You may be one of the many taxpayers who realize that they owe more in taxes than they have available right now.  If that’s the case, here are some tips that will help you keep your penalties and interest to a minimum.

1. Even if you can’t pay everything you owe right now, go ahead and file your return on time and pay as much as you can with the return. These steps will eliminate the late filing penalty, reduce the late payment penalty and cut down on interest charges. You may mail a check payable to the United States Treasury or check out the electronic and credit card options for paying. IRS.gov.

2. You may want to consider obtaining a loan or even paying by credit card. The interest and penalties that are imposed by the IRS may actually be lower than the interest rate and fees charged by a bank or credit card company.

3. Ask for an installment payment agreement. You do not need to wait for the IRS to send you a bill before requesting a payment agreement. Options for requesting an agreement include:
• Using the Online Payment Agreement application and
• Completing and submitting IRS Form 9465-FS, Installment Agreement Request, with your return. The IRS does charge a user fee to set up your payment agreement. See www.irs.gov or the installment agreement request form for fee amounts.

4. As part of the IRS Fresh Start Initiative for tax year 2011, qualifying individuals may request an extension of time to pay and have the late payment penalty waived. To see if you qualify visit www.irs.gov and get form 1127-A, Application for Extension of Time for Payment. But hurry, your application must be filed by April 17, 2012.

5. If you receive a bill from the IRS, please contact them right away to discuss payment options. The worst thing you can do is simply ignore the bill.

If you can’t pay in full and on time, the key to minimizing your penalty and interest charges is to pay as much as possible by the tax deadline and the balance as soon as you can.

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Did you know that past due financial obligations can affect your current federal tax refund? The Department of Treasury’s Financial Management Service (FMS), which issues IRS tax refunds, can use part or all of your federal tax refund to satisfy certain unpaid debts.

Here are the facts about how your tax refund may be used to offset certain types of debts:

1. If you owe federal or state income taxes, your refund will be offset to pay those taxes. If you had other debt such as student loan debt or child support debt, the FMS will apply as much of your refund as is needed to pay off the debt and then issue any remaining refund to you. This won’t be a surprise to you, because you will receive a notice if an offset occurs. The notice will include the original refund amount, your offset amount, the agency receiving the payment and its contact information.

2. Contact the agency shown on the notice, not the IRS, if you believe you do not owe the debt or you are disputing the amount taken from your refund.

3. You’ll need to file IRS Form 8379, Injured Spouse Allocation, if you filed a joint return and you’re not responsible for the debt but you are entitled to a portion of the refund. You’ll need to attach Form 8379 to your original Form 1040, Form 1040A, or Form 1040EZ or file it by itself after you are notified of an offset. Form 8379 can be downloaded from the IRS website at www.irs.gov.  You can file Form 8379 electronically. If you file a paper tax return you can include Form 8379 with your return, write “INJURED SPOUSE” at the top left of the Form 1040, 1040A or 1040EZ. IRS will process your allocation request before an offset occurs.

4. If you are filing Form 8379 by itself, it must show both spouses’ Social Security numbers in the same order as they appeared on your income tax return. You, the “injured” spouse, must sign the form. Do not attach the previously filed Form 1040 to the Form 8379. Send Form 8379 to the IRS Service Center where you filed your original return.

5. The IRS will compute the injured spouse’s share of the joint return. Contact the IRS only if your original refund amount shown on the FMS offset notice differs from the refund amount shown on your tax return.

6. Follow the instructions on Form 8379 carefully and be sure to attach the required forms to avoid delays. If you don’t receive a notice, contact the Financial Management Service at 800-304-3107, Monday through Friday from 7:30 a.m. to 5 p.m. (Central Time).

Are you stressed about tax time? Does the thought of doing your taxes give you a headache?  Tax preparation doesn’t have to be painful, if you follow some basic tips.

1. Don’t put off doing your taxes until the last minute. When you rush, you are more likely to make mistakes. You may even make mistakes that could cost you money.  So start them now if you haven’t already.

