More Tax Tips From the Pros
Taxpayers who have children turning 17 in 2011 need to be aware that for next tax season their 17-year-old child will no longer qualify them for the child tax credit. This is a credit worth up to $1,000. Taxpayers may want to increase their withholdings or change their number of exemptions on their W-4. If not, the taxpayers may have a smaller refund in 2012, or may owe. Consult a tax professional for a more exact estimate based on your personal situation.
--Jessica Smith, Office Manager, Liberty Tax Service
For all your tax forms (W-2, 1099s, etc.), make sure you check off each number as you enter it into your tax software or manual form. When you're done preparing your return, you should see that you've checked off every number from your tax forms. Those numbers are there for a reason. If you miss one of them, there's a good chance you've made an error. Sounds like a simple tip, but you'd be surprised how many people don't do a complete check.
--Cara Greene, CPA
Check your return for filing status, dependents, income. If something looks odd or different from the past, ask why and get a good answer. You are responsible for any problems with the return.
--Trish McIntire, EA
In the past, the General Accounting Office has found that filers who used the standard deduction instead of itemizing paid the Internal Revenue Service almost $1 billion a year more than they should have. Always go through the motions and look at your itemized deductions.
--Bruce McFarlend, Tax Accountant/Owner, L & R Tax Preparation
If you receive a 1099C, whether it's a big amount or small, call a tax professional before just adding it to income.
--Kislak Tax & Notary Services
For all the itemizers who donate time or money, don't forget to calculate your mileage that you drove while you were donating. What about helping out with Meal on Wheels, taking that dinner to the retired church member who is shut in every week? The mileage is $0.14 a mile. It adds up.
--Sue Henderson, Accountant, Bristol Tax and Accounting, Bristol, Tenn.
The taxability of Social Security benefits begins to phase-in after certain starting points. Taxpayers who are in the phase-in area, and are eligible to contribute to an IRA account, might considering doing so, since IRA deductions reverse the process and decrease the amount being taxed.
--Jim Hayden, EA, Grand Rapids, Mich.
Each year, 25% of eligible hard working families fail to claim the EITC. This year, MyFreeTaxes.com has created an application to help determine if they are EITC eligible. The MyTaxBack app is available on the Web as well as mobile devices.
Taxpayers in higher income brackets should be aware of the opportunity for tax free growth in Section 529 college savings plans as well as the ability, as of 2010, to convert qualified plans to Roth IRAs. Investment earnings in both Section 529 plans and Roth IRAs are tax free, as opposed to tax deferred. This feature is most advantageous to younger taxpayers with high incomes.
--Kevin P. Duffy, CPA, President, F.X. Duffy
Don't ignore the C-Corp if you're looking at a non-PC line of business. It's kind of a forgotten entity and if you have a family that works and one of the family members wants to starts a new business, keeping that income separate with a C-Corp (and taking advantage of the 15% rate as well as keeping out of some of the phaseouts for the child tax credit and your deductions) could save the taxpayer some money.
--Brian Borawski, CPA, Michigan
Wages for business owners: If you're a shareholder-employee of your C or S corporation, you MUST pay yourself a reasonable salary. It cannot be excessive, but neither can it be zero. On the other hand, if you work for your own LLC or partnership, you CANNOT pay yourself a W-2 wage. You can take a draw or a guaranteed payment, but you cannot issue yourself a W-2 or withhold payroll taxes from your "salary." These are common mistakes by the small-business owner and an all too easy target for the tax examiner.
--Robert Morrow, JD, LL.M., Orange, Calif.
Another item that may need a look is around health insurance premiums. In the past, if one spouse had a "real job" with benefits, it likely made sense for the self-employed spouse to be on his or her health plan. Now that health insurance premiums are deductible for SE taxes, it may make sense for the premiums to be paid out of the small business vs. their spouse's plan.
--David Scheumann, CPA
eBay & etsy sellers: Where you store your inventory counts as home office!
--Mariette Knoblauch, Owner, Ballard Beancounters, Seattle
For a small business, simply keeping books and records will save you taxes. I am dealing with a guy who simply does not want to, or is unable to, come up with normal accounting records, and I know he's missing about $15,000 in expenses. That one non-tax related activity turns into big tax savings.
--Steve Trojan, CPA, Owner SMT & Associates Inc.
Invest in a Cost Segregation Study for New Construct. A change in 179 rules makes it possible to write off Sec 1250 QLHI Property in 2011.
--Jennifer Broyles, CPA, Senior Manager, PYA
If you're doing business in the City of Philadelphia, please remember that after you do the federal and state, you still have to do the local taxes (BPT & NPT taxes). That includes self-employed individuals and "independent contractors" that get 1099s.
--Desmond Hudson, Owner, Hudson Tax Services
All U.S. expats should keep a careful record of their travel calendar and workdays. It's essential for sourcing income to different countries. Along the same lines: U.S. expats should make careful track of where their income falls in the tax year of the country they're resident in.
--Jennifer Hersey, U.S./U.K. tax consultant
If a person dies in 2010, no estate tax return (form 706) is necessary if his or her estate is worth less than $5 million. But to transfer the first spouse's $5 million exemption to the surviving spouse, this return must be TIMELY filed.
--Randy Spiro, Attorney, Beverly Hills, Calif.