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

It looks like we’ll be getting an extra two days to file our taxes this year, since the 2012 tax filing deadline will be April 17th. That’s because April 15 falls on a Sunday, and Emancipation Day, a holiday observed in the District of Columbia, falls on Monday, April 16. According to federal law, District of Columbia holidays impact tax deadlines in the same way that federal holidays do, so everyone will have those two extra days to file.

Taxpayers who are will be requesting a tax filing extension will have until October 15 to file their 2012 tax returns.

For those who are going to use e-file and Free File, the IRS will begin accepting e-file and Free File returns on Jan. 17, 2012. According to the IRS, more details about e-file and Free File will be announced later this month. IRS Free File provides options for free brand-name tax software or online fillable forms plus free electronic filing. Everyone can use Free File to prepare a federal tax return. Taxpayers who make $57,000 or less are able to choose from approximately 20 commercial software providers. There’s no income limit for Free File Fillable Forms, the electronic version of IRS paper forms, which also includes free e-filing.

More than 144 million individual tax returns are anticipated by the IRS this year.

If you have any questions about filing your taxes, consult the IRS website (www.irs.gov) or contact a tax professional.

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Even though your income tax return is not due until April, important tax documents will start arriving in your mailbox. Make this your best tax filing year ever by being organized and getting an early start.

Here are some tips to make the tax-filing process as smooth as possible.

1. Put your records together in one place. Gather up your receipts, canceled checks and other documents that support income or deductions you’re claiming on your return.

2. Watch for your W-2s and 1099s in the mail and put them with your receipts and other supporting documents.

3. Check out Free File. If you made $57,000 or less last year, you qualify to use free tax software. Visit www.irs.gov/freefile to review your options.

4. Plan to use IRS e-file. If you are getting a refund, you’ll most likely receive your refund by direct deposit within 14 days if you e-file. E-file is safe and easy and is now the most common way to file a tax return.

5. Choose direct deposit. When you choose direct deposit, especially when you pair it with e-file, you’ll receive your refund in the fastest possible time. Plus, there’s no chance of a check being lost or stolen. Last year, thousands of refund checks were lost or stolen.

6. Read the Tax Guide. Everything you ever wanted to know about filing your 2011 taxes is in the booklet here: http://www.irs.gov/pub/irs-pdf/p17.pdf

7. Visit the IRS website. www.irs.gov contains forms, publications, tips, videos and FAQs.

8. Consider using a tax professional. Although you will be charged a fee to use their services, qualified tax professionals will ensure that your returns are accurate and that all options for tax deductions and tax credits have been explored.

Daniel Stoica Accounting Professional
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College students who apply for all types of loans in order to pay for their education are often forced to apply for un-subsidized Stafford loans due to the high costs of college tuition. These types of loans are available to financially strapped students and students who have been able to prove they are unable to pay for school any other way. Interest on Stafford loans is figured from the first payment and continues until the last payment. The best part of these loans is that a student’s repayments can be put off until after graduation.

Anyone applying for a student loan must also remember that interest accumulates during deferment. Students can opt to make interest payments while in school or wait and begin making payments when they are out of school, but it’s important to remember that they may be at risk of defaulting if they are unable to find work after college. Defaulting on student loans is a lot like defaulting on taxes. If someone files for bankruptcy, student loans, like tax debt, cannot be claimed on bankruptcy filings, which means collections and wage garnishments.

When a borrower doesn’t pay for more than two months, they are considered in default. The lender will contact the borrower to remind them that payments need to be made and, in most cases, will offer deferment options. If a borrower is combative and simply refuses to pay, collection proceeding begin, which will cause wage garnishments, tax refunds taken and credit reports will reflect default. That, alone, will make it impossible to get any type of credit. The worst part, interest continues to accumulate and your loan gets bigger and bigger, making it nearly impossible to pay later on when the borrower may finally be able to being repayment.

When a borrower is in default, the lender is legally able to take 15% of any wages earned each month to repay what is owed. If the borrower holds a professional license, that, too, can be revoked. In extreme cases, the lender will take legal action against the borrower where the borrower is ordered to either begin making payments immediately, or ordered to pay the amount in full. The latter is ordered on rare occasions. This rule applies to all loans, including Stafford loans.

So, what can you do before going into default on a student loan?

