Tag: tax


October 15 Tax Extension Deadline

October 14th, 2014 — 10:33am
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Tick-Tock, The Deadline Approaches

The deadline to submit 2013 tax returns to the IRS for taxpayers who elected to file extensions is Wednesday, October 15th.  Failure to do so may result in the penalties and interest assessed on due taxes.  Please note, that if you did not file your taxes yet, and did not file for an extension, your taxes were due on April 15th and you are already accruing penalties and interest on any taxes due.

If you need assistance filing your tax return (whether on extension or not), please contact an R&G Brenner tax professional as soon as possible in order to meet the deadline.

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What Happens If You Don’t File Your Taxes?

August 14th, 2014 — 11:00am

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Overdue Taxes Will Come Back To Haunt You

The only certainties in life are death and taxes, as the saying goes. Taxes are an annual event that, however unpleasant, we all have to deal with. It may interest you to know that according to the Internal Revenue Service (IRS), an estimated 239.3 million tax returns were filed in 2012 by individuals and businesses in the United States. That amount exceeded by a little more than 1% the number of returns that were filed in 2011, and by 2018 that number is projected to grow by almost 6% to 253.5 million tax filings.

What about those individuals who do not file a regular tax return? More importantly, what would be your fate if you did not pay your taxes in a timely manner? Below are some of the potential consequences that you may face for failing to file or pay your taxes in a timely manner.

Failure to File Penalty

Whether you owe taxes or expect a refund for a given tax year, it is important to provide the IRS with an informational tax return on or before April 15th of every year. When you miss the April 15th deadline you are subject to a penalty of 5% of the amount that you owe for each month you do not file. The penalty for failure to file can grow to 25% of the total unpaid amount.  If you file a return 60 days after the due date of April 15th, you will be subject to a penalty of $135 or 100% of the unpaid tax liability, whichever is greater. This applies to both those expecting a refund and those who have taxes due.

Failure to Pay Penalty

In addition to the failure to file penalty that you face for missing the filing deadline, you are subject to a failure to pay penalty of half of 1% of the unpaid balance. This amount is assessed each month that your taxes go unpaid and is capped at 25% of the unpaid amount. Generally the failure to file penalty is higher than the failure to pay penalty. Filing a tax extension (Form 4868) on or before April 15th and paying some or up to 90% of the amount owed, as well as paying the balance in full by the extension deadline (typically 6 months or by October 15th), will help you avoid the failure to file and failure to pay penalties.

Loss of a Tax Refund

If you are owed a refund from the Federal government, filing a tax return by the deadline is the only way for you to ensure that the money will be returned to you in a timely manner. The IRS can hold a taxpayer’s refund for up to 3 years. After this time your refund is treated as a “gift” to the government and will remain in the treasury. This means that your failure to file could result in a generous donation of your tax refund to the federal government to do with as they please.  Don’t let that happen…

Loss of Wages, Assets or Arrest

If you do not pay your taxes, the IRS will eventually come after you directly. There initial contact will be a letter informing you of your outstanding liability (or failure to file) with an opportunity to file an amended return. Ignoring this opportunity will result in a possible wage garnishment and even seizure of your assets, such as your home or car. If the amount of your tax liability is deemed by the IRS to be excessive you may be arrested and charged with tax evasion, subject to a fine of up to $100,000 and up to 5 years in prison. 

Suspension Of Drivers License

Some states like New York are suspending the drivers licenses and/0r disallowing the renewal of licenses for those that have not paid their taxes.  This recently went into effect in 2013.  Expect more and more states (especially those with budget issues) to follow suit.

Not filing your taxes, or failing to pay them, is a serious concern and should not be taken lightly. If you need help filing your taxes, or you’ve missed a deadline and need to know what your next steps should be, don’t hesitate to contact an R&G Brenner professional tax preparer.

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Tax Breaks for Going Green

August 11th, 2014 — 11:00am

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How To Save Money “Going Green”

Going green isn’t just the next big thing—it’s the wave of the future. There is abundant information available about ways in which you can reduce your carbon footprint, save money and feel better about your role in the stewardship of this planet. Both federal and many state governments recognize the importance of energy savings and conservation and have provided tax breaks and incentives to businesses and individuals to encourage energy efficiency and going green.

