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http://www.LocThaiCPA.com ....................Email: LocThaiCPA@gmail.com
Friday, January 25, 2013
The Earned Income Tax Credit has made the lives of working people a little easier since 1975. EITC can be a boost for workers who earned $50,270 or less in 2012. Yet the IRS estimates that one out of five eligible taxpayers fails to claim their EITC each year. The IRS wants everyone who is eligible for the credit to get the credit that they’ve earned.
Here are the top five things the IRS wants you to know about this credit.
1. EITC is valuable. The EITC not only reduces the federal tax you owe, but could result in a refund. You base the amount of EITC on your earned income and the number of qualifying children in your household. The average credit was around $2,200 last year. If you qualify, the credit could be worth up to $5,891.
2. Review your eligibility. If your financial, marital or parental situations change from year to year, you should review the EITC eligibility rules. Just because you didn’t qualify last year doesn’t mean you won’t this year.
3. File your return. If you are eligible for the EITC, you must file a federal income tax return to claim the credit – even if you are not otherwise required to file. Remember to include Schedule EIC, Earned Income Credit, when you file your Form 1040. If you file Form 1040A, use the EIC worksheet and keep it for your records. If you use IRS e-file to prepare and file your tax return, the software will guide you and not let you forget this important step. E-file does the work and figures your EITC for you!
4. Know the qualifications. You should understand the qualifications for EITC before claiming it, including:
- You do not qualify for EITC if your tax filing status is Married Filing Separately.
- You must have a valid Social Security number for yourself, your spouse – if filing a joint tax return – and any qualifying child listed on Schedule EIC.
- You must have earned income. You have earned income if you are paid wages, you are self-employed, you have income from farming or you receive disability income.
- Married couples and single people without children may qualify. If you do not have qualifying children, you must also meet age and residency requirements as well as dependency rules.
- Special rules apply to members of the U.S. Armed Forces in combat zones. Members of the military can elect to include their nontaxable combat pay as earned income for the purpose of computing the EITC. Even if you make this choice, your combat pay will remain nontaxable.
5. Use the EITC Assistant. It’s easy to determine if you qualify. The EITC Assistant, a helpful tool available on IRS.gov, removes the guesswork from eligibility rules. Just answer a few simple questions to find out if you qualify and to estimate the amount of your EITC.
With IRS Free File, you can claim EITC by using brand name tax preparation software to prepare and e-file your tax return for free. It's available exclusively at IRS.gov/freefile. Free help preparing your return to claim your EITC is also available at one of thousands of Volunteer Income Tax Assistance sites around the country. To find the volunteer site nearest to you, use the VITA locator tool on IRS.gov.
For more information about the EITC, see IRS Publication 596, Earned Income Credit. It’s available in English and Spanish on IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Friday, January 11, 2013
WASHINGTON — The Internal Revenue Service announced today annual inflation adjustments for tax year 2013, including the tax rate schedules, and other tax changes from the recently passed American Taxpayer Relief Act of 2012.
The tax items for 2013 of greatest interest to most taxpayers include the following changes.
* Beginning in tax year 2013 (generally for tax returns filed in 2014), a new tax rate of 39.6 percent has been added for individuals whose income exceeds $400,000 ($450,000 for married taxpayers filing a joint return). The other marginal rates — 10, 15, 25, 28, 33 and 35 percent — remain the same as in prior years. The guidance contains the taxable income thresholds for each of the marginal rates.
* The standard deduction rises to $6,100 ($12,200 for married couples filing jointly), up from $5,950 ($11,900 for married couples filing jointly) for tax year 2012.
* The American Taxpayer Relief Act of 2012 added a limitation for itemized deductions claimed on 2013 returns of individuals with incomes of $250,000 or more ($300,000 for married couples filing jointly).
* The personal exemption rises to $3,900, up from the 2012 exemption of $3,800. However beginning in 2013, the exemption is subject to a phase-out that begins with adjusted gross incomes of $250,000 ($300,000 for married couples filing jointly). It phases out completely at $372,500 ($422,500 for married couples filing jointly.)
* The Alternative Minimum Tax exemption amount for tax year 2013 is $51,900 ($80,800, for married couples filing jointly), set by the American Taxpayer Relief Act of 2012, which indexes future amounts for inflation. The 2012 exemption amount was $50,600 ($78,750 for married couples filing jointly).
* The maximum Earned Income Credit amount is $6,044 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $5,891 for tax year 2012.
* Estates of decedents who die during 2013 have a basic exclusion amount of $5,250,000, up from a total of $5,120,000 for estates of decedents who died in 2012.
* For tax year 2013, the monthly limitation regarding the aggregate fringe benefit exclusion amount for transit passes and transportation in a commuter highway vehicle is $245, up from $240 for tax year 2012 (the legislation provided a retroactive increase from the $125 limit that had been in place).
Details on these inflation adjustments and others are contained in Revenue Procedure 2013-15, which will be published in Internal Revenue Bulletin 2013-5 on Jan.28, 2013. Other inflation adjusted items were published in October 2012 in Revenue Procedure 2012-41.
Wednesday, January 9, 2013
It is very important to be aware of potential red flags and act on them before the IRS does:
• Classifying Employees as Independent Contractors – Independent contractors and employees are not the same, and it's important to understand the difference. In the eyes of the IRS, misclassification can be seen as an attempt to avoid payroll taxes, and non-compliance can bring penalties and back taxes.
• Home Office Deduction – This deduction is very specific and not all home-based businesses will qualify. Likewise, if you run your business from a commercial location and claim the home office deduction, you might trigger some interest from the IRS. Know how to determine if you are eligible to claim it, and what specific expenses you can write off.
• Large Sum Miscellaneous Deductions – If you claim a large amount of itemized deductions relative to your income, the IRS will get suspicious. Likewise, if you bucket a large amount of miscellaneous expenses, you may raise eyebrows. Be specific and label every deduction.
• Keep Business and Personal Expenses Separate
The IRS scrutinizes personal expenses that may have been claimed as a business expense, such as the use of a business vehicle for personal use. Be diligent about keeping good records. Maintain a separate bank and credit card account for your business.