Paying Your Quarterly Estimated Taxes Is Easy

While annoying, actually making your quarterly estimated tax payments online is really simple once you get things set up. First, you’ll need to sign up for the Electronic Federal Tax Payment System (ETFS). Once you’ve signed up, the IRS will send you a packet in the mail with an electronic pin and instructions for setting up an internet password. I’m not entirely sure why this couldn’t all be done securely in real time over the internet, but it takes a week or so to get your packet in the mail, so be sure not to wait until the last minute to sign up.

If you don’t want to use the internet for some reason, you can also make your quarterly estimated tax payments through the mail. Most tax software such as TurboTax will calculate how much you should pay every quarter and even print out quarterly tax payment coupons you can mail in with your check.

What Happens If You Forget?

If you forget to pay your estimated quarterly taxes, you may owe a underpayment penalty to the IRS. There are a series of safe harbor rules that protect you from penalties if you meet certain conditions.

You qualify for safe harbor if you meet the following criteria:

• You had no tax liability last year – If you got a refund last year, you are safe from the underpayment penalty this year. Of course, if you underpay this year, you are vulnerable next year.
• Your underpayment is less than $1,000 - If the amount of your underpayment is less than $1,000, you’re safe. The IRS isn’t worried about such small amounts. Example: if you end up owning $5,000 total and only pay $4,500 over the course of the year, you’re safe because $500 is less than $1,000.
• You paid 90% of more of your actual current year tax liability - This rule seems pretty redundant in light of the $1,000 rule above, but you are generally safe from penalties if you end up paying at least 90% of what you end up owing. Example: you end up owing $10,000 to the IRS this year and have paid at least $9,000 in quarterly estimated taxes throughout the year. If you only paid $8,999, however, you’re out of luck.
• You paid at least 100% of what you ended up paying in taxes last year (110% if your Adjusted Gross Income is $150,000 or greater) - The easiest way to avoid underpaying is just to pre-pay at least what you paid last year in taxes. Assuming your income didn’t drop significantly, this shouldn’t be too difficult. If you do this, you’ll be safe from the underpayment penalty regardless of how much you make this year.

Even if you don’t meet the above safe harbor rules, you might still be able to avoid and underpayment penalty if you meet either of the following conditions:

1. Your failure to make sufficient estimated tax payments was due to a natural disaster, disability, or some other extenuating circumstance. This one leaves a lot of leeway.
2. You either retired (after age 62) or became disabled the previous year and the underpayment wasn’t due to willful neglect.

So You Owe A Tax Underpayment Penalty

Despite your best efforts, suppose you owe an underpayment penalty. What do you do? You’ll need to download Form 2210 (opens as pdf) to figure out how much you owe. As with everything having to do with the IRS, the calculation isn’t always completely straightforward. Or, if you happen to use an accountant to do your taxes, make them figure it out. It’s probably their fault, anyway. Good luck!

***
File online with TurboTax: #1 rated and #1 selling tax software!

What? You mean those bonuses you receive are considered taxable income? According to the IRS guidelines, the answer is a qualified “yes.” The IRS has an article on its website titled What is Taxable and Nontaxable Income? that lists the most common forms of taxable income. While frequent flier miles received from a bank promotion aren’t explicitly listed, the IRS does state that “…generally, an amount included in your income is taxable unless it is specifically exempted by law…” Since I’m not aware of any specific tax laws explicitly excluding bank promotions from taxation, it’s probably safe to assume they are, in fact, taxable.

Why Did Citigroup Send A 1099 In This Particular Instance?

But people take advantage of bank promotions all the time. Why did Citigroup send out a 1099 to recipients in this particular case but not in others? First off, it must be noted that just because you don’t receive a 1099 in the mail doesn’t mean you don’t owe income tax on legally recognized taxable income. You do. The reason Citigroup issued a 1099 in this case seems to be because Citigroup determined the value of the promotion to be $625 (25,000 frequent flier miles at 2.5 cents per mile).  Since IRS rules require the reporting of prizes and awards valued over $600, they had no choice but to report it. Hence, a 1099 was issued both to the recipients of the award and the IRS. Had Citigroup valued the promotion at some amount lower than $600, they probably would not have issued a 1099. However, recipients would still be legally required to self-report and pay taxes on the award, regardless of the amount.

