Tax time doubts and dilemmas…

March 18th, 2011 Vijaianand No Comments »

With the tax season on the way and Tax “D” day is fast approaching, I am sure many of you are heading over to get help from your favorite Tax preparer or CPA. Tax is always complicated with many codes, rules and limitation which often changes every year making it hard to follow. Even for CPA’s, it takes time to check the code and see whether particular rule applies for certain client unless it’s a common one. 

In that case, as an individual it is normal to doubt our capability to see whether a certain situation or event triggers any taxing advantage or not. Here are some of the common doubts and dilemmas arises in the mind of common Tax filer,

1. Whether I must file or not?

The question should be actually whether you must file or should file. It all depends on one’s gross income, filing status and age of the person. If your filing status is joint and your joint gross income is above $18,700 and your age is under 65, then you must file. Similarly if you are single under age 65 with gross income is less than or equal to $9350 then you must file. If you did not live with your spouse at the end of 2010 (or on the date your spouse died) and your gross income was at least $3,650, you must file a return regardless of your age. So it is a combination these 3 important factors. 

May be you are not required to file according to the conditions, but you should consider filing it anyway if you are eligible to receive a refund like income tax withheld from your pay, estimated tax payments or had a prior year overpayment applied to this year’s tax and more..


2. Whether to claim a person dependent or not?

Generally you can claim a person as dependent for dependency exemptions only when they are a qualifying child or qualifying relative. If you are the dependent of another taxpayer, you cannot claim any other person as a dependent.

Qualifying Child and Qualifying Relative can only qualified to be as dependent if they qualify their own dependent test. For a qualifying child, we have to test for Relationship, Age, Residency and Support provided. For a qualifying relative, you have to check first they are not qualified child, Relationship, Gross income and Support provided. If all these conditions satisfy, you can claim a person as a depending to use $3650 exemptions.

3. Can I file Married Jointly?

There are 5 filing status as per the tax norms in order to find the right standard deductions and also to find other tax deductions and limitations.

Single, Married filing joing, Married filing seperate, Head of Household and Qualifying widower.

The martial status is determined by whether you are married at the last day of the tax year. If you are divorced and/or seperated with divorce decree and not living together, you will not be considered married. You are considered married if  you are married and living together as husband and wife, you are living together in a common-law marriage, where recognized in the state you live in or in the state where the common law marriage began, you are married and living apart but not legally separated by a divorce or separate maintenance decree and you are separated under a temporary decree of divorce.

4. Can I file seperately even though I am married?

It all depends on your personal situation. You can be married but still can file seperately but it will usually lead to higher taxes and lose out on certain advantageous AGI limitations. For example, your IRA contributions can be limited depending on your AGI and filing status. If you file jointly your AGI should be $89,000 but less than $109,000 to take the deduction.  If you are filing married separate, then your deductible phase out starts at under $10,000. That’s big difference.


Similarly Education credits like lifetime learning credit, American Opporunity Credit depends on the AGI limits. So be wise while chosing to filing joint or seperately. If you and your spouse elect to file jointly, you both can be held responsible, separately or together, for the tax and any interest or penalty due on your return. 



5. Can I claim my moving expenses?

Hope many of you know that you can claim your moving expenses related to your job change. There are couple tests like Distance and Time test needs to be satisfied in order to be eligible for claming this deduction. Things like the cost to transport goods, driving to the new location, storage and lodging expenses all deductible except the meals.

For 2010, the standard mileage rate for using your vehicle to move to a new home is 16½ cents a mile. If you are reimbursed certain amount, you can only claim unreimbursed part of the moving expense and not all of it.

There are limitations and exceptions for moving outside US, so check the IRS.gov website for more info. 

6. Do I show Unemployment insurance payment as income?

Finally an important item as many people around nation are still under unemployment insurance payment because of tough economic conditions.
 

