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• Intuit TurboTax CPA Select

  Save time and reduce filing errors through TurboTax’s CPA select program. Draft your CPA online from a roster of qualified professionals, each able to prepare and file one’s individual federal and state income tax returns. Tax documents may be uploaded or sent to CPAs as photos via smartphone, and filers can connect with their selected tax professionals through a phone call or secure email. Various plans help ensure users only pay for the level of service needed for their returns, with more advanced plans covering elements such as deductions for charity, stock transactions, and the pair of cyborg arms you got installed so you can type faster.
  

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More Good Reasons to Get a Tax Extension

Laura Saunders for the Wall St. Journal writes: As explained in the most recent Weekend Investor cover story, “Last-Minute Tax Tips,”  Uncle Sam offers a six-month filing extension to individual taxpayers who file Form 4868 by April 15. It’s not an extension to pay taxes—those are due April 15—but it gives taxpayers more time to finish their return.  This year the extension runs through Oct. 15. 

The story noted four good reasons to file for an extension: incomplete investment records; lack of a letter confirming a charitable contribution; desire to reverse a Roth IRA conversion without filing an amended return; and a busy schedule.

Ed Mendlowitz, a CPA at WithumSmith+Brown in New Brunswick, N.J., offers several more good reasons some people will want to get an extension.

• Tax litigation is pending, and reporting certain transactions might tip one’s hand to the IRS. 
• There hasn’t been time to research the cost basis of securities sold in 2012.
• You’re considering whether to open or fund a SEP IRA pension plan. An extension will give you until Oct. 15 to make the decision. For Keogh, 401(k) or Simple plans, the contribution can be made by Oct. 15—but the Keogh and 401(k) must have been set up by last Dec. 31. The Simple plan must have been set up by Sept. 30, 2012.
• You didn’t file last year’s return and fear that filing this year’s return will attract attention from the IRS. Extending the deadline allows more time to get both returns filed.
• You did an installment sale in 2012 and want to wait as long as possible in 2013 to elect out of it—because the 2012 tax rates on capital gains were much lower than the 2013 rates. People with 2012 installment-sale gains that can be carried over into 2013 might want to keep the installment sale if they expect to have 2013 losses that can shelter these gains.
• You have losses that can be carried back to prior years, and you want to see whether it makes sense to forgo the carryback and use the losses in the future.
• You want to delay elections that are required the first time a transaction is reported.
• The extension is for a gift-tax return where not all the issues are clear, such as for generation-skipping elections and spousal consents–or perhaps cost-basis information isn’t available or discount valuations aren’t complete.

One final tip: Mendlowitz advises people paying estimated taxes to include their 2013 first-quarter payment with the extension payment. If the taxpayer has underestimated the 2012 tax due on April 15, then adding the first-quarter payment can reduce the penalty on the 2012 underpayment—which is higher than the ding for underpaying the quarter’s taxes.

Need Tax Advice? See An Advisor, Not A Broker

Robert Schmansky, Contributor for Forbes writes: As an advisor who works in taxes, it is interesting, and at times infuriating to see the costs some brokers will impose on their client’s portfolios.  The tax piece is important in any investment plan, and unfortunately I see many brokerage created investment plans that appear to be based on what is profitable and convenient, and not what is in a client’s best interest.
The cost to one client in particular I met with were actually staggering given the relatively simple fix that the broker could have employed just by owning the same investments in different accounts. The client was sold over the last year:

• Non-traded real estate investment trusts held in a taxable account of $45,000
• An IRA managed portfolio of mutual funds of $250,000

You may be questioning in what ways could a simple portfolio such as this cost the client? Let me count the ways.

One spouse in this relationship is collecting social security disability and a pension while the other makes ~$40,000 per year. They are in the 15% bracket (plus 4.33% state of Michigan), which means they potentially pay 0% on long-term capital gains.

There are several moving pieces here, and the result is the simple positioning of the real estate in the taxable account, rather than in the IRA cost this client an additional $1,275 in federal, state, and increased taxes on their social security income for 2012. For 2013 and future years, the client is on the border of receiving a substantial credit in the state of Michigan that they may lose out on due to the increased income.

Not only that, but the IRA was invested in a third party managed portfolio of stocks and stock mutual funds. The gains in these investments would be taxed at 0%, while the losses would be currently deductible if sold.

My guess is the client would prefer a 0% tax as opposed to nearly 30%.
Another lost opportunity is that this client could have sheltered their entire taxable account over the last four years by putting the maximum amount allowed into a Roth IRA. At this point that means the additional taxes that could have been completely eliminated, not only for the current year, but for the rest of their lives. The client will likely retire before receiving the REIT proceeds, and at that time will not have the earned income to contribute to a Roth.

Setting aside the taxes for a moment, there also seemed to be no acknowledgement that over 80% of the client’s net worth was already held in real estate properties. What rationale there was for more real estate generating ordinary income taxes at 30% is beyond me.
With all of the above errors, why did the broker not simply put the real estate in the IRA, and purchase the stocks in the taxable account? Having been a broker, I can say for sure the answer is it’s either not convenient or not profitable. An annual $6,000 Roth IRA contribution requires paperwork and additional compliance headaches. It’s much easier to sell a $45,000 REIT.

When implementing an investment plan, especially one that uses products that lockup your money for long periods of time like non-traded REITs, see a fee-only advisor who can look at the big picture, rather than just what may be convenient for that particular broker. As you can see, the cost of a good financial planner can pay for itself over years of unnecessary costs and fees less savvy brokers may not be aware they are imposing on you.