2. Use the IRS website. There were more than 300 million visits to www.irs.gov last year. Go to the “1040 Central” to check for the latest news and find answers to your questions about tax filing.

3. Use Free File. Free File is available exclusively at www.irs.gov. Everyone can find an option to prepare their tax return and e-file it for free. If you made $57,000 or less, you qualify for free tax software that is offered through a private-public partnership with manufacturers. If you made more than $57,000 and/or are comfortable preparing your own tax return, there’s Free File Fillable Forms, the electronic versions of IRS paper forms. Visit www.irs.gov/freefile for options.

4. Try IRS e-file. The majority of taxpayers now use IRS e-file, which is the safest, easiest and most common way to file a tax return. If you owe taxes, you can file immediately and pay later (by the April 17 tax deadline). Best of all, when you combine e-file with direct deposit  the IRS can generally issue your refund in as few as 10 days.

5. Don’t put off filing your taxes if you can’t pay. If you can’t pay the full amount of taxes you owe by the mid-April deadline, you should still file your return by the deadline and pay as much as you can to avoid penalties and interest. More than 75 percent of taxpayers eligible for an Installment Agreement can apply using the web-based Online Payment Agreement application available at www.irs.gov. To find out more about this simple and convenient process, type “Online Payment Agreement” in the search box at www.irs.gov.  You can also contact the IRS to discuss your payment options.

6. Request an extension of time to file – but pay on time. If the deadline clock is ticking, you can get an automatic six-month extension through Oct. 15. However, this extension of time to file, which must be filed or postmarked by the April 17 deadline, does not give you more time to pay any taxes due. If you have not paid at least 90 percent of the total tax due by the April deadline you may also be subject to an estimated tax penalty. You can obtain an extension through Free File at www.irs.gov/freefile. Or, file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, available for downloading at www.irs.gov or by calling 800-TAX-FORM (800-829-3676) to have a paper form mailed to you. Allow at least 10 days for mailed forms and publications.

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Did you know that free tax return preparation assistance is available for eligible military members and their spouses? The Volunteer Income Tax Assistance (VITA) program provides free tax advice as well as tax preparation, filing and other tax assistance to military members and their families.

Here is some helpful information for military members to keep in mind during tax season:

Tax Sites:

Volunteers at military-based VITA sites are trained to help with military-specific tax issues, such as combat zone tax benefits and the Earned Income Tax Credit guidelines.

Bring the following records:

To receive free tax assistance, you should bring the following records to your military VITA site:

• Valid photo identification
• Social Security cards for you, your spouse and dependents or a Social Security number verification letter issued by the Social Security Administration
• Birth dates for you, your spouse and dependents
• Wage and earning statement(s) like Form W-2, W-2G, 1099-R
• Interest and dividend statements (Forms 1099)
• A copy of last year’s federal and state tax returns, if available
• Checkbook for routing and account numbers for direct deposit
• Total amount paid for day care and day care provider’s identifying number
• Other relevant information about income and expenses

Dealing with joint returns:

If your filing status is Married Filing Jointly and you want to file your tax return electronically, both you and your spouse should be present to sign the required forms. If it isn’t possible for both of you to be present, a valid power of attorney that allows tax preparation can be used to sign and file the return.

Special exception:

There is a special exception to using a power of attorney for spouses in combat zones. The exception allows  the filing spouse to e-file a joint return with only a written statement stating the other spouse is in a combat zone and unable to sign.

For more information, review IRS Publication 3, Armed Forces’ Tax Guide, available on the IRS Web site at www.irs.gov or order a free copy by calling 800-TAX-FORM (800-829-3676).

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You may be one of the millions of taxpayers who qualify for free tax preparation assistance from IRS-sponsored community-based, volunteer programs. If you earn less than $50,000 per year, or if you are 60 or older, you may be able to take advantage of two programs sponsored by the IRS — the Volunteer Income Tax Assistance (VITA) program and/or the Tax Counseling for the Elderly (TCE) program.

