My Personal Finance Blog

Filing taxes and returns is a daunting task for many taxpayers. The individual needs help because the whole task of filing taxes brings about a feeling of being overwhelmed and frustrated. This is the reason many Americans put off their preparation for taxes to the last moment. Taxes are a part of life and everyone needs to pay their taxes and file the returns, whether they like it or not.

The last minute scramble to meet the tax filing deadline is not a very healthy sign. Those individuals who put off the tax preparation for the last minute end up staying awake the whole night to prepare their tax forms so that they can be sent to the revenue department, within the deadline. Doing things in a hurry leads to mistakes and omission of crucial data. This can cause several problems. In your hurry to fill out the forms, you may miss out certain exemptions that you may be eligible for. Thus, you may end up paying larger amounts of tax unnecessarily. There may be some deductions that you may be eligible for, though their computation may be tedious and time consuming. If you fill out the tax returns at the last minute you will not get the benefits of these deductions, simply because you may have to ignore them due to lack of time. If the tax calculation and preparation were done well in advance, you would have saved quite a bit money on the taxes. Therefore, it is really very important to have proper tax preparation and planning, so that any last minute hassles are avoided.

At times, taxpayers may get a refund of the tax paid. This may be due to a number of reasons. Getting a refund from the tax authorities is a great feeling! However, if the taxes are filed in a hurry and without checking the accuracy of the figures, you may end up getting a smaller amount in refund than is actually due, or you may not get any refunds at all. It is therefore always better to give enough time for the preparation and checking of the tax returns. This will help you to be accurate with the data and also give you the benefits that you are rightfully entitled to.

Audits of the taxes are normally performed randomly. Tax returns that are filed at the last moment may be liable to extra scrutiny, if any errors or mistakes are found. Even though you may have done everything correctly and have nothing to hide, an audit of your finances can be an unwanted hassle that should be avoided at all costs.

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As the end of the year approaches, it’s always a good idea to consider what tax-saving initiatives you might commit to before Dec. 31 in order to ensure you get the most benefit for the 2006 tax year.

To that end, I would recommend 10 key strategies in relation to your investments that you should consider. Keep in mind that these plans should be thought out as soon as possible, since they take some planning and proactive action on your part to set up.

Tip 1. Postpone any asset sales that would result in capital gains until 2007. By doing so, you’ll avoid paying income tax on any gains until you file your 2007 return in 2008. Delayed expenses are almost always a good idea.

Tip 2. Record losses on securities and stocks held outside of any registered plans. This is a significant advantage as tax laws permit the current year’s losses to offset the current year’s capital gains. Additionally, remaining losses can be carried back and put against capital gains in any of the preceding three years or carried forward indefinitely. It’s an important point to note that in order to benefit from a tax loss in this way, you are not allowed to purchase the same security again until 31 days after the sales. And that applies to both non-registered and registered accounts.

Tip 3. Research and Invest in a resource tax shelter. Resource tax shelters allow you to deduct the full value of your investment against other income in 2006. Resource tax shelters are fully endorsed by Canada Revenue Agency, whereas many other tax shelters present the risk of being declared invalid, whether or not they have a tax number.

Tip 4. If you are considering a donation to a registered charity, give stock instead of cash. This creates an exclusive tax break. Under normal circumstances, half of a capital gain is taxed as income; under new regulations, any capital gain created by a donation of securities or stocks to a charitable organization is exempt from tax.

Tip 5. Complete an RESP contribution before the end of the year to qualify for the Canada Education Savings Grant. This grant is up to a maximum of $400 or 20 per cent of your contribution up to $2,000 for the 2006 tax year. If you are just establishing an RESP, it’s important to keep in mind that you’ll require a social insurance number for the child to get the grant. Obtaining a social insurance number can take several weeks to obtain.

Tip 6. If your plan is to make a spousal RRSP contribution, do it before the end of the year, as it will shorten the waiting period for withdrawal. Your spouse will be able to access the funds in 2009 without attribution to you. If you don’t make the contribution until 2007, the three-year waiting period won’t end until 2010.

Tip 7. If you have an RRSP and you are turning 69 in 2006, you are required to convert your RRSP into a RRIF by the end of the year. When establishing your RRIF, you can set up the withdrawal schedule on your younger spouse’s age, which should minimize the mandatory withdrawals and taxable income they create in subsequent years.

Tip 8. If you are required to set up a RRIF in 2006 and you still have income from employment, you are able to make an RRSP contribution and enjoy the benefit of a tax refund the following April. The only caveat is that your contribution must be made before your RRSP ceases to exist at the end of the year. This can by somewhat difficult to do properly, since you are not meant to make contributions to you RRSP on this year’s employment income until 2007. In spite of that, the penalty you will pay for over-contribution will be relatively small when measured against the income tax refund you will receive.

