It is very important to plan ahead to manage any tax debt and be sure to claim any qualified tax benefits.
San Mateo, CA (Vocus/PRWEB) March 03, 2011
With just about six weeks left before the U.S. federal income tax filing deadline, now is the time for tax payers to finish gathering information and prepare to file taxes, said Jeff Staley, managing partner of Freedom Tax Relief, LLC.
“Tax payers this year have a few extra days to file, until April 18, but now is not the time for complacency,” Staley said. “It is very important to plan ahead to manage any tax debt and be sure to claim any qualified tax benefits. Planning now also will allow tax payers to come up with a plan if they are having problems paying their tax bills.”
Staley offered nine steps for tax payers to take now to prepare for income tax filing:
1. Plan to file on time. Make plans now for on-time income tax return filing. Prepare a checklist to confirm receipt of all W-2 forms from employers, 1099 forms for contract work – or interest earned or paid – receipts for charitable donations, and proof of payment for medical and other tax-deductible expenses. If on-time payment will be impossible, file an extension. The Internal Revenue Service (IRS) is more tolerant of those who follow the rules than those who skip filing. For that reason, even if tax payers cannot pay tax debt in full by April 18, filing the required forms will result in smaller penalties.
2. Prepare documentation for tax credits. Review 2010 expenses to determine eligibility for certain tax credits. The most common credits are those for having children or other dependents, paying for child care while parents work, or paying certain educational expenses.
3. Maximize deductions. Be sure to obtain receipts and proper valuations for any charitable donations to nonprofit organizations in 2010, per IRS guidelines. Also watch for deductions that could apply for medical expenses (typically expenses that exceed 7.5 percent of the adjusted gross income), paying interest on student loans, paying mortgage interest or private mortgage insurance.
4. Know tax obligations for unemployment benefits. Unemployment income is taxable. Tax payers who received unemployment benefits during 2010 should have received a Form 1099-G providing the total amount received. Former employers that paid separate unemployment compensation should have reported that income on the W-2 form.
5. Understand self-employment tax. Some people who became unemployed during the recession took the opportunity to start their own businesses. For these individuals, now is the time to make sure they are paying taxes accurately and adequately. Self-employment earnings are taxable, and business operators must also pay their portion of Social Security and Medicare obligations. For 2011, prepare to make estimated quarterly income tax payments per IRS guidelines.
6. Contribute to a retirement plan. One common tax benefit is for a qualified contribution to a retirement plan – a step that benefits tax payers now and in the future. Tax-deferred contributions for 2010 can still be made until April 18, 2011, and in some situations, even later. Consult a tax or financial adviser for help selecting the best retirement plan.
7. Estimate the payment due. Estimate this year’s tax obligation by reviewing a copy of last year's tax form, completed with 2011 data. Begin filling in the blanks of purchased tax return software, or go to http://www.irs.gov and download a PDF form to fill out.
8. Plan for payment. Unfortunately, some tax payers owe more than they can afford to pay in full by April 18. For tax payers in that situation, the IRS suggests they find any means possible to pay, including bank loans, cash advances on credit cards, using savings, or borrowing against retirement or life insurance. However, for individuals in dire financial circumstances, exchanging one debt for another will not make things easier. Consult a tax representation specialist and/or financial adviser before making a decision.
9. Evaluate alternatives. Tax payers who definitely cannot pay their bills should contact the IRS. The agency sometimes gives some leeway to those who contact them directly or pay voluntarily. The IRS might waive penalties for those who cannot pay because of a death in the family, serious illness, financial records lost in a natural disaster or another "reasonable cause."
Another alternative is tax debt resolution, in which specialists with appropriate training and expertise – attorneys, enrolled agents or certified public accountants – navigate the maze of IRS forms and calculations, and work directly with the IRS on behalf of consumers to help resolve their tax debt.
As always, many credits and deductions are subject to income limitations or other restrictions. To learn more, visit http://www.irs.gov and/or consult a tax preparer. For an objective guide to help tax payers understand taxes, avoid tax debt problems, and find tax resolution help, Freedom Tax Relief has created an objective guide available for download, at no charge, at http://www.freedomtaxrelief.com/four_steps.php.
Freedom Tax Relief (http://www.freedomtaxrelief.com)
Based in San Mateo, Calif., Freedom Tax Relief (FTR) provides tax representation services. Working directly with the IRS, FTR helps individuals and businesses prepare back tax returns, become compliant with the IRS, determine the optimal IRS tax resolution program and resolve tax problems. Since inception, FTR has achieved a savings rate of 87 percent on IRS-accepted offers in compromise. The company, which has served nearly 9,000 consumers since 2004, is a wholly owned subsidiary of Freedom Financial Network LLC.