Knowing what tax benefits may be available to you when you choose to go green may be enough to help you decide to start your own plan for energy conservation. There are certain tax breaks that are available just for businesses and others that individuals may take advantage of. Here is a discussion of green tax benefits and some of the tax breaks you may qualify for, either as an individual or as a business owner.

Tax Benefits Associated with Going Green

Tax benefits that are associated with going green can be classified as a tax credit, a rebate or savings in the cost of purchase. Tax credits are a dollar-for-dollar reduction of your overall tax bill—if you qualify for a $1000 tax credit, it means you owe $1000 less in taxes. There are also loan and grant programs that states offer to certain businesses that serve as an incentive to encourage the use of alternative energy and green certified building materials in new building construction and renovations.

If you choose to install an energy efficient solar hot water heater, solar equipment that generates electricity or even a wind turbine before December 31, 2016, you may be eligible for tax credits associated with these installations.

Green Tax Breaks for Individuals

Green tax breaks that are available for individuals come in the form of tax credits, rebates or upfront savings. Depending on your tax situation, you may choose a program that offers a tax credit in order to reduce your tax liability. If you have a need for income upfront, a rebate or savings incentive may be in order. The types of programs that are available vary from state to state, so it is a good idea to find information in your local area about incentives that may be available to you as a resident.

For example, residents (including commercial and industrial sector businesses) of the State of California may qualify for a property tax exclusion of up to 100% of the value of the installation of a solar energy system in a new building construction. Illinois residents may receive a special assessment to reduce their property taxes by registering qualified solar energy equipment on their property.

Green Tax Breaks for Businesses

Just as individuals are provided with breaks for going green, businesses may want to get into the act as well. The Tax Relief and Job Creation Act of 2010 helped to extend certain Federal energy tax benefits for businesses. These include tax credits for home builders, manufacturers and commercial buildings. There are also credits available to businesses that use vehicles that are hybrids, electric powered or use alternative fuels. Access to these green energy tax credits for business can be obtained through filing the appropriate form (such as Form 8908 and 8909).

Going green, either as an individual or as a business owner, isn’t just great for the environment, it’s great for your budget. There are numerous tax breaks and incentives available for using more energy-efficient vehicles, sustainable energy, and recycled building materials. Check with an R&G Brenner tax professional to see which tax breaks you might be entitled to. 

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Tax Tips for Homeowners

August 7th, 2014 — 11:00am

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Important Tax Tips For Homeowners

There are tax breaks that come along with owning your home. These breaks may serve as an incentive for the purchase of homes within certain targeted areas of the country or may make up for any losses a homeowner might face when selling his or her home. As a homeowner it is important to understand what tax breaks are available to you in order for you to take advantage of them and help your tax situation.

These include tax breaks that come when you sell your home, breaks for losses associated with a sale and incentives for certain types of homebuyers, such as first-time home buyers. Here are some tax tips for homeowners or anyone looking to purchase their first home.

Common Tax Breaks

As a homeowner, one of the most common deductions you will take is the one for the interest you pay on your mortgage. The mortgage interest deduction allows a homeowner to receive a reduction in their taxes, with the ability to deduct interest for a home valued at $1.1 million or less. In addition to the mortgage interest deduction, low-income homeowners who were required to take out private mortgage insurance to secure a loan (not to be confused with homeowner’s insurance). This particular deduction may be expiring soon, so it is important to claim it as a homeowner if you qualify.

Tax Incentives for First-time Homebuyers

If you first purchased a home in 2008, 2009 or 2010, you may qualify for a first-time homebuyer credit. This credit, which was extended for purchases with a closing between June 30 and September 30, 2010, reduces your tax bill or increases your refund, depending on how much you owe in taxes already. Qualifying for the credit is based on when you purchased and closed on the purchase, income (based on your modified adjusted gross income) and can be enhanced by military service or working for the federal government. If you received the credit and the home is no longer your primary place of residence, you may be required to repay the balance you received.  

Home Seller Tax Breaks

IRS Publication 523 explains ways in which you as a homeowner can either take an exclusion for any gains from the sale of your home or write off a loss associated with such a transaction. As an example, if you failed to deduct all of the points paid to secure a loan for your mortgage, you may be able to deduct those remaining points in the year in which you sell the house.

