taxable income number dead on. This strategy for the just-retired person will help bring that IRA balance down over time to avoid some potentially large RMDs (Required Minimum Distributions) after reaching 70-1/2.  Please note: once you make contributions to a designated Roth account, you cannot later change to a pre-tax account.

Note – the rates I discussed are for the single filer. Take a peek at the page I linked above for the tax table for other filing status, the idea works the same with the numbers adjusted for status.

State Sales Tax

This year, those who itemize their deductions have a choice to deduct, either the amount of state income tax paid or state and local general sales taxes paid. It’s either/or, you cannot take both. For those with a state income tax, that tax will often be far higher than the sales tax paid over the year, which is why I highlighted those states with no income tax at all.

Even if you do have a state income tax, it’s still possible that in a high spending year, perhaps including a car purchase or major remodeling along with all the high priced appliances, that the sales tax will total more than your state income tax. Either way, it’s worth taking a bit of time to see if this deduction can benefit you.

Hopefully, if you are going to use the sales tax deduction, you’ve been saving your receipts to document your total claimed sales tax. If you haven’t, or perhaps you only have the bill of sale for that new car or boat, there’s still an option for you.

You can enter your combined state and local sales tax rate and TurboTax will make the behind the scenes calculations for you, per IRS guidelines, to determine the accurate state and local sales tax deduction for you.  If you don’t know your state and local sales tax rates, TurboTax will also calculate your deduction based on just your home state sales tax rate.

One thing to note, taxpayers often think that they will be able to deduct more, because they think the deduction is their gross income times their sales tax rate, however per IRS guidelines, the sales tax deduction is a result of the sales tax rate times an amount based on your income from the IRS State and Certain Local Sales Tax Table and not your entire income.

Tax Tip:  You have the option to deduct sales tax instead of state income tax, even if you live in a state without a state income tax.

Don’t miss out!  Unless Congress extends the rule allowing the deduction of sales tax, 2011 is the last year to add it to your itemized tax deductions.

TurboTax e-file

Not only that, TurboTax now offers free, one-on-one tax advice from highly qualified CPAs, IRS Enrolled Agents, and tax attorneys!  So, not only can you take control over your own taxes, pay less to file your taxes than with tax stores, but you can also feel confident that a highly qualified tax professional is there to assist you if you need help.  Oh and did I mention?  There is no e-file fee!  It is also free!

You may be wondering:

How can TurboTax offer e-filing early if the IRS is not accepting tax returns yet?

TurboTax will securely transmit your tax information electronically to the IRS as soon as they begin accepting tax returns on January 17th!  You may benefit from an early tax refund, because as soon as the IRS starts accepting tax returns and sends you confirmation that they accepted your return, per the IRS, you may receive your tax refund in as little as 7 days from IRS acceptance if you request direct deposit.  If your tax return is rejected after it is electronically transmitted to the IRS, no need to worry.  The IRS will send you notification and you can fix your online tax return and resubmit it.

The IRS supports TurboTax and prefers that you e-file your tax return.  TurboTax protects your personal information using bank-level data security which includes encryption.  TurboTax online stores your information on a firewall-protected server, which can only be accessed using your user name and password.

How do I file my tax returns if I did not receive my W-2 or 1099s yet?

Don’t worry!  Did you know that TurboTax works with 400,000 employers, banks, and financial institutions so that you can safely, securely, and accurately transfer your important financial information directly from the financial institution to your tax return using TurboTax online.

What are the benefits of E-filing and using TurboTax early?