For 2010 taxes, all unemployment compensation is taxable. So, if you do not have income tax withheld, you may have to pay estimated tax. See Estimated Tax for 2011 , later.  If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty



To see more details on these topics, check out websites, IRS.gov and 1040.com

2011 Tax Filing Season – Things to know…

March 2nd, 2011 Vijaianand No Comments »

It is march and lot of people are now staying late and spending good amount of time to reconcile their last year taxes. Whether you use tax softwares like TaxAct like me or Turbo Taxes or uses your favorite CPA to file taxes, it is going to be daunting task if you aren’t really prepared for it. But don’t worry, there are lot of help available to make your life easier like free softwares which is capable of taking you step by step to complete your tax returns with no time.



General Things to remember



1. This year last day to file tax  is Apr 18, 2011 (Monday) because in observation of Emancipation Day in the District of Columbia on April 15th this year. April 15th will still be the last day for state tax returns on all states.



2.  Before you start working on your tax return for 2010 by yourself or with your CPA or tax preparer, collect all the required documents like W2, 1099’s like 1099-DIV, 1099-MISC and so forth. You should have recieved them from the corresponding institutions if you have income, dividend or interest earned. Also gather all your receipts for medical expenses, losses clamied due to theft or natural disasters, property tax and state tax paid and other deductions related documents which you can use to try filing itemized.

3. If you are married last year or had a Baby last year, don’t forget to count them as dependent and change your martial status to take proper dependent exemptions and standard deductions on filing jointly.



4. If you lost your loved one last year and you are still unmarried, you are still eligible to file married jointly this year. So don’t forget to file with Married Joint status to make use of exemptions and all the favorable tax phaseouts.



5. Don’t hesitate to try out Itemized Deduction option if you are using any tax softwares. You can compare the outcome and finally chose whether to opt for standard deduction or itemized depending on the outcome.

6. Try filing yourself if its simple return and take advantage of free tax softwares like TaxAct.com where you can efile free as well.

What are some important Tax rules changes for 2011?



1. Kiddie Tax – The amount of taxable investment income a child can have without it being subject to tax at the parent’s rate remains at $1,900 for 2010


2. The standard deduction for taxpayers who do not itemize deductions on Schedule A, Form 1040, has increased for those filing as Head of Household. The standard deduction amounts for all the other filing statuses remain the same for 2010:


Married Filing Jointly or Qualifying Widow(er) $11,400
Head of Household $8,400
Single or Married Filing Separately $5,700
3. The amount each taxpayer can deduct for each exemption remains at $3,650 for 2010.



4. Some taxpayers who purchased a qualified motor vehicle after February 16, 2009, and before January 1, 2010, did not have to pay their new motor vehicle taxes (state or local sales or excise taxes) until 2010. In these instances, they may be eligible to deduct the amount paid on their 2010 income tax return.



5. Each personal casualty or theft loss is limited to the excess of the loss over $100 (instead of $500). This is in addition to the 10% of AGI limit that generally applies to the net loss



6. For 2010, the minimum amount of earned income needed to claim the additional child tax credit is $3,000.



7. For tax year 2010, in addition to the three direct deposits, taxpayers can now use their refund to request up to three U.S. Series I Savings Bonds registrations and receive a paper check for the balance of the refund



8. As part of the Affordable Care Act of 2010, the adoption tax credit was extended, increased, and made fully refundable in the year claimed. For 2010, the adoption tax credit may be claimed for qualified expenses up to $13,170 for both nonspecial and special needs adoptions. The amount of the credit begins to phase out for taxpayers whose modified AGI is more than $182,520.



9. No more exclusion of up to $2,400 in unemployment compensation from income.


10. Itemized deduction for state and local general sales taxes expired.

There are more rule changes for this year and you can learn everything by going to IRS.gov. Also check out the detail checklist for filing tax returns.

Happy Tax Filing!!

Life is good with Real Purpose and Meaning

February 18th, 2011 Vijaianand No Comments »


Money really matters but more importantly meaning to a life really matters for a good life.Without a purpose or meaning is like without an eye sight. 

