How to Calculate Your Tax Withholdings

Did you know the IRS has a withholding calculator? Well, they do! If you are an employee, get your recent pay stubs and income tax return and you can estimate the taxes that your employer will withhold.

These and other online tools are really helpful to understand what you will owe and to budget accordingly. If you owe taxes versus getting a refund, as a general rule, it's always helpful to get this amount as early as possible so you can save enough to pay your taxes in time. It also helps for your overall budgeting as it gives a clear picture of what your net salary will be. You can then plan how much to budget for groceries, bills, rent or mortgage, etc.

Speaking with your accountant or certified financial planner can ensure you calculate this correctly as well as create a budget that fits your needs and lifestyle.

Important Facts about Mortgage Debt Forgiveness

Important Facts about Mortgage Debt Forgiveness

If your lender cancelled or forgave your mortgage debt, you generally have to pay tax on that amount. But there are exceptions to this rule for some homeowners who had mortgage debt forgiven in 2012.

Here are 10 key facts from the IRS about mortgage debt forgiveness:

1. Cancelled debt normally results in taxable income. However, you may be able to exclude the cancelled debt from your income if the debt was a mortgage on your main home.

2. To qualify, you must have used the debt to buy, build or substantially improve your principal residence. The residence must also secure the mortgage.

3. The maximum qualified debt that you can exclude under this exception is $2 million. The limit is $1 million for a married person who files a separate tax return.

4. You may be able to exclude from income the amount of mortgage debt reduced through mortgage restructuring. You may also be able to exclude mortgage debt cancelled in a foreclosure.

5. You may also qualify for the exclusion on a refinanced mortgage. This applies only if you used proceeds from the refinancing to buy, build or substantially improve your main home. The exclusion is limited to the amount of the old mortgage principal just before the refinancing.

6. Proceeds of refinanced mortgage debt used for other purposes do not qualify for the exclusion. For example, debt used to pay off credit card debt does not qualify. 

7. If you qualify, report the excluded debt on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Submit the completed form with your federal income tax return.

8. Other types of cancelled debt do not qualify for this special exclusion. This includes debt cancelled on second homes, rental and business property, credit cards or car loans. In some cases, other tax relief provisions may apply, such as debts discharged in certain bankruptcy proceedings. Form 982 provides more details about these provisions.

9. If your lender reduced or cancelled at least $600 of your mortgage debt, they normally send you a statement in January of the next year. Form 1099-C, Cancellation of Debt, shows the amount of cancelled debt and the fair market value of any foreclosed property.

10. Check your Form 1099-C for the cancelled debt amount shown in Box 2, and the value of your home shown in Box 7. Notify the lender immediately of any incorrect information so they can correct the form.

Use the Interactive Tax Assistant tool on IRS.gov to check if your cancelled debt is taxable. Also, see Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments. IRS forms and publications are available online at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Additional IRS Resources:

• Interactive Tax Assistant tool
• Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments
• Mortgage Forgiveness Debt Relief Act and Debt Cancellation
• Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness

VIA IRS Tax Tip Issue # 2013-31

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

Mint.com - Manage Your Finances and Savings Goals

I like to encourage all of my clients to take charge of their finances and become an active participant in their financial lives. While as an accountant I’m here to do your taxes and answer questions you have about savings goals, retirement or how to manage credit card debt unless you’re an active and informed participant in that conversation you won’t get anywhere.

I recommend mint.com for everyone as an easy and free way to get the bigger picture on your financial life. It offers tons of features and you can pick and choose which you use and which aren’t for you. From notifications about upcoming credit card and bill payments to alerts when a checking or savings account goes below a certain dollar value, Mint does it all. Set monthly, yearly and long term savings goals to keep the goals you set on track.

You can even track stock and other investments through your account as well as your debt whether it be credit card debt, school loans, a mortgage or your car loan.

While everyone’s finances are different, some simple and some more complicated, Mint is a great place to start when trying to make sense of everything or when you just want to have all your accounts, money and investments laid out in front of you all in one place. Especially as you prepare to file taxes this year, make a big financial decision or just to sound like you know what you’re talking about when you come meet with me. :)

Granada Hills Tax Professional Reviews Generation X, Y and Retirement

I recently read a great article about the need for the young generation (Generation X and Y) to save more money for retirement than their parents and grandparents generation.