• Quick Tax Refund – Per the IRS, taxpayers who e-file their tax returns with direct deposit will receive their tax refund in 7 to 15 days from IRS acceptance of the tax return as opposed to 6 to 8 weeks for paper filers.
• More Accurate Tax Returns -  According to the IRS, 20% of paper filed tax returns have mistakes as opposed to a low 1% error rate for electronically filed returns.  TurboTax easily guides you to enter all of your relevant tax information so that your tax return is accurate.
• Free Tax Advice – If you file your tax return early with TurboTax online, not only do you get free e-file, you also have the opportunity to get free one-on-one tax advice from highly qualified CPAs,  IRS Enrolled Agents, and tax attorneys.
• Bigger Tax Refunds – Preparing your tax return using TurboTax will get you the tax deductions and credits you deserve.  TurboTax guides you through tax deductions and credits you may miss if you file your tax return via a paper and pencil.  TurboTax software is developed in compliance with IRS tax guidelines so your taxes are done right.
• Filing at the Last Minute May Lead to Mistakes – Completing your taxes at 11:59 pm on  4/17/2012 may cause you to rush and make mistakes.

What if I didn’t make very much money?

• Even if you think you didn’t make enough money to file, you may be entitled to a refund, due to taxes deducted from your paycheck and various overlooked refundable tax credits and deductions you are entitled to.  Most unclaimed refunds, belong to people who did not make much money and thought they were not required to file taxes.

Start the New Year off right and get your taxes done early!  You’ll feel at ease and have fatter pockets!

Interactive by joshritchie

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New Year Tax Tips

From a tax perspective, the beginning of a new year is the best time to identify and correct bad habits, take stock of your current financial situation, and set goals to help you stay better prepared when it comes to filing your taxes. After all, New Year’s tax resolutions shouldn’t be overlooked.

With these tax tips you’ll be sure to plan ahead, stay tax alert, and save a bundle of money on this year’s income.

File Your Taxes and Pay On Time

This article would not be doing the reader justice if there was no mention about finalizing last years taxes. Just because the calendar says 2012, don’t forget about all of the work yet to be completed from the 2011 tax year.

Yes, April 17th is the last day to file taxes. Yes, we are sometimes held hostage as we wait for every piece of tax information to be mailed to us. Yes procrastination can be a sultry temptress. But nothing feels better than taking care of your tax paperwork and getting everything filed and paid on time.

Plus, with TurboTax you don’t always have to wait for your tax documents to arrive.  TurboTax 2011 transfers information from more than 400,000 employers, banks, and financial institutions so you can automatically access your tax information, accurately and quickly.  With this feature, you may have all the information required to file your tax return and receive your tax refund before people receive their tax information in the mail.

Double-Check Your Income Tax Withholding

Remember when you were hired and you had to fill out that W-4 detailing just how much money you wanted to withhold from your paycheck for income tax purposes?

Well, if you got hit with a tax bill last year and your income and deductions did not change, you probably need to double check your withholding amount and make sure that you’re not taking too little out.

If you’re not withholding enough money from your paycheck, then it’s almost a guarantee that you’ll owe on your tax return instead of receiving a tax refund. The Employee’s Withholding Allowance Certificate (Form W-4) will allow you change your withholding amount by changing your claimed tax exemptions.

Prepare, Organize, and Keep Excellent Records

Nothing will help you stay on top of your taxes better than developing an excellent strategy of preparation, organization, and record keeping. It may sound dull, but the benefits can save you a bundle of money.

Keeping tax information organized and well-documented can not only help you avoid owing more taxes in April, but it will arm you with piles of necessary information in the unfortunate event of an audit.

Using a tracking system like Quicken throughout the year is a great way to keep track of income, payments, expenses, and deductions. Not only is such a system convenient and easy to use, but Intuit (who makes Quicken and Turbo Tax) has made the transfer of information from Quicken to Turbo Tax virtually seamless.

Don’t Overpay for Unnecessary Tax Preparation

You may think your taxes are complex and find it necessary to go to a tax store to prepare your taxes, but you don’t have to overpay to have your taxes prepared.  Tax software like TurboTax makes tax preparation easy with step-by-step guidance.

TurboTax gives you all of the tax deductions and credits you deserve in compliance with IRS tax laws, giving you your maximum tax refund.  What’s even more extraordinary?  TurboTax now offers free, one-on-one tax advice from highly qualified tax professionals who are CPAs, Enrolled Agents, and tax attorneys.