This rule makes sense when you think about it. If you went to Vegas and happened to win a new car from a slot machine, you would expect to pay income tax on the value of the vehicle, wouldn’t you? What Citigroup is doing here is really no different. They are simply paying you to be their customer, which is clearly a form of income.

It should be noted, though, that the IRS itself has considered this issue in the past and ruled that, while this income is technically taxable,  the IRS hasn’t been enforcing  the rules due the complex nature of these types of awards and promotions, at least not yet. That could change going forward, however, as these types of programs are becoming more and more commonplace.

Does This Mean Things Like Credit Card Rewards Are Taxable?

In a word, no. Well, maybe. It really depends on the nature of the reward. The determinant of whether or not a reward is considered taxable is whether the reward in question is connected to a specific purchase or transaction. Cash-back rewards tied to credit card purchases are not taxable because they are considered to be merely discounts in the purchase price of whatever you bought. Think of it this way: if you were shopping a going-out-of-business sale and managed to score a flat screen television for 80% of its original listed price, would you owe income tax on the difference between the original price and what you actually ended up paying for it? Of course not. That’s because the discount isn’t a form of income, it’s just a discount. Both parties, the buyer and the seller, agreed to part with that particular item at a lower-than-usual price for whatever reason.

Rewards not tied to a specific purchase or transaction are usually considered taxable, however. In the Citigroup case above, those 25,000 bonus points weren’t connected to any specific purchase so you can’t apply the “discounted price” argument above. It was compensation for completing a specific action. In this case, it was signing up for a bank account.

In conclusion, you are safe not paying taxes on all credit card rewards tied to actual purchases. Sign-up bonuses, on the other hand, are technically taxable most of the time. Since the IRS is by its own admission not enforcing those rules right now, you’re probably safe not reporting them for small amounts. But for a bonus worth over $600? It’s probably safer to just pay up. Better safe than sorry.

Earn a $50 bonus when you open an Electric Orange℠ checking account from ING DIRECT. Free ATMs and no overdraft fees.*

* But don’t forget to pay taxes on that $50!

Why Do People Care?

Newt is right, after all. Not intentionally paying more taxes than you legally owe is both immoral and stupid. All moral people, both rich and poor, always pay more taxes than they legally owe. Have you ever heard of anybody ever going to any amount of effort to claim all the credits and deductions to which they were entitled? Me neither. It’s unheard of because everybody knows the only ethical course of action is to overpay your taxes.

I mean, it’s much worse than that ethics violation Newt was reprimanded for, becoming the first Speaker of the House to ever be disciplined for ethics violations. Besides, Newt paid $300,000 in fines for that little issue. All’s well that ends well, right? The fact that Mitt Romney didn’t cheat on his taxes in the past gives we the people a lot of insight into how horrible of a president he will be. What a slimeball! Newt’s ethics violations, however, are completely irrelevant. Once an abuser of power, always an abuser of power? Please. That’s racist talk! Romney legally paid all the taxes he was required to pay and not a penny more! That bastard!

People Don’t Really Care, Which Brings Me To My Point…

In case you couldn’t tell, I was being sarcastic above (and yes, I have to explicitly state that because I’ll get angry email otherwise). I don’t care what either candidate has paid in taxes, so long as they did so legally. And despite all the vitriol, neither does anybody else. Newt’s supporters (and Obama’s by extension: just wait and see) don’t care that Romney only paid 15% in federal taxes. What they care about is that it gives them an opportunity to take a jab at him in order to support their own side. Some of them have probably even managed to convince themselves that Romney’s tax rate is a big deal. It’s not. How many truly independent voters have complained about Romney’s tax rate? None. It’s all partisan squabbling (and yes, it can be partisan squabbling even though it is within the Republican party.

Do You Care About Romney’s Tax Rate?