Tip 9. If you are past the age of 69 and still have employment income, you can still defer taxes by contributing to a spousal RRSP. This is a valid approach until the end of the year for spouses who turn 69 in the current tax year.

Tip 10. Avoid investment in mutual funds in your non-registered account prior to year-end otherwise you’ll be stuck paying taxes on gains you didn’t benefited from. This scenario arises because Canadian tax rules require that all capital gains within a mutual fund must be attributed to those holding the mutual fund units at year-end.

While not an exhaustive list, following even a couple of these tax planning tips will ensure you pay the lowest possible taxes possible.

Michael Lee-Smith has been investment planning for over a decade. Learn more about strategic investments at http://www.advicebuy.info or visit Michael’s personal homepage at http://www.yourwork.info/ to learn more about his experience.

Make sure it is all there

Be sure you have attached all W-2’s and all necessary documents to your return, and have completed them correctly. Your social security is the most important identifying number, so check and double check that it is correct on all documents. It is also a good idea to put your social security number on the top of every form.

Check the IRS’ website

New deductions and credits are created every year, for your benefit. While we all like to think our tax preparers know everything, it never hurts to double check their work. The IRS updates their website frequently with all new tax laws, credits, and deductions.

E-File

If you are running short on time and cash, you can e-file (electronically file) your taxes on your own online. All the information you need is on the IRS website, and there are multiple help lines you can call for assistance. However, the sooner the better, as the IRS gets very busy this close to the tax deadline.

Be honest

The most important rule of filing your taxes is to always be honest. The repercussions you may receive for lying to get a deduction you do not qualify for could be a lot more than you would have saved. Check over your return one last time before sending it off to make sure you only claimed deductions and credits you qualify for.

Joint or separate

If you are married, take the time to see if filing joint will benefit you or not. Changing tax laws and situations may change which works best for you, so do not just assume you should choose the same thing you did last year. Also be sure to keep your spouse informed about potential changes. If you choose joint and they choose separate, or your info does not match, you may have an audit coming your way.

Make copies of everything

Before you mail in that return, be sure you have a copy of every single document and page you are sending. If you want to be extra safe then you might even ask the post office to give or send you a receipt so you have proof of post-mark. This will be your proof of filing if the IRS sends you an audit, or missing document letter, in the mail.

Use IRS mailing materials

The IRS sends you your own mailing materials for a reason – it makes the process easier for them. If you fail to use their documents to mail your return, you could be running the risk of receiving a later return. If details on the mailing materials are inaccurate, the IRS prefers you make changes right on the labels, in pen.

Not ready? File an extension.

If you are not quite ready to file, for any reason, definitely file for an automatic extension. There are numerous reasons you may feel the need to file an extension, but any reason is better than not filing your return at all. However, if you are going to owe the IRS money then you still need to have your payment to them by the 15th.

Seek professional help

If you are new to filing your own taxes, or have recently changed filing status (i.e. newlywed, new business owner, new parent, etc.), then you may want to enlist some professional help. However, if you are going to get help from a tax preparer then you will want to make an appointment as soon as possible. The closer to tax day it gets, the busier the tax preparer’s office is going to be.

The Tax Lady Roni Deutch and her law firm Roni Lynn Deutch, A Professional Tax Corporation have been helping taxpayers across the nation find IRS tax relief for over seventeen years. The firm has experienced IRS tax attorney who will fight the IRS on your behalf.

Under the American Recovery and Reinvestment Act, enacted February 17, 2009, taxpayers who buy a new vehicle this year can deduct state or local sales taxes paid on the purchase.  Unlike any other itemized deduction for taxes, AMT payers also are eligible for this break.

A problem, however, is that individuals in states without a sales tax — such as Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon — get no benefit from this change, simply because they are not paying a deductible tax as defined in the law.

Now, in a major policy change benefiting folks in these states, the IRS has issued a notice allowing this deduction for “other fees or taxes” paid on automobile purchases.  Here is the text of the notice:

WASHINGTON —The Internal Revenue Service and Treasury Department today announced that a tax break for the purchase of new motor vehicles is available in states that do not have a state sales tax. Under the American Recovery and Reinvestment Act of 2009, taxpayers who buy a new motor vehicle this year are entitled to deduct state or local sales or excise taxes paid on the purchase.

The IRS and Treasury have determined that purchases made in states without a sales tax — such as Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon —can also qualify for the deduction.