How to buy real estate in an IRA / Buying property with a retirement account can cut your tax bill

Eva Rosenberg for MarketWatch writes:  Imagine you could invest $100,000 in a piece of real estate today and sell it 20 years from now for nearly $400,000 without paying a dime in taxes. If you could buy that real estate with funds held in a Roth IRA, that could happen. And if the proceeds were drawn-out judiciously, you could even get the same result with funds held in a regular IRA.  Can you really do this?

To get some solid answers, TaxMama brainstormed with Mark Luscombe, a CPA and attorney, who is the principal tax analyst for CCH, a Wolters Kluwer business.   Yes, you can buy real estate in your IRA, Roth IRA, or other retirement account. But it isn’t easy, Luscombe warns. In fact, it is quite complicated — and you’ll face many issues that might invalidate your IRA-based investment. Here are some of the obstacles you must overcome:  You must establish a self-directed IRA (Roth or regular), which may mean setting up a limited liability company or other entity to hold the assets. 

 

Luscombe explains that you must find a plan administrator willing to allow you to use your IRA funds to buy real estate. The administrator will generally follow strict due-diligence rules. Once you find the property you want, you’ll need to convince the administrator that this property is a good investment for the IRA to own. 

Be careful about the administrator you select. Just as some commission-based financial planners have a vested interest in selling you their pet investment, so do certain administrators. You want one that is not promoting properties but is simply administering accounts.

Next, roll over your retirement funds to this new retirement account. Two things you need to know about this rollover: 

1. The more money you have, the better off this self-directed program will be. We’re talking about at least $100,000 or more. Unless, of course, you live in an area where you can buy rental property for $30,000 or $40,000. Find a property that will both appreciate in value and generate enough cash flow to cover all costs without your needing cash infusions annually. 

2. If you don’t have enough money to buy a self-supporting property, you may need to set up the new retirement account so that you can contribute more than the $5,000 or so per year that an IRA would allow. How? Folks in business have some options: SEP-IRAs or solo-401(k) accounts. Those accounts will allow you to contribute up to about $51,000 per year, depending on your profits. Remember, these days, solo-401(k)s have Roth components, too. Consider taking advantage of them. 

Regarding Roth vs. regular retirement accounts, which way should you go? When moving funds from a tax-deferred retirement account to any kind of Roth account, all the taxes must be paid for the year of the conversion. Take into account how much money you’re going to lose right up front without any special programs in place allowing you to spread your tax payments over two or four years. Depending on your tax bracket and the amount of the conversion, expect to pay 33% to 35% in federal taxes, plus your state taxes. This may be a waste of money.

On the other hand, if you’re setting this self-employed retirement account up in the first place, you can establish it as a Roth-type account. It may take you a few years to build up enough funds to buy a property, but buying real estate in a Roth account means all the assets in the account will be totally tax-free when you retire. 

Of course, if you know that you, your spouse, or your dependent will be facing high medical expenses upon retirement, a regular IRA is just fine. You’ll be able to offset draws from the IRA with your medical expenses. It takes some planning. 

What kind of property can you buy in your retirement account? 

You may only buy a property that neither you, nor your businesses, ever use. In fact, you can’t rent the property to any related parties either — family members, businesses owned by your business, and so on. Luscombe says to be very careful about this. If at any time in the life of the self-directed account, you rent to a related party, the retirement account will lose its tax-exempt status. 

Speaking of not being tax exempt, here is a concept you’ll hate: UBTI, or unrelated business taxable income. How does this come into play when your retirement account invests in real estate? 

The retirement account is a tax-deferred or tax-exempt account. As long as its own funds are used for the investments, you have no problem. When you borrow money (think of mortgages), the earnings on that part of the property are no longer tax-exempt.

Say you have $200,000 in your IRA. You reserve $75,000 of those funds to cover operations and contingencies. $125,000 is used as a 50% payment on the property, borrowing $125,000 as a mortgage. Suppose you collect $25,000 in rent. Half of that money, $12,500, is allocated to the mortgaged part of the property. After deducting interest and operating expenses, suppose that mortgaged half of the property shows a profit of $5,000. You will be paying taxes on those profits each year, as long as there is a mortgage. 

That is one reason to be very careful about buying property with a mortgage. Another? Suppose you lose your tenant and can’t find a replacement for several months. You will have no cash flow. If your business income that year doesn't allow you to make a high enough contribution to cover the expenses, how will you pay the bills? 

Luscombe researched whether or not you can lend money to your retirement account and found that you may only do so if the loan can be secured by the equity in the property. The amount of equity must be established by an objective third party, to ensure that you are not lending enough money to the account so that your mortgage brings the total debt to an amount higher than the property’s value (the famous upside-down mortgage). 

What’s the best kind of property to buy? Find a property with a reliable long-term tenant. For instance, look at small strip malls, or 2-store commercial properties with a solid tenant. Look for NNN leases, where the tenants pay (or split) all the insurance, property taxes and maintenance on the property. All you pay is the mortgage (if any), and perhaps some backup insurance.

Another consideration for self-directed retirement accounts holding real estate is that someone must manage the property or properties. If you’re not good at asking people to pay up, or don’t like to be bothered in the middle of the night with a call about bursting pipes (or calls from police about belligerent tenants dealing drugs on your property), you will need a management company. Which means, the cash flow from the property needs to be high enough to pay its fee.

Let’s talk about fees. Property management companies tend to receive approximately 10% of the gross rents. They also get a fee for signing up new tenants — typically about 5% to 6% of the entire lease term. 

