How do I pay the IRS?

It's becoming easier than ever to pay any taxes owed to the IRS.

Just head over to the IRS Payments page. Not only can you make a payment via your bank account, debit card, or credit card, it's also free to pay this way. The IRS also gives the option to pay in payments if you can't afford the entire amount due in one payment. All the links for payment options are on this page.

All payments made online or over the phone are confirmed immediately, so it's quick and easy to make sure the payment is taken care of timely.

If you aren't sure if or what amount you owe, you should receive a statement from IRS about any taxes owed. If not, give me a call and we'll figure it out together!

2013 Tax Return Deadline: April 15, 2014!

Don't forget, this year tax returns without an extension on file, are due April 15, 2014. If you file online, you have until 11:59pm on that day to file. Otherwise your return must be postmarked by April 15, 2014.

If you are sending your return by mail, I ALWAYS recommend mailing it certified return receipt (that green form at the post office). It costs a few bucks but is worth it's weight in gold if you have a problem with your return making it (or not) to IRS in time.

Some helpful tips before you meet with your tax preparer or file your return yourself:

1. Check your info! Make sure names, social security numbers, income amounts are correct and match the paperwork you have (like your social security card, your W2's, bank statements, etc).

2. Create a checklist of items you need every year for your taxes --- specific bank statements or forms, investment or other income related documents, you're W2, important tax ID numbers, receipts and anything else that was helpful. If you do it this year, the following year will make compiling what you need to complete your return a breeze!

3. Don't stress! Tax season can be stressful for everyone, myself included! By creating a list of the things you'll need every year you're already well on your way to a stress-less tax season. Helpful online softwares like Turbo tax can be great for when your return is simple and straightforward. Finding a great CPA or EA (enrolled agent) to give you advice and complete your return accurately will greatly reduce your stress levels. You won't ever wonder if you missed any important deductions or if you've done something wrong.

April 1 has arrived, and this is no joke...taxes are due in 15 days. Don't delay!

Tax Rules on Early Withdrawals from Retirement Plans

From IRS Tax Tip Newsletter 2013-35

Tax Rules on Early Withdrawals from Retirement Plans

Taking money out early from your retirement plan can cost you an extra 10 percent in taxes. Here are five things you should know about early withdrawals from retirement plans.

1. An early withdrawal normally means taking money from your plan, such as a 401(k), before you reach age 59½.

2. You must report the amount you withdrew from your retirement plan to the IRS. You may have to pay an additional 10 percent tax on your withdrawal.

3. The additional 10 percent tax normally does not apply to nontaxable withdrawals. Nontaxable withdrawals include withdrawals of your cost in participating in the plan. Your cost includes contributions that you paid tax on before you put them into the plan.

4. If you transfer a withdrawal from one qualified retirement plan to another within 60 days, the transfer is a rollover. Rollovers are not subject to income tax. The added 10 percent tax also does not apply to a rollover.

5. There are several other exceptions to the additional 10 percent tax. These include withdrawals if you have certain medical expenses or if you are disabled. Some of the exceptions for retirement plans are different from the rules for IRAs.

For more information on early distributions from retirement plans, see IRS Publication 575, Pension and Annuity Income. Also, see IRS Publication 590, Individual Retirement Arrangements (IRAs). Both publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Additional IRS Resources:

• Publication 575, Pension and Annuity Income
• Publication 590, Individual Retirement Arrangements (IRAs)
• Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts

6 Money Rules You Can Break

For most people, following basic money rules makes sense. But like everything else in life, there are situations when following tried-and-true advice might not work. Our professionals weigh in on when to consider the exceptions.

Rule No. 1: Pay off debt and build an emergency fund before saving for retirement.

Saving enough money to pay three to six months of living expenses will lessen the chances you'll have to sell assets or go into debt in case of an unexpected big-ticket expense or job loss. J.J. Montanaro, a CERTIFIED FINANCIAL PLANNER™ practitioner at USAA, says building this emergency fund — in something safe and liquid, such as a savings account — should be a top priority, along with paying down any high-interest consumer debt.

When to break it: If your debt is of the low-rate, tax-reducing variety, such as a mortgage or student loans, and your retirement plan at work offers a match, you might be better off contributing enough to receive the full company match before focusing on building your emergency fund and eliminating debt, says Montanaro.

Remember that contributions to a traditional employer-sponsored retirement account, such as a 401(k) or Thrift Savings Plan, may reduce your tax bill. Add the money from your employer match, and you've got a hard-to-beat combination. If you don't participate in these plans, you could be missing out on valuable benefits and tax savings.

Rule No. 2: Save up to 10% of your income.

Contributing at least $1 to your savings (or 401(k) or TSP) for every $10 you earn — or 10% — is an old rule of thumb. And it's certainly better than 3.6%, which is the current national savings rate, according to the Commerce Department.

When to break it: If you didn't begin saving for retirement until you were in your 30s or older, it may take more effort to achieve your retirement goal.

"A late start means you’ve probably got ground to make up, and 10% is probably not enough to close the gap," Montanaro says. To find out how much you need to save to meet your financial goals, use USAA's online calculators.

