How to file for an extension – Tax Tip of the Week April 14, 2010
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If you haven’t filed your tax return by now, you should probably consider filing for an extension. It is a lot easier to file for an extension than it is to amend a return later for a mistake you made trying to rush your return to completion. Even more costly are underpayment penalties and interest if the IRS finds a mistake.
To file for an extension, you simply need to submit Form 4868. After submitting this form, you have until October 15, 2010 to file your return. Note however, that an extension of time to file is not an extension of time to pay. If you suspect you will owe some taxes, you must send a payment along with the extension. This is true for your federal, state and city returns.
Ohio will automatically accept the federal extension. Some cities, however, require a special city extension form. Also, some cities will not allow extensions if you only have W2 income. Be sure to check with your work and/or resident cities before April 15th.
Another reason to file for extension is that some speculate your chances for an audit decreases for extended returns. How? One of the methods the IRS uses to select a return for audit is to select a random sample of returns filed by April 15th. If your return is not in that sample—then you don’t get picked!
Editor’s Note: One of the pledges I make to all of my clients is that my personal return will be the last one filed each year. When my most procrastinating client’s return is filed on October 15th, mine is right behind it! And has been that way for nearly 20 years!
Need help with last minute tax issues? Just give us a call. In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit http://www.bradstreetcpas.com.
Rick Prewitt – the guy behind TTW
…until next week.
Biggest Tax Blunder? – Not carrying forward capital losses – Tax Tip of the Week April 7, 2010
Posted by admin in : Tax Tip , add a commentTax Tip of the Week | Apr. 7, 2010 | No. 35
Carry Forward of Capital Losses
Last week we talked about the possibility of having unused foreign tax credits that have carried-over from prior years.
This week we are going to talk about a potentially much larger loss carry forward.
If you have investments that you sell, you must determine the gain or loss of that sale on your tax return each year. With the market being down for the last several years, many investors have reported losses on their tax returns. In many cases the losses are significant.
Unfortunately, you can only report a maximum capital loss of $3,000 on your tax return each year. (Editor’s note: this $3,000 limitation has been in place for as long as I can remember and really needs to be increased…but I doubt it will happen.) I have seen clients who have accumulated $50,000, $80,000 and more in capital losses!
One other particularly painful aspect of the capital loss limitation is that the carry forwards cease at death. So if Uncle Charlie passes away with a $80,000 capital loss carry forward…it’s lost forever.
One of the biggest tax blunders we have seen is when we work with new clients who have not carried forward capital losses to which they are entitled. That is why we always ask to review at least five years of prior tax returns. There are also other carry forwards we look for (besides the foreign tax credit and capital losses) but they go beyond the scope of this tax tip.
Note: For a refresher on capital gains and losses, review our Tax Tip of the Week: What you need to know about Capital Gains.
Questions? Just give us a call if you have any questions. In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit http://www.bradstreetcpas.com.
Rick Prewitt – the guy behind TTW
…until next week.
Are you invested in foreign companies or mutual funds with foreign investments? – Tax Tip of the Week March 31, 2010
Posted by admin in : Tax Tip , add a commentTax Tip of the Week | Mar. 31, 2010 | No. 34
You may be entitled to Foreign Tax Credits
If you own individual stocks or have investments in mutual funds that invest internationally, you may be paying foreign taxes on the dividends and capital gains generated. If so, then you are due a credit for those foreign taxes on your federal tax return.
The foreign tax credit is calculated on Form 1116. To properly calculate the credit, you must determine how much of the investment income was attributable to the foreign tax paid. Example: You received $400 in dividends, $300 in qualified dividends and $100 in capital gain distributions. You also paid $50 in foreign taxes. You must determine specifically how much of the $400/$300/$100 investment income generated the $50 foreign tax.
Carefully read your broker statements to determine the allocation.
In some instances, you may not be able to take the entire $50 credit on this year’s tax return due to other limitations (that go beyond the scope of this tax tip.) If this happens, the unused foreign credit will carry forward to the following year’s returns until such time the credit can be used. Therefore, it is very important to review prior year tax returns to see if they contained any unused foreign tax credits.
This is an easy credit to miss…now YOU know.
Need help sorting through your tax credits? Just give us a call if you have any questions. In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit http://www.bradstreetcpas.com.
Rick Prewitt – the guy behind TTW
…until next week.