The IRS VITA program offers free tax help to people who earn less than $50,000, and most locations offer free electronic filing. The TCE program offers free tax help to individuals aged 60 or older.

The IRS certifies community volunteers so they can help eligible persons with tax credits, such as the Earned Income Tax Credit, the Child Tax Credit and the Credit for the Elderly. Some volunteer sites have language specialists to assist people with limited English proficiency. More than 12,000 free tax preparation sites are open nationwide this year as the IRS continues to expand its partnerships with nonprofit and community organizations performing these vital tax preparation services.

The American Association of Retired Persons (AARP) operates the Tax-Aide free tax preparation program during the filing season as part of the TCE program. Trained and certified AARP Tax-Aide volunteers help taxpayers with low-to-moderate income, with special attention paid to those 60 and older.

The IRS partners with the military to provide free tax assistance to military personnel and their families. The Armed Forces Tax Council consists of the tax program coordinators for the Army, Air Force, Navy, Marine Corps and Coast Guard. Volunteers are trained and equipped to address military-specific tax issues, such as combat zone tax benefits.

Taxpayers can typically find locations and hours for these volunteer tax preparation services through city information hotlines and local community organizations.  Local VITA site information is also available through a new online tool on the IRS Website – www.irs.gov Taxpayers can search the word “VITA” in IRS.gov and click on the option “Free Tax Return Preparation For You by Volunteers,” followed by ”Find a VITA site near you” to access the tool. Site information is also available by calling the IRS toll-free number 1-800-906-9887. To locate the nearest AARP Tax-Aide site, visit www.aarp.org or call 1-888-227-7669.

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Did you or anyone in your family have significant medical or dental expenses last year?  If you did, you may be able to deduct those expenses when you file your tax return.

The following information will help you consider your medical or dental expenses when you file your tax return.

1. First of all, you must itemize your qualifying medical and dental expenses using Form 1040, Schedule A.

2. On Form 1040, Schedule A, you can deduct medical care expenses that exceed 7.5% of your adjusted gross income for the year.

3. You can include the medical and dental expenses you PAID during the year, regardless of when the services were provided. Make sure you have good receipts or records to prove your expenses.

4. You cannot count any expenses that have been reimbursed to you. Your total medical expenses for the year must be reduced by any reimbursement. Normally, it makes no difference if you receive the reimbursement or if it is paid directly to the doctor or hospital.

5. You may include qualified medical expenses you pay for yourself, your spouse and your dependents. However, check with the IRS or a tax professional if you are divorced or separated because some exceptions and special rules apply to divorced or separated parents, taxpayers with a multiple support agreement or those with a qualifying relative who is not your child.

6. You can deduct expenses primarily paid for the diagnosis, cure, mitigation, treatment or prevention of disease, or treatment affecting any structure or function of the body. For drugs, you can only deduct prescription medication and insulin. You can also include premiums for medical, dental and some long-term care insurance in your expenses. Starting in 2011, you can also include lactation supplies.

7. You may deduct transportation costs that are essential to medical care that qualify as medical expenses. You can deduct the actual fare for a taxi, bus, train, plane or ambulance as well as tolls and parking fees. If you use your car for medical transportation, you can deduct actual out-of-pocket expenses such as gas and oil, or you can deduct the standard mileage rate for medical expenses, which is 19 cents per mile for 2011.

8. Distributions from Health Savings Accounts and withdrawals from Flexible Spending Arrangements may be tax free if used to pay qualified medical expenses including prescription medication and insulin.

For additional information about medical and dental expenses, see Publication 502, Medical and Dental Expenses or Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans, available at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

Some Helpful Links:

• Publication 502, Medical and Dental Expenses (PDF)
• Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans (PDF)

Daniel Stoica Accounting Professional

Are you a small business owner or are you self-employed?  If you are, you probably have questions about taxes for your particular situation.  You can check out the IRS’s Small Business and Self-Employed Tax Center on the IRS website.

