Have you recently realized that you made a mistake on a prior years tax return? No need to worry, you can go ahead and file an amended return. Usually the IRS will catch mistakes such as math errors or missing forms like W-2’s or 1099’s, but you should go ahead and file an amended return in the case of any of the following:
A change in filing status
A change in dependents
A change in total income
A change in deductions or credits
To amend a tax return you use for 1040X and fill in the appropriate year at the top of the form. If you are amending more than one year, they must be done on separate forms. You should indicate the changes in the columns on the 1040X and attached any forms or schedules that show the changes.
If you are filing to receive an additional refund, you should wait until after you have received the original refund before filing the amended return. If you are filing an amended return that shows additional tax due, then send in the 1040X and additional payment as soon as possible to avoid penalties.
Generally you must file form 1040X within 3 years from the date you filed your original return or within two years from the date you paid the tax, whichever is later, in order to claim a refund.
If this all seems overwhelming, then you should consult your tax adivisor for help before filing your return.
When you refinance your home you may be eligible to deduct some of the costs associated with your loans.
One of these costs are “points”. “Points” is used to describe some of the charges you incur to obtain your mortgage. Taxpayers who itemize may be able to deduct the points paid as mortgage interest. However, when points paid are only for a refinance then they must be deducted over the life of the loan. There is an exception to this rule. If the refinanced mortgage money was used to finance improvements to the home, then they may be fully deductible in the year the points were paid.
The other closing costs paid when refinancing (i.e. appraisal fees, etc) are not deductible.
If you are refinancing your home and need help with what is deductible then please contact us for additional help. www.huddlestontax.com
When going to sell your home many people wonder if the profit they make off of the sale will be taxable or not. The answer is sometimes yes and sometimes no.
Generally the profit you make off of selling your home is considered a capital gain and taxed at capital gains rates. However, there are exceptions to this. There is tax law that sometimes allows you to exclude a portion or even all of your gain making it non-taxable.
Indivduals may be able to exclude up to $250,000 of capital gains on their home sales ($500,000 for married filing joint). This exclusion may be claimed each time you sell your main home but generally not more often then every two years.
To qualify, you must meet both the ownership and use tests.
• Ownership Test: During the 5-year period ending on the date of the sale, you must have owned the home for at least 2 years.
• Use Test: During the 5-year period ending on the date of the sale, you must have lived in the home as your main home at least 2 years.
If you and your spouse file a joint return and both meet the use test, you normally will be able to claim the exclusion for married couples even if only one of you meets the ownership test.
If you do not meet these tests you may still be able to exclude at least part of your capital gains, but the circumstances must be related to health problems, job reclation or other unforseen distasters. If you think you may qualify to at least a partial exclusion but do not meet the above tests then it is best to consulting your tax advisor.
If you would like more information on home sale exclusions or need help figuring out your home sale gain then please contact us at john@huddlestontax.com or visit our website at www.huddlestontax.com.
The IRS announced on October 16, 2008 the new personal expetion and standard deduction amounts for 2009. This will rise and tax brackets will widen because of inflation adjustments.
The key changes that will affect 2009 tax returns include the following:
* The new personal and dependency expemption amounts will be $3,650, up $150 from 2008.
* The new standard decution for married coupoles is $11,400 for a joint return. This is up $500. For singles and married filing separately it will be $5,700, up $250. For heads of household it will be $8,350 for heads of household, up $350.
* The tax-bracket thresholds will also be increasing for each filing status.
* The maximum earned income tax credit for low and moderate income workers and working families with two or more children is $5,028, up from $4,824. The income limit for the credit for joint return filers with two or more children is $43,415, up from $41,646.
* The annual gift exclusion is also up for 2009. It will be $13,000, up from $12,000 in 2008.
I just published a new lens at squidoo on Saving Taxes with S Corporations. While it’s not for everyone, there could be significant savings on self employment tax. The Squidoo lens goes through an example of a business owner with the same income under all the different entity types (S Corporation, C Corporation, Sole Proprietorship, LLC, Partnerships). If you want to check it out, here it is: Saving Taxes with an S Corporation
S corporations and limited liability companies. I will be holding a bisnick event on September 18th that will explain the difference between the various entities and the potential tax savings available in S corporations, LLC’s, C corporations and sole proprietors. listen
Single member limited liability companies (LLC) are ignored for federal tax purpose. Thus you will be taxed as a sole proprietor. Adding a limited liability company, however. will offer liability protection. This can be important. You have the simplicity of a sole proprietor but the liability protection of a corporation. If liability is an issue at all, and you don’t have sufficient tax reasons to incorporate, the limited liability company (LLC) is for you.
Since you are treated as a sole proprietor for federal tax purposes, all your income is subject to self employment tax. Self employment tax is 15.3% up to the wage base. The wage base is $102,000 for 2008 (it’s adjusted for inflation). After your net income reaches the wage base, you will pay self employment tax of 2.3% for all net business income that is above the wage base. Self employment tax can be more than your income tax. If your income is significant, you may want to reduce your self employment tax. This can be done with an S Corporation. See my article, Entity Choice (Saving Tax with S Corporations)
Estimated tax payments, as mentioned in my previous post, can be paid based on your current years tax obligation. If using this method, you need to make tax payments equal to 90% of your current years tax obligation. If most of your income comes at the end of the year, you can annualized your income (make smaller tax deposit early in the year, large later) and thereby avoid a penalty.
More on estimated tax payments: You can still end up with a penalty, even if you pay 100% of your estimated tax payment, if you pay it late in the year. Unlike estimated tax payments, withholding is treated as payed evenly throughout the year, even if you significantly increase your withholding at the very end of the year. If you missed estimated tax payments early in the year, consider increasing your withholding rather then increasing subsequent estimated tax payments. listen
Estimated tax payments that are based on the prior years tax obligation can be 100% of your prior years tax obligation, if last year’s adjusted gross income was less than a $150,000. If your adjusted gross income was more than a $150,000 percent(?) your estimated tax payments need to be 110% of your prior years tax obligation. listen
