Quick ways to reduce your 2010 tax liability

Although there are precious few days left in the year, it is still not too late to cut your 2010 tax bill. But you may have to move fast. Here are ten prime tax-saving ideas to consider.

1. Capital gains and losses: If you are showing a net capital gain for the year, you may realize losses from security sales to offset the gain, plus up to $3,000 of ordinary income. Conversely, if you are showing a net loss, any gains are tax-free up to the amount of the loss. Reminder: The maximum tax rate on net long-term capital gain in 2010 is 15%.

2. Charitable donations: If you give to charity via credit card, the gift is deductible in 2010 as long as it is posted by the credit card company before the end of the year. It does not matter if you actually payoff the charge in 2011. Make sure that all charitable donations are properly substantiated.

3. State and local taxes: If you prepay next year’s state and local taxes, you can increase your current deduction. However, do not prepay if you expect to owe the alternative minimum tax (AMT) this year, because these taxes are not deductible for AMT purposes.

4. Dependency exemptions: If your child is younger than 19, or a full-time student younger than 24, you can generally claim a $3,650 dependency exemption for the child if you provide more than half of his or her support. You might give some end-of-year support-perhaps a generous holiday gift-to push you over the threshold.

5. Medical expenses: Medical expenses are deductible to the extent your annual total exceeds 7.5% of your adjusted gross income (AGI). If you have cleared this threshold in 2010, you can schedule routine medical or dental examinations for December. Otherwise, you might postpone these visits.

6. Miscellaneous expenses: Similarly, you can deduct miscellaneous expenses only to the extent the annual total exceeds 2% of your AGI. Therefore, you might pay certain expenses-like safe deposit box fees or tax advisory fees-to maximize your deduction for 2010.7. Energy credits: The tax law provides a residential energy credit for certain energy-saving installations made in 2010. If you qualify, you can claim a 30% credit up to $1,500 this year (reduced by the amount of the credit claimed in 2009).

8. 401(k) contributions: There is still time to boost your retirement nest egg by allocating part of your last paycheck to your 40 1 (k) account. If you have cleared the Social Security wage base of $106,800 for 2010, you can use the payroll tax savings without reducing your take-home pay.

9. Hybrid vehicles: If you are in the market for a hybrid vehicle, make your purchase before 2011. You may be entitled to a special tax credit. Caveat: Credits are phased out for several popular models.

10. Mutual funds: Generally, it is beneficial to sell mutual fund shares before the fund declares dividends (the ex-dividend date) to avoid tax. Similarly, you may acquire shares after the ex-dividend date has passed.

Depending on changes in the tax law, you might bypass some of these ideas. Of course, everyone’s situation is different. Obtain professional assistance in this area before you take any action.

“Your power is proportional to your ability to relax.”

— David Allen: Productivity consultant, author, and lecturer

This season, more than any other, seems to be the season for getting ready for the next season. We’re getting ready for winter at the same time we’re getting ready for Halloween at the same time we’re getting ready for the holidays at the same time we’re making our New Year’s resolutions at the same time we’re getting ready to close out the financial year and file taxes. This doesn’t even include all the things for which we have to prepare as individuals. Maybe a birthday, anniversary, or a child in a school presentation. Makes us tired just thinking about it all.

What’s the alternative? We all know that planning is important. Motivational author Robert Stuberg paints a clear picture when he says, “Goals give you the power to predict your own future.” That sure makes sense. And it’s probably right too. In fact the advice is so powerful it distracts us from two important questions: “Where is the future, and who lives there?” The answers are instructive: “Nowhere,” and “No one.”

So what’s the point? The point is that we are often so concerned about the future that we neglect the present. Sure, we need to plan ahead. That is undeniable. See someone who is not planning ahead and you are looking at a calamity waiting to happen. We just have to stop planning ahead too. We have to do both. At the same time. We need to plan ahead and we need to be fully present all the time, when we’re planning and when we are executing. Otherwise our plan will be incomplete and our execution will suffer. What’s more, we get worn out because in our thoughts we are always working over what we have to do next, never enjoying the task or giving ourselves credit for the accomplishment.

What then, are we to do? Work your plan. Get the gutters cleaned and stock up on de-icer for the walk. Simply put all of your attention into what you are doing. Driving to the store to get batteries for the CO or smoke detectors because turning back the clock is a traditional reminder to replace them? Put your attention into driving to the store, not what type of batteries you are going to purchase. The time to think about batteries is when you are standing in front of the display. Until then, just be in the drivers’ seat devoting your awareness to the task of driving.