Make Estimated Payments

For those of us who are self-employed, making estimated tax payments is a very smart way to stay ahead of the tax game. And, if your income is high enough, the IRS can even require estimated payments to be made. Instructions about estimated payments can be found on Form 1040-ES.

Regularly Contribute and Donate

If you have an IRA, 401k, 529 plan, or any other savings/investment accounts, be sure to find out what the maximum yearly contribution limits are and develop a monthly deposit plan to ensure that you can maximize the benefits of those accounts.

Also, consider giving to charity on a more regular basis. Many people/businesses wait until the end of the year to make charitable contributions. But you don’t have to wait. Not only do many qualifying organizations have automatic monthly donation systems, but many charities need financial assistance throughout the year, not just in November and December.

Whatever your plans may be, if you can find a way to incorporate these tax tips into your tax life, you’ll be better suited to take on whatever tax-related situations come your way.

Section 179 Expenses

One of the toughest obstacles for any new business is finding the capital required to make the appropriate investments your enterprise needs to position itself for the long-term – and to get to the point where it finally becomes profitable.

In the case of certain major expense outlays, Uncle Sam can help through what is known as a Section 179 election.  Typically, major expenses such as machinery and equipment are required to be depreciated over a term of years dictated by the IRS to approximate the useful life of the purchase.

If your small business spends $7,000 on equipment the IRS considers to be 7-year property, you can take a $1.000 ($7,000 cost divided by 7 years) depreciation deduction each year for seven years. If the business is in the 25% tax bracket, the depreciation deduction saves $250 in taxes annually.

However, certain expenses qualify for the Section 179 expense election.  If so, the business can choose (or, in IRS-speak, “elect”) to immediately expense (rather than depreciate) the purchase. Consequently, the entire $7,000 purchase could be written off this year. For a taxpayer in the 25% tax bracket, the immediate tax savings generated by the Section 179 election are $1,750.

What Purchases Qualify for Section 179 Expensing?

For the vast majority of small businesses, the key Section 179 opportunity areas are tangible (i.e., you can see it, you can touch it) personal property. Examples include not only machinery and equipment but also office equipment, including furniture, and off-the-shelf software.

When Can You Elect to Take the Section 179 Deduction?

You are eligible to take the Section 179 expense for the tax year in which you first put the item(s) purchased in service. Said another way, you can choose to take the Section 179 election when you file your tax return (Form 4562) for the year in which you purchased (not received via a gift) an item which you began to use in your business.

Are There Any Limits to the Section 179 Deduction?

The following limits to the Section 179 deduction apply:

• Dollar Maximum
• Business Income
• Percentage Use

Section 179 Maximum Dollar Limit

The maximum dollar amount you can expense via Section 179 varies by tax year and is currently $500,000.  Regardless of the amount you buy and put into service during 2011, you can’t expense more than the 2011 limit of $500,000. Furthermore, if you invest more than $2,000,000, you won’t be able to expense anything over that amount via Section 179.

The larger Section 179 tax benefit is set to expire on December 31st, 2011 and will be reduced to a $125,000 dollar limit and a $500,000 investment limit beginning tax year 2012. So if you have been debating about buying that computer equipment, you may want to go make that purchase today!

Section 179 Business Income Limit

The amount of your Section 179 expense election is further limited to the amount of net income (profit) you have from your businesses. So if using all of your Section 179 expenses would put your company in a loss position, you can only elect to expense an amount equal to what it would take to make your businesses break-even. Any unused Section 179 amount can be carried forward indefinitely and used to offset future year’s business income.

Section 179 Percentage Use Limit

Certain types of equipment, most notably computers used in home offices, are used partially for business purposes and partially for personal benefit.   Provided you use the item at least 50% for business, you can still take the Section 179 expense. However, the amount of the Section 179 expense election is limited to the percentage of time the item is used for business.  So if your new $1,000 laptop is used 75% for business and 25% for video games and looking at the weather in Ann Arbor, Michigan, you can expense $750.