The forward was needed before sharing an article I recently came across about the study done by Metlife  Mature Market Institute(MMI)  in continuation to their 2009 study. It was titled Meaning Really Matters: The MetLife Study on How Purpose Is Recession-Proof and Age-Proof.

Let me share some good and important snapshots about the study.


In 2009 study, it was asked to people in their 20s, 30s, and early 40s have the same priorities and find meaning from the same activities as 45- to 74-year-olds? Do adults in very different life stages and situations prioritize important personal, professional, and financial decisions based on similar core values?  This 2010 study focused on ages 45-74 to discover What Matters: Balancing Money, Medicine, and Meaning.

Both studies are based on the work of life coach and best-selling author Richard Leider, and confirm his theories. To Leider, a sense of purpose is integral to leading what he describes as “the Good Life,” defined as having financial freedom (Money), being mentally and physically healthy (Medicine), creating deep relationships and a sense of purpose (Meaning), and feeling like you belong (Place). Achieving the Good Life requires vigilant revisiting and realigning of priorities in these four areas.

Living the Good Life also means weathering significant changes and transitions caused by positive or negative “trigger events” (i.e., job loss, marriage, illness, the birth of a child or grandchild, divorce, moving, retirement, death of a loved one). Leider believes these events are resolved in three phases:

• Unpacking, or letting go of the way things used to be, involves sorting out what is really important and makes people happy from what is not important and holds them back.

• Repacking, or taking hold of the new way that will allow people to attain their Good Life, involves the clarification of values, new goals, and the discovery of new tools for getting there. It is the process of mapping out the road ahead — one that will truly take them where they want to go with the life essentials they want to bring along the way.

• Limbo is a state of flux and uncertainty between unpacking and repacking. It is a period where people’s “vision” of what they want their future to be is uncertain, or where they lack “focus” on the most important aspects that will get them closer to their Good Life.




Key Findings of the 2010 Study
The Essential Components of the Good Life Are Very Stable

• Respondents define the Good Life in terms of the three Ms: Money (having enough), Meaning (time for friends and family), and Medicine (good physical and mental health).

• Living the Good Life is highly related with having a sense of purpose and this in turn is interrelated with “vision” (having clarity about the path to the Good Life) and “focus” (knowing and concentrating on the most important things that will get you to your Good Life).

• Meaning, closely associated with the importance of family and friends, remains the primary component of the Good Life for all age groups, despite instability in financial and other aspects of their life. People plan to spend time with amily and friends above all else, regardless of age.

How do you define a Good life?

Ah, the Good Life!

Respondents defined it as:
• “Being spiritually, emotionally, mentally, and physically healthy”
• “Having enough money not to worry about whether or not I can pay the bills; good
friends to share life with”
• “Having a safe, healthy, and happy life with family and friends”


The chief Components of the Good Life: Living with Purpose, Having a Positive Vision of Your Future, and Focusing on What Will Get You There.



Similar to the 2009 study, purpose continues to be a major differentiator between those living the Good Life and those who aren’t living the Good Life. Over eight in 10 (82%) of those who feel their lives have purpose are living the Good Life compared to 35% who are not living the Good Life.


Purpose is more than an intriguing concept; it is essential for fulfillment. It also helps people get through “trigger” events that everyone will inevitably encounter, whatever their life stages or circumstances. Richard Leider provides particular insight into the complexities and ultimate benefits of balancing money, medicine, meaning, and place in our own personal journey:



“The longevity revolution demands a new mindset and skills, not to mention courage. As life expectancy continues to increase, Money, Medicine, Meaning, and Place will become even more significant and challenging. Yet, these challenges can also be positive because they can lead to new points of view and knowledge essential to succeed in the future.”

The need for the purpose and meaning resonates closely with my mantra of having Goals in your life and defining plans(vision) to get there executing with taking action(focus). 

You can read more about this study from the study.

Source courtesy: mymoneyblog.com

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