Three tax breaks for new parents

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Parenting is extremely rewarding, but it can also be very expensive. According to the Department of Agriculture, a middle-income family with a child born in 2013 can expect to spend approximately $245,430 to raise him or her to the age of 18. The amount covers food, shelter, childcare, and general education, but it does not cover college.

Thankfully, there are several tax breaks available that can soften the financial impact of having children. The following are three examples.

1. Dependency exemption

Declaring a child as a dependent entitles a parent to a tax exemption of $3,950. This means that $3,950 of the parent's income will not be taxed. This exemption is given to help parents cover the child's basic needs until he or she turns 19. The amount of money saved depends on the tax bracket to which the child's parents belong. However, only one parent can claim a child as a dependent.

2. Child tax credit

Parents can reduce their federal income taxes by up to $1,000 for each qualifying minor child every year until the child turns 17. However, the credit begins to phase out once the parents' gross income is above a certain amount. Married couples filing jointly can claim the full credit if their income is under $110,000. For married couples filing separately, the phaseout starts at $55,000. All other tax payers, including single parents, can take the full credit if their income is $75,000 or below. The credit will be reduced by $50 for every $1,000 that exceeds income limits.

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3. Adoption credit

For adoptions finalized in 2014, the amount of the tax credit is up to $13,190 for each adopted child. Adoptive parents can claim a credit based on their qualified adoption expenses. Qualified expenses include adoption fees and court costs.

If the expenses do not reach $13,190, they can only claim the amount that was actually spent. For expenses that go beyond $13,190, the maximum credit is $13,190 for each adopted child. Adoptive parents of a child with special needs, however, can claim the full amount without documenting expenses.

To learn more about tax credits and exemptions for having children and the qualification requirements, parents should speak with a knowledgeable tax adviser or consultant.

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REPOST: Don't want to file your taxes? Get ready to pay ... a lot

While some people choose to delay important tasks like filing taxes, there are those who simply forget to file before the April 15th deadline, or just avoid doing so. This article explains how avoiding your annual tax return obligations can do more harm than good.

Looking for ways to cut your tax bill? Here's an easy one: Just file your federal tax return by April 15. | Image Source: money.cnn.com

If you expect to owe money to the IRS, and you either don't want to or just can't afford to write that check by the deadline, file your 1040 anyway. Or at least file for an automatic six-month extension.

Otherwise, you will end up paying a failure-to-file penalty worth up to 25% of what you owe in the first place.

And that's before counting the failure-to-pay penalty and interest.

Both penalties would kick in on April 16.

For the first year, the biggest hit to your wallet will be that failure-to-file penalty, which amounts to 5% of the tax owed every month -- or part of a month -- for five months, capping out at 25%.

The failure-to-pay penalty is also capped at 25% of the tax you owe, but it accrues more slowly -- at 0.5% a month for 50 months.

But when both penalties apply in the same month, the combined maximum will be 5%, instead of 5.5%.

Former IRS attorneys Deborah and Garrett Gregory, co-authors of the upcoming book "An Insider's Guide to Fighting the IRS," crunched some numbers to show just how expensive sticking your head in the sand can be.

Say you owe an additional $5,000 on your 2014 tax return. But you don't get around to filing that return until Jan. 1, 2016 -- eight-and-a-half months after the deadline.

You'll ring in the new year owing an additional $1,125 in failure-to-file penalties alone.

On top of that, you would owe $225 for failure-to-pay penalties, plus $133 in interest.

Your grand total: $6,483, or 30% more than you owed in the first place.


If you do apply for a 6-month extension, you will avoid the failure-to-file penalty for those six months. And you might also avoid the late payment penalty if you have already paid 90% of the taxes you owed for the year by April 15. You will, however, still owe interest on your remaining tax debt until it's paid off.

The only way to steer clear of that is to actually pay what you owe by April 15.

