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Entries in Taxes (142)

Monday
Feb272012

Tax Tip: Calculating Investment Income

Comstock/Thinkstock(NEW YORK) --  If you had investment income from stocks last year, its important that you get your numbers right in time to file your tax returns.

As Eric Smith of the IRS explains, "People often make mistakes in calculating the gains and losses on the sale of stock."

Smith says taxpayers will need two forms: "With the form 8949, you're going to seperate your short-term activity, your long-term activity.  You're going to separate transactions where you have basis reported to you on the form 1099."  This involves the cost basis rule.

Kathy Pickering, who runs the H&R Block Tax Institute, adds that there's a change this year.

"Brokers and financial agencies are issuing those forms that show your stock transactions.  This year they have to report the basis on those transactions," she says.

In past years they didn't have to report as much information about stock values.

"For those who've had to file this in the past, you know, it can be a little bit tough to try to calculate the basis that will make it easier," Pickering says.

Copyright 2012 ABC News Radio

Wednesday
Feb222012

Corporate Tax Slayers: Obama vs. Republicans

SAUL LOEB/AFP/Getty Images(WASHINGTON) -- In an election-year showdown likely to hinge on the economy, President Obama and his Republican rivals are all fashioning themselves as corporate tax slayers.

Obama on Wednesday unveiled his proposal to cut the corporate tax rate from 35 to 28 percent, ultimately higher than taxes under Mitt Romney’s plan, which would lower corporate rates drop to 25 percent.

The current nominal U.S. corporate tax rate -- 35 percent -- is the highest in the world behind Japan.

Rick Santorum, Ron Paul and Newt Gingrich say they would each make the statutory rate even lower -- slashing it to 17.5, 15 and 12.5 percent respectively.

But behind the top line numbers and a consensus that corporate rates are too high, differences in the fine print (or lack thereof) suggest bipartisan reform isn’t going anywhere fast.

Cutting corporate tax rates as proposed will require significant offsets to avoid blowing a hole in the federal budget, experts say.  None of the candidates has fully or specifically articulated details on how their plans might address this.

The Obama administration claims it would, “eliminate dozens of tax loopholes and subsidies” to cover the cost, including those for oil companies, hedge fund managers and private equity firms, but doesn’t list precisely which ones.

Officials also say they would impose a new minimum tax on foreign earnings and end special preferences for companies that move work offshore, netting $250 billion more from corporations over the next 10 years.

That some corporations would end up paying more in taxes than they do now is a non-starter for many Republicans.

The Republican candidates, none of whom has advocated widespread elimination of loopholes or subsidies, favor extending additional tax credits to corporations.  The offset would come on deep cuts in government spending, they say.

Romney advocates temporarily extending the investment tax credit and expensing allowance. He also favors a tax holiday for repatriation of foreign profits with an eventual elimination of the existing system.

Santorum also favors expanding the research and development tax credit from 14 to 20 percent and allowing all companies to fully expense investments in new equipment.

One tax policy priority that only Obama and Santorum have in common: special treatment in the corporate tax code for U.S. manufacturers.

Santorum wants companies that manufacture goods in America not to be taxed at all. Obama doesn’t go as far, but favors a special lower effective tax rate of 25 percent for manufacturers.

Copyright 2012 ABC News Radio

Wednesday
Feb222012

Tax Tip: Prior Roth IRA Conversion Could Cost You This Year

Comstock Images/Thinkstock(NEW YORK) -- If you converted a traditional IRA to a Roth IRA a few years back, get ready to pay the taxman.

In 2010, millions of Americans who wanted to convert their traditional IRA to a Roth were given a tax break; they were able to split the claimed income into two years -- 2011 and 2012.  But now, the first half of that income needs to be claimed on returns filed this spring.

"People may have sometime taken an action in the prior year and then forgotten that they did that," says Kathy Pickering with H&R Block. "This is a great time to look back and say, 'Did we do that conversion? What's the income that I'm going to need to recognize?  What are the taxes that I'm going to have to pay on that and do I have the money to pay those taxes?'"

And it could potentially be a lot of money -- a $100,000 conversion means taxpayers would have an extra $50,000 in income to report this year.

Taxes for new IRA conversions now have to be paid in the year of the conversion.

Copyright 2012 ABC News Radio

Tuesday
Feb212012

Tax Tip: Do You Have to File?