Then there are the fees to set up and maintain the self-directed retirement account. Set up could cost anywhere from about $2,500 to $10,000, depending on the complexity of the account and the review of the properties. Annual fees may run as high as $2,000.

Incidentally, you definitely want checkbook control of the account. You don't want to have to contact the administrator every time you need to cut a check. That would eat up time and add to the fees. 

Also note that self-directed accounts can hold IPO-type stock, patents, copyrights, and so forth — as long as they are not your own creations. If you have an author friend in whom you have perfect faith, say, you can buy up all or part of his book’s copyright in your self-directed account. If the book becomes a best-seller (even if only an Internet best-seller), that $5,000 investment to fund printing costs could be worth $100,000 before the year is out.

Lots of people who jump on the self-directed bandwagon without really understanding how it works lose their investments altogether. But this is a very attractive and lucrative type of investment for the right person. Handled properly, it can ensure a relatively tax-free retirement. 

Can I Deduct My Mobile Phone and Other Electronic Devices?

Philip Taylor for TurboTax writes: The release of the iPhone 5 swept the nation, and tech consumers had yet another reason to drool.  But at what cost? It’s expensive to stay ahead of the electronics race. The running joke about the iPhone (and just about every other type of electronic device) is that “Your gadget is out of date the moment you buy it and walk out of the store.”

Spending all of this hard earned dough to remain king of the electronics mountaintop begs the question – Can I deduct my iPhone 5? Can I write off my new computer or my monthly cell phone service costs? What about my printer, ink cartridges, or any of my electronics . . . can I deduct those expenses from my taxable income?  The short answer is a resounding: Yes! But, as with everything tax related, you have to pay attention to the rules.

Writing Off Your iPhone 5 and Other Mobile Devices

Let’s stay out of the iPhone/Android debate for a moment. No matter which smartphone you’ve chosen, there are two things that every carrier demands; you have to buy a phone and you have to pay for service.
So how do you deduct these expenses? Well, you have to meet the basic criteria that the IRS puts forth when dealing with such issues:

1. you have to itemize your deductions, and
2. you have to use your phone for only your business or place of employment.

The standard deduction doesn’t not allow you to add on your mobile device costs. Sorry, but you’ll have to itemize if you want to deduct mobile device expenses.  TurboTax will help you figure whether you can itemize your deductions or take the standard tax deduction.  You don’t need to know which one to take.
If you’re self employed, you have the ability to deduct all of your cell phone expenses (initial purchase and monthly bill) as long as the phone is used for business purposes – exclusively.
If you aren’t self employed but your phone expenses are required by your employer and you don’t receive reimbursement, you also have the right to deduct all of your cell phone expenses from your taxable income.
Again, to deduct 100% of your cell phone costs, the IRS demands that the phone and service in question be used exclusively for business.

Personal and Business Use

If your phone doesn’t fall into the “exclusively for business” category, don’t worry, the IRS hasn’t completely forgotten about you.  If your new cell phone acts as both your business and personal phone, you are only allowed to deduct the portion used for business from your taxable income. It’s important for you to hang on to your itemized phone bill and receipts to ensure that you’re deducting the right amounts and to keep records of your deduction.

Deducting Other Business Assets

As it turns out, you are able to deduct much more than your cell phone costs. In the same way that you expense your costs from a business trip, the government also allows you to deduct electronics purchases as long as they’re reasonably necessary for your business.
Or as the IRS puts it, you are able to deduct depreciating expenses if those expenses help you to generate income.

Expenses that fit into this category range from new computers, printers, leased equipment, software, monitors, computer peripherals, and so on. Basically, anything that you deem necessary for your business or necessary for you to continue earning income can be deducted.
Just remember to save your receipts and keep good records.

Pay Attention! Last-Minute Tax Tips for Small-Business Owners

Greg Jones is CEO of BookKeeping Express, a national franchise that helps entrepreneurs manage bookkeeping - for CNBC he writes:  As most small-business owners are on their own when it comes to filing taxes, it's understandable why it may be difficult to tackle before the pressure of the looming deadline sets in. But, with less than two weeks before tax day, it's time to kick it into high gear – no more time to procrastinate. The good news is that there's still time to work the tax code to your advantage.

Organize and Maintain Records
Hopefully the 1099 reporting requirements implemented last year helped you maintain ongoing bookkeeping, the number one piece of advice to ease stress. Though it may seem obvious, adequate record keeping can help substantiate income, expenses and deductions. Find a way that works best for you and is easily sustainable throughout the year.
(Read more: Fight Over Minimum-Wage Hike Heats Up on Main Street)


E-file for Free
Taxpayers making $57,000 or less may be eligible to use free tax preparation software and electronic filling. The software completes the forms from a series of questions that allow you to input your information. Those making in excess of $57,000 can e-file for free using free fillable file forms, which provide the forms, but do not include the tax preparation software 

Claim Deductions
Take note of business expenditures that qualify as deductions: 

Start-ups: The costs of launching a business are considered capital expenses, and you may deduct $5,000 in the first year in business. 

(Read More: Finding Last-Minute Savings on Your 2012 Taxes)
Business-related education: Deduct educational expenses that maintain or improve skills required in your present employment, i.e. seminars, classes, convention fees.