Make sure you take the time to keep good records throughout the year. You’re sure to enjoy the tax savings, helping keep your business on the right track and don’t forget, TurboTax easily guides you through Section 179 deductions.

As long as an individual meets certain criteria laid out by the IRS, this strategy will offer hefty tax savings for individuals and much-needed cash for numerous charitable organizations.

Qualified Charitable Distribution

Tax Law Timeline

The Pension Protection Act of 2006 allowed taxpayers age 70 1/2 and older to exclude from their gross income what would otherwise be taxable distributions from their IRA if they were paid directly to a charity.

This law has been extended for the last 4 years, and is currently extended through December 2011 by the Tax Relief Act of 2010.

This tax legislation extends Qualified Charitable Distributions – an IRA distribution paid directly to a charitable organization from IRAs – through the end of this year. QCDs are excluded from the taxpayer’s gross income for federal tax purposes and may be counted toward an individual’s Required Minimum Distribution (RMD) if those minimums have not yet been satisfied.

Guidelines to Determine Qualified Charitable Distributions

• Individuals must be 70 1/2 years of age or older when the contribution is made.
• Contributions must come from traditional or Roth IRAs. According to the IRS, QCDs cannot be made from employer-sponsored IRAs (Simplified Employee Pensions; SEP-IRAs), Savings Incentive Match Plans for Employees (SIMPLE-IRAs), or from defined contribution retirement plans (for example, 401(k) plans or 403(b) plans).
• Charities receiving the contribution must be eligible to receive tax-deductible charitable contributions; 501(c)(3) organizations. This seems rather obvious, but you need to be smart and research the charity prior to your donation.
• The maximum QCD is $100,000; however, a spouse can also make a $100,000 qualified charitable distribution within the same year if the couple files a joint income tax return.
• The $100,000 max limit doesn’t apply to the overall charitable deduction limit. Therefore, individuals are able to make charitable contributions in excess of 50% of their adjusted gross income.
• The distribution must be a “trustee-to-trustee transfer”. This means that the money doesn’t touch your bank account; instead, it goes directly from your IRA account to the charity that you have chosen. A distribution to a recipient other than a charity will not be tax free, even if that recipient donates the money to a charity.
• Qualified distributions for 2011 must be made by December 31, 2011.

Benefits of This Extension

There are three major areas of benefit when dealing with this tax-free extension.

First, the extension gives an incentive for individuals over 70-1/2 to donate. These incentives could possibly be a deciding factor for many people considering what to do with their IRA distributions.

Although the individuals get a tax break, extending this tax legislation benefits charities who are in need of donations by making it easier and cheaper for donors to give. Remember, charities need funds to continue doing good work around the country and around the world.

Second, the tax relief extension benefits the donor by allowing the exclusion of up to $100,000 of the the QCDs from their gross income in 2011. This is the tax-break highlight of the program extension, especially for this last month of the year.

Third, for those of you who have Required Minimum Distributions, QCDs satisfy RMDs that you would normally be forced to receive from your IRA, just as if you had received an actual distribution from the plan. This means your RMD will satisfy your required distribution amounts as well as give you all of the tax benefits of a qualified charitable distribution.

However, you do not get to deduct QCDs as a charitable contribution on your federal income tax return. That’s double dipping.

Why This Extension Is Important To You

Typically, deductions for charitable cash contributions are limited to 50% of a taxpayer’s AGI. Individuals who want to make a large charitable donations above that limitation are able to do so under this extension.

This is an important tool because the QCD’s exclusion from an individual’s gross income provides a solution for making charitable deductions for taxpayers who are not able to itemize their deductions (i.e. they take the standard deduction).  If you are a taxpayer over 70-1/2, who is lucky enough to have a paid off mortgage, you may not be lucky enough to itemize your deductions since mortgage interest usually plays a big part in you being able to itemize deductions.  If this is the case, paying qualified charitable distributions directly from your required minimum distribution(tax-free) will greatly help your tax situation.