Creatas/Thinkstock(NEW YORK) -- With the tax filing deadline less than two months away, many are making plans to submit their tax returns soon.  But as Eric Smith with the IRS explains, some people don't have to file.

"If your income is very low chances are you are not required to file a return -- but there are many situations where you'll want to file a return anyway," he says.

ABC News asked tax preparer Janice Hayman about who might not need to file.

She says, "There may be retired people that don't need to file a tax return if their taxable income is low enough."

And if you have low or moderate income, be aware of the earned income tax credit.

"If you're trying to make ends meet on about $49,000 or less there's a good chance you may qualify for this credit," Hayman notes. "About one in five eligible tax payers fail to claim the credit."

Copyright 2012 ABC News Radio

Friday
Feb172012

Tax Tip: When Should You Seek a Tax Professional?

iStockphoto/Thinkstock(NEW YORK) -- Doing your own taxes without the help of an accountant is not always the best way to save money.

"There are many circumstances that would create a need to have a tax professional look over a return that you've prepared," says tax accountant Janice Hayman.

A good time to seek help may be when you have a new job, or experience other changes in your life, she says.

"I think you want to consult with a tax professional when you get married, when you are divorcing, when you are perhaps having children," Hayman explains.

Taxpayers can lower their tax preparation fees by being better organized, says personal finance expert Farnoosh Torabi at Yahoo Finance.

"The less work the tax preparer has to do with your own paperwork, the better," she says.

And if your tax situation is simple without many deductions, Torabi says, "You can very easily do your own taxes it's very straightforward."

Copyright 2012 ABC News Radio

Wednesday
Feb152012

IRS: ‘Where’s My Refund?’ Glitch Won’t Affect Refunds

iStockphoto/Thinkstock(WASHINGTON) -- Though the IRS’s “Where’s My Refund?” tool is temporarily down, a spokeswoman for the Internal Revenue Service says that it will not impact the processing of tax returns or issuing tax refunds.

A spokeswoman said the message indicating technical difficulties has only been up since Wednesday afternoon. It reads: "We’re having some technical difficulties right now but expect to have this resolved soon. We apologize for the inconvenience.”

She said she could not comment about the cause of the glitch.

A second, unrelated, message on the website has been on the site since Friday. It reads:

Update: We are aware that some taxpayers who have filed electronically and received an acknowledgement from the IRS are concerned when they visit “Where’s My Refund” and are told that we have no information regarding their return. This is a temporary situation, and we expect to resolve the matter in a few days. At that time, taxpayers will be able to get an expected refund date when they visit “Where’s My Refund.”

That the technical difficulties will not impact processing will be a relief to those (generally those who are poor) who have filed early in the hope of receiving a large refund, said Timothy Flacke, executive director of the nonprofit group Doorways to Dreams (D2D) Fund.

He said tax filers who qualify for the earned income tax credit, or EITC, typically are aware they will receive large refunds and rush to complete their returns in late January or early February.

“Whether it’s $2,000 or $3,000, they have a sense a windfall is coming,” he said. “Whereas middle America thinks tax time is a pain, lower-income communities look forward to it.”

Flacke said that in these communities, even before Jan. 1, tax preparers begin marketing their services, so they can be used as early as possible.

Based in Allston, Mass., D2D Fund makes financial products for low and moderate income consumers and raises awareness to encourage Americans to invest a part of their tax return without fees through The Tax Time Savings Bond Campaign.

About 45,000 Americans have saved $11 million in U.S. Savings Bonds with a portion of their tax refund, for an average of $244 per family, according to the D2D Fund.

There were more than 112 million individual income tax returns filed through e-file last year, according to the IRS, an increase of 13.6 percent over the previous year.

Copyright 2012 ABC News Radio

Monday
Feb132012

Tax Tip: How to Qualify for Free Tax Help

iStockphoto/Thinkstock(NEW YORK) -- Tax preparers can cost you several hundred dollars, and tax software is $20 to $30, but there's a program that helps the elderly, members of the military and low to moderate income earners with free tax preparation.

It's called the Volunteer Income Tax Assistance.

As Eric Smith with the IRS explains, "There are more than 12,000 volunteer tax help sites across the country and each year they prepare about three million returns."

If you make less than $50,000, or you're 60 and over, Smith says you can go to one of these centers and talk to a tax pro, usually a tax law student or professor who does volunteer work to help taxpayers out.

"Many of them receive some financial assistance from the IRS and other public entities, so they're there to help and serve you," he says.