Rule No. 3: Always max out your employer-sponsored account.

If you need to increase your retirement savings and are not already contributing the maximum amount allowed to your 401(k), a reasonable reaction is to immediately boost your contribution rate.

When to break it: To create a better tax-management plan, you may need to look beyond your employer's plan.

"If you don't have a Roth 401(k) available, you may be better off contributing just enough to take full advantage of a match (if your employer offers one), but then sending additional savings to a Roth IRA, if you're eligible," says Scott Halliwell, a CERTIFIED FINANCIAL PLANNER™ practitioner at USAA. A Roth contribution won't lower your tax bill today, but the possibility of qualified, tax-free withdrawals during retirement is a benefit.

"You'll likely have control over future income tax bills by having money in pretax and Roth accounts," adds Halliwell. What if your income exceeds the IRS limit for making Roth IRA contributions? Consider opening an after-tax traditional IRA and converting it to a Roth. Since 2010, income is no longer a factor in Roth IRA conversion eligibility. Conversions from a traditional IRA to a Roth are subject to ordinary income taxes. Please consult with a tax advisor regarding your particular situation.

Rule No. 4: Send your kid to college — it's a great investment.

Yes, the average college graduate earns $26,618 more a year than someone with just a high school education, according to the U.S. Census Bureau. As a result, most financial planners agree that helping your child get a college education is important.

When to break it: If helping pay for your child's four-year college degree places an extreme burden on your finances, you should consider other, more affordable ways to accomplish this goal.

The return depends on the price you pay and where that money comes from. The nonprofit research group Project on Student Debt reports two-thirds of college seniors who graduated in 2011 had student loan debt, with an average of $26,600 per borrower.

To avoid overpaying for a diploma, Montanaro suggests looking for cost-effective ways to get an education, such as spending the first two years at a community college, then transferring to a four-year college. For 2012-13 enrollment, annual tuition and fees at a community college cost an average of $3,131, compared to in-state tuition of $8,655 for public four-year colleges and $29,056 for private universities, according to the College Board.

Rule No. 5: Buy a house if it costs 2.5 times your annual income or less.

This is a reasonable guide when determining whether you can afford to buy a home.

When to break it: If it doesn't suit your circumstances, disregard this guideline.

What really matters is whether you can afford the monthly payment, factoring in taxes, insurance, maintenance, current mortgage rates and the size of your down payment. Plus, consider how long you'll live in the house. If you plan to move in a few years, renting may be the better decision.

Rule No. 6: When you retire, consider a withdrawal of 4% of your portfolio, then adjust every year for inflation.

Historically speaking, the so-called 4% rule calls for a retiree to make annual inflation-adjusted withdrawals and be reasonably sure the portfolio will last 30 years. For most retirees, it's a fine starting point to determine how much they can spend.

When to break it: Your plan for retirement is not a smooth glide path.

Retirees may prefer withdrawing more in good times and cutting back when times get tough, or varying distributions based on their investment results. Also, adjustments should be made according to other sources of income. For example, Montanaro says some retirees may wish to withdraw more at first and delay taking Social Security, but then withdraw less once the Social Security benefit kicks in. "Whatever your plan, it should be monitored and adjusted as necessary," he says.

USAA's Retirement Center offers financial advice and recommendations to help you plan your future. For guidance, email an advisor or call 1-800-472-8722 Monday through Friday from 7:30 a.m. to 10 p.m. and Saturday from 8 a.m. to 5 p.m. Central Time.

Reprinted from USAA.com https://www.usaa.com/inet/pages/advice-finances-moneyrules?EID=corp_cc_13_03_U250-08

The ABCs of Baby Finance

Raising a child from birth through age 17 will cost a typical middle-income family almost $235,000, according to a 2012 report from the U.S. Department of Agriculture.

Consider the following advice to help you plan for your financial future, prepare for your new baby and protect your growing family.

1. Purchase life insurance. Life insurance is a foundation of financial preparedness and much more affordable than you might think. You should generally get better rates when you're young. Talk to your life insurance company about what amount will protect your family.

Saving for retirement, however, should take priority over saving for your child's college education. Student loans and part-time jobs abound for the college crowd, but loans generally cannot be used for retirement.

2. Start planning for college in the delivery room. The average cost of tuition and fees for the 2011-12 school year was $8,244 for a public college and $28,500 for a private one, according to the College Board. Financial aid and part-time jobs may help your child pay for college. Parents who want to chip in may consider setting aside some money today in a tax-advantaged 529 college savings plan.

3. Update your will and appoint a guardian. Name a contingent guardian and update your will to give your family some protection in case something happens to you.

4. Take advantage of tax savings. The IRS allows you to take an exemption for dependent children, including those born or adopted anytime during the year. Depending on your income, you may also be entitled to a child tax credit for each qualifying child under age 17. Parents who work and pay for day care for their dependent children also may be able to take advantage of a child-care credit. If you work, visit the IRS withholding calculator to see if you should adjust the income tax withheld from your paycheck.

5. First-time parents? Prepare your baby budget now. Long before the due date, examine how your baby will affect everyday expenses. Stroll through baby stores, take notes, then redo your annual budget to include the new line items. This exercise can help you figure out if you need to cut spending in other areas.

