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Monthly Archives: July 2012

Expanded Adoption Tax Credit Still Available for Extension Filers

If you adopted a child last year and requested an extension of time to file your 2011 taxes, you may be able to claim the expanded adoption credit on your federal tax return. The Affordable Care Act temporarily increased the amount of the credit and made it refundable, which means it can increase the amount of your refund.

Here are eight things to know about this valuable tax credit:

1. The adoption credit for tax year 2011 can be as much as $13,360 for each effort to adopt an eligible child. You may qualify for the credit if you adopted or attempted to adopt a child in 2010 or 2011 and paid qualified expenses relating to the adoption.

2. You may be able to claim the credit even if the adoption does not become final. If you adopt a special needs child, you may qualify for the full amount of the adoption credit even if you paid few or no adoption-related expenses.

3. The credit for qualified adoption expenses is subject to income limitations, and may be reduced or eliminated depending on your income.

4. Qualified adoption expenses are reasonable and necessary expenses directly related to the legal adoption of the child who is under 18 years old, or physically or mentally incapable of caring for himself or herself. These expenses may include adoption fees, court costs, attorney fees and travel expenses.

5. To claim the credit, you must file a paper tax return and Form 8839, Qualified Adoption Expenses, and attach all supporting documents to your return. Documents may include a final adoption decree, placement agreement from an authorized agency, court documents and the state’s determination for special needs children. You can use IRS Free File to prepare your return, but it must be printed and mailed to the IRS. Failure to include required documents will delay your refund.

6. If you filed your tax returns for 2010 or 2011 and did not claim an allowable adoption credit, you can file an amended return to get a refund. Use Form 1040X, Amended U.S. Individual Income Tax Return, along with Form 8839 and the required documents to claim the credit. You generally must file Form 1040X to claim a refund within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.

7. The IRS is committed to processing adoption credit claims quickly, but must also safeguard against improper claims by ensuring the standards for receiving the credit are met. If your return is selected for review, please keep in mind that it is necessary for the IRS to verify that the legal criteria are met before the credit can be paid. If you are owed a refund beyond the adoption credit, you will still receive that part of your refund while the review is being conducted.

8. The expanded adoption credit provisions available in 2010 and 2011 do not apply in later years. In 2012 the maximum credit decreases to $12,650 per child and the credit is no longer refundable. A nonrefundable credit can reduce your tax, but any excess is not refunded to you.

For more information see the ‘Adoption Benefits FAQs’ page available at IRS.gov or the Form 8839 instructions. The forms and instructions can be downloaded from the website or ordered by calling 800-TAX-FORM (800-829-3676).

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2012 Tax Benefits and Inflation Adjustments

Each year many tax benefits increase due to inflation adjustments. Joe Taxpayer tells us more about these adjustments for 2012.

Income

The value of personal exemptions increases to $3,800 per person and the standard deduction also rises to $5,950 for singles and $11,900 for married couples filing joint returns. Just over 2/3 of taxpayers take the standard deduction, so these year over year increases, however slight, are still important. The tax brackets (10%,15%,25%, 28%, 33%, 35%) remain unchanged, but the transition from one to the next shifts up slightly. For example, the single earner will see the 25% rate start at a taxable $35,350 in 2012 versus $34,500 in 2011. A bit of savings due to inflation adjusted brackets.

The “Kiddie Tax” remains unchanged. A child with unearned income of up to $1900 may be able to take a $950 standard deduction and they will be taxed at the 10% tax rate. Income beyond that may be taxed at the parents’ rate.

Retirement Savings

Contribution limits rose for 401(k), 403(b), and 457 plans as well as the Thrift Savings Plan. The new limit in 2012 is $17,000 plus an extra $5,500 if you are 50 or older by the end of the year. The IRA limit remains at $5,000 or $6,000 if 50 or older.

