Taxes

Tax Due Date 2012

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Taxes for 2011 are almost due. As always, the IRS tax filing deadline for 2012 is April 15th, only it isn’t. April 15th is a Sunday and taxes are not due on weekends, especially Sundays. You don’t expect government bureaucrats to work on the weekend, do you? Not to mention, you can’t get a postmark on Sunday because the Post Office is closed. So, your taxes should be due on April 16th, but they aren’t due then either. Just like last year, the Monday your taxes would normally be due on is a holiday. It isn’t a Federal holiday, but it is a holiday in Washington D.C. and when it comes to the Internal Revenue Service, the holiday schedule includes those D.C. holidays. After all of that, it comes down to for 2012 taxes are due on Tuesday April 17th. Technically, of course, that means that your taxes must be postmarked by midnight April 17th. As always, there will be certain post offices open late, some until midnight, where you can mail your taxes right up to the deadline and still get that all important postmark. If you don’t file your taxes on time, you’ll owe penalties and interest. If …

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2012 IRA Contribution Limits

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An IRA is an Individual Retirement Account. The IRA allows taxpayers to save money for retirement in a tax-advantaged manner. There are two types of non-business IRA accounts. With a traditional IRA, contributions are tax deductible for certain taxpayers. In addition, all monies within the account grow tax-deferred until withdrawal. A Roth IRA offers no deduction for contributions. However, the Roth account also offers tax-deferred growth. More importantly, money withdrawn from a Roth IRA account in retirement is tax-free. To prevent abuse of the powerful tax advantages offered by IRAs, the IRS limits the total allowable IRA contribution each taxpayer can make. In addition, there are income limits for tax-deductible IRA contributions as well as limits on high-income taxpayers making Roth IRA contributions. IRA Contribution Limits 2012 The 2012 IRA contribution limit is the same as it the 2011 IRA contribution limit. Taxpayers under age 50 may contribute up to $5,000 annually to an IRA account. Taxpayers age 50 and older may make an additional catch-up IRA contribution of up to $1,000, for a total IRA contribution of $6,000 each year. 2012 Roth IRA Income Limits Contributions to a traditional IRA are allowed for all taxpayers regardless of income. However, contributions are …

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Higher Tax Audit Chances?

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Shortly after publishing my post about your odds of being audited by the IRS, a reader sent me a message with a link to a CBS News article suggesting that your chances of being audited were actually much higher than previously thought. That is what the bold type headline screams, at least. In reality, if you read the entire article, you’ll find that the odds of triggering an IRS audit are pretty much right in line with what I said in my article. What this other news article points out is that there are ways for the IRS to contact you that aren’t really audits. If you include these not-audits in the count of actual audits, then you get, not surprisingly, a much higher number of audits. In particular, the article focuses on ominous letters that IRS sends out to taxpayers, which are very much not audits. In fact, the letters cited in the article are about as far from an audit as you can get. One of the letters informs taxpayers of a math error in their tax returns. This is not an audit. This is a notice that you messed up your math and therefore need to pay …

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IRS Audit Odds

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As tax season approaches, America’s thoughts turn to the required filing of income taxes. Theoretically, America’s tax system is a voluntary reporting system, however, that voluntary part is backed up by a pretty big stick, IRS audits. Odds of Being Audited According to IRS statistics, the chances of being audited by the IRS is about one in 100, or one percent. A deeper look, however, reveals the the IRS audits certain tax returns much more often than other returns. IRS audit statistics suggest that high-income taxpayers and those who own small businesses are more likely to be audited that middle and low income taxpayers who earn the majority of their income from wages and salary or brokerage-style investments. The reasons certain groups get audited more than others are two-fold. First, and foremost, there is more money to be gained by auditing higher income taxpayers. For example, consider a middle income wage earner, who is married filing jointly, bringing down a salary of $70,000 with no other income. Taking the standard deduction for 2011, of $11,600 for married couples filing joint, that leaves $58,400 of taxable income. Do the math and that taxpayer isn’t going to pay any more than around …

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Reporting Short Sales for Income Taxes

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Reporting most investment income is pretty straightforward. Calculate the gain or loss and enter it on Schedule D. The only trick is whether to report as a long-term or short-term capital gains or capital losses. With short sales, however, there are a couple of tax tricks to know about how they get reported. Long-Term or Short-Term Short Sales The most important thing to understand about short sales, is that they are almost always considered short-term capital gains or losses. Unlike a traditional investment where you buy and hold the property, with a short sell, you do not own the property at all. You borrow the shares from your brokerage who gives you the proceeds of the sale. You close the sale by buying back the same shares you sold. It may seem like you determine whether a short sale is long or short-term by the amount of time that passes in between when the short sale is initiated and when it is closed. However, this is not the case. In order to be a long-term capital gain, you have to OWN the property in question for more than one year. With a short sale, you never own the property. Or, …

