The 2010 tax season is over, but if your smart, you’re always thinking about next year’s taxes. This year has been bad for most businesses and experts predict this trend will continue. You can’t do much about the economy but you can take control of your taxes. So, here are some tax tips to consider for the 2010 tax year.

Estimated tax payments
As far as tax planning goes, knowing where you’ve been can help you get to where you want to go. This is especially true if you’re self-employed. In other words, seeing how you came out on your last tax return can alert you to changes you need to make to minimize your tax burden next time. For example, if you underpaid your estimated taxes and were assessed a penalty, or if you overpaid your taxes and got a huge refund, you should adjust your estimated tax payments for this year accordingly. Get on the ball now. The second installment of your estimated payments is due this month–June 15. To figure out how much you should be paying, talk to your tax professional.

Tax credits
Tax credits reduce your tax liability. Here are some to take advantage of.

Health-care reform
Small businesses and tax-exempt organizations can get tax relief offered in the new Small Business Health Care Tax Credit. Small businesses that have fewer than 25 full-time-equivalent employees with average wages of less than $50,000, and that pay at least half of individual health-care coverage costs, will be eligible for credits of up to 35 percent of their share of health-care premiums. This credit is retroactive to the beginning of 2010 and is in effect through 2013. Businesses with 10 full-time-equivalent employees making an annual average of less than $25,000 will receive the maximum credit. Those with more staff members with higher salaries will receive progressively less. Exactly how this credit will play out is yet to be seen; look for the “how-to” in claiming this credit.

Green Businesses
Businesses that make changes in their energy systems can get sizable federal tax credits. Installing a solar water heater, for example, could qualify a business for a tax credit of 30 percent of the cost. But a more significant incentive is the Energy Efficient Commercial Buildings Deduction. Although it is a deduction and not a dollar-for-dollar credit, there is still potential for saving big bucks. By modifying things such as lighting, HVAC systems and other parts of a building to improve energy efficiency, companies could qualify for a deduction of up to $1.80 per square foot of commercial building space. So the owner of a 100,000-square-foot building could receive a one-time, $180,000 federal tax deduction.

Work Opportunity Tax Credit
With so many unemployed people out there, if your business is in a position to hire, do it. You can get the Work Opportunity Tax Credit for hiring people who typically have a hard time finding and keeping gainful work, such as low-income ex-felons, disadvantaged youths and veterans, or those who receive food stamps or supplemental Social Security income benefits. The credit equals 40 percent of the first $6,000 of an employee’s wages for the first year of employment, as long as he or she has worked at least 180 days or at least 400 hours. The rate is 25 percent for fewer than 400 hours, but there’s no credit for an employee who works fewer than 120 hours. To qualify for the credit, you have to file a special form with the state workforce agency, which will certify that the worker is eligible for the credit.

Tax season is really never over and it makes business sense to think about tax planning throughout the year.

Worried about how you’re going to pay your tax bill? You could always use your credit card. 

The IRS will accept payment of your 2008 federal income tax on a Visa, Mastercard, Discover Card or American Express.  Many states are accepting income tax payment via credit card too!

But you might want to rethink this decision based on the fact you will be charged a “convenience fee” of 2.49% of the amount you charge.  That’s because the IRS isn’t interested in paying the merchant fee, so you have to foot that bill.  It may not be a big deal paying an extra fee of  $12.45 on a $500 tax bill, but what about an extra $124.50 on a $5,000 income tax bill?

And don’t forget that unless you pay off that bill within the credit-card issuer’s grace period, you’ll start getting charged interest.

So before you pay your federal income tax using plastic, you may want to dig up the money some other way. Ask your parents, sell some of your old gold or even set up an installment plan with the IRS themselves.  The IRS charges a $52 setup fee (for setting up automated payments from your bank account) and then a monthly interest rate on the outstanding balance. Currently, that interest rate is 0.667% per month (which equates to 8% annually).

If you do have a low interest credit card and can pay off a big chunk of federal income tax right away, a credit card may be a good option for paying for federal income tax using a credit card. If you decide to pay your federal income tax using a credit card, visit pay1040.com to process your payment.

source: Wall Street Journal

April 15, the federal income tax filing deadline, is coming upon us fast. And this year, the economic conditions may pose serious problems for those who owe federal income taxes but don’t have the money. If you end of up owing federal income tax and can’t afford to pay the tax, here is some essential information you need to know about the IRS collection process and payment alternatives:

1. What is the collection process?
If you do not pay the taxes you owe in full when you file your income tax return, or if the IRS examines your tax return and makes an assessment based upon an examination, you will receive a bill from the IRS. This bill begins the collection process. The IRS may take action to collect the money if you do not pay on time or do not make arrangements with the IRS to pay over time.