Deductions

The HSA (Health Savings Account) contribution limit has increased to $3,100 for individuals and $6,250 for families. An additional $1,000 is available for those 55 and older.

There are no changes this year to the Dependent Care Account. There is a $5,000 limit for money you and your spouse can withhold pre-tax to pay child care expenses for your child under age 13.

Flexible Spending Accounts will also see no change in 2012. This is pretax money you have withheld in order to pay for medical needs, including co-pays or prescriptions not covered by your plan. There is currently no limit, although most employers have a $5000 maximum permitted. If you have been debating about getting any elective medical procedures you may want to make the most of your flexible spending account in 2012 since the rules will change in 2013 and the maximum you will be able to contribute to an FSA will be limited to $2,500 per year.

Credits

In 2012 the Adoption Tax Credit decreases to $12,650. Also note, in 2011, it was refundable, meaning you’d get it if you qualified, regardless of your total tax bill. In 2012, the tax credit can not create a negative tax bill, it can only offset your taxes due for the year.

Child Tax Credit – In 2012 you can still take advantage of this tax credit and reduce your tax liability by up to $1,000 for each qualifying child under 17. The Child Tax Credit is scheduled to expire at the end of 2012. If the same tax credit is not extended after 2012, the Child Tax Credit may decrease to $500 in 2013.

Earned Income Tax Credit – This tax credit
increased to a maximum $5,891 in 2012, up $140 from last year. The maximum income to receive any of this credit is $50,270, and the credit itself is based on both income and number of dependents in your family. Note – Your investment income must be under $3,200 to qualify for this credit so plan accordingly.

The Saver’s Credit – This is a credit
up to $2000 for couples and $1000 if you’re single. To qualify, a couple may have an income of up to $28,750 for a single filer, and $57,500 for married filing jointly. This credit is based on both income and your deposit to a retirement account. It’s also impacted by other deductions and credits, so it’s best to let QB-Xpert
show you what credit, if any you’re eligible for.

Estate Tax

The estate tax top rate will stay at 35%, with the exemption rising to $5,120,000 until the end of 2012.

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Job Search Expenses Can be Tax Deductible

Summertime is the season that often leads to major life decisions, such as buying a home, moving or a job change. If you are looking for a new job that is in the same line of work, you may be able to deduct some of your job hunting expenses on your federal income tax return.

Here are seven things the IRS wants you to know about deducting costs related to your job search:

1. To qualify for a deduction, your expenses must be spent on a job search in your current occupation. You may not deduct expenses you incur while looking for a job in a new occupation.

2. You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you received in your gross income, up to the amount of your tax benefit in the earlier year.

3. You can deduct amounts you spend for preparing and mailing copies of your resume to prospective employers as long as you are looking for a new job in your present occupation.

4. If you travel to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area to which you traveled. You can only deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity unrelated to your job search compared to the amount of time you spend looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.

5. You cannot deduct your job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one.

6. You cannot deduct job search expenses if you are looking for a job for the first time.

7. The amount of job search expenses that you can claim is limited. To determine your deduction, use Schedule A, Itemized Deductions. Job search expenses are claimed as a miscellaneous itemized deduction and the total of all miscellaneous deductions must be more than two percent of your adjusted gross income.

For more information about job search expenses, see IRS Publication 529, Miscellaneous Deductions. This publication is available on http://www.irs.gov or by calling 800-TAX-FORM (800-829-3676)

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Tips on How to Fix Errors Made on Your Tax Return

If you discover an error after you file your tax return, you can correct it by amending your return. Here are 10 tips from QB-Xpert Service about amending your federal tax return:

1. When to amend a return Generally, you should file an amended return if your filing status, number of dependents, total income, tax deductions or tax credits were reported incorrectly or omitted. Additional reasons for amending a return are listed in the instructions.

2. When NOT to amend a return In some cases, you do not need to amend your tax return. The IRS usually corrects math errors or requests missing forms – such as Forms W-2 or schedules – when processing an original return. In these instances, do not amend your return.