Driving: Commuters may have missed the news that the fiscal cliff legislation signed by President Obama contains a provision that allows employers to offer up to $240 a month in tax-free benefits to employees who use public transportation or a van pool to get to work. That's an increase from $125 a month under old IRS rules. Employers can get a tax deduction by providing the Commuter Choice benefit or can save on payroll taxes by allowing employees to use pre-tax dollars to buy transit passes or pay van pool costs. Employees save on federal income taxes. 

Working from home: Not only does a home-office allow you to work in pajamas, it also makes you eligible for home-office deductions. As long as the designated "office" space within your home is used exclusively for business purposes, you might be able to deduct a handful of things ranging from a portion of your rent and utilities to internet costs and repairs. 

Self-employed health insurance deductions: Self-employed health insurance deduction is one of the most significant deductions you can take as a small-business owner. You maybe qualified to deduct premiums paid on qualified long-term-care insurance, medical and dental insurance not only for yourself, but for your spouse and dependents that are under the age of 27. 

Software and subscriptions: The recently increased Section 179 provides another tax break in this area of business expenses. Previously, a company had to depreciate the cost of computer software over three years. Now, off-the-shelf software a business buys can be fully expensed in the year purchased. 

Hotels and meals: You might as well stay in a nice hotel, because the entire cost is tax deductible. Likewise, the cost of travel — air, rail or auto — is 100 percent deductible, as are costs associated with life on the road (dry cleaning, rental cars and tipping the bellboy). The only exception is eating out. You can deduct only 50 percent of your meals while traveling. So stay at the Ritz and eat at Wendy's.

Don't forget about your insurance deductions on your federal tax return

Emmet Pierce for InsWeb.com writes:   No one looks forward to paying federal taxes, but Tax Day – April 15 – could be a little less painful if you remember to use IRS insurance deductions.
Bob Meighan, vice president of customer advocacy for tax preparation software company TurboTax, says a variety of insurance tax breaks are available for businesses and individuals who itemize their deductions.
Homeowners whose home loan companies require them to buy mortgage insurance can deduct their full premiums for 2012 from federal taxes, he says. Lenders require mortgage insurance to protect their interests.
This insurance protects the lender’s investment, if for some reason you can’t pay your mortgage, he says. “You can claim the full amount,” Meighan says. “Many people may overlook it.”
Small businesses can deduct any insurance premium that is a legitimate business expense, Meighan says. They can deduct any cost that is insurance-related, from business-interruption insurance to malpractice coverage.
“If cars are used in the business, like a delivery truck, the premiums you have to pay for those are deductible as well,” says Lindsey Buchholz, lead analyst for H&R Block, a tax preparation company.
Tax breaks for storm victims
If you were one of thousands of Americans who suffered losses during the storms and floods of 2012, there’s a good chance that you can write off your business or homeowner’s insurance deductible. This is the amount you had to pay out of pocket before your insurance kicked in, Meighan says.
The home repair expenses you incurred that weren’t covered by your insurance also may be deductible, he says. The first $100 of out-of-pocket expenses must be borne by you, however. For example, if your home was in the path of Superstorm Sandy and you had a $5,000 homeowner’s insurance deductible, you can declare a tax write-off of $4,900.
The same basic rule applies for 2012 auto claims, he says. If you sustained damage to your car but had to pay a car insurance deductible of $1,000, you can write off $900 of that amount, if you itemize your deductions.
It's difficult to find tax breaks based on life insurance expenses, says Marvin Feldman, president and CEO of the nonprofit Life and Health Insurance Foundation for Education. For individuals, life insurance typically is not a tax-deductible item.
An exception is when businesses take out life policies on key employees whose functions are considered essential to the business’ well-being, Meighan says. In such cases, the cost of a policy typically can be written off as a business expense.
Feldman says taxpayers have strong financial incentives to buy cash-value life insurance, a policy whose value grows over time, since it can function as a temporary tax shelter.
A cash-value policy pays out to beneficiaries when the policyholder dies, but it also lets the policyholder accumulate the cash for use during his or her own life. The interest and earnings can’t be taxed.
You can borrow against the cash value that has been accumulated in a life policy. However, if you surrender the policy for its full value, the money you receive may be taxed, Feldman says. Typically, you’d have to pay taxes on the “gain” when the policy is surrendered. To calculate the gain, subtract the amount you have paid in premiums from the balance you receive when the policy is surrendered.
In an effort to raise revenue and help balance the federal budget, some members of Congress have proposed ending the cash-value policy tax deduction, according to Feldman.
“The insurance industry is lobbying very hard to make sure the cash-value life insurance policies remain untaxed,” he says.
Health and long-term care insurance
If businesses provide health insurance for their employees, they can take a deduction for the premiums, Buchholz says. For individuals who itemize their returns, health insurance payments generally are allowed as medical deductions. However, their total medical expenses must exceed 7.5 percent of their adjusted gross income (also known as AGI, which is the total gross income minus specific reductions) in order to earn a tax break, says Barbara Weltman, author of “J.K. Lasser’s 1001 Deductions and Tax Breaks 2013.”
It’s tough to reach the 7.5 percent AGI threshold, and it’s about to get even harder. When Tax Day 2014 arrives, it’ll jump to 10 percent. “The only people who can continue to use the old rate are people who are 65 or older at the end of the year. Starting in 2017, everybody has to use 10 percent,” Weltman says.
Long-term care insurance policies generally are considered medical expenses for tax purposes, says Jack Lenenberg, a long-term care insurance specialist in Georgia. They can be used to help people reach the AGI threshold.
The amount individuals may deduct from their taxes for long-term care insurance rises as they age. In 2013, people 40 and younger can deduct up to $350 in premiums as medical expenses. Taxpayers who are 70 or older can deduct up to $4,370 for premiums. More information is available from the American Association for Long-Term Care Insurance.