All taxpayers need to do is bring all of their paperwork to the sites. You can find a list at IRS.gov, including some places that have workers who speak several languages.

Copyright 2012 ABC News Radio

Friday
Feb102012

Tax Tip: Preparing and Filing Your Taxes for Free

iStockphoto/Thinkstock(NEW YORK) -- The majority of U.S. taxpayers are eligible to have their tax returns filed for free, which begs the question: Why pay money for for tax preparation software?

"If your income is about $57,000 or less, there's a good chance you can qualify to file your return electronically and do it for free," explains Eric Smith with the IRS. "That profile fits about 70 percent of American taxpayers."

The IRS offers a service called Free File that uses brand name tax preparation software. Taxpayers choose which program they want to use, then follow the instructions.

"You enter information from W-2s and 1099s, but you also answer questions that can help the program help you determine which deductions and credits you qualify for," Smith says.

Depending on the state you live in, you might also get Free File to do your state taxes, as well.

And taxpayers seem to like it. The IRS says 98 percent of people who use Free File would recommend it to a friend. 

Copyright 2012 ABC News Radio

Thursday
Feb092012

Poll: Americans Are Split on Tax Proposals for Businesses, Wealthy

Ingram Publishing/Thinkstock(NEW YORK) -- Americans broadly support increasing taxes on businesses that move jobs overseas and boosting levies on the very wealthy, according to a new ABC News/Washington Post poll.  But two other tax proposals -- cutting taxes for companies that bring overseas jobs here, and boosting the capital gains tax -- are substantially less popular. 

The latest poll finds that 72 percent of those surveyed support raising taxes on people with household incomes more than $1 million a year.  Moreover, 73 percent favor raising taxes on businesses that move manufacturing jobs overseas -- President Obama proposed removing tax incentives available to such companies in his State of the Union address last month.

But some of Obama’s other proposals are far less popular. His desire to reduce taxes on companies that bring jobs here gets substantially lower support, 51 percent, suggesting hesitancy among some to support cutting business taxes even when job-creation is proffered as a payoff.

Additionally, just two in 10 are in favor of increasing capital gains taxes on profits made by selling stocks and bonds, which Obama supports. Given information that the current capital gains tax rate is less than the earned income tax rate for many taxpayers, support for increasing the capital gains tax rises, but still just to 36 percent, indicating general resistance to broad-based personal tax increases.

Previously released results from this poll, produced for ABC by Langer Research Associates, found broad suspicions of the tax system, with Americans by 68-28 percent saying they feel it favors the wealthy.

When Langer's questions specifically targeted Governor Mitt Romney, opinions about taxes appeared to split along along ideological fault lines. By 66-30 percent, those polled say Mitt Romney is not paying his "fair share" of taxes, based on his roughly 14 percent tax rate on 2010 income of about $22 million, income that came chiefly from capital gains and dividends. Support for raising the capital gains tax is higher, 45 percent -- at least among people who think Romney is not paying his "fair share." 

Among those who think Romney is paying a fair amount in taxes, however, just 19 percent favor a hike in the capital gains tax.

Similarly, among people who question Romney’s tax burden, 84 percent support raising taxes on millionaires; among those who say he is paying enough, support for a higher tax on the very wealthy falls to 48 percent.

Copyright 2012 ABC News Radio

Thursday
Feb022012

Will You Have to Pay Taxes on Frequent Flier Miles?

Comstock Images/Thinkstock(NEW YORK) -- When Citibank sent a 1099 form to customers who had received American Airlines frequent flier miles for opening a checking or savings account last year, customers, travelers, and even certified public accountants were confused. Many were left wondering if they had to pay taxes on the miles.

As it turns out, travelers do not have to pay taxes on earned frequent flier miles because they’re considered a rebate for money spent.  But miles received when opening a checking or savings account, on the other hand, are considered a gift.

So what’s the difference?  The Los Angeles Times attempted to get to the bottom of the confusion quoting an Internal Revenue Service spokeswoman as saying, “A common analogy is buying a $500 television at a retail store and receiving a $50 manufacturer’s rebate.  It’s not income, just a deemed reduction of the cost of the television.”

In contrast, being awarded miles for opening a checking or savings account requires no spending on the customer's end.

If you received miles for opening any kind of account last year and are confused on whether you owe Uncle Sam, make sure to bring it up with your accountant when tax time rolls around.

Copyright 2012 ABC News Radio

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