6. Experiment with living on one income. If one parent is thinking of leaving the workplace to care for the baby at home, try living on one income, well before the baby arrives, to see how feasible it is.

7. Say bye-bye to brand names. Your baby won't know the difference between top-of-the-line baby blankets and less expensive, quality ones that feel just as snuggly. Hand-me-downs, consignment shops, garage sales and even eBay are great sources for gently used, quality children's clothes at bargain prices.

8. Think twice before buying a new home. A new home for your growing family sounds tempting, but you could find yourself baby-rich and house-poor. Not moving at all might be better, at least for a while.

9. Accept baby-sitting offers. Among the best financial assistance relatives and friends can give is volunteering to baby-sit. If they offer, graciously accept.

10. Use a flexible spending account for day care. If your employer offers a flexible spending account, you may be able to use it to pay up to $5,000 in child-care expenses a year. That money will be exempt from income taxes.

Reprinted from USAA.com https://www.usaa.com/inet/pages/advice-finances-abcsofbabyfinance?EID=corp_cc_13_03_U250-06

Updated Interest Rates 2013

Excerpt IRS Tax Tips Issue 2013-24

Interest Rates Remain the Same for the Second Quarter of 2013

WASHINGTON – The Internal Revenue Service today announced that interest rates will remain the same for the calendar quarter beginning Apr. 1, 2013.  The rates will be: 

• three (3) percent for overpayments (two (2) percent in the case of a corporation);
• three (3) percent for underpayments;
• five (5) percent for large corporate underpayments; and
• one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis.  For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. 

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The interest rates announced today are computed from the federal short-term rate determined during January 2013 to take effect February 1, 2013, based on daily compounding.

Revenue Ruling 2013-6, announcing the rates of interest, is attached and will appear in Internal Revenue Bulletin 2013-13, dated March 25, 2013.

Your Unemployment Benefits

Excerpt from IRS Tax Tip Issue 2013-26

Four Tax Tips about Your Unemployment Benefits

If you received unemployment benefits this year, you must report the payments on your federal income tax return.

Here are four tips from the IRS about unemployment benefits.

1. You must include all unemployment compensation you received in your total income for the year. You should receive a Form 1099-G, Certain Government Payments. It will show the amount you were paid and the amount of any federal income taxes withheld from your payments.

2. Types of unemployment benefits include:

• Benefits paid by a state or the District of Columbia from the Federal Unemployment Trust Fund
• Railroad unemployment compensation benefits
• Disability payments from a government program paid as a substitute for unemployment compensation
• Trade readjustment allowances under the Trade Act of 1974
• Unemployment assistance under the Disaster Relief and Emergency Assistance Act

3. You must include benefits from regular union dues paid to you as an unemployed member of a union in your income. However, other rules apply if you contribute to a special union fund and your contributions are not deductible. If this applies to you, only include in income the amount you received from the fund that is more than your contributions.

4. You can choose to have federal income tax withheld from your unemployment benefits. You make this choice using Form W-4V, Voluntary Withholding Request. If you complete the form and give it to the paying office, they will withhold tax at 10 percent of your payments. If you choose not to have tax withheld, you may have to make estimated tax payments throughout the year.

For more information on unemployment benefits see IRS Publications 17, Your Federal Income Tax, or IRS Publication 525, Taxable and Nontaxable Income. You can download these free booklets and Form W-4V from the IRS.gov website. You may also order them by calling 800-TAX-FORM (800-829-3676).

Additional IRS Resources:

• Publications 17, Your Federal Income Tax
• Publication 525, Taxable and Nontaxable Income
• Form W-4V, Voluntary Withholding Request

Withdrawing from an IRA (Individual Retirement Account) before Retirement

For the 2010 tax year, the due date for all contributions into an IRA account and withdrawals out of an IRA account is April 18, 2011.

There is a 6% excise tax on all contributions to an IRA account that are not withdrawn by April 18, 2011.

In addition, any withdrawal from an IRA account before the age of 59 ½ is included in that tax years gross income with an additional 10% tax penalty. There are exceptions to this penalty however, give me a call to discuss what those are.

Keep in mind the advantages of having an IRA:

-        Contributions to an IRA are fully or partially tax deductible

-        Amounts, earned and gained, in your IRA account are not taxed until you begin withdrawing

If you don’t have an IRA, you can start one, as long as:

-        You (or your spouse if you file as married, joint) received taxable income during the 2010 tax year and,

-        You are not 70 ½ by the end of the year

There are also many kinds of IRA’s. Often times your company provides an option. You can also open an IRA on your own, through a bank or your stock broker. There are simple IRA’s, Roth IRA’s, Individual Retirement Annuities, SEP (simplified employee pension), Retirement bonds, etc.

Saving for your future retirement is important. The laws, taxes, benefits and options can be overwhelming. I can help make the best decision for you, based on your income, lifestyle, circumstances and goals. 

For a free Financial Planning Consultation you may contact me by clicking here; Tax Planning Granada Hills or call: 818.368.5374.