Category Archives: Personal Finance

IRS Offers Tips on Retirement Savings Tax Credits

Posted on February 23, 2012 by | Leave a comment

The Internal Revenue Service has released six tips on receiving income tax credits for contributions to retirement savings plans.

If you make eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement, you may be eligible for a tax credit, depending on your age and income.

Here are six things the IRS wants you to know about the Savers Credit:

1. Income limits The Savers Credit, formally known as the Retirement Savings Contributions Credit, applies to individuals with a filing status and 2011 income of:

  • Single, married filing separately, or qualifying widow(er), with  income up to $28,250
  • Head of Household with income up to $42,375
  • Married Filing Jointly, with incomes up to $56,500

2. Eligibility requirements To be eligible for the credit you must be at least 18 years of age, you cannot have been a full-time student during the calendar year and cannot be claimed as a dependent on another person’s return.

3. Credit amount If you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans, you may be able to take a credit of up to $1,000 ($2,000 if filing jointly). The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income.

4. Distributions When figuring this credit, you generally must subtract distributions you received from your retirement plans from the contributions you made. This rule applies to distributions received in the two years before the year the credit is claimed, the year the credit is claimed, and the period after the end of the credit year but before the due date – including extensions – for filing the return for the credit year.

5. Other tax benefits The Retirement Savings Contributions Credit is in addition to other tax benefits you may receive for retirement contributions. For example, most workers at these income levels may deduct all or part of their contributions to a traditional IRA. Contributions to a regular 401(k) plan are not subject to income tax until withdrawn from the plan.

6. Forms to use To claim the credit use Form 8880, Credit for Qualified Retirement Savings Contributions.

For more information, review IRS Publication 590, Individual Retirement Arrangements (IRAs), Publication 4703, Retirement Savings Contributions Credit, and Form 8880. Publications and forms can be downloaded at www.irs.gov or ordered by calling 800-TAX-FORM (800-829-3676).
Links:

  • Form 8880, Credit for Qualified Retirement Savings Contributions (PDF 46K)
  • Form 1040, U.S. Individual Income Tax Return (PDF 176K)
  • Form 1040A, U.S. Individual Income Tax Return (PDF 136K)
  • Publication 590, Individual Retirement Arrangements (IRAs) (PDF 449K)
  • Tax Topic 610

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Posted in Individual Retirement Accounts, Personal Finance, Taxes

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IRS Extends Deadline for Estates to File Estate Tax Return to Make Portability Election Benefiting Surviving Spouses

Posted on February 17, 2012 by | Leave a comment

The Internal Revenue Service has issued guidance that allows certain estates of married individuals who died during the first six months of 2011 an extension of the deadline to make the portability election.

The portability election passes along a decedent’s unused estate and gift tax exclusion amount to a surviving spouse. An extension is available to estates of married individuals with assets of $5 million or less, but only if the decedent died in the first six months of 2011, and the executor files Form 4768 requesting an extension no later than 15 months after the decedent’s date of death.

The extra time is available to an estate even if the estate did not request an automatic six-month filing extension on Form 4768 prior to the regular nine-month filing deadline. As a result, these estates will now have until 15 months after the date of death, rather than the usual nine months, to make the election by filing an estate tax return on Form 706. Thus, the first estate tax returns for estates eligible to make the portability election (because the date of death is after Dec. 31, 2010) are now due on Monday, April 2, 2012.

Affected estates should submit both a properly-prepared Form 4768 and Form 706 to the IRS no later than 15 months after the decedent’s date of death. Further details are in Notice 2012-21, posted today on IRS.gov.

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Preparing Your Income Tax Return? The IRS Has Listed Several 2011 Tax Law Changes You Need to Be Aware Of

Posted on February 9, 2012 by | Leave a comment

Tax Law Changes for 2011 Federal Tax Returns 

Before you file your 2011 federal income tax return in 2012, you should be aware of a few important tax changes that took effect in 2011. Check www.IRS.gov before you file for updates on any new legislation that may affect your tax return.

Due date of return. File your federal tax return by April 17, 2012. The due date is April 17, instead of April 15, because April 15 is a Sunday and April 16 is the Emancipation Day holiday in the District of Columbia.