Other areas of importance are that the extension makes this process less time consuming and less expensive. Without utilizing this tax-free extension, an individual would see an increase in paperwork and a decrease in benefits.

Who Should Make Qualified Charitable Distributions?

Typically, there is a limit of 50% of an individual’s Adjusted Gross Income that is available for charitable deductions. Taxpayers who want to make a large charitable donation above that limitation are ideal candidates to benefit from the QCD extension.

Another possible candidate might be someone who desires to make a large charitable donation, but their only financial vehicle is a large IRA balance. In this situation, if the individual took a normal IRA distribution outside of the tax-free QCD extension, they would be subject to fees, taxes, and a litany of other possible consequences (including an increase in taxable Social Security income or a rise in Medicare Part B Premiums).

Other individuals might simply want to donate their entire RMD and still enjoy the tax benefits by making the contribution through the tax-free QCD.

Remember, qualified charitable distributions for 2011 must be made by December 31, 2011.  If you decided to make this thoughtful charitable contribution, it will be indicated on your Form 1099-R.  Don’t worry,  TurboTax will easily guide you to enter the necessary information from your qualified charitable distribution.

Tax Deductions

When it comes to year-end tax planning and tax reduction, you have two routes – accelerate your deductions or delay your income. Today, we’ll discuss how to find ways to accelerate your deductions so you can take that deduction this year instead of next.

Here are some of the bills you can pay early to help you with your tax deduction:

Mortgage Payment

This is the the easiest one to do if you have a mortgage and the cash on hand to make it work. Make January’s mortgage payment by the end of December. This works because your mortgage payment in January includes December’s interest payment.

Mortgage payments don’t work the same way as rent payments. Your rent is paid at the beginning of the month, and is meant for that month. Mortgages, however, are paid after you’ve already been in the home for another month. So, if you make your January mortgage payment early, you can deduct that mortgage interest in the current year, rather than having it for a deduction in the upcoming tax year.

However, you should understand that you can’t just pay your mortgage ahead for months and expect a huge interest tax deduction. Paying your February mortgage in December doesn’t qualify you for another deduction.

Property Taxes

This is another deduction that only works if you own your home and have the cash to make the payment. Instead of waiting until the February due date to make the 2nd installment of your property tax payment, make it in December.

This will let you take the tax deduction for both installments of your property tax in 2011, rather than next year. This is a great way to reduce your taxable income by a little bit more. If you have your property tax bill, go ahead and pay it now.

Tuition & Fees

At the end of 2011, the tuition deduction (officially called the Tuition and Fees Deduction) is set to expire. You can deduct up to $4,000 for your college tuition. However, this deduction will disappear when we all scream “Happy New Year!” If you can pay for your tuition for the first three months of 2012, in December 2011, you will be able to deduct it since you’re paying for it in 2011.

Charitable Contributions

Charitable contributions are another way to reduce your tax bill. If you anticipate being in a higher tax bracket this year, compared to next year, it might make sense to make a larger contribution to a charitable trust like the Fidelity Charitable Trust. Your contribution is deductible immediately and you can make donation recommendations as to where your contributions will go.

Other Ways to Accelerate

Let’s say you don’t own a home and aren’t in school, are there still ways to accelerate some deductions? There are but they are fewer and harder to find. If you run a business, paying your bills early can be a good way to reap the benefits of a tax deduction. You may not need it until early next year but by purchasing it now, you can claim the deduction a year early.

If you have room to contribute more to your retirement plan, give that a look. Those contributions are tax deductible and is a great way to reduce your burden while saving for retirement. Traditional IRA and 401(k) pension plan contributions are tax deductible, Roth IRA contributions are not.

As always, with any deductions that you claim, make sure that you have the appropriate supporting documentation. If you are unluckily chosen for a tax audit, you will need to have the right records to help you prove that you really are entitled to the deduction. It’s easier to get that organized now, when you aren’t facing an audit, than when the agent is knocking on your door!