I’d like to issue a challenge to anybody who actually believes Romney’s tax rate is an important issue. Why do you think this? Is it because you believe it makes him greedy? If so, you’d better be able to produce your own tax return showing the extra amount of tax you paid to the IRS beyond what you legitimately owed.

Do you think it makes him a tax dodger? Again, present your own tax return showing excess tax paid before you make this argument.

Do you think it means he’s not paying your fair share?

What is it? Why does it matter to you? Give me specifics, not meaningless BS generalities like “oh, well it shows his lack of character and that he’s out of touch and that he hates puppies.”

Can anybody give me a legitimate reason why I or anybody else should care?

Oh well. I’m voting for Obama anyway.

Taxes can be immensely complicated. It is imperative that they be done correctly in order to avoid penalties, fees, or unwanted IRS attention. Unless you’re a single person with no dependents, it’s best to have a tax professional process your taxes for you. When I recently moved, I found that I didn’t want to find a new tax accountant. I’d trusted Fred for years. But that meant shipping my tax documents, and I wasn’t sure that was safe. He assured it would be fine.

I know that not everyone needs a tax professional, though. Sometimes a local tax professional will just cost too much. Utilizing the power of the internet you can find remote tax specialists, contract accountants and by leveraging the power of outsourcing, you can even find tax specialists in other countries who will work for much lower comparative wages.

However, if you are in the market for a tax professional, look for one with official designations such as Certified Public Accountant, extensive experience and a portfolio of satisfied customers. Since you’ll be corresponding with your tax specialist; you should insure they reply promptly and communicate often.

But if you are like me, you’ll be mailing your taxes to Fred. So, the big question is: Is it safe to ship tax documents?

The answer is: Yes, with the proper precautions.

Your tax documents will undoubtedly bear your social security number–a number that you want to keep from prying eyes and identity thieves. So it’s best to take these precautions before you ship your documents:

1. Put your documents in between 2 blank sheets of paper before putting them into an envelope/mailer. The purpose here is to disguise the nature of the documents.
2. Send your documents “registered” mail, which will provide you with real-time tracking.
3. Try to make the outside as inconspicuous as possible. Omit anything bearing the words “Tax” or “CPA” from the envelope.

If you follow these steps, there’s no reason for your mail to become a source of interest to anyone.

Before you ship your tax documents, you should confer with your tax specialist to make sure that you’ve included all the necessary documentation. If you’re still leery of mailing the documents, you should see if you can scan and e-mail of fax anything to minimize your risk.

Taxes can be a big source of stress–will you owe? What can you write off? The last thing that you should have to worry about is whether or not your documents will be safe en route to their destination.

Here’s what you need to know about the American Opportunity Education Tax Credit:

Who Qualifies?

The first qualification centers on income. Full credit is possible for those whose gross adjusted income is $80,000 or less for individual filers or $160,000 for married couples filing a join return. Credit is tiered and reduced as income rises above that benchmark. Under the American Recovery and Reinvestment Act, benefits from the Hope Act and the Lifetime Learning Credits are expanded, but there are still income-related restrictions. Qualifying income levels are raised above those determined by them, as well.

For example, 100 percent tax credit is given to a single parent or a non-dependent, adult student at $80,000, but only a hypothetical 80 percent is allowed with a modified adjusted income of $100,000. Some credit is granted for higher incomes, but full tax benefits are not granted.

Those who paid qualifying education debts in 2008 are not granted retroactive rights to claim the American Opportunity tax credit, but those who paid qualifying expenses in 2009 and 2010 are allowed according to income.

What Qualifies?

Only tuition and certain related expenses qualify under the American Opportunity tax credit.
The Hope Act allowed tax credit for only the first two years of learning at an accredited school. The American Opportunity credit allows for the first four years of learning at secondary schools. Expenses related to programs extending beyond four years, whether regarding a post-graduate degree or an expanded bachelor’s degree program, do not qualify for this tax credit.

An expanded definition under the American Opportunity tax credit now includes “course materials” which qualifies as course textbooks, equipment, and supplies as legitimate tax deductions, provided that other qualifications are met. The Hope Act did not qualify those and did not allow the expenses as valid deductions. Fortunately, these course materials do not need to be purchased from the learning institute to qualify. They must merely directly relate to and be required to attend the course.