The IRS’s one-stop shop offers a variety of resources and online tools to help small businesses and self-employed individuals by providing resources such as:

• A-Z Index for Business, a fast way to find information
• Small business forms and publications
• Online applications for an Employer Identification Number
• Employment tax information – federal income tax, Social Security and Medicare taxes, FUTA and self-employment tax
• Tax-related news that could affect your business
• Small business educational events
• IRS videos for small businesses

Did you know that there is also a Tax Calendar for Small Business Taxpayers?  The Tax Calendar for Small Businesses and Self-Employed – Publication 1518 – is available online or as a printable PDF file. This 12-month calendar containts information on general business taxes, IRS and Social Security Administration customer assistance, electronic filing and paying options, retirement plans, business publications and forms, and common tax filing dates. Each page highlights different tax issues and tips that may be relevant to small-business owners, with room on each month to add notes, state tax dates or business appointments.  You can also download the tax events into your calendar or subscribe to the tax calendar events.  The calendar provides the small business owner with a ready resource for meeting their tax obligations.

If you have other questions about your tax obligations, you might want to contact a tax professional.

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Do you know your tax filing status? Your tax filing status is used in order to determine your filing requirements as well as your standard deductions, your correct tax and your eligibility for certain deductions and credits.  Since there are five filing statuses, and since some people may qualify for more than one filing status, it can be confusing to determine which one is the best option for your particular situation.  The five filing statuses are Single, Married Filing Jointly, Married Filing Separately, Head of Household and Qualifying Widow(er) with Dependent Child.

The following are eight facts about filing status that can help you choose the best option.

1.  Your marital status for the entire year is determined by your marital status on the last day of the tax year. So, even if you got married on December 31, 2011, you would still be eligible to file as Married for 2011.

2. If more than one filing status applies to you, choose the one that gives you the lowest tax obligation.

3. Single filing status generally applies to anyone who is unmarried, divorced or legally separated according to state law.

4. A married couple may file a joint return together. The couple’s filing status would be Married Filing Jointly.

5. If your spouse died during the year and you did not remarry during 2011, usually you may still file a joint return with that spouse for the year of death.

6. A married couple may elect to file their returns separately. Each person’s filing status would generally be Married Filing Separately.

7. Head of Household generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.

8. You may be able to choose Qualifying Widow(er) with Dependent Child as your filing status if your spouse died during 2009 or 2010, you have a dependent child, have not remarried and you meet certain other conditions.

You can find out more information about determining your filing status in IRS Publication 501, Exemptions, Standard Deduction, and Filing Information. Publication 501 is available at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

You may also want to speak with a tax professional about determining your tax filing status.

Daniel Stoica Accounting Professional

Many people give to charities toward the end of the calendar year because they are in the giving spirit AND because they realize that they don’t have much more time to take advantage of tax deductions.

The following are some reminders about year-end giving.

• Make sure that the organization is qualified. Only donations to qualified organizations are tax-deductible. IRS Publication 78, available online and at many public libraries, lists most organizations that are qualified to receive deductible contributions. The searchable online version can be found at IRS.gov under Search for Charities. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in Publication 78.
• If at all possible, get a receipt from the charity when you are donating property such as clothing and household items. Ideally, the receipt should include the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
• Charitable contributions are deductible in the year they are made. If you charge a donation to a credit card before the end of the year, but the credit card bill isn’t paid until the following year, you still get to claim the deduction for the year is which the charge was made. Also, checks count for the year they were written as long as they are mailed during that year and clear shortly thereafter.
• Only individual taxpayers who itemize their deductions on Form 1040 Schedule A may claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction, including anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2009 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.
• The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.
• If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.

If you have any questions about charitable donations and your taxes, contact a tax professional.

Daniel Stoica Accounting Professional