The first bill you receive will request payment in full. If the IRS has changed the amount you owe, the bill will explain the change.

It is in your best interest to pay the tax as soon as possible because the IRS will continue to charge you penalty and interest. If you cannot pay the full amount of taxes you owe by the deadline, you should still file your return by the deadline and pay as much as you can to reduce penalties and interest.

2. How can I pay my taxes?The Internal Revenue Service will accept check or money order made out to the Department of Treasury – write your Social Security number or ITIN, the tax form, and tax period on the check.
Electronic Federal Tax Payment System (EFTPS) – EFTPS is a free tax payment system. You can transfer money from your bank account to pay your taxes by phone or online. For details, visit www.eftps.gov or call 1-800-316-6541.
Credit Card – these companies charge finance fees. To pay by credit card, here a contact number of one of the service providers: Link2Gov Corporation: 1-888-PAY-1040 (1-888-729-1040).

3. What if I cannot pay in full?
If you cannot pay your federal income tax in full, call the IRS at the phone number listed on your bill. Depending on your specific circumstances, you may qualify for an extension or an installment agreement.

Extension of Time to Pay – You can request an extension from 30 – 120 days depending on your specific situation.
Installment Agreement or Partial Pay Installment Agreement – Depending on the amount you owe , and your specific circumstances, you may apply for an installment payment plan or a partial pay installment agreement by applying online at www.irs.gov.

Be aware that for most taxpayers, the IRS generally charges a fee for setting up an installment agreement and interest and penalties continue to accrue during this time.

4. What if I cannot pay at all?
Call the IRS at the phone number on your bill. Because you will need to give the IRS complete financial information if you feel you cannot pay, before you call, make a list of your monthly expenses and monthly income, and be prepared to discuss those with the IRS. Be sure to consider your medical costs and transportation costs (e.g., gas, repairs, insurance, bus fares), as well as housing costs. For expenses that are not recurring on a monthly basis (like auto repairs), consider your total yearly costs and divide that amount by 12 to come up with an average monthly amount. If the IRS agrees that you do not have the ability to pay, it may temporarily suspend collection action. However, the amount you owe will continue to increase through additional penalty and interest charges.

5. What if I do not pay voluntarily?
If you do not pay your tax bill or contact the IRS to make arrangements to pay, the IRS will take action to collect, such as:

• Filing a Notice of Federal Tax Lien (NFTL) – The lien is a claim against your property. The lien will appear on your credit report and it may harm your credit rating. The IRS will release the lien once the taxes, penalty, interest, and recording fees are paid in full.
• Serving a Notice of Levy or seizing assets – The IRS can collect the amount you owe from your wages, bank accounts, Social Security benefits, retirement, or other sources of income. If the tax still isn’t paid and you haven’t made arrangements to pay, the IRS may seize your car, real estate, or other property. Prior to taking such action, you have the opportunity to request a hearing to resolve your tax payment issues.
• The IRS will also apply any future federal tax refunds that you are due to the debt. They may also take any state income tax refunds you are due.

6. What if I disagree with the IRS’ Collection Actions?
Depending on where you are in the collection process, you may be able to appeal the IRS collection actions through the Collection Due Process (CDP) or Collection Appeals Programs (CAP). For more information, see Publication 1660, Collection Appeal Rights. All Publications are available by calling 1-800-829-3676, or at www.irs.gov.

7. Will the IRS settle for less than full payment?
The IRS has the authority to settle, or compromise, federal tax liabilities by accepting less than full payment under certain circumstances. An offer in compromise (OIC) is an agreement between a taxpayer and the IRS that resolves the taxpayer’s tax liability. For most taxpayers, there is a fee for submitting a request for an OIC, and the IRS will generally not accept an OIC if you can fully pay the tax liability. For more information about OICs, see Publication 594, What You Should Know About The IRS Collection Process.

8. Where can I find more information about paying my taxes?
See IRS Publication 17, Your Federal Income Tax, for more information.

9. Whom should I contact if I need assistance?
If you have additional questions or concerns, contact the IRS at the phone numbers listed on your bill. If you do not have a bill, you can call IRS customer service at:

• 1-800-829-1040, or
• Visit the IRS website at www.irs.gov
• Taxpayer Assistance Center. Use this link to locate the closest IRS Taxpayer Assistance Center or visit www.irs.gov for a listing.
• You may also qualify for assistance from a Low Income Taxpayer Clinic (LITC). Information about LITCs can be found later in this toolkit.

source: www.irs.gov

With the economic times getting tougher, we all need to find ways to save money. The recent tax law changes may put extra money in your pocket when you file your federal income tax this year.  For example, If you’re not a first time homebuyer but your last home purchase was more than 3 years ago you may qualify for a new $7,500 tax credit for first-time home buyers.