Of course, like a lot of Americans, you may not expect to owe any more money on April 15 or may even be due a refund. Filing may be a pain, but do it anyway. Or at least file for an extension.

Why? First, let's say your assumption that you won't owe anything is wrong and it turns out you do owe money. If you don't file, you'll get hit with all of the above penalties plus interest.

Second, even if you're right and you're owed a refund, if you wait too long to file, you may lose it.
"You have 3 years to claim that refund. So you have to file your 2014 income tax return by April 15, 2018 or else you will be 'time barred' from claiming your refund," the Gregorys noted.

Wall and Associates help clients solve various tax problems and issues. Like this Google+ page for more related resources for handling one’s tax responsibilities.

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Additional options for lowering 2014 taxes

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This is another reminder to begin preparations for filing 2014 tax returns. Whether one made some tax moves before the previous year ended or not, there could still be some time to lower the taxes one owes for 2014. Here are a few suggestions on the options available to taxpayers:

The self-employed can take a deduction for their contributions to their retirement plan. It’s a particularly valuable deduction because it is claimed as an adjustment to income on form 1040, line 28. However, this deduction is only available if the taxpayer had already established the SE 401(k) plan and the account before the year-end.

Otherwise, taxpayers can instead make a contribution to an IRA. This option is available until April 15 and if one qualifies for it, it can be claimed as an adjustment to income and can be used to increase other tax credits.

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Additionally, individuals who have enrolled in a high-deductible health insurance plan can make tax-deductible contributions to a health savings account. Like contributions to an IRA, this option is available until April 15 and can be claimed as an adjustment to income. Those who take this option will also need to include a completed Form 8889.

There are other common deductions that many people overlook when filing for tax returns. These include job search costs, mortgage costs, and lifetime learning credit, among others.

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Wall and Associates is one of the leading professional tax representation and negotiation firms in the country. For more resources about filing taxes correctly, visit this Google+ page.

REPOST: Tax returns to change with Affordable Care Act

Filing tax returns can be a tough and tedious task, and with the Affordable Care Act added in the picture, there could be even more confusion. Read the article below to know more about these changes.

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Filing tax returns will be different this year due to the onset of the Affordable Care Act, officials from the U.S. Department of Health and Human Services announced Thursday.

Tax filers who had health insurance in 2014 through work or an unsubsidized policy will check a box on their tax returns indicating they had coverage, said Treasury Secretary Jacob Lew.

But those who did not have health insurance or received a subsidy will be required to go further, Lew said in a news release from DHHS. “A fraction of taxpayers will take different steps, like claiming an exemption if they could not afford insurance or ensuring they received the correct amount of financial assistance,” he said. “A smaller fraction of taxpayers will pay a fee if they made a choice to not obtain coverage they could afford.”

Those with Marketplace coverage will receive a 1095-A form that will be used “to reconcile their upfront financial assistance,” the news release said. Over the next few weeks, government agencies will release various “consumer-friendly tools and resources” for tax payers who have health coverage through the Marketplaces, those seeking an exemption and those looking for information about the fee for those who could afford to purchase health coverage but chose not to, the news release said.

Some resources can already be found at www.IRS.gov/ACA, or www.healthcare.gov/taxes/.

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In addition, the government also will contact Marketplace enrollees directly through email, phone and text messages, the news release said.

“We will focus on providing targeted messaging to consumers who benefitted from an advanced premium tax credit last year to help them offset the cost of their Marketplace premiums,” the news release said.

The department also will work with community organizations and non-profits to provide assistance and resources and will form partnerships with top tax preparers to provide consumers with information.

Wall and Associates Inc helps businesses and individuals find solutions for settling outstanding taxes. For more information about filing tax returns, visit this blog.

Making tax debt payments more manageable

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What does a person upon the discovery of actually owing more income tax than he or she can immediately pay? Similarly, what options are available to a person who has accumulated a significant amount in back taxes?