The IRS’ Home-Office Tax Deductions

The Staff at Surepayroll writes: So with your laptop, cell phone and padded chair at the head of the table, your dinning room sees more conference calls than dinner parties these days. Does this mean you can write the room off as a home office to the IRS? Possibly.  According to the IRS (www.irs.gov), whether you’re self-employed or an employee, if you use a portion of your home for business, you may be able to take a home office deduction. However, there are some stipulations.

The IRS states that, generally, in order to claim a business deduction for your home, you must use part of your home exclusively and regularly as your principal place of business, or as a place to meet or deal with patients, clients or customers in the normal course of your business. Or, you must use your home office in any connection with your trade or business where the business portion of your home is a separate structure not attached to your home.
The Freelancers Union (http://www.freelancersunion.org) states that since 2008, roughly 42 million folks now work as freelancers in the United States. According to the IRS, in order for any of these individuals to claim a home office deduction on their taxes, they must abide by the following regulations:

1. For certain storage use, rental use, or daycare-facility use, you are required to use the property regularly but not exclusively.

2. Generally, the amount you can deduct depends on the percentage of your home used for business. Your deduction for certain expenses will be limited if your gross income from your business is less than your total business expenses.

3. Adherence to specific rules for qualified daycare providers and for persons storing business inventory or product samples.

4. Completion of Form 8829, Expenses for Business Use of Your Home. This is for those who are self-employed and want to figure their home office deduction and report those deductions.

5. For an employee, additional rules apply for claiming the home office deduction. For example, the regular and exclusive business use must be for the convenience of your employer.
The IRS is not known for simplicity, but for those who can make the claim for a home office deduction, the process just got a little (gasp) easier.

According to Forbes, the IRS introduced its Rev. Proc 2013-13, or “safe harbor” method for the tax year beginning January 1, 2013. The new method allows taxpayers easily calculate their 2013 deduction for their home office. All it takes is for an individual to multiply the square footage of the area of his or her home that is used strictly for business purposes by the prescribed rate. The sum of that rate is the taxpayer’s home office reduction.
For those who apply for a home office deduction, the process could be as easy as conducting a conference call in your pajamas.

There Are Only 10 Days Left To File Taxes –– Here's How To Do Them Right

Emma Johnson for The Real Deal writes:  Filing taxes for the first time?  Or maybe this is the year you vow to be smart about your returns. Either way, here is all you need to know when filing your taxes this year and what you need to know going forward. 

Commonly missed deductions
Most people take the standardized deduction, but accountants warn that it might make sense to file itemized deductions. For the 2012 tax year, the standardized deduction is $5,950 for a single person, $8,700 for head of household and $11,900 for a married couple filing jointly. Commonly forgotten deductions, according to the IRS, include:

• Out-of-pocket charitable expenses. Giving to your church, donating to the school bake sale, offering goods to the Salvation Army and buying raffle tickets for your local community center can all be written off—even if you pay with singles out of your pocket. Be sure to get receipts for donations totaling more than $250. (Get $10 offTurboTax Deluxe software with TurboTax sales.)

• Job-hunting expenses. Itemize any money paid for résumés, traveling to interviews (including meals, if you had to stay overnight for an interview, and 55.5 cents per mile if you drove your own car, plus tolls and parking), advertising yourself and paying staffing and head-hunting fees.

• Mortgage interest points. Did you take advantage of the record-low interest rates and refinance in the past couple of years? You can write off any prepaid interest points as they are paid over the terms of the loan. (Through April 30, get $25 off in-store tax preparation services at Jackson-Hewitt.)

You can’t pay your tax bill
It can seem like a nightmare: Your accountant completes your tax returns and finds that there will be no return at all. Your bill is bigger than your savings account. What do you do?

• File by April 15. If you’re worried about what you might owe, ask your accountant to file an extension on your behalf. This can push back payments until October. Late filing—without an extension—will cost you up to 5 percent of the total amount owed for every month you’re late. Ouch! (At least you can save on the filing itself though: Get 50 percent off Liberty Tax preparation services at participating offices with Liberty Tax coupons.)

• You really can’t pay. If you don’t expect to come up with what you owe, ask for a payment plan. In the past couple of years, the IRS has offered its Fresh Start program to help self-employed people and small business owners contend with unpaid tax bills of up to $50,000. Others can expect to pay late-payment penalties of 0.5 percent per month—up to 25 percent of total due—up until all back taxes are settled, as long as you work out a plan with the government. Plus, you will owe 3 percent interest for the period your taxes are late. That’s a lot, but it’s less than most credit card offers. (Get 30 percent off H&R Block tax software with H&R Block coupons.)

• Call up the IRS. Or have your accountant call for you and negotiate a lower bill. Be prepared to file many extra forms and do a lot of haggling. Consider hiring a tax settlement company that will negotiate a lower back-tax bill on your behalf, but exercise caution, as some such services have been found to conduct fraudulent practices in recent years.

Smart ways to spend your refund
Getting a refund? Yay you! For tax year 2011, the average refund was about $3,000. Think critically about whatever windfall you get (no matter that it was your money all along!) and invest in ways to make it pay you back.

