How To Take Advantage of Mortgage Tax Deductions

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Mortgage Tax Deductions

Often when considering purchasing a home, one of the things that intrigues potential homeowner’s is the right to be able to claim mortgage tax deductions. There are a number of deductions that are available including interest payments, points and some closing costs. What is not always evident however, is what must be done in order to claim these deductions and when they might be most beneficial.

Prepare for additional paperwork

One of the first things that a taxpayer will need to do to take advantage of mortgage tax deductions is to prepare to itemize deductions. The most significant opportunities for deductions come in the early phases of a mortgage, especially during the first five years. This is because this is when the most interest is paid and also when a new home buyer can deduct points and closing costs. This will require filing a Form 1040 as well as a Schedule A for federal tax filings.

Understanding who can deduct interest payments

Interest payments can only be deducted by the person who is legally obligated to pay the mortgage. When a property is owned equally by two or more non-spousal taxpayers, each of them may claim one half of the interest payments on the mortgage. It is also critical to note that the mortgage company should have issued a Form 1098 with the full amount of interest paid and if this is the case, then copies should be attached to the tax returns.

Second homes and mortgage deductions

For a second home to qualify for tax deductions, the owner, or the person responsible for the mortgage, must have spent a specific number of days in the home throughout the year. In other cases, the Internal Revenue Service would qualify the property as a rental property and is subject to different tax laws. Homeowner’s who have second homes should review Publication 527 if they are confused about the rules.

There are numerous opportunities for a homeowner to take a tax deduction for their home mortgage payments and for specific events that may occur such as destruction of the home, repairs and remodeling and refinancing of the home. However, a homeowner must ensure that they carefully review all of the rules that apply to their individual circumstances. For example, while a primary home loan to purchase may be eligible to claim points, personal mortgage insurance and other costs as a tax deduction, a cash-out refinance may not be eligible for these tax deductions. Homeowner’s should carefully review Internal Revenue Service Publication 936 for information and if in doubt, always contact a qualified tax accountant who can help take the mystery out of mortgage tax deductions.

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All You Need To Know About Dealing With Tax Liability

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Do not let tax liability force you to pay more than your fair share of taxes. The IRS has been providing special reliefs to people who have not been able to meet their tax obligations for the last few years.

The tax revenue authority body through its “Fresh Start” initiative is taking target at small business owners and the unemployed to meet revenue collection targets set previously.

According to Doug Shulman, IRS Commissioner, the agency has an obligation to work with struggling taxpayers in order to find a workable solution for both parties.

Every taxpayer should know that failing to file returns or to pay taxes on time will attract penalties which will increase their tax liability.

» Failure to file on time will result in a penalty of five percent per month of the unpaid taxes until the amount is fully settled.

» Failure to pay taxes will lead to a penalty of half of 1 percent of the unpaid taxes every month.

The good news is that the agency is giving a half-year grace period to some self-employed people and eligible unemployed people. During this period, these groups of taxpayers will not incur penalties for late payment or failure to file returns. However, taxpayers who fall into these two categories will have to fill out the IRS Form 4868 to ask for an extension.

Under the Fresh Start initiative, eligible taxpayers will have up to 15th October to pay their taxes. Self-employed individuals who have seen their income drop by more than 25 percent due to the economic crisis in 2011 can also qualify for this deadline extension.

Solutions To The America’s Hard Economic Time

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With $1.3 trillion deficit decline in State’s Revenue, and 43 States faced with budget deficit, these proves that the United States of America is not left out in this hard economic time. As a solution to the situation, 2012 taxes, tax cuts was enacted.  Unfortunately, it was tricky hence; the US resorted to slashing programs and lowering costs. Worse still, it led to increase of some taxes but still a total of eight-tax cut set forth.

2012 taxes, tax cuts stands out as a major challenge. Brooking reports show that 40 States raised taxes and consequently spending declined. Previously, taxes increased by nearly $24, translating to a cool 3.5% increase. 2012 taxes, tax cuts therefore look slightly effective in the struggle to shrink the State’s deficits. Large States like New York and California, recorded a bulk of tax increase.

Among the six States that raised taxes the most, five of them slashed services in various sectors namely public health, higher education, State workforce, early education and K-12 and the elderly or disabled. This is a clear indication that 2012 taxes, tax cuts is close to impossible or else the country suffers a decline. Two states also slashed their services in four of these sectors while the other two scrapped off funding for all the five sectors.