Suddenly finding out issues in tax payments can take the wind out of anyone, especially if it adds to one’s financial burdens. It can be challenging enough to make ends meet during difficult times. Having problems with the IRS can lead to further financial complications that are best avoided.

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Fortunately, the IRS understands that income tax and back taxes can be a severe burden on taxpayers, which is why it instituted a program to allow for payments in monthly installments rather than a punitive lump sum.

To apply for an installment agreement, the taxpayer must submit the IRS Form 9465. If the total debt is less than $25,000 in taxes, penalties, and interest, the taxpayer can then complete an online payment agreement instead. Otherwise, he or she must submit a Form 433-F along with the Form 9465. The IRS will usually respond to the application within 30 days.

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Once granted, the taxpayer will get the time needed to pay the tax liabilities. As long as the terms of the agreement are honored and the taxpayer makes the payments on time, then any collection efforts by the IRS or other collection agencies will stop. However, it is also important to remember that the IRS will still apply interest and penalties to the unpaid balance until it is fully paid.

Wall and Associates Inc. helps taxpayers find solutions to many IRS tax problems. To find more information on tax payments issues, visit this website.

Managing tax disagreements with the IRS

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There are times when disagreements between the IRS and taxpayers arise. It is for these cases that the IRS Office of Appeals was created. With the appeals system in place, it is possible to resolve many issues without relying on a court of law.

The appeals system applies to taxpayers who: have received a letter from the IRS explaining their right to appeal the IRS’s decision, do not agree with the IRS’s decision, or are not signing the agreement form that was sent to them.

In appealing tax matters, only the current laws apply. The process and provisions may be confusing, which is why taxpayers with tax agreements are advised to seek the services of a qualified tax consultant for advice and representation in order to get the compromise that they want.

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If a taxpayer’s case qualifies for an appeal, the IRS Appeals Office will review the issues of the case with a fresh perspective and schedule a conference with the taxpayer. The conferences may be conducted through correspondence, via telephone, or in person. Many disagreements are often settled in conferences, making expensive and time-consuming court trials unnecessary. The Appeals Office will consider any valid reason for disagreement, save for moral, religious, political, constitutional, conscientious objection, or similar grounds.

When appealing an audit or tax decision, however, the services of a qualified tax consultant may mean the difference between a failed appeal and a successful one.

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Wall and Associates Inc. is a leading tax negotiation and representation firm. For more resources about the IRS appeals process, visit this Google+ page.

A primer on unfiled tax returns

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An unfiled tax return is the set of documents that detail the unstated tax from an individual or business. In most cases, unfiled tax returns can span a number of years and can often culminate in the Internal Revenue Service (IRS) taking legal action against the specific individual or company. Often, most taxpayers state that they did not file their tax returns because: a) they did not know how to start and b) they missed one year and are now afraid to file another one in fear of the repercussions. This creates a vicious cycle and it is the taxpayer, not the IRS, who suffers the most.

The IRS has a program called the Substitute for Return that files the tax for companies or individuals that fail to file a tax return. This program files a default tax return which (almost always) leaves the taxpayer owing money to the federal government. This is because the IRS does not take into account the intricacies of taxpaying, such as deductions and exemptions, and files the tax return as is. In these cases, the taxpayer may find himself owing money and requiring to pay his unstated tax.

 

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Not filing a tax return is considered a crime, but this can also result into a deep financial problem in the future. A business will be on public record as an establishment with poor credit, while an individual may not be fully entitled to some government-sponsored benefits and may not be able to apply for a loan in the future. Additionally, the IRS may decide to compound the interest to the tax debt of non-filers. At maximum, this can reach an astonishing 47.5 percent. When this happens, the taxpayer needs to find representation in order to properly dispute any case the IRS may file. To avoid this, it is wise to have a tax negotiation firm handle all the financial aspects of the business.

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Wall and Associates Inc. is a leading tax negotiation and representation firm. Learn more about tax filing by visiting this Google Plus page.