• Invest in your retirement. Any funds you contribute to your 401(k) plan before April 15 are deductible right off the top of your income. Sweet! Also awesome: Contributing to a Roth IRA isn’t deductible, but any funds you withdraw from it in retirement are not taxed. Starting in 2013, the limits have been raised. You can now contribute $17,500 to a 401(k) and $5,500 to a Roth IRA. (Save $20 on Quicken personal finance software with Quicken coupons.)

• Hire a financial planner. For a few hundred dollars, this professional can help you set goals, get you out of debt, come up with a savings and investing strategy and help you accumulate hundreds of thousands of dollars over a lifetime. Open a TD Ameritrade account with at least $5,000 and access the broker’s financial experts to help create a financial plan.

• Invest in greening your home. Replace a refrigerator from the ’70s with an energy-efficient model and save $200 per year on your power bill. Or hire a company to conduct an energy audit and suggest ways to make your home more efficient. These can run around $300.

New for the new year
Get up-to-speed now on how the next tax laws impact you. A few highlights:
• You’re less likely to pay the Alternative Minimum Tax (AMT). The exemption threshold for married couples is projected to be bumped up to $80,750 (from $78,750) for married couples filing jointly and $51,900 (from $50,600) for single or head-of-household filers.
• Earned income tax credits were increased in some instances for the 2013 tax year. Check out this IRS site for details, but the maximum adjusted gross income is now $46,227 for couples with at least three kids.
• Payroll taxes are higher for 2013. The tax returned to 6.2% from 4.2%.

Tax preparers + enrolling in a health insurance exchange = Match made in heaven?

Veronica Combs for MedCityNews.com writes:   Who says the Affordable Care Act doesn’t create jobs? The new insurance exchanges may create new revenue streams for tax preparers and year-round employment for their tax experts.  Jackson Hewitt is lobbying the government for an active role in helping boost enrollment in the insurance exchanges. H&R Block and Intuit won’t say what their plans are for new health insurance services, but it’s clear they see an opportunity.

Jackson Hewitt’s first vice president for health policy says that tax preparers are the ideal partner to help the federal government enroll people in health insurance exchanges.
“Federal policy makers talk about enrolling people at healthcare centers, but if you enroll people as they are seeking services, you get sick people,” Brian Haile said. “At tax preparer sites, you’ll get everyone.”
“Also people are already coming to our brick and mortar locations, so you’re not asking them to change behavior.”
Haile said the tax filing moment should also be the exchange enrollment moment because:

1. The same documents are needed to file taxes and to apply for the health insurance programs.
2. The person has Internet access at the tax preparer’s office.
3. She is thinking about financial transactions.
4. She is about to get the largest paycheck of the year in form of tax refund.

“When you are talking about taking on a new premium, it’s better to talk to someone when she is getting money back,” Haile said.
I asked TurboTax and HRBlock about the possibility of “help me sign up for insurance” services for 2014. Neither one would confirm any plans, but it’s obvious they both have something in the works. Ashley McMahon, a spokewoman for Intuit TurboTax, gave this statement:

“The Affordable Care Act creates an interesting opportunity and potential stimulus for several of Intuit’s businesses, including TurboTax. Intuit is uniquely positioned to simplify the task of healthcare decisions making for individuals and small businesses.”

This year H&R Block is offering a free healthcare review for customers. The analysis includes eligibility recommendations, approximate monthly cost of insurance, the annual tax penalty for not having insurance, and a handy checklist of documents needed to enroll in an exchange.
H&R Block also has a gorgeous, well-designed “test drive” web site that explains new coverage options for five types of customers ranging from senior citizens to single parents. The examples cover everything from tax implications to potential subsidies with just enough detail to be informative without being overwhelming. State and federal employees designing exchange web sites should take a close look at this approach because it is a good one.

Net Investment Income Tax: IRS Website FAQs Can Help Answer Some Questions

Marianne Couch  for Thomson Reuters writes: The Net Investment Income Tax (NIIT), the new 3.8% tax on certain net investment income of individuals, estates and trusts that have income above threshold amounts, is now in effect.  The IRS has posted a list of FAQs, which can help answer some client questions about the NIIT, at http://www.irs.gov/uac/Newsroom/Net-Investment-Income-Tax-FAQs. Tax counsel advice should be sought as to how the rules will impact 2013 tax liabilities of both the trust or estate and the beneficiaries.

The Net Investment Income Tax took effect on January 1, 2013, applicable to individuals, estates and trusts for their first tax year beginning on or after Jan. 1, 2013. It does not affect income tax returns for the 2012 taxable year. Trusts and estates are impacted because the NIIT applies on the lesser of undistributed net investment income for the tax year, or the excess of the entity’s adjusted gross income over the dollar amount at which the highest tax bracket for estates and trusts begins for the tax year.

There are exemptions, such as for tax-exempt interest and tax-exempt dividends from a mutual fund; for distributions from most qualified retirement plans including IRAs (but distributions enter into the AGI calculation); an exception for trusts where all of the unexpired interests are devoted to one or more of the charitable purposes described in IRC § 170(c)(2)(B); and special computational rules for charitable remainder trusts and electing small business trusts (regulations have been proposed and may be relied upon until final regulations are issued). For grantor trusts, the individual grantor’s tax return will be impacted.

Are IRS-Prepared Tax Returns The Solution To Our Tax Woes?

Amy Fontinelle, for Investopedia in SF Gate writes:   Would you like the IRS to prepare your tax return for you? Under a proposed system, the Internal Revenue Service would pre-fill taxpayers' returns with the data employers and financial institutions already report to it. What would such a system mean for federal taxpayers, tax preparers and federal revenue?