Interestingly though, the States with the highest tax raise still had some of the most generous programs for the residents instead 2012 taxes, tax cuts.

In the 2008 fiscal year, out of the six States, four of them spent over $4,600. This exceeded the national average of $4,114 per individual.

How to Avoid an IRS Tax Audit

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Tax season is upon us, and people seem to react to tax season with mixed feelings. Of course, if you are expecting a refund this year, then you are probably excited to file your taxes. But be honest – there is that little voice in the back of your head worrying about being audited, right? After all, people rank the experience of an IRS audit right up there with a root canal. If you want to do your best to steer clear of the worst come tax time, here are some tips for how to avoid an IRS tax audit:

Double check your work. Silly mistakes can cost you a lot of time and frustration down the road. Always go over your finished tax forms with a fine-tooth comb, especially if you prepared them using your own software. You can’t take back what you send the IRS once you hit that submit button, and just one extra zero where there’s not supposed to be one is all it takes to trigger that dreaded phone call from the IRS.

Meet your deadlines. When it comes to dealing with the IRS, you want to avoid drawing any unnecessary attention to yourself. When you file late or fail to make a payment on time, it’s like holding a big red flag up and hoping the IRS doesn’t see it.

Report everything. The IRS cross-references everything, so don’t leave anything out – no matter how insignificant it may seem. For example, that ten dollar interest amount you earned on your small savings account may not mean a lot to you . . . but it’s certainly not worth an IRS audit, is it?

Overshooting your deductibles. Only claim what you can legally claim, and be completely honest. The deductibles portion of your tax returns is one of the most likely areas you can expect the IRS to scrutinize. If anything looks off, or even slightly questionable, you are in danger of being audited.

Keep records. If you are going to claim something – anything, from income to expenses to deductibles – keep records of it. Invest in a small file folder and maintain your receipts and records throughout the year in order to make an easy job of it. That way, you can be sure that you are filing correctly when you send in your returns, and you can rest assured that you did everything within your power to avoid an audit.

There is no guarantee that you won’t be audited by the IRS. It is possible to everything the “right” way only to come under investigation, while others seem to slide under the radar. What you can do is set your mind at ease that an audit is as unlikely as possible, and these tips should help you do just that.

About the Author: Francine Ersery is an accountant in the windy city and often has to help her clients sort through audit issues. When she’s not working she can often be found looking at Chicago daily offers for hot deals and weekend entertainment opportunities.

Don’t Forget these Deductions for your Tax Return

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Hopefully you aren’t procrastinating so much that it makes a difference, but its important to note that the due date for filing your 2011 United States federal income tax return isn’t the traditional April 15th, rather its April 18, 2012. This is due to the celebration of Emancipation Day (the day that President Lincoln signed the Declaration of Emancipation) a day earlier than normal (since April 16th is a Saturday this year). As you gather together all of your financial information for fiscal year 2011, minimize your tax liability by keeping the following deductions in mind:

Child Care Deduction
One of the most often overlooked tax deduction line items is the child care deduction. This deduction does not require the taxpayer itemizing deductions and can be taken by any taxpayer who works and has minor children or by any couple where both partners work and have minor children. It can also be taken if one member of a couple is handicapped or disabled and cannot care for the children while the other partner works.

The main items to have available to take the child care deduction are:

  1. Provider’s Social Security number [if an individual]
  2. Provider’s Tax identification number [if an organization]
  3. Provider’s legal name, address and phone number
  4. Total amount paid to Provider
  5. If more than one child, a breakdown of the total dollar amount paid per child

Many taxpayers overlook this particular deduction and it can make a big difference in their return, either by diminishing their payment due or often by increasing a taxpayer’s refund exponentially. In some states it can even result in a state tax refund even when nothing was paid in all year.

Business Expenses and Schedule C
Another often overlooked deduction is business expense. Many taxpayers do not realize that they need to file a Schedule C even for a tiny seemingly innocuous home business. One example is Avon ladies or other cosmetics representatives. They have a number of deductions such as product samples, telephone, home office, wardrobe, computer and office supplies and gas and repairs or standard business mileage deduction if they use their car to deliver product. Most women in this small business arena feel that their business is too small for deductions, but they can greatly assist in the family’s overall tax situation and determine whether they pay in April or get a much-needed refund.