Computers for school may or may not qualify, depending on circumstances. For example, the purchase of a laptop, for example, would qualify if one was required course material or for mandatory inclusion for admission, but the cost of one already in the student’s possession would not qualify.

What Limitations Exist?

The American Opportunity tax credit grants full deduction of the first $2,000 in qualifying expenses paid during the tax year. An additional 25 percent credit is granted for the next $2,000 in qualifying expenses paid during that tax year.

For example, tuition and related fees total $8,000 for the year. $2,000 is 100 percent tax deductible, leaving $6,000. Twenty-five percent of the next $2,000 brings an additional $500 as tax deductions. The amount paid that is not tax deductible is $8,000 minus $2,000 minus $500 for a total of $5,500. Total tax credit is $2,500 for the tax year in which the $8,000 was paid.

If qualifying expenses paid during 2010 total less than the maximum credit allowed but greater than $2,000, the same ratio applies: 100 percent of the first $2,000 and 25 percent of the remainder, up to $2,000.

Restrictions on Tax Credit

If you claim valid American Opportunity tax deductions, you cannot also claim that same tax year the tuition-related deductions otherwise qualifying or the lifetime earning credit. You must choose one deduction or the other.

You cannot claim the American Opportunity Tax Credit for yourself if someone else is claiming the deductions for your school attendance.

The American Opportunity Tax Credit for tax years 2009 and 2010 expand and replace the benefits and qualifications of the Hope Act, granting greater tax relief when obtaining a higher education degree. If there are any questions pertaining to eligibility or the allowance of a deduction or expense, always confer with a tax adviser or contact the IRS.

About the Author
JC Ryan is a freelance writer for MyCollegesandCareers.com. My Colleges and Careers helps people determine if an online education is right for them and helps them understand which online colleges and online courses they can choose from to reach their goals, including earning an online bachelor’s or master’s degree, or even an online PhD.

There’s no doubt about it: the current tax laws are pretty confusing for most of us. While some people were quick to call the President a sell-out when he allowed Republicans to preserve tax cuts for the wealthy last year, the fact that he did it in an effort to form a deal that would extend unemployment benefits makes it understandable. But how were the Republicans able to pull it off? Can tax law be so easily changed? Actually, yes. Our current tax laws are in the midst of rotation. Tax breaks that were enacted a few years ago in an effort to bolster the economy were set to phase out within a few years (as evidenced by tax cuts for the wealthy, before they were extended). And one of the many breaks that were given went to elderly citizens who wished to donate a portion of their IRA income to charity. But will that tax break continue this year? Absolutely.

To understand how it works, you first need to understand how an IRA works. You put money in before you retire, up to a certain amount each year. As you continue to add to your account, it also gains interest. The nice thing about an IRA is, you get to put money in pre-taxation (deducting it from your annual income), so that you are able to save as much as possible (and earn as much interest) before you retire. Then, when you reach retirement age, you begin to receive a disbursement from your IRA in set increments each year, which is taxed as income. What most people don’t count on is how much money they can accumulate in such an account. By the time they retire, they could be getting a large enough disbursement that it sends them right into the next tax bracket, completely messing up their finances.

So what current tax law allows is for charitable contributions directly from the IRA disbursement. Elderly individuals who don’t wish to pay so much in taxes can instead donate up to $100,000 annually, pre-tax, from their IRA. Since this money is not viewed as income, it doesn’t need to be listed on taxes, nor is it required to be cited as a deduction (allowing those who do it to avoid dealing with paperwork and caps). It should be noted that although this portion of tax law is set to phase out after 2012, the section pertaining to itemized deductions was done away with in 2010, making such donations subject to a cap. So this is pretty much the only option left for making charitable donations tax-free.

While many elderly might rather have the extra $100,000, despite taxation, the law probably pertains more to those who are getting just a few thousand dollars too much (thus pushing them into a higher tax bracket without giving them any added benefit). If you find yourself in this unfortunate situation, you have at least the next two years to take advantage of the tax break provided for charitable contributions from your IRA.