How IRS-Prepared Returns Could Affect Taxpayers
Under what's known as a "return-free" system, taxpayers would accept or correct their IRS-prepared returns before paying any tax due or requesting a refund. This system could mean significant cost savings for taxpayers, who would no longer have to purchase tax software, hire an accountant or spend hours preparing a return.
"For many filers with simple situations and little tax planning flexibility, a formulaic government tax prep system could - in theory - work well, since the math is very simple," says Jeff Camarda, chairman and CIO of Camarda Wealth Advisory Group in Fleming Island, Fla.
A number of problems, however, could prevent such a system from functioning well.
"The IRS is already quite error prone," Camarda says, and correcting errors is difficult enough with a taxpayer advocate on the job. The IRS might not detect or actively correct its own errors.
Furthermore, the IRS would not be aware of unreported items, such as business expenses, that influence taxpayers' filing decisions, Camarda says. The tax code's complexity "makes such a simplistic system very problematic," he adds.
An IRS-prepared return program would be perfect for someone with a simple W-2 who takes the standard deduction and has no asset transactions, but it would never work for people with complex returns, or even those with transactions as simple as stock sales, says Vincenzo Villamena, managing partner of Online Taxman and a licensed CPA in New York.
Accuracy and Fairness of IRS-Prepared Returns
Critics of return-free programs are concerned about the program’s accuracy and fairness, according to a March 26 ProPublica article by Liz Day.
The IRS already has a system for filing returns on behalf of taxpayers. It employs this system, called a substitute for return (SFR), when a taxpayer hasn't filed a return or responded to IRS requests to do so. The SFR system uses data reported to the IRS plus internal IRS data to compute how much a taxpayer owes and send him or her a bill. This system has a major shortcoming, however.
"When the IRS files an SFR for you, they do not include any allowable exemptions or deductions," says Evan Wolf, a tax attorney in Franklin, Michigan. "If you fall into this category, you will owe significantly more than you would if you filed yourself."
If a system of voluntary IRS-prepared returns were similar to the SFR system, it could overcharge taxpayers who accepted their pre-filled returns instead of adjusting them to account for the exemptions, deductions and credits they qualify for that the IRS has no way to know about.
IRS-Prepared Returns Would Impact Major Tax-Prep Firms
In theory, a return-free system means taxpayers wouldn't need to buy tax software or hire tax professionals to prepare their tax returns. Both H&R Block and Intuit, the company behind TurboTax, have lobbied against such a system, according to Day's article.
"Honestly, they would probably lose a lot of business," says Villamena. "These companies go for lower-hanging fruit - the easy returns by people that either don't want to deal with their taxes or don't know how." These are the same clients that would be the target market for automation, he says.
Taxpayers with an annual income of $57,000 or less in 2012 are already eligible for free tax software through the Free File Alliance, and anyone can use the IRS's free fillable forms, which do the tax math for you. The latter option is only useful, however, if you can make sense of those forms and don’t need software or a professional to walk you through them.
Wolf thinks that under a return-free system, companies like H&R Block and Turbo Tax "would lose a lot of money, but would still have plenty of business from everyone that is married, has kids or claims any other expenses or deductions."

Would IRS-Prepared Returns Cause Taxes to Rise?
A return-free system does not require any change in tax rates or tax brackets. There are a few reasons, however, why taxpayers might find themselves paying more in taxes if the IRS prepared their returns.

The Tax Policy Center states that such a system would be easier to manage if most taxpayers had the same marginal tax rate, if all tax returns were filed individually rather than some being filed by couples, and if there were limited deductions. Such changes would affect everyone's tax rates and cause some taxpayers to pay more and others to pay less than they do now.

The Tax Policy Center emphasizes that taxpayers could continue to file returns as they do now -the return-free system would be optional. Taxpayers wouldn't have to accept IRS calculations or pay more than they truly owe. But Villamena adds that people might just take the standard deduction and not deduct valid expenses related to work, charitable donations and moving.

Furthermore, less-educated taxpayers might not understand that they have the option to calculate their own tax bills. If the IRS calculation doesn't factor in every exemption, deduction or credit a taxpayer is entitled to, those taxpayers could pay more.

In addition, the IRS might need additional resources - that is, tax dollars - to pay its staff to prepare returns. The government might need to raise taxes to cover this expense.

The Bottom Line
If the IRS prepared taxpayers' returns for them using the data it already collects from employers and financial institutions, taxpayers with simple tax situations could save time and money on tax preparation. To make the most of such a system, taxpayers would need to be educated about whether they have a more complex situation in which they would save money by rejecting the IRS' pre-filled return. Those taxpayers would still need to hire a tax professional or purchase software to add the data to their returns that would qualify them for the exemptions, deductions and credits that would lower their tax bills.

Hate Filing Your Tax Return? Good

Joseph J. Thorndike for the HuffPo writes:  Is there anything good about filing a tax return? For most of us, of course, it's a necessary ritual if we hope to stay on the right side of the law. And it certainly keeps the wheels turning for the federal government.

But is there another, more high-minded value to this annual April unpleasantness? Larry Zelenak, a law professor at Duke and the author of new book on income taxation, thinks the answer is yes.

"If, as Oliver Wendell Holmes Jr. said, 'taxes are what we pay for civilized society,' the filing of Form 1040 draws our attention to our duties as citizens in a way that no other levy, including a national sales tax, could," Zelenak wrote Monday in a New York Times op-ed.
In his book, Learning to Love Form 1040: Two Cheers for the Return-Based Mass Income Tax, Zelenak makes this point even more explicit. Returns force us to confront how much we are actually paying to the federal government every year.

