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Year-end tax mistakes that you should avoid

Posted on: 09th Dec, 2009 02:44 am
It's year end and we'll are busy with Christmas shopping. How about taking some time out to start tax planning? Believe me, it would help you in the long run. You will be a better position to file your tax returns compared to others. So, try to take some smart moves and be ahead of others.

Here's a list of some of the mistakes regarding tax planning that you should avoid this year end:

Minimizing contributions to 401k: This year end, try maximizing your contributions towards 401k. Believe me, it will help you while you file your taxes. Also, note that contributions to individual retirement accounts should be made within April 15th, 2010. The maximum contribution for those under 50 years of age would be $5000 whereas for 50 years and older, it is $6000.

Donations after December 31st, 2009: Most of us do not know that if we want to deduct donations from the 2009 tax returns, then they should be made by the end of December, 2009. If you donate after December 31st, 2009, you won't be able to deduct it from your tax returns for 2009.

No knowledge of deductions: Most of us do not have any knowledge about what we can deduct and what not to deduct. Contact an expert who may help you in knowing what all you can deduct from your taxes. This year, the new car deduction is available to non-itemizers, itemizers as well as those subject to Alternate Minimum Tax (AMT).
There are number of things which tax payers are unaware off. As a result they make mistakes while filing their tax returns. For example a few of us know that taxpayers who are 70 and 1/2 years or more of age shouldn't take minimum distribution out of their IRAs while filing taxes for 2009.

As a tax payer, one can even accelerate deductions by itemizing them. Most people are unaware that they can accelerate their deductions by pre-paying their property taxes or mortgage dues, etc.
Posted on: 09th Dec, 2009 03:02 am
Here are a few more common mistakes that taxpayers often make while filing tax returns:

1. Missing out identification number

Taxpayers often forget to write in their identification number while filing tax return. The tax ID number is very important as many of the transactions like retirement plan contributions, savings account interest, etc. are keyed to this number. Without the number the IRS will not allow you to claim tax credits like Child Tax and Additional Child Tax credits, etc.

2. Exclusion of unearned income

You must not forget to include your unearned income on bank and investment accounts. Financial institutions send 1099 forms to the IRS and the tax agency knows exactly how much unearned income you have made. Thus, if you forget to include this information in your tax returns you may end up paying penalties on the earnings that went unreported.

3. Filing tax after deadline

Missing the April 15 tax deadline can cost you in late-filing penalties and fees. Thus, it is important to file you tax return on time. In case you need extra time to file your taxes you can simply ask the IRS for more time by submitting Form 4868, Application for Automatic Extension of Time to File U.S Individual Income Tax Return within the normal deadline.


Posted on: 09th Dec, 2009 06:02 am
people fail, more regularly than anything else, to take advantage of what's available to them when filing their taxes. this is strictly opinion, mind you - i don't have statistics to back this up.

here's another tidbit that i can assert to, however. given the preponderance of non-profit concerns who will assist taxpayers in preparing returns for free, it is alarming how many still traipse to h&r block, jackson & hewitt, et al, to do their returns for a pretty substantial fee in most cases.

sadly, most of those who are taken in by the advertisements of these firms are those who can least afford to have their refunds eaten up by fees. and guess what - the irs itself will do your tax return for free! yes, that's right - the foremost experts in the business will do the very same thing that those 2 companies i mentioned (and others) will do for a fee, and they'll not charge an extra penny!

why is it, i ask myself every year, that people don't take advantage of this incredible opportunity? fear? trepidation? lack of knowledge?

"My people are destroyed for lack of knowledge." (Hosea 4:6).

this year-end tip came straight from the Old Testament.
Posted on: 21st Dec, 2009 09:05 am
I'd like to speak about the deductions which one tends to forget, though these can help one save quite a good amount of dollars.
  • Student loan interest paid by parents: When parents pay off student loans taken for your education, the IRS treats it as if the money is given to you and then you've paid off the debt. Thus, if you're not claimed as dependent child, you'll qualify to deduct up to $2, 500 of the student-loan interest payment made by your parents. There's no need to itemize deductions to get this tax benefit.

  • Deduction on estate tax paid for inheriting IRA: You can claim a deduction for the amount of estate taxes paid on an IRA or Independent Retirement Account which you've inherited. Let's say, you've inherited IRA assets worth $120,000 and the money is included in the benefactor's estate. Now suppose, the estate tax levied on the IRA asset is around $40,000. You can thus deduct that $40,000 on your returns when you receive the IRA funds.

Posted on: 23rd Dec, 2009 05:53 am
here's another, from life experience.

if you filed your 2008 tax return late and didn't pay whatever might have been due, you'll receive a notification from the irs asking first for payment of the overdue amount, including penalties; and, if you cannot pay all at once, they ask you to contact them to discuss payment arrangements.

part of what happens next is dependent upon how much you actually owe. if you have a "small balance" account, as it is called, you can make an arrangement to pay as much as you can as often as you can, without any preset amount, and they'll not waste your time with continued dunning notices, interest or late charges.

the bottom line in this case: call them when they ask you to do so.

if you owe a larger amount, they'll obviously want to set up a payment plan with you.

the bottom line in dealing with the irs is to be frank and honest in your description of your situation. let's face it - the people with whom you speak are human just like you - well, most of us anyway - and they'll have reactions just as you might, opinions just as you might, and compassion just as you might.

the irs is not an organization to fear. in my dealings with agents of the irs, i have to say that i've been blessed and have not run into problems. i owe this, i believe, to my honesty and forthrightness. explaining my situation and providing them with what they need to work on my case (and yours, if it happens) gives them the wherewithal to provide a reasonable solution.
Posted on: 23rd Dec, 2009 09:03 am
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