Consider carefully all of your options before going into default. If you find that you are just unable to make payments, or are only able to make small payments, you should get in contact with your lenders to make arrangements for deferment or forbearance so you do not end up in default. There is nothing worse than owing money to the government, and many student loan funds come from the government.

Daniel Stoica Accounting Professional

Want to become an advisor to the IRS? The IRS has announced that they are currently looking for applicants for their vacant spots on the Advisory Committee on Tax Exempt and Government Entities (ACT). ACT gives the public the opportunity to discuss major issues in the tax administration.

The current vacancies are as follows:

-Employee Plans – 2 vacancies

-Exempt Organizations – 2 vacancies

-Tax Exempt Bonds – 2 vacancies

-Indian Tribal Governments – 1 vacancy

The Department of the Treasury will announce the newly appointed members, who will all have 2-year terms that will begin in June of 2012.  Applicants must apply no later than December 1^st, 2011.

ACT works with public forums for the IRS and agents who work with employee plans, exempt companies, tax-exempt bonds, and federal, state, local, and Indian tribal governments. ACT lets the IRS get comments regarding policies and procedures on Tax Exempt and Government Entities Division issues.

Applications are accepted by mail or by applying electronically at www.irs.gov. Anyone who wishes to apply must explain their qualifications and they must not be federally registered lobbyists.

Applicants may fill out an application here: http://www.irs.gov/pub/irs-pdf/f12339c.pdf. It should be filled out and sent to: Bobby Zarin, TE/GE Communications and Liaison Director, Internal Revenue Service, 1111 Constitution Ave., NW-SE:T:CL Penn Bldg, Washington, DC 20224. It can also be faxed to 202-283-9956. This is not a toll-free number.

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If you have a small business with employees, and you owe up to $25,000 in taxes, you may qualify for an In-Business Trust Fund Express Installment Agreement (IBTF-Express IA). In February, 2011, the IRS created an initiative to create easier access to installment agreements for small businesses that are struggling with tax debt. Generally, these installment agreements do not require financial statements or financial verification with the installment agreement application.

In order to qualify for an IBTF-Express IA, you must meet the following criteria:

• You must owe less than $25,000 at the time the agreement is established. If you owe more than $25,000, you will need to reduce your liability before entering into the agreement in order to qualify.
• The debt must be paid in full within 24 months- or prior to the Collection Statute Expiration Date (CSED), whichever is earlier.
• If the amount you owe is between $10,000 and $25,000, you must enroll in a Direct Debit installment agreement (DDIA)
• You must be compliant with all filing and payment requirements.

In order to request an In-Business Trust Fund Express Installment Agreement:

-Call 1-800-829-4933 or the number listed on your tax bill
-Visit your local IRS office
-Complete IRS Form 9465, Installment Agreement Request (PDF), and send it to the address on your bill. If you do not have a bill, send the form to the address on page 2 of Form 9465.

If you have questions about your business and overdue tax bills, you may also want to seek the advice of a tax professional.

Daniel Stoica Accounting Professional

When you owe money to the IRS and they feel that they have run out of options on collecting the money that you owe, they will deduct money from your paychecks until your debt has been paid.  The IRS uses this tax collection method (also called a wage levy) after sending multiple letters and notices that taxes are owed.  Wage garnishments can cause great hardship to those whose paychecks are being reduced by the IRS.

It is always best to work with the IRS if you are notified that you owe back taxes.  Do not ignore their notices.  Although they attempt to leave you with enough money to pay your bills, this does not always happen.  The IRS can actually garnish close to 80% of your wages until your debt has been paid.

The IRS can garnish salaries, bonuses, wages, commissions, pension earnings, retirement money and properties.  They are required to send you a final notice of their intent to garnish your wages as well as details about your right to have a hearing at least 30 days before they will begin to garnish your wages or seize property.

Of course, you can avoid a wage garnishment by filing and paying your taxes every year.  If you cannot afford to pay the IRS, you must stay in contact with them to arrange a payment agreement.  If you have questions or get into trouble with the IRS, it’s a good idea to work with a tax professional right away.  Tax professionals can help you make sense of IRS notices as well as negotiate with the IRS on your behalf.

Daniel Stoica Accounting Professional

The IRS is informing professionals and accounting firms that they need to get EFINs (Electronic Filing Identification Numbers) in order to be compliant for the 2012 e-filing requirements (if they haven’t already received an EFIN).