And remember too that we need to take breaks. Our bodies and our minds need them. As counterintuitive as it is, we actually are more productive when we include frequent breaks. We don’t just feel like we are doing more, its been proven we actually have more output when we rest for as much as a third of every hour. Can’t take a break for five minutes out of every fifteen? Prepare to set aside real down time when the only thing you are doing, physically and mentally, is being here and now. Investing in your present will ensure a brighter present . . . later on.

All property owners or managers run into common or not so common questions every day. It could be accounting questions

January 2010 – Dan Setters – “Stop Taxes from Depreciating You”

February 2010 – “Bringing Focus to the FOCUS” C.I.A.A. FOCUS Blog is born with Real Design Graphics leading the path

March 2010 – New Property Purchasing – Russ Taylor, Carol Hickey & Bobbi Gordon – Realtors panel

April 2010 – Jeffery Taylor (Mr. Landlord) gave all property owners new and fresh ideas on attracting, and keeping tenants

May 2010 – Landlordlocks.com showed us a new way to solve our age old lock problems.

June & July 2010 – Inspect the Inspectors of Champaign & Urbana – many of your questions were answered. Each city staff attended.

What topic would you like to know more about?

That is the question the Education Committee would like to know! We are asking for your opinion on informative topics for a speaker at the monthly C.I.A.A. Member Meetings.

Education Committee’s current ideas are:

Lead Base Paint – How the new laws pertain to property owners

Champaign Circuit Court Judge – Evictions, Lease information

Attorney – Lease Addendums, Eviction Law

October – Invite local candidates competing in the November Elections

We have more ideas but what you would like to know more about is why we are here. Think of the questions, situations, or problems that you have run across and you might just have a topic. And more than likely your fellow property owners would like to hear about that topic too. Thank you for reading and we look forward to hearing from you.

Another summer is whirling by and I hope you’ve all had the opportunity to enjoy it in some way, whether through vacationing, warm-weather activities, or simply relaxing!

As we’re nearing the end of July, one thing to keep in mind is that you have until September 10th to appeal your property tax assessment here in Champaign County. If you own a home here, you’ve likely noticed that those assessed values just keep going up! Your assessment may or may not be accurate, and if it’s not, you could be paying more in taxes than necessary. In other words, you could have more money in your pocket for next summer’s vacation:-)

Here’s a link to an article I put together on how to appeal your property taxes, as a starting point. If anyone needs comparable sales information to take to the Board of Appeals, let me know and I’d be happy to help out. And, of course, if you have questions, please do get in touch with me.

Wishing you a fun-filled summer!

All my best,
Shannon

–

Shannon Lewis

Prudential Landmark Real Estate
100 Trade Centre Dr., Suite 102
Champaign, IL 61820
217.552.8059
Your Champaign Home Blog
Search Homes for Sale

While the tax filing deadline is more than three months away, it always seems to be here before you know it. Here are the Internal Revenue Service’s top 10 tips that will help your tax filing process run smoother than ever this year.

(Continued from Part 1)

6. Consider Direct Deposit. If you elect to have your refund directly deposited into your bank account, you’ll receive it faster than waiting for a paper check. [Electronic filing with DirectDerposit is safe, secure and quite quick to receive your refund - as little as 10 days for the deposit to occur. Direct Draft for balance due on April 15th is equally encouraged and secure, regardless of when the return is electronically filed. Illinois also supports both options and is quicker to deposit than the federal refunds, in spite of the Illinois financial situation. Paper refunds are delayed due to funds.]

7. Visit IRS.gov again and again. The official IRS Web site is a great place to find everything you’ll need to file your tax return: forms, tips, answers to frequently asked questions and updates on tax law changes. [While this web site is a great resource, you'll need to know the jargon to navigate it quickly.]

8. Remember this number: 17.  Check out Publication 17, Your Federal Income Tax on IRS.gov. It’s a comprehensive collection of information for taxpayers highlighting everything you’ll need to know when filing your return. [Copies of Pub 17 are available at the Champaign Public Library - a great new facility and full of resources.]

9. Review! Review! Review! Don’t rush. We all make mistakes when we rush. Mistakes will slow down the processing of your return. Be sure to double-check all the Social Security Numbers and math calculations on your return as these are the most common errors made by taxpayers. [Paid preparers are advised to NEVER finish the return with the taxpayer present, in one visit, but to have the return reviewed prior to being given to the filer or the return electronically filed.]

10. Don’t panic! If you run into a problem, remember the IRS is here to help. Try IRS.gov or call our customer service number at 800-829-1040. ["I'm from the IRS, I'm here to help." - Enrolled Agents, Certified Public Accountants and many local Attorneys are licensed to practice before the IRS and will assist area filers with personal attention and a local presence. Ethical compliance is a mandate and paid preparers are required to sign your prepared return. Ask your preparer for his/her qualifications before you encounter a problem. The new IRS tax preparer regulations do not take effect until later this year, so under penalty of perjury the responsibility of filing an accurate return remains your responsibility, now and thereafter.]