Sarah Danielson writes for Roth IRA where you can read over rules for Roth IRAs and learn about converting IRA to Roth as well as finding other tools and information to help you on the road to retirement.

Estate tax hikes started back in 2001, with gradual increases occurring along with commensurate reductions in income tax. You’ve probably heard about the end of Bush tax cuts (or maybe not, since Obama seems to be willing to let income tax cuts ride as a bargaining chip for extended unemployment benefits). But unless you number among the few who hold the lion’s share of wealth in this country, you likely had no idea that the death tax had been repealed this year. The problem is, with public programs gobbling up money left and right, the country mired in a recession, and now a hold placed on tax cut expirations, the government is looking at reaching a level of national debt from which they may be unable to recover in the foreseeable future. Simply put: they need money coming in. And apparently estate tax has become the port in a storm.

The question is: who should be concerned about this turn of events? The truth is, most of us haven’t got over a million dollars in estimated wealth, so we’re really not at risk for paying the monumental 55% required from the richest Americans. On the other hand, consider a scenario in which an elderly individual without much in the way of liquid assets owns a home that they have had for, say, the last 50 years. In that time, their property has increased in value significantly, to the point that it’s now worth just over a million dollars (despite the fact that they paid less than $50,000 for it originally). Upon death, whomever holds their estate will be on the hook for more than half of the value of that home (over half a million dollars, to be precise). And how many million dollar homes are selling in this economy? Close to none, would be a good guess. So the reappearance of estate tax could threaten a fair number of otherwise financially un-endowed citizens.

Pay attention, people: this means you! Of course, there are ways around this. Assets can be signed over before death, non-taxable gifts can be given ($1 million to kids and grand-kids, one time, and unlimited gifts up to $13,000 per year, per person), and living trusts can put wealth into the names of more than one individual. But even better is a plan that Obama is pushing for, which would roll exemptions back to 2009 levels ($3.5 million with a 45% tax rate for those that go over). However, such compromises have so far been blocked. Although media pundits seem confident that a resolution will be reached before the end of the year, that date is fast approaching with no compromise in sight. So if you’re one of the people who could be affected by estate tax at the turn of the year, there’s really only one solution to your problem. You’re simply going to have to stay alive long enough to see the tax laws change (or donate everything you can before you kick the bucket).

Sarah Danielson writes for Ask Deb, where you can find Olive Garden Coupons, Outback Steakhouse Coupons and tons of other great deals on your favorite eating and shopping establishments.

Tax Refund Advance Loans Are Rip-offs

A tax refund advance loan falls into the same category as a payday loan, in my opinion.  Tax refund loans generally carry onerous fees (the average being $32 in 2004 according to Wikipedia) and hefty interest rates, often reaching 100% or more!  Opponents of tax refund advance loans claim that the lower-income, non-college-educated taxpayers who are the target for these types of loans don’t understand how high a rate of interest they are being charged.  Some opponents even argue that many who take out these tax refund advance loans aren’t even aware they are taking out a loan at all.  While I probably wouldn’t go that far, I do believe most of these loans are predatory in nature.

Supporters argue such high rates of interest are justified due to the high risk inherent in such loans.  I don’t buy that argument.  The IRS is pretty reliable and it’s unlikely they’d default, after all.  Sure, it’s possible the IRS may detect an error in the return resulting in a smaller refund than anticipated.  It’s also possible the taxpayer owes back taxes, meaning all or part of the refund would go towards paying off old tax debt.  But I highly, highly doubt a large percentage of these loans either default or turn out to be significantly lower than anticipated.  The fact that tax refund anticipation loans are so incredibly profitable leads credence to this theory.  I would love to see some statistics on this, but I don’t think I’ll be proven wrong.

Tax Refunds Don’t Even Take That Long!