Technically, it’s a tax-free loan that has to be repaid over 15 years but it’s still a great deal. Some new tax breaks have qualifying dates that don’t follow the calendar year. The home buyer credit applies only to purchases between April 9, 2008, and June 30 of this year. And many have income restrictions. For example, the home buyer credit is phased out at modified-adjusted incomes of $150,000 for married couples or $95,000 for singles.

Here are some other tax law changes that may affect your 2008 federal income tax return.

Kiddie tax
The “kiddie tax,” which taxes a child’s investment income beyond $1,800 at the parent’s tax rate, now covers some children until they turn 24. “People used to try to pay for college by transferring appreciated assets to their children to pay college expenses,” said Mark Luscombe, principal tax analyst at CCH, a tax publisher in Riverwoods, Ill. The children could then sell those assets and pay far less tax than their parents would have owed. “Now that no longer works,” Luscombe said. The rule applies to children who are enrolled in college or a trade school and who are still dependent on their parents for most of their financial support.

Capital gains
Low-income households will pay zero tax on capital gains from assets they’ve owned at least a year. To qualify, your wages must place you in the bottom two income tax brackets, which cover taxable incomes up to $65,100 for married couples filing joint returns, or $32,550 for singles. Previously, people in these brackets had to pay a 5 percent tax on such long-term capital gains. Most higher-earning taxpayers will continue to pay a 15 percent tax on capital gains.

Luscombe said he thinks this change explains why the kiddie tax was extended to older offspring. Parents would have had even more incentive to shift investments over to kids who would pay zero tax on the gains. “Taxpayers really like the concept of a zero percent tax rate,” he noted.

Standard deduction plus
Nearly two-thirds of taxpayers claim the standard deduction instead of itemizing, according to the IRS. This year those using the standard deduction can claim an extra amount for state and local property taxes. Married couples filing jointly can claim up to $1,000 extra; singles can claim $500. This will benefit people such as retirees who have paid off their mortgages and don’t have enough deductions aside from their property taxes to make itemizing worthwhile.

Taxpayers also can claim an extra amount on top of their standard deduction to account for losses suffered from a federally declared disaster.

Forgiven mortgage debt
If you lost your home to foreclosure or a short sale (with the lender agreeing to accept sales proceeds that are short of what’s owed on the mortgage), that unpaid debt is technically considered income to you. For the tax years 2007 through 2012, the government is waiving any tax liability on that phantom income. The lender will send you — and the IRS — a copy of Form 1099-C, “Cancellation of Debt,” reporting that forgiven debt as income. To make sure you are not taxed on the amount, you will have to file Form 982, “Reduction of Tax Attributes Due to Discharge of Indebtedness.” (Forms can be downloaded free from http://www.IRS.gov.) If you’ve lost a home to foreclosure, be sure the bank and IRS have your current address (notify the IRS by mailing in Form 8822) so you receive important notices promptly.

This year-old change to the tax laws will affect more people this year, thanks to soaring foreclosure rates. Forgiven debt on vacation homes and rental properties is still taxable as if it were income.

Recovery rebate credit
Remember how last year’s economic stimulus payment arrived in your mailbox without you even requesting it? The credits were as high as $1,200 for married couples, $600 for singles and $300 for children, and you were automatically eligible if your income met the program’s limits. To get the stimulus checks in hand quickly, the IRS did the math for you, looking back to your 2007 reported income to estimate whether you would be eligible for all or part of the credit.

Now that you know how much you actually earned in 2008, it’s time to tidy up that math with this year’s tax return. If you got less than the full credit last year, you may qualify for the remainder now. Generally that will happen if your income in 2008 was lower than in 2007, or if you added another child to your household, who qualifies for a $300 credit.

This is already causing confusion with 2008 returns. The IRS reported that about 15 percent of people who filed in January made a mistake regarding the recovery rebate credit. To do it right, you will need to fill out a worksheet that comes with your tax return to calculate the dollar amount of rebate credit (if any) you are due. To fill out the worksheet correctly, you will you need to know exactly how much you received last year.

You do not have to pay tax on your economic stimulus payment, nor do you have to give any back if the IRS sent out a check that was too big in light of your actual 2008 income.

For more information on the tax changes for 2008 you can go to the IRS website at http://www.IRS.gov.

source: Washington Post