Sales Tax & License Fees
If you itemize, one of the most overlooked deductions is your annual automobile license fee. The part of the fee that is based upon the value of the vehicle can be deducted.  Also, if you purchased any big ticket items during the tax year, the sales tax paid on those items could diminish your 2011 taxes as well.

Gambling
Gambling costs are by far the most overlooked item on tax returns. You can bet that it’s a sure thing that casinos will report any winnings to the IRS, but reporting what you spent acquiring that winning jackpot is your sole responsibility.  That’s why, if you’re even a little bit of a gambler, it is always best to save all of your ATM, check cashing or cash bank withdrawal receipts as proof that you had the wherewithal to make those bets that resulted in your winnings. In most cases, the amount of cash outlay over a one year period will be equal to what was won. In any case, you can write off an amount only up to the amount that you won. It would then be a wash, however, and at least you would not have to pay taxes on your winnings.

Charitable Contributions
Many taxpayers remember to deduct their cash contributions to their church and assorted charities, but forget about tangible goods that they may have deducted. Making sure to get a receipt from any charitable organization that you donate clothing, toys, furniture, appliances and other household goods to is always a good idea. In addition, if you have an old car that really isn’t worth very much if you sell it, it could be worth much more as a tax deduction, so be sure to donate it before the end of the tax year.

While it is your responsibility as a citizen of the United States to pay your fair share, it isn’t your duty to pay more than your fair share. Work within the boundaries of the tax code, and remember that the deductions are there for a purpose. If they apply to your circumstance, take full advantage of them!

Crafted by Stacy Nguyen for the firm of Bottar Leone, PLLC. who believe in American principals, like the responsibility of paying taxes and the right to a fair trial. A good Syracuse personal injury lawyer is ready to help you win your case.

Tax Breaks for Homeowners: Are You Missing Out?

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There are many tax breaks that get overlooked, but homeowners often overlook the most obvious deductions. The truth is, as a homeowner, you stand to save hundreds if not thousands off your taxes. However, it all boils down to knowing what you qualify for. The following are just some of the tax breaks homeowners may be missing out on.

Mortgage Interest

The interest you pay on your mortgage should be one the first tax breaks you take advantage of. Those filing single can deduct mortgage interest on homes up to $500,000 ($1 million for married couples). This will require a bit more work because you will need to itemize your deductions, which means you should see an accountant.

Points

Sometimes people are required to pay points on their mortgage to get better rates on their loan. These points may offer a tax break if they meet certain requirements. First of all, points must be allowed in the area where the home was purchased. Second, the mortgage must be for a home that is being bought or built as a main residence. The deduction must also be taken the year the loan to buy a home was obtained and the points cannot be out of the normal range.

Property Taxes

Each year, for as long as you own your home, you can deduct the amount of your property taxes. With most loans these taxes make up a percentage of your monthly payment and are set aside to be paid once a year. You will receive information on the cost of these taxes when you receive information about the interest from the lender.

Mortgage Forgiveness

The Mortgage Forgiveness Act extends through 2012 and allows those that fell into foreclosure the ability to not pay taxes on the forgiven amount. In most cases, forgiven debt is taxed as income. Those that restructured their loan also qualify. The amount forgiven is up to $2 million for married couples and $1 million for single homeowners.

Tax-Free Capital Gains

A capital gain occurs when something is sold for a profit. With most capital gains, the seller is taxed on the amount gained. However, with residential real estate, the homeowner may qualify for a tax break on the first $250,000 ($500,000 if married) of the gain.

Energy Saving Improvements

Last, but certainly not least, homeowners making improvements to their property, in order to have a more energy efficient home, can also take advantage of tax breaks. There are a number of items that qualify ranging from windows to roofing and you may be able to deduct up to 30% of the costs from your taxes up to $1500.

As a homeowner, it pays to take advantage of these tax breaks. While this may mean getting the assistance of a professional accountant, it also means saving hundreds, if not thousands, of dollars.

About the Author: Dennis Allenbaugh is a mortgage specialist who loves seeing people benefit from homeownership each year. He recommends sites like Home Loans Australia and others to those looking to qualify for a home loan. Now’s the time to start thinking about purchasing a home.