As a father to a generation Y-er and uncle to generation x-er’s I know all too well how important it is to education these people on how to prepare for the future, even when retirement seems very far away.

The statistics in the article are sobering. “Fewer young people have access to generous retirement benefits, including traditional pensions and retiree health insurance. And anyone born in 1960 or later must wait an extra year, until age 67, to claim the full amount of Social Security they are entitled to”.

The article advises, and I agree, that members of generation X and Y should aim to save at least, if not more, than $2 million by retirement age. This of course includes social security and other pension benefits however every individual must calculate what those sums will be and make up for the difference in weekly, monthly and yearly personal savings (through IRA’s, personal savings accounts, etc).

Some tips to help reach retirement savings goals:
- Check with your employer about IRA matching. You can take some of the burden off yourself if your employer matches IRA contributions, lowering your monthly and yearly savings goals out of pocket.
- Set up a Roth IRA or 401K. The great thing about these accounts is your money can grow without paying taxes on the account balance. In most cases, if you wait to take out this money until age 59 ½ you won’t pay taxes on the growth. So start early!
- Do your best to get the most out of social security. Collecting too early will lower the monthly amount you receive, but waiting a few years can increase your monthly check.
- 65 is no longer “retirement” age. You have a long life expectancy! Plan to work longer and you will not only grow your retirement and set yourself up for an easier and more comfortable retirement, you will also maximize your payouts from social security, pensions, etc the longer you wait to retire.

The most important piece of advice is to sit down and really look at your budget sooner rather than later. Come up with a retirement plan, make long term decisions like paying off your mortgage before retirement to minimize retirement expenses, downsizing, etc. Envisioning the life you want after retirement will help put into perspective the money you need to save NOW in order to guarantee the lifestyle you want. It takes some work but once you understand how much you need to be saving each month you can set aside that money NOW and continue the habit until you retire. This will reduce tons of stress and worry from your life and you will be thankful when you are ready to retire that you have provided for yourself. (Same goes for planning college tuition for your kids! But that’s another post for another time).

Make an appointment and come discuss your retirement plans with me, Granada Hills Tax Accountant. We can set up a budget together, get advice on the right kind of retirement accounts for you and much more. And check out this great article on yahoo finance - http://finance.yahoo.com/retirement/article/113507/generation-y-2-million-dollar-retirement-usnews?mod=oneclick

I filed my tax return. Now what?

The IRS filing deadline for this year is Monday April 18, 2011. If you are on track to file on time, below is some information on what to expect after you file. 

 

Refund Information
You can go online to check the status of your 2010 refund 72 hours after IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after you mail a paper return. Be sure to have a copy of your 2010 tax return available because you will need to know your filing status, the first Social Security number shown on the return, and the exact whole-dollar amount of the refund. You have three options for checking on your refund:

·       Go to http://irs.gov and click on “Where’s My Refund”

·       Call 800-829-4477~24 hours a day, seven days a week, for automated refund information

·       Call 800-829-1954 during the hours shown in your tax form instructions

·       Use IRS2Go. If you have an Apple iPhone or iTouch or an Android device you can download an application to check the status of your refund.

You can also be in touch with me to assist you in tracking your refund status.

What Records Should I Keep?
Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRAs and business or rental property — should be kept longer.
You should keep copies of tax returns you have filed and the tax forms package as part of your records. They may be helpful in amending already filed returns or preparing future returns.

Change of Address
If you move after you filed your return, send Form 8822, Change of Address, to the Internal Revenue Service. If you are expecting a paper refund check, you should also file a change of address with the U.S. Postal Service.

If you are filing an extension, the above issues still apply to you both in tracking your refund once you file and amending and saving information pertinent to your tax return. Remember that if you filed or will soon file an extension for this year, your filing deadline is October 17, 2011.

I am here to answer any questions regarding procedures and expectations once you file your return. I am also available to file extensions on your behalf and prepare your taxes for the extension deadline in October. For more information, you can call 818-368-5374 or click Tax Preparation Porter Ranch