Beginning in January of 2012, paid preparers who will be preparing and filing more than eleven 1040 or 1041 forms must e-file with the IRS. Individuals and businesses who file their own taxes still have the option of filing their returns on paper.

Tax preparers must create an e-services account in order to be an authorized IRS e-filer. They will have to send an EFIN application and pass the necessary tests. The process takes at least 45 days. Individuals and tax firms only need one EFIN.

Next year’s requirements are the second and final part of a law that was created to help e-filing become the main method of tax filing for individuals, trusts and estates. For 2011, the e-filing requirement was meant for paid preparers and tax firms who filed at least 100 tax returns. In 2011, the rate for returns that were sent via e-filing increased by more than 12%.

80% of tax returns are filed online and the IRS has estimated that almost 1 billion tax returns were filed electronically safely and securely since e-filing began in 1990.

Professional tax preparers can see how the process works on www.irs.gov at “Become an Authorized e-file Provider” or by accessing the FAQ section.

If this new requirement causes hardship for preparers, they may request a waiver for one year by sending an 8894 Form (“Preparer e-file Hardship Waiver Request”). If a client asks for a paper return be sent to the IRS, the preparer must send an 8948 Form “Preparer Explanation for Not Filing Electronically” with the tax return. All forms must be kept with the preparers records.

Daniel Stoica Accounting Professional

The IRS has announced that for the 2012 tax year, exemptions and deductions will rise and tax brackets will get larger because of inflation.

The amounts for many provisions that affect each taxpayer has to be amended every year in order to stay in line with inflation. Here are the new amounts that will affect 2012 taxes are:

-Personal and dependent exemptions will be $3,800.

-Standard deductions is $11,900 for joint returns, $5,950 for single and married, filing single and $8,700 for head of household. Most taxpayers take standard deductions rather than itemizing deductions.

-Tax brackets will get larger for every filing status.

Credits, deductions, and related phase outs.

-The earned income tax credit (EITC) for low and moderate income taxpayers will grow to $5,891. It is determined by family size and filing status. The maximum income limit to claim the EITC will now be $50,270.

-Foreign earned income deductions will rise to $95,100.

-Modified adjusted gross income (AGI) will be $104,00 for joint returns and $52,000 for single and head of household returns.

-Annual deductibles for Medical Savings Accounts (MSAs) will rise from last year.

The $2,500 deduction for student loan interest will phase out for joint returns with incomes of $125,000 and will totally phase out at incomes of $155,000, both of which are higher than last years amounts. Single filers will see no change for next year.

Estate and Gift

For estates of those who pass away in 2012, exclusions for estate tax will be $5,120,000 for 2011. For executors who use special valuation, the decrease in property value cannot be more than $1,040,000. The yearly gift exclusion will stay at $13,000.

Other Items

-Monthly limits on transportation benefit exclusions for employer provided parking will increase to $240. This is a temporary increase and limits the value of the transportation benefit exclusion in a commuter vehicle and transit passes that are employer provided. It will go back to $125 in 2012.

-Many other benefits won’t change for 2012. Standard deductions for the blind and seniors will stay at $1,150 for joint returns and $1,450 for single and head of household returns.

More detailed information on inflation adjustments, taxpayers can find Revenue Procedure 2011-52, which will be published in the Internal Revenue Bulletin 2011-45 on November 7^th, 2011.

Daniel Stoica Accounting Professional

The IRS is very strict when it comes to payroll taxes and deductions. One miscalculation could get a business in a lot of trouble with the government. This is why you need to keep accurate records of your business’s payroll and stay informed about payroll tax rules.

The first thing every business needs to do when they hire a new employee is to make sure the employee fills out a W-4. This form calculates payroll taxes based on the employee’s marital status and how many dependents they have. Most states base their payroll taxes on federal guidelines, which helps businesses correctly calculate withholdings for both federal and state taxes.

It is important for businesses to accurately calculate and report payroll taxes. Every employee should be given their own payroll account so these deductions can be paid to state and federal governments at the end of each year.

If you operate a fairly new business and have just begun to hire hourly or salaried employees and need help figuring your payroll taxes, you can speak to a payroll or tax professional for help.

Daniel Stoica Accounting Professional