3. Form to use Use Form 1040X, Amended U.S. Individual Income Tax Return, to amend a previously filed Form 1040, 1040A, 1040EZ, 1040NR or 1040NR-EZ. Make sure you check the box for the year of the return you are amending on the Form 1040X. An amended tax return cannot be filed electronically.

4. Multiple amended returns If you are amending more than one year’s tax return, prepare a separate 1040X for each return and mail them in separate envelopes to the appropriate IRS processing center (see “Where to File” in the instructions for Form 1040X).

5. Form 1040X The Form 1040X has three columns. Column A shows original figures from the original return. Column B shown the changes you are making. Column C shows the corrected figures. There is an area on the back of the form to explain the specific changes and the reasons for the changes.

6. Other forms or schedules If the changes involve other schedules or forms, attach them to the Form 1040X. Failure to do this will cause a delay in processing.

7. Additional refund If you are amending your return to get an additional refund, wait until you have received your original refund before filing Form 1040X. You may cash that check while waiting for any additional refund.

8. Additional tax If you owe additional tax, you should file Form 1040X and pay the tax as soon as possible to limit interest and penalty charges.

9. When to file Generally, to claim a refund, you must file Form 1040X within three years from the date you filed your original tax return or within two years from the date you paid the tax, whichever is later.

10. Processing time Normal processing time for amended returns is 8 to 12 weeks.

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Tips for Starting Your Own Business

For some people starting a business has been a dream they have planned for since they were young. For others, they’ve become entrepreneurs through necessity. For myself, it was a mix of both, I resigned from an office position and as I was searching for a job I did some side work for a friend who needed an extra pair of hands with his business. I had some experience with web copy from my then-hobby of blogging.

From working with him and taking on some side projects, I was able to get an income stream that allowed me to work for myself. I then started building my business and I love it. If you want to start your own business, here are some tips to make it easier for you.

Have a Well Thought Out Plan

No doubt you’ve seen people mentioning having a business plan written out with an analysis of competition, target market, projected financials, and so forth. Depending on the kind of business you want to start, you may not need this. However, with any business you do need to sit down and figure out:

What do customers/clients need? What problem is your business solving? Even if you have the interest and the skills for the business, you have to have a market to make it profitable.
How is my business the best solution to their problem? You have to clearly define your unique selling proposition.
What is a reasonable goal for revenue from this business? You may have an idea or service that can be incredibly helpful to others, but can you make a profit from it? No one can predict the future, but most people can get an idea of what to reasonably expect with certain inputs and by comparing competitors.

If you’re having a hard time answering the above questions, take some time to work out answers before you invest a huge amount of time and money in the business. You don’t need a big marketing department or bank account to get started with a business, but you do need a solid plan.

Use Free Resources to Start and Build Your Business

I also highly recommend using resources such as SCORE and the Small Business Administration to help you get your business off the ground and on the right foot. There are plenty of free workshops available online and offline that can assist you in advertising strategies, incorporating your business properly, and handling your business finances.

The real benefit of using resources like SCORE is that you get professional advice from people who have been in your shoes or who have extensive experience with running a business. You don’t need to master everything to start a business; you just need a network of people who can assist you in building it. Taking advantage of these free resources can help you reduce mistakes that can cost the business money or worse.

File Your Taxes Properly

Of course, with any business you need to be on top of your tax obligations. The IRS makes it easy for you to acquire your Employer Identification Number (EIN) by applying online. You can also take care of your estimated taxes online through Electronic Federal Tax Payment System. If you want to enroll, here’s what you need to know.

Each business is different, so you have to decide for yourself what option is best for your tax needs.

Thoughts on Starting a Business

How many of you are thinking about starting a business? What is your biggest concern before jumping in? For those who have started your own business, could you please share what has helped you to succeed?

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Posted by on 11/07/2012 in Business

 
 
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