Prompted by that information, taxpayers may reflect -- as they should -- on whether they are receiving good value from the federal government for their income tax dollars.

Return-free systems -- including a VAT or a national sales tax -- would not promote this sort of civic reflection. With another nod to Holmes, Zelenak concludes that "the filing of a tax return, with its high visibility and ceremonial aspect, calls the taxpayer's attention to his status as a taxpayer and a purchaser of civilization in a way that would be impossible under a return free tax system."
Zelenak is on to something. Filing a return is valuable, even if it's painful. In fact, it's valuable precisely because it's painful. As I argued some years ago in my own op-ed, filing is probably too easy, not too hard.

With paid preparers and sophisticated software, most Americans are protected from grappling with the worst features of the modern tax system. This may seem like a good thing, but it comes at a steep price.

Specifically, our filing aids make it easier to tolerate a bad tax system. "When it comes to taxes," I wrote, "pain can be a good thing. It keeps people vigilant, encouraging them to keep a wary eye on government. That, in turn, exposes problems and encourages reform."
In the years since I wrote those words, I've had occasion to file seven more tax returns. And I have to say, all the pain is starting to get to me. Zelenak, for his part, wants to make that pain a little less severe, and he endorses a variety of ideas that would simplify and streamline our April ritual.
But he wants very much to retain the essential nature of that ritual, and even to restore its former status as a badge of civic virtue.
I wish him luck. But the more I study tax history, the more I'm impressed with the centrality of tax collection in the evolution of U.S. tax policy. America, we often hear, is a nation of tax haters. Which is true, as far as it goes.
But people everywhere hate taxes. What makes the United States distinctive, I think, is our insistence on collecting so much of our tax revenue in a distinctly unpleasant way. No stealthy value-added taxes for us! We're going to do it the hard way.
Which goes a long way toward explaining why we're a low-tax country.

Intuit Finally Lets Banks White-Label Mint

Mary Wisniewski writes for AmericanBanker.com The difference between digital banking and personal finance management (PFM) software continues to blur.  Intuit Inc. (INTU) announced Wednesday it is incorporating features from Mint, its well-known consumer-facing PFM software, into its digital banking line. Pilot tests with bank customers will begin later this spring, with general availability of the offering expected to hit by early next year.

Intuit bought Mint, which now counts more than 12 million users, in 2009.
The initial Mint product line for banks will combine Intuit mobile banking apps and online banking software with aspects of Mint PFM featured front and center. On the online banking home page, Mint content, such as a newsfeed-like stream of account alerts and a collective view of linked external accounts, will appear in widgets to customers. To access more Mint features, such as a budget creation tool and a feature that displays category spending within a pie chart, consumers will click on a tab labeled Mint.

"We want to blur the lines between PFM tools and digital banking," says Greg Wright, vice president, product management at Intuit Financial Services, the company's unit that sells to banks.

This latest development is a natural evolution of the Intuit product.
"This is a sign of where Intuit needs to go and wants to go. …It's all part of this essential movement to resurrect and redefine PFM," says Mark Schwanhausser, director multichannel financial services at Javelin Strategy & Research. "This is where the industry as a whole will go. …I'm intrigued and happy to see it. The word that comes to mind is 'finally.'"
Others agree.

"I'm surprised it took so long," says Ron Shevlin, senior analyst at Aite Group.
Intuit's move underscores a trend at large, in which banks and other financial services providers feature PFM tools within digital banking view in an attempt to engage more users. To date, PFM delivered through online banking has suffered from single-digit adoption rates, which some blame on poor positioning and a lack of intuitiveness within the design of the features.
Some banks have already begun featuring PFM tools in a more prominent way. Regions Bank, for one, recently added pie charts of online banking customers' transactions on the home page as an attempt to draw customers to PFM services.

Future iterations of Mint online banking, meanwhile, may integrate PFM elements more deeply with online banking. (Think of the ability to set up goals while a person views his savings account, for example.) "We have more ambitious plans down the road," Intuit's Wright says.
In the meantime, it's worth noting what didn't make the homepage of Intuit's new product: the ubiquitous pie chart. "It has fewer payoffs for the key real estate," Javelin's Schwanhausser says. The decision, he says, likely has to do with how the slices of pie won't change much for consumers over time.

Instead, account alerts are getting prime real estate in a widget labeled "Money Insights" on the home page, which analysts view as the most interesting content of the forthcoming Mint offering for banks.

"That's what I think people want," Shevlin says. The section displays a feed of account alerts, such as when a credit card APR has increased, for example.
Cathy Graeber, vice president and principal analyst at Forrester Research, Inc., also cited built-in advice as the most intriguing PFM tool as it can fuel more ways banks can cross-sell, if done successfully.

Though the final product is in pilot phase, one notable difference between Mint.com and Mint digital banking is that the latter will only serve offers to consumers from a specific bank, while consumer-facing Mint pitches offers from numerous banks, including ones that pay it. In other words, in Mint digital banking, consumers won't get pitches by a bank's competitors.
Shevlin points out this may potentially cannibalize current Mint advertisers.
Intuit serves about 2,900 financial institutions, providing about 1,100 with digital banking (online and mobile) and 1,800 with data services. Roughly 500 financial institutions offer FinanceWorks, Intuit's existing white-label PFM offering. Intuit did not share future plans for FinanceWorks.

Intuit will aim to sell Mint well beyond its customer base, likely trying to sign deals with large banks.