Divorce and Claiming Dependents – Tax Tip of the Week March 24, 2010
Posted by admin in : Tax Tip , add a commentTax Tip of the Week | Mar. 24, 2010 | No. 33
What you need to do
Many times a divorcee decree will grant the noncustodial parent the right to claim as dependents minor children in alternating years. For example, the custodial parent can claim the child(ren) in years ending with even numbers, and the noncustodial parent can take them as dependents in years ending with odd numbers.
New this year
The IRS now requires Form 8332 be attached to the return of the noncustodial parent in the years when claiming dependents. The IRS will no longer accept copies of divorcee decrees or any other documentation relating to the right to claim children as dependents.
Completing this form is very simple and only needs to be done one time. All that is needed is for the custodial parent to list the years they are releasing claims to exemptions all the way until the year the child turns 18. (Note—it would probably be a good idea to carry through to the age of 22 in the event the child remains a full-time college student.) Copies can then be made and attached to the noncustodial parent’s return in future years.
If the noncustodial parent is electronically filling his or her return, the Form 8332 must be attached to Form 8453 and mailed to the IRS.
The custodial parent does retain the right to revoke their written declaration in future years if facts and circumstances dictate. This would be accomplished by filing and attaching a new Form 8332 in the year of that election.
Editorial Note: I really wish divorcee attorneys would include the completion of this form as part of all the other divorce documents that are prepared and signed.
As always, give us a call if you have any questions. In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit http://www.bradstreetcpas.com.
Rick Prewitt – the guy behind TTW
…until next week.
Who is a child in the eyes of the IRS? Tax Tip of the Week March 17, 2010
Posted by admin in : Uncategorized , add a commentEveryone knows a child when they see one. Right? 
Not so fast…. Let’s look at how the IRS has recently clarified the definition of a Qualifying Child?:
- To be the taxpayer’s qualifying child, the child must be younger than the taxpayer unless the taxpayer’s qualifying child is disabled within the meaning of I.R.C. 152(c)(3)(B).
- A child cannot be a qualifying child if he or she files a joint return unless it is filed only to claim a refund.
- If the parents of the child can claim the child but choose not to, no one else can claim the child as a qualifying child unless that person’s AGI is higher than the highest AGI of any parent of the child.
- A child is only a qualifying child for the purposes of the child tax credit if the taxpayer can and does claim an exemption for him or her.
These are just the new rules. To see the complete set of rules of determining a Qualifying Child refer to this flowchart.
Confused? Give us a call.
As always, give us a call if you have any questions. In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit http://www.bradstreetcpas.com.
Rick Prewitt – the guy behind TTW
…until next week.
It is never a good idea to file a tax return late – Tax Tip of the Week March 10, 2010
Posted by admin in : Tax Tip , add a commentDon’t be late – You’ll pay…File for an extension if needed
It is never a good idea to file a tax return late. The IRS, State of Ohio, and virtually every municipality will assess penalties on returns filed past the due date. If you simply run out of time, or don’t yet have all the needed information, it is perfectly fine to file for an extension.
Note: To see a tax due date calendar for 2010, visit our web site at www.bradstreetcpas.com. Click on any day on the calendar and the entire year of due dates will appear.
Date Changes
For business owners, several dates have changed. Most notable are the deadlines for the CAT return. If you are an annual CAT filer, the due date is now May 10, 2010. Quarterly CAT payment dates have also changed. As always, corporations are reminded that the due date for Forms 1120 and 1120S are due March 15, 2010.
All business owners and those needing to file fiduciary returns have only until September 15, 2010 to file returns that were placed on extension. Individual tax returns placed on extension still have until October 15, 2010 to file.
As always, give us a call if you have any questions. In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit http://www.bradstreetcpas.com.
Rick Prewitt – the guy behind TTW
…until next week.
Make sure your name matches – Tax Tip of the Week March 3, 2010
Posted by admin in : Tax Tip , add a commentIf you were recently married or divorced, you’ll want to ensure the name on your tax return matches the name registered with the Social Security Administration (SSA). Here’s what you need to know:
- If you took your spouse’s last name or if both spouses hyphenate your names, you may run into complications if you don’t notify the SSA. When newlyweds file a tax return using their new last name, IRS computers can’t match your Social Security Number.
- If you were recently divorced and changed back to your previous last name, you’ll also need to notify the SSA of this name change.
- To notify the SSA of a name change you’ll need to file Form SS-5. You can also file this form by visiting your SSA office.