The argument for tax refund advances has gotten much weaker the last several years.  It has never taken more than 2 weeks for me to get my tax refund from the IRS, and usually it’s less.  Ditto for my state tax refunds.  Even allowing for paper check refunds taking somewhat longer, we’re still only looking at about 3 weeks.  That’s really not too long to wait.  Okay sure, so maybe occasionally a low-income taxpayer may face a true emergency (medical or otherwise) and absolutely needs the cash immediately.  Fine, I’ll grant you in that one specific circumstance, a tax refund advance loan may be a valid option.  But that accounts for only a few of the estimated 12 million tax refund anticipation loans taken out in 2004.

Personal Income Tax Relief Myths

One myth is that if you file for a tax extension you are less likely to be audited.  A tax extension is not a personal income tax relief strategy!  It just puts off the need to file your taxes, for a while.  Note that being granted an extension to file does not grant you the right to delay paying what you owe.  It is important to file on time and if you cannot afford to pay what you owe, it is still best to do it on time so that you are not charged any fines or penalties.

Another myth is that if you owe money at the end of the year, you have will have to pay it in full by the tax deadline.  This is actually not the case at all.  In fact, the IRS is more willing to work out a payment plan or tax settlement with taxpayers who cannot afford to pay the balance all at once.  You may be charged interest by doing it this way, but you will still avoid the possibility of incurring hefty penalty charges.

While many income tax questions can be answered by researching them online or when consulting with a professional.  The myth that you should not hire a professional tax attorney or specialist unless you make a lot of money is also not true.  No matter what you owe, it is usually best to at least consult with a tax professional or obtain the proper tax software to ensure that you are filing correctly.  A professional can also assist you in determining if you are eligible for any personal tax relief options.  You can be exempt from owing taxes on the money that you earn depending on your current income, health issues and more.  You can also contact your local government agencies to get information on what type of tax breaks may be available based on your personal situation.

A tax relief attorney is essential if you have a large amount of debt that you owe and need help resolving.  Make sure to choose one that has been successful in negotiating tax debts.  The qualifications of the professional are important for getting the job done correctly.  Contact and interview a few tax relief attorneys so that you can compare their expertise, cost and how they can help in your particular situation.  Take care of any tax debt that you owe soon, as you can incur lots of interest, fines and possibly imprisonment if it is not resolved.

However, there are many ways that a person can resolve and settle tax debt. One of which is through Partial Payment Installment Agreement (PPIA).

What Is Partial Payment Installment Agreement

One way that a person can resolve tax debt issues is through Partial Payment Installment. It allows the person to partly pay his Internal Revenue Service tax debt through several payments over a certain period. This kind of agreement obliges full disclosure of a person’s financial information such as total income, assets and liabilities with the use of Form 433-A.

The IA must be carried out if a person can verify financially that he is not capable of fully paying back his taxes. Once he has no other choice to pay back his taxes, then to settle tax debt through PPIA may be considered by the agency.

To be precise, generally the IRS will have to trade any asset a person has to compensate for tax debts. The person’s monthly payment is determined by the person’s Collection Information Statement 433, which informs the IRS of the person’s financial capability.

As part of the process to settle IRS tax debt, it is also very important to note that this type of agreement results to the taxpayer paying smaller since the Statute of Collection terminates on each period, that part of an individual’s tax debt becomes noncollectable. Usually the Statute of Collections period is ten years starting the day the taxes were evaluated.

To be able to comply with Partial Payment Installment Statement, a person has to comply with the following requirements:

1. To settle tax debt, the IRS taxes from previous years should have been reported and disbursed.
2. Over $10,000 in combined IRS tax debt, penalties and interest.
3. The Collection Information Statement, also known as Form 433-A
4. 9465 – Installment Agreement Request
5. Cannot be in Bankruptcy or had an Offer in Compromise (OIC) accepted.
6. Should have had complied with payments in the past with the IRS.
7. No IRS Installment agreement in the last 5 years in order to settle tax debt.
8. Canceled Check, credit card, or bank information.
9. If possible, three years of financial documentation.

Additionally, before deciding to take for PPIA, an individual must first consult a debt specialist to assist him with this process as it can be pretty complicated. Nevertheless, it is one of the most efficient methods to settle tax debt.