FAQ for Individual Returns
Why should I choose P&M as my personal tax advisor?
We do more than just fill-in tax forms. We evaluate your financial situation and your goals for the future to help you plan for the tax year ahead.
Our goal is to assure that you do not pay more taxes than you owe.
How do you avoid the 50% required minimum distributions (RMD)?
Traditional IRA holders must begin withdrawing the RMD from their accounts by April of the year after they turn 70 1/2. They are required to take an annual RMD by December 31 of each year after that
Is it possible to obtain a partial list of preliminary estimates of capitol gains distributions by our mutual funds (before year end)?
Yes, usually Mutual Fund companies post estimates of Capital Gains per Fund.
read more
https://www.oppenheimerfunds.com/digitalAssets/Cap_Gains_Estimates_Consumer-ec6595bc-23fb-498c-99cd-0ccebe6e8698.pdf
When are 2010 tax returns due?
2010 tax returns are due April 18, 2011. Extensions are due October 17, 2011.
I don’t live or work in New Hampshire. Can P&M still help me?
Yes, we can. We work with clients all over the country.
What are the tax deadlines for fiscal year individual taxpayers?
Form 1040 – Due on the 15th day of the 4th month after the end of your tax year.
Estimated tax payments (Form 1040-ES) – Due on the 15th day of the 4th, 6th, and 9th months of your tax year and on the 15th day of the 1st month after your tax year ends.
How long should I keep my tax records?
It depends on the state and federal statutes of limitation and your circumstances. The IRS can audit your return for up to three years after you file a return. However, if you omit more than 25% of your income from a return, that period increases to six years. To be safe, keep tax records for seven years after the filing date. (Please note that if fraud is involved, the statute of limitations is limitless.)
How do I know if I have to file quarterly individual estimated tax payments?
Estimated tax payments can be used to pay Federal income tax, self-employment tax, and household employment tax. To estimate if you need to pay tax on income not subject to withholding or on other income from which not enough tax is withheld:
Generally, you should make estimated tax payments if you will owe tax of $1,000 or more, after withholding and credits, and the total amount of tax withheld and your credits will be less than the smaller of:
1. 90% of the tax to be shown on your current tax return, or
2. 100% of the tax shown on your prior year’s tax return, if your prior year’s tax return covered all 12 months of the year. However, if your prior year’s adjusted gross income exceeded $150,000, or $75,000 if you filed a separate return from your spouse, then you must pay 110% instead of 100% of last year’s tax.
Please note that the first year Schedule C business profits and/or increased unearned revenue also qualify for making quarterly estimates to avoid being penalized by the IRS.
How should I handle this year’s annual gift tax exclusion?
If you make annual gifts to family members or others, make sure you complete your gifts for 2010 by December 31. ($13,000.-2009) ($13,000.-2010)
If you give people a lot of money, you might have to pay a federal gift tax. But the IRS also allows you to give up to $13,000 in 2010 to any number of people without facing any gift taxes, and without the recipient owing any income tax on the gifts.
And you can give a total of up to $1 million in gifts that exceed the annual limit in your lifetime, before you start owing the gift tax.
I was under the impression that a Dependent Care Benefit Plan would benefit me, not penalize me with an increase in taxes. How can my employer say they provided a benefit in the total amount of $3,000 in W-2, Block 10 when I had $3,000 in wages set aside for dependent care benefits?
The actual mechanism for this type of plan is an agreement to voluntarily reduce your salary in return for an employer-provided fringe benefit. These plans must be set up this way because you have a choice of whether to receive the cash wages or the benefits, which would make the benefit taxable to you. Therefore, the benefits are actually employer provided or funded. You are receiving a tax benefit because you are not paying taxes on the money that is set aside.
What is the alternative minimum tax or AMT?
The alternative minimum tax (or AMT) was created to ensure that high-income taxpayers with higher deductions and credits pay a minimum amount of tax.
The AMT is a separate tax calculation that disallows many of the deductions and credits used to calculate regular income tax. It also adds back certain income that is not normally taxed. The most common AMT adjustments are for personal and dependent exemptions and for certain itemized deductions, such as state and local taxes. Also, if you exercise incentive stock options, sell investments with large long-term capital gains, or take depreciation on business property, you may be hit with the AMT.
You’re required to calculate your tax under both the regular and AMT method. You then pay whichever tax is higher.
What is the nanny tax?
The nanny tax is social security, Medicare, and federal unemployment tax that employers must pay if the wages of certain household workers exceed a threshold amount.
The nanny tax only applies to your employees. A worker is generally considered to be your employee if you directly supervise the work and you supply the tools or supplies necessary to do the job. If your worker came from an agency or runs his or her own business, the nanny tax may not apply. Employees can include baby sitters, nannies, housekeepers, gardeners, health aides, and other household worker
Social security and Medicare wage threshold is $1,600.The social security and Medicare wage threshold is $1,600 for 2008. This means that if you pay a household employee cash wages of less than $1,600 in 2008, you do not have to report and pay social security and Medicare taxes on that employee’s 2008 wages, and $1700 for 2009 and 2010
I received a 1099-DIV showing a capital gain. Why do I have to report capital gains from my mutual funds if I never sold any shares?