New forms. In most cases, you must report your capital gains and losses on the new Form 8949, Sales and Other Dispositions of Capital Assets. Then, you report certain totals from that form on Schedule D (Form 1040). If you had foreign financial assets in 2011, you may have to file the new Form 8938, Statement of Foreign Financial Assets, with your return.

Standard mileage rates. The 2011 rates for mileage are different for January 1 through June 30 than for July 1 through December 31. For business use of your car, you can deduct 51 cents a mile for miles driven the first half of the year and 55 ½ cents for the second half. Medical and moving mileage are both 19 cents per mile for the early half of the year and 23 ½ cents in the latter half.

Standard deduction and exemptions increased.

  • The standard deduction increased for some taxpayers who do not itemize deductions on IRS Schedule A (Form 1040). The amount depends on your filing status.
  • The amount you can deduct for each exemption has increased $50 to $3,700 for 2011.

Self-employed health insurance deduction. This deduction is no longer allowed on Schedule SE (Form 1040), but you can still take it on Form 1040, line 29.

Alternative minimum tax (AMT) exemption amount increased. The AMT exemption amount has increased to $48,450 ($74,450 if married filing jointly or a qualifying widow(er); $37,225 if married filing separately).

Health savings accounts (HSAs) and Archer MSAs. The additional tax on distributions from HSAs and Archer MSAs not used for qualified medical expenses increased to 20 percent. Beginning in 2011, only prescribed drugs or insulin are qualified medical expenses.

Roth IRAs. If you converted or rolled over an amount from a traditional IRA to a Roth IRA or designated Roth in 2010 and did not elect to report the taxable amount on your 2010 return, you generally must report half of it on your 2011 return and the rest on your 2012 return.

Alternative motor vehicle credit. You can claim the alternative motor vehicle credit for a 2011 purchase only if the vehicle is a new fuel cell motor vehicle.

First-time homebuyer credit. The credit expired for most taxpayers for 2011. Some military personnel and members of the intelligence community can still claim the credit in 2011 for qualified purchases.

Health coverage tax credit. Recent legislation changed the amount of this credit, which pays qualified health insurance premiums for eligible individuals and their families. Participants who received the 65 percent tax credit in any month from March to December 2011 may claim an additional 7.5 percent retroactive credit when they file their 2011 tax return.

Mailing a return. The IRS changed the filing location for several areas. If you’re mailing a paper return, see the Form 1040 instructions for the correct address.

Detailed information on these changes can be found on the IRS website – www.irs.gov.
Links:

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IRS Releases Guidance on Claiming Expanded Tax Credit for Hiring Veterans; Certification Requirements Streamlined

Posted on February 9, 2012 by | Leave a comment

The Internal Revenue Service has released guidance and forms that employers can use to claim the newly-expanded tax credit for hiring veterans. The IRS also announced that employers will have more time to file the required certification form for employees hired on or after Nov. 22, 2011, and before May 22, 2012. The VOW to Hire Heroes Act of 2011, enacted Nov. 21, 2011, provides an expanded Work Opportunity Tax Credit (WOTC) to businesses that hire eligible unemployed veterans and for the first time also makes the credit available to certain tax-exempt organizations.

The credit can be as high as $9,600 per veteran for for-profit employers or up to $6,240 for tax-exempt organizations. The amount of the credit depends on a number of factors, including the length of the veteran’s unemployment before hire, hours a veteran works and the amount of first-year wages paid. Employers who hire veterans with service-related disabilities may be eligible for the maximum credit.

Normally, an eligible employer must file Form 8850 with the state workforce agency within 28 days after the eligible worker begins work. But according to today’s guidance, employers have until June 19, 2012, to complete and file this newly-revised form for veterans hired on or after Nov. 22, 2011, and before May 22, 2012. The 28-day rule will again apply to eligible veterans hired on or after May 22, 2012.

In an effort to streamline the certification requirements, the IRS has clarified and expanded upon 2002 guidance to facilitate employers’ use of electronic signatures when gathering the Form 8850 for transmission to state workforce agencies. The guidance confirms that employers can transmit the Form 8850 electronically, and also allows employers to transmit the Form 8850 via fax, subject to the ability of the state workforce agencies to accept submissions in those formats. The IRS expects the Department of Labor to issue further guidance to the state workforce agencies providing further clarification.

Notice 2012-13, has been posted on the IRS website, www.IRS.gov, and the instructions  for Form 8850 provide further details.