- If you adopted your spouse’s children after getting married, you’ll want to make sure the children have an SSN. For adopted children without SSNs, you can apply for an Adoption Taxpayer Identification Number (ATIN). Form W-7A should be filed with the IRS.
- It takes the SSA about two weeks to have the change verified—so be sure to do this prior to filing your tax return.
Avoid delays and confusion and make sure the government knows who you are!
As always, give us a call if you have any questions. In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit http://www.bradstreetcpas.com.
Rick Prewitt – the guy behind TTW
…until next week.
What’s your status? Are you MFS or MFJ? Tax Tip of the Week February 24, 2010
Posted by admin in : Uncategorized , add a commentIf you were legally married on 12/31/09, the IRS considers you married for the entire year of 2009.
You now must decide if you are going to file as Married Filing Jointly (MFJ) or Married Filing Separately (MFS). Note that if you file MFJ it is an irrevocable election—you cannot go back and amend a MFJ return to a MFS return.
The primary reason to file MFS is to pay less tax. This is particularly beneficial for Ohio taxes. Another reason to file separately is to avoid joint liability. Each spouse who signs a joint return is responsible for the accuracy and tax liability on the return.
Many times, for example, in a second marriage situation, we see couples who have a desire to maintain separate financial responsibilities. While this is understandable, it could lead to paying several thousand dollars in additional taxes. If you file MFS, you will lose the following:
- Lost credits for child care, education credits, adoption credits and EIC
- Student loan interest deduction, tuition and fees deduction, savings bond interest deduction
- If one spouse itemizes, or takes the standard deduction, the other spouse must do the same. (That is, one cannot itemize and the other take a standard deduction.)
- A greater percentage of your Social Security benefits may be taxable
- Your ability to contribute to traditional or Roth IRA will be greatly limited
- Capital losses will be limited to a maximum of $1,500
- Passive losses will be limited
Before filing your return, you need to look at both MFJ and MFS to see which lowers your tax burden the most.
As always, give us a call if you have any questions. In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit http://www.bradstreetcpas.com.
Rick Prewitt – the guy behind TTW
…until next week.
ANOTHER new tax form – Tax Tip of the Week February 17, 2010
Posted by admin in : Tax Tip , add a commentLast week we talked about the new Schedule M. This week we’ll look at the new Schedule L.
This form is designed for those who typically take the standard deduction on their tax return (those who cannot itemize.) Specifically, it’s where you deduct real estate taxes, motor vehicle sales taxes, and disaster losses.
Real Estate Taxes: Again this year, taxpayers who do not itemize may claim up to $500 ($1,000 for a joint return) for property taxes paid on their home.
Motor Vehicle Sales Taxes: New this year is a deduction for the sales tax paid on a new motor vehicle. The deduction is limited to the tax paid on the first $49,500 of the price of the vehicle; however, more than one purchase can qualify for the deduction. The deduction is phased-out ratably for taxpayers with an AGI of $125,000 and $135,000 ($250,000 and $260,000 if married.)
Disaster Losses: None of us who live in the Greater Dayton area qualify for this deduction so we won’t discuss the details. However, if you have a second property in a region affected by a disaster or simply have questions, give us a call.
This now makes quite an alphabet soup of tax forms! Be sure to consider all the form letters when doing your tax return. They now include Schedules: A,B,C,D,E,F,H,J,L,M,R,SE, and T. Whew!
As always, give us a call if you have any questions. In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit http://www.bradstreetcpas.com.
Rick Prewitt – the guy behind TTW
…until next week.
Introducing a new tax form: Meet Schedule M – Tax Tip of the Week February 10, 2010
Posted by admin in : Tax Tip , add a commentAs you may or may not remember, your pay checks were a little larger last year as a result of the “Making Work Pay Credit.” The larger pay checks were due to reduced tax withholdings.
If you received Social Security or received a government pension that does not participate in Social Security, you received a $250 check. This was part of the “Government Retiree Credit.”
Schedule M is designed to reconcile these two credits. Wage earners will receive $400 per individual ($800 if married) if your income is below $75,000 ($150,000 for joint returns.)
Confused? Download Schedule M and Schedule M Instructions to really get your head spinning.
We anticipate most tax preparation software will handle these calculations properly. If you are doing it by hand….good luck!
As always, give us a call if you have any questions. In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit http://www.bradstreetcpas.com.
Rick Prewitt – the guy behind TTW
…until next week.