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Spousal IRA Contribution Limit 2011

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Contributions to IRA accounts for 2010 and 2011 are subject to an annual limit of $5,000 for all taxpayers under age 50. (The IRA contribution limits for 2011 are the same as the IRA contribution limits for 2010.) IRA owners over age 50 can contribute an additional $1,000 catch-up contribution to their IRA account for a total contribution of $6,000 per year. Contributions must come from taxable income. In other words, a parent cannot contribute to an IRA on behalf of a child with no earned income. For couples who file jointly, there is an exception called a spousal IRA.  A spousal IRA allows one spouse to contribute to the other spouse’s IRA up to the yearly IRA contribution limits for 2010 or 2011. If Bob makes $100,000 and Betty makes $2,000, typically, Bob could contribute $5,000 to an IRA and Betty could contribute just $2,000.  However, if the couple is married filing jointly, a full $5,000 contribution can be made to Betty’s IRA by the couple. If Betty is over age 50, a catch-up contribution is allowed to spousal IRA as well, so $6,000 can be contributed to the spousal IRA for 2010 and also contributed for 2011. If …

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2011 Mileage Rate IRS Standard Deduction Amount Set

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Update: Information for the IRS mileage rate 2016 is here. This article is about the 2011 mileage rates published by the IRS. When deducting eligible automobile expenses, taxpayers have the option of deducting actual expenses or using the optional standard mileage rates to deduct automotive expenses. Because, the records required in order to deduct the actual expenses and depreciation of a car expenses are extensive and detailed, most people opt to use the standard mileage deduction. In addition, many businesses use the standard IRS mileage rates to reimburse employees for miles driven for work purposes. This both ensures that the company can deduct those reimbursements fully as a business expense, and that there is no disagreement about what the mileage reimbursement rate should be since an impartial government agency is the one that sets it. The mileage deduction rate is adjusted every year. The standard 2011 tax deduction mileage rate has been published. Standard IRS 2011 Mileage Rates Beginning on January 1st, 2011, the standard mileage rates for calculating the deductible costs of operating a car or truck for business purposes is 51 cents per mile. Remember that although you cannot deduct the cost of commuting to a job, you can …

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Should I Convert My IRA to a Roth IRA In 2010?

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As the end of the 2010 tax year comes to a close, an interesting question is coming up more often. Should I convert my IRA to a Roth in 2010? There is a special 2010 tax trick that allows you to convert your traditional IRA to a Roth IRA and spread the taxes from the IRA conversion out over the next two tax years. That little tax secret expires at the end of 2010, which means that unless you convert your IRA to a Roth before year-end, you can’t lower your taxes with that tax loophole. Roth IRA conversions are open to everyone regardless of income from now on. However, there are still Roth IRA income limits for contributions. Is It A Good Idea To Convert IRAs in 2010? Normally, making a big tax move like a Roth conversion late in the year is not a good tax strategy for most people because it doesn’t give you any time to compensate for it. For example, if you were to convert an IRA to a Roth IRA in 2011, you will owe income taxes on the amount of money converted, minus any non-deductible IRA contributions you made to the traditional IRA …

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Lower Your Taxes – Increase Tax Deductions 2010

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Here comes the end of the year! (Yikes, already?) As 2010 draws to a close, it is time for the annual publishing of the end of year tax tips articles. Or, for the mainstream media, it’s time to re-publish pretty much the same thing that was published last year, rehashing the same old annual tax savings strategies. I thought we’d go ahead and get a jump on them (Isn’t that what good personal finance blogs are for?) by pre-posting all of the standard, run of the mill, year-end tax tips before Thanksgiving. Of course, if you are serious about tax planning, you’ve already done all of this and more. Don’t worry, we’ll be publishing new, little-known, tax tips and end of year tax tricks for 2010 soon. Here they are the Common 10 Tax Reduction Strategies for 2010 (and 2011, 2012, 2013, etc…) Donate To Charity – Definitely a good write off for high-income taxpayers and everyone else. Of course, the only tax deduction more well known than donating to charity is deducting mortgage interest on your home. Deduct Your Medical Bills – This is wasteful advice for most taxpayers. The medical expenses deduction only applies to medical and dental …

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