Businesses claim the credit on their income tax return. The credit is first figured on Form 5884 and then becomes a part of the general business credit claimed on Form 3800.

This credit is also available to certain tax-exempt organizations by filing Form 5884-C.  The guidance released today also provides instructions and a new set of forms for tax-exempt organizations to claim the credit.  For more information, including how to claim the credit, go to IRS.gov.

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2012 IRA Contribution and Deduction Limits

Posted on February 6, 2012 by | Leave a comment

The amounts for 2012 have not changed compared to 2011, but the adjusted gros income thresholds for when the deductions phase out have changed.

2012 Combined Traditional and Roth IRA Contribution Limits

If you are under 50 years of age at the end of 2012: The maximum contribution that you can make to a traditional or Roth IRA is the smaller of $5,000 or the amount of your taxable compensation for 2012. This limit can be split between a traditional and a Roth IRA but the combined limit is $5,000. The maximum contribution to a Roth IRA and the maximum deductible contribution to a traditional IRA may be reduced depending upon your modified adjusted gross income (modified AGI).

If you are 50 years of age or older before the end of 2012: The maximum contribution that can be made to a traditional or Roth IRA is the smaller of $6,000 or the amount of your taxable compensation for 2012. This limit can be split between a traditional and a Roth IRA but the combined limit is $6,000. The maximum contribution to a Roth IRA and the maximum deductible contribution to a traditional IRA may be reduced depending upon your modified AGI.

Traditional IRAs

2012 IRA Contribution and Deduction Limits – Effect of Modified AGI on Deductible Contributions If You ARE Covered by a Retirement Plan at Work
If you are covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction.

If Your Filing Status Is… And Your Modified AGI Is… Then You Can Take…
single or
head of household

$58,000 or less

a full deduction up to the amount of your contribution limit.

more than $58,000 but less than $68,000

a partial deduction.

$68,000 or more

no deduction.
married filing jointly or qualifying widow(er)

$92,000 or less

a full deduction up to the amount of your contribution limit.

 more than $92,000 but less than $112,000

  a partial deduction.

 $112,000 or more

 no deduction.
married filing separately

 less than $10,000

  a partial deduction .

 $10,000 or more

 no deduction.
If you file separately and did not live with your spouse at any time during the year, your IRA deduction is determined under the “single” filing status.

2012 IRA Contribution and Deduction Limits – Effect of Modified AGI on Deductible Contributions if You are NOT Covered by a Retirement Plan at Work
If you are not covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction.

If Your Filing Status Is… And Your Modified AGI Is… Then You Can Take…
single, head of household, or qualifying widow(er)

 any amount

a full deduction up to the amount of your contribution limit.
married filing jointly or separately with a spouse who is not covered by a plan at work

 any amount

a full deduction up to the amount of your contribution limit.
married filing jointly with a spouse who is covered by a plan at work

$173,000 or less

a full deduction up to the amount of your contribution limit.

more than $173,000 but less than $183,000

a partial deduction.

$183,000 or more

no deduction.
married filing separately with a spouse who is covered by a plan at work

 less than $10,000

 a partial deduction.

 $10,000 or more

 no deduction.
If you file separately and did not live with your spouse at any time during the year, your IRA deduction is determined under the “single” filing status.

 

Roth IRAs

2012 IRA Contribution and Deduction Limits – Effect of Modified AGI on Roth IRA Contributions
This table shows whether your contribution to a Roth IRA is affected by the amount of your modified AGI as computed for Roth IRA purpose.

If You Have Taxable Compensation and Your Filing Status Is… And Your Modified AGI Is…

Then…
married filing jointly or qualifying widow(er)

Less than $173,000

you can contribute up to the limit.

at least $173,000 but less than $183,000

the amount you can contribute is reduced.

$183,000 or more

you cannot contribute to a Roth IRA.
married filing separately and you lived with your spouse at any time during the year

 zero (-0-)

you can contribute up to the limit.

 more than zero (-0-) but less than $10,000

 the amount you can contribute is reduced.

 $10,000 or more

you cannot contribute to a Roth IRA.
single, head of household, or married filing separately and you did not live with your spouse at any time during the year

less than $110,000

you can contribute up to the limit.

at least $110,000 but less than $125,000

the amount you can contribute is reduced.

$125,000 or more

you cannot contribute to a Roth IRA.

 

 

 

 

 

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