The IRS said today that taxpayers who purchase a new motor vehicle in states that do not have state sales taxes are entitled to deduct other fees or taxes imposed by the state or local government. The fees or taxes that qualify must be assessed on the purchase of the vehicle and must be based on the vehicle’s sales price or as a per unit fee. According to the IRS, Congress intended for these fees or taxes to qualify for this special tax deduction.

“This special tax break is available for people purchasing a new car this year, and that can include people in states without a sales tax,” said IRS Commissioner Doug Shulman. “This means that more people can take advantage of this deduction when they file their tax returns next year.”

To qualify for this deduction, the vehicle must be purchased after Feb. 16, 2009, and before Jan. 1, 2010. Taxpayers can claim this special deduction only on their 2009 tax returns to be filed next year.

The deduction is limited to the fees or taxes paid on up to $49,500 of the purchase price of a qualified new car, light truck, motor home or motorcycle.

The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.

The special deduction is available regardless of whether taxpayers itemize deductions on their returns. Taxpayers who do not itemize will add this additional amount to the standard deduction on their 2009 tax return. The IRS reminded taxpayers the deduction may not be taken on 2008 returns.

George Bauernfeind is with AMT Individual – providing information on Alternative Minimum Tax Planning . He writes articles to help the tax payers to pay less Alternative Minimum Tax. He recommend to use Alternative Minimum Tax Calculator to reduce Alternative Minimum Tax.

With all the buzz over tax credits for energy-efficient home improvements, homebuyers and homebuilders are asking what they get.

The 2009-2010 energy tax credits for replacement windows, doors, insulation, and HVAC do not apply to new homes. Those credits are only available if you improve your existing home.

However, there are several tax credits available if you’re buying or building a new home. Here’s what they are and how to take advantage of them:

2009 Federal Tax Incentive For First Time Homeowners

If you’re buying your first home, you’re eligible for an $8,000 tax credit. The home must be your principal residence. If you’re moving and buying a new home, you do not qualify. Only individuals who have not owned a home for the three years prior to buying are eligible. Unlike previous homebuyer tax credits, you don’t have to pay this back!

To qualify, you must buy the home between January 1, 2009 and December 1, 2009. You must also have an adjusted gross income of $75,000 or less for individuals, and $150,000 or less for couples.

30% Energy Tax Credit for Energy-Efficient Power Systems

New homebuyers or builders can receive a 30% tax credit for the cost of energy-efficient power systems, including installation. There is no upper limit. The systems must be put into place by December 31, 2016.

• Solar Water Heating: All Energy Star certified solar water heaters qualify for the tax credit. The credit does not go towards expenses for swimming pools or hot tubs.

• Photovoltaic Systems (Solar power): Any photovoltaic system that provides electricity to the home and meets fire and electrical codes for your area qualifies for the tax credit.

• Residential Small Wind Energy Systems • Residential Fuel Cells and Microturbine Systems: The system must be at least 30% efficient and a capacity of .5 kW. The credit is worth 30% of the cost, up to $1500 per .5 kW capacity.

Federal Energy Tax Credit for Homebuilders

This tax credit is available only to eligible contractors, not to all homebuyers or builders. Homebuilders who qualify as eligible contractors can claim the credit. The home must be placed in service between January 1, 2006 and December 31, 2009.

• $2000 for Site-Built and Manufactured Homes: Eligible contractors can receive up to a $2,000 credit for building homes that use 50% less energy than homes built to 2004 International Energy Conservation Code (IECC) standards. Improvements to the building envelope (walls, roof, foundation, etc) must account for 1/5 of the 50% energy savings.

• $1000 for Site-Built and Manufactured Homes: Eligible contractors can alternately claim a lesser credit for homes that use 30% less energy than the 2004 IECC standards. Improvements to the building envelope must account for 1/3 of the 30% savings.

You can find out more about these credits from the IRS. Visit the Department of Energy website for more information on code compliance.

If you’re looking to improve the energy-efficiency of your current home, visit Mr. Rogers Windows. You’ll find replacement windows, patio doors, and entry doors in all your favorite styles that meet standards for the 2009 energy tax credit. You can receive up to $1,500 back from the federal government, plus you’ll slash your energy-bills with products guaranteed for life.

If you’re looking to improve the energy-efficiency of your current home, visit Mr. Rogers Windows. You’ll find replacement windows, patio doors, and entry doors in all your favorite styles that meet standards for the 2009 energy tax credit. You can receive up to $1,500 back from the federal government, plus you’ll slash your energy-bills with products guaranteed for life.

Get Replacement Windows To Qualify You For the 2009 Energy Tax Credit