A mutual fund is a regulated investment company that pools funds of investors allowing them to take advantage of a diversity of investments and professional asset management. You own shares in the fund, but the fund owns assets such as shares of stock, corporate bonds, government obligations, etc. One of the ways the fund makes money for its investors is to sell these assets at a gain. If the asset was held by the mutual fund for more than one year, the nature of the income is capital gain, which gets passed on to you. These are called capital gain distributions, which are distinguished on Form 1099-DIV from income that is from other profits, called ordinary dividends.
Capital gains distributions are taxed as long term capital gains regardless of how long you have owned the shares in the mutual fund. If your capital gains distribution is automatically reinvested, the reinvested amount is the basis of the additional shares you purchased.
What are the Capital Gains and Qualified Dividends Rules?
* Your maximum tax rate on most long-term capital gains is 15%, while you’ll pay taxes at ordinary income rates on short-term gains. The 15% rate drops to 5% if you’re in the lower two tax brackets for ordinary income.
* The minimum holding period for long-term treatment is 12 months.
* You’ll pay tax at 15% (or 5%) on “qualifying” dividend income. Dividends from most U.S.-traded stocks and mutual funds qualify for these rates.
* Interest on bank accounts and bonds is taxed as ordinary income. Dividends from bond funds or money market funds also count as ordinary income.
* You can offset up to $3,000 of net losses against ordinary income (such as wages), and you can carry over any excess to future years.
* If you’re planning to sell a stock, remember to include any reinvested dividends in your cost basis. This can reduce the size of any gain or increase a tax loss.
Who and when do you call regarding missing(s) Form W-2?
If you still do not receive your W-2 by February 14th, contact the IRS for assistance at 800-829-1040. When you call, have the following information:
Employer’s name, address, city, and state, including zip code.
Your name, address, city and state, including zip code, and Social Security number
I have misplaced my W-2, what should I do?
If you misplaced your W-2, contact your employer. Your employer can replace the lost form with a “reissued statement.” Be aware that your employer is allowed to charge you a fee for providing you with a new W-2.
Does the recipient of a gift of less than $13,000 have to report the gift fund as income?
No, as long as that truly was a gift, rather than payment for work. Recipients are not taxed on gifts that really are gifts. The $13,000 amount is referred to as the annual gift-tax exclusion. It means you can give away as much as $13,000 this year to anyone you choose and to as many people as you wish without having to worry about any tax considerations and without having to report the gift.
A question that frequently arises is whether the person making the gift can deduct it. The answer is only if the gift is made to a qualified charity, and only if the donor itemizes deductions.
Requirements for cash charitable contributions?
Effective for contributions made in taxable years beginning after August 17, 2006, the substantiation rules for money contributions is significantly aligned to the substantiation rules for property. In case of a charitable contribution of money, regardless of the amount, applicable record-keeping requirements are satisfied only if the donor maintains, as a record of the contribution, a bank record or a written communication from the donee showing the name of the donee organization, the date of the contribution, and the amount of the contribution.
Requirements for clothing and household items?
Effective for contribution made after August 17, 2006, no deduction is allowed for a charitable contribution of clothing or household items unless the clothing and household item is in good used condition or better. ( A written receipt is also required.)
Where is my refund?
Check the status of your refund. Call the Refund Hotline at 800-829-1954. You will need to know your filing status and the exact whole-dollar amount of your expected refund. The Refund Hotline is available from 7:00 a.m. to 10:00 p.m. (local time) on weekdays.
Can we pay Federal income taxes owed to the IRS by credit card?
Yes, please call 1-800-272-9829 which is the IRS credit card payment phone number.
Can I deduct expenses I paid for home repairs?
No, home repairs can’t be deducted. But you can include the cost of major renovations in your basis of the property.
A repair keeps your home in ordinary, efficient operating condition. It doesn’t materially add to the value of your home or prolong its life. Repairs include:
- Repainting your home, inside or outside
- Fixing your gutters or floors
- Fixing leaks or plastering
- Replacing broken window panes
You can’t deduct repair costs, and usually can’t add them to the basis of your home. However, repairs that you do as part of an extensive remodeling or restoration of your home are considered improvements. You add them to the basis of your home.
An improvement materially adds to the value of property, prolongs its useful life, or adapts it to new uses. Improvements include:
- Putting a recreation room in your unfinished basement
- Adding another bathroom or bedroom
- Putting up a fence
- Putting in new plumbing or wiring
- Installing a new roof
- Paving your driveway
Although the costs of improvements can’t be deducted, they can be added to the basis of your home. This will decrease your taxable gain when you sell the property.
If I don’t have receipts for my charitable donations, can I claim the donations?
You can include cash ? not property ? donations of less than $250 without a receipt. However, you must have a bank record or a payroll-deduction record.
Cash donations of $250 or more and noncash donations require a receipt and other proof. The IRS considers each donation separately, regardless if the total donation to 1 organization reaches the $250 limit. The IRS considers each donation separately. This is regardless of if the total donation to 1 organization reaches the $250 limit
If I took a distribution from my 401(k) because of financial hardship, is this an exception to the 10% early withdrawal penalty?
No. Many 401(k) plans allow you to take hardship distributions. However, the IRS doesn’t have a financial hardship exception to the early withdrawal penalty. Even if you’re allowed to take the hardship distribution under your plan, you’d still have to qualify for another exception to avoid the 10% early withdrawal penalty.
To learn more about early withdrawal penalty exceptions please give us a call at 603-382-8867
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