Q: Do my minor children have to file tax returns if they had earned income, or can I just include their income on my return?

A: You can’t include a dependent’s earned income on your tax return. If it was unearned income, from interest, dividends, or other investments, you might be able to depending  on the amounts involved.

That means a minor child with employment income can file their own tax return. (This assumes that somebody somewhere is claiming that child as a dependent.) The minor may not be required to file a tax return, but they always can if they want to.

Minor dependents must file a return if their earned income in 2009 was more than $5,700. That’s the amount of the standard deduction. Income above that amount could be taxed, so they must file.

But even if minor dependents earned less than $5,700 in 2009, and don’t have to file a tax return, they should if any tax was withheld from their wages. With income under $5,700, their tax should be zero, so any withheld tax is a tax overpayment that can be refunded. But if they don’t file, they won’t get a refund.

The IRS collects tax on our adjusted gross income. Before the adjustments from standard and itemized deductions, gross income is, according to the IRS, “all income from whatever source derived.”

The two broadest categories of income are earned and unearned. In addition to requiring minor dependents to file a tax return if their earned income exceeds $5,700, the IRS also requires those minors to file if their unearned income exceeds $950. It would take a sizable savings account to generate $950 in interest, but there are certainly ways for CDs, dividends from stocks, and other investment income to exceed that threshold.

One other category of mandatory filers is minor dependents with net earnings from self-employment of at least $400.

Although parents can’t include a minor child’s earned income on the parent’s tax return, they can include some interest, dividend, or investment income. A child’s unearned income, then, is the only kind of income parents can include on their own tax return. And then, there are limits.

If interest and dividends are the minor dependent’s only income, and the total is less than $9,500, a parent can elect to include it on their own tax return. They use Form 8814.

The first $1,900 of a minor’s (under 18) unearned income is taxed at the child’s rate. Above $1,900, no matter whose return the income is reported on, a minor’s interest and dividend income is taxed at the parent’s rate. That prevents parents from creating tax shelters by putting accounts in their kids’ names, so that the income is taxed at the presumably lower kids’ rate.

Minors who file their own tax returns—because they’re required to file, or because they choose to file to get a refund—can sign their own names to the return. Parents aren’t usually entitled to information from the IRS about their minor children, although a child can authorize the IRS to disclose information, or even designate a parent as their representative to deal with the IRS.

While the tax filing deadline is more than three months away, it always seems to be here before you know it. Here are the Internal Revenue Service’s top 10 tips that will help your tax filing process run smoother than ever this year.

1. Start gathering your records Round up any documents or forms you’ll need when filing your taxes: receipts, canceled checks and other documents that support an item of income or a deduction you’re taking on your return. [Written records to be retained for three years after filing is important.]

2. Be on the lookout W-2s and 1099s will be coming soon from your employer; you’ll need these to file your tax return. [W-2's, 1099's and any IRS reported information needs to be cross checked by matching with those documents to avoid refund delays or subsequent IRS correspondence.]

3. Try e-file When you file electronically, the software will handle the math calculations for you. If you use direct deposit, you will get your refund in about half the time it takes when you file a paper return. E-file is now the way the majority of returns are filed. In fact, last year, 2 out of 3 taxpayers used e-file. [Congress has mandated that 80% of all returns be e-filed by 2012. Paid preparers who submit 10 or more returns are being mandated to e-file as well, by statute nor IRS regulatlion.]

4. Check out Free File If your income is $57,000 or less you may be eligible for free tax preparation software and free electronic filing. The IRS partners with 20 tax software companies to create this free service. Free File is for the cost conscious taxpayer who wants reliable question-and-answer software to help them prepare a return. Visit IRS.gov to learn more. [Many governmental resources are being channeled into enabling free filing. [Many paid preparers are thriving on the free filing process by cleaning up the IRS correspondence directed to self prepared returns - the Code is extensive and at times apparently contradictory. Filers get what they pay for.]

5. Consider other filing options There are many different options for filing your tax return. You can prepare it yourself or go to a tax preparer. You may be eligible for free face-to-face help at an IRS office or volunteer site. Give yourself time to weigh all the different options and find the one that best suits your needs. [Paid preparers are guided to ask many more questions, seek more supporting documents and to facilitate taxpayer compliance while maximizing the refund potential or minimizing a balance due.]

Stay tuned for 5 more tips next month!