Points represent 1% of the loan’s amount that a lender charges in exchange for a lower mortgage interest rate. A maximum exclusion in gains of up to $250,000 from the sale of your home may be taken. The ability to take the exclusion depends on a few factors, which include your meeting the ownership test, use test and other rules. A home owned jointly where separate returns are files permit you and the co-owner to claim up to the maximum exclusion amount on an individual basis.

Tax Help for Homeowners that Experience a Loss

If you were the victim of a catastrophic loss, such as damage from a fire or an earthquake, it may have been covered by insurance but require you to meet an out-of-pocket cost (such as a deductible). You may be able to deduct your costs associated with those losses on your taxes. Although your out-of-pocket amount may be deductible, any loss covered by insurance would not be considered deductible for income tax purposes.

If you’re a homeowner, there are plenty of tax breaks and incentives available to you. Talk with an experienced R&G Brenner tax professional to make sure you’re taking advantage of all the tax credits, deductions, and write-offs to which you are entitled. 

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Filing for Divorce? 5 Important Tax Tips

August 5th, 2014 — 12:57pm

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5 Tax Tips For Divorced Couples

Divorce can be a sensitive topic and a difficult period of time for all the parties involved. Whether you live in a common law or community property state, the process of filing taxes once the divorce has been finalized can be both emotional and complicated. Deciding how assets are split, the cost basis of these assets, new filing status and even which former spouse will claim children as dependents are all important considerations that go into the tax filing process after divorce. Here are 5 things to keep in mind when filing taxes after a divorce

#1 Determine Which Taxpayer Will Claim Children as a Dependent

After 2009 a tax filer with shared custodial rights of a child or children must cede their claim for a tax exemption to the controlling ex-spouse by filing Form 8332. The significance of this filing should not be taken lightly. A custodial parent who is able to claim a child as a dependent is permitted a deduction of $3,900 on their tax return, which reduces their taxable income. This applies to all children living at home at least 6 months old up to age 19, or 24 if the child is a full-time college student.

#2 Determine Your New Tax Filing Status

A divorce will change a formerly married filing separately or joint filing status to single, regardless of when the divorce was finalized within the tax year. Also consider that if you want to file as head of household, you will have had to have lived apart from your ex-spouse for at least six weeks and contribute more than half of the money to support the household. Being able to file as head of household can result in a bigger tax savings, so review your situation–or have and experienced tax professional review your situation–carefully.

#3 Understand the Impact Alimony Will Have Upon Divorce

Alimony may be necessary as a source of income for a divorcing spouse that has either stopped working, is returning to the workforce or is making significantly less than the other spouse. Be careful, however, as alimony payments made from one spouse to another are considered taxable income to the recipient spouse. Depending on your income level, if you are the one receiving alimony from your former spouse, the additional income could affect your tax bracket potentially pushing you into a higher bracket and a bigger tax liability.

#4 Understand the Impact of Dividing Assets Upon Divorce

There are some tradeoffs that come when assets are divided, particularly a home. Gains that may have been subject to exemption as a result of a sale, for example, would be halved if the asset is sold under a divorce decree. The spouse who receives the home as part of the divorce settlement (if a sale is not ordered) will have the ability to claim the mortgage interest deduction. Discuss with a tax professional carefully how the receipt or sale of certain assets will show up on your tax return and what tax benefits or disadvantages you will receive or give up.

#5 Understand How Divorce Will Affect Your Retirement Plan

Many times divorce results in the splitting up of retirement assets held by a working spouse, such as those held in an IRA or 401(k). Be sure to secure what is known as a qualified domestic relations order (QDRO) in order to secure treatment of these assets as your personal retirement assets and not those of your former spouse. Failure to do so could result in disastrous tax treatment once those assets pass from one spouse to another, such as in the case of death.

It’s important to take all the details of a divorce into account when filing your taxes. If you have questions about what you are entitled to and how your tax status is changing after a divorce, don’t hesitate to contact an experienced R&G Brenner tax professional

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What Do I Do If I Haven’t Received My Tax Refund?

June 5th, 2014 — 2:15pm

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Follow These Steps To Track Your Refund

Filing your tax return was stressful, but now that it’s done you know the amount you’ve got coming and you can’t wait to get your hands on it. This is understandable; we all usually have that refund earmarked for something. That’s why it can be so frustrating when your tax refund doesn’t arrive on time. Read on to learn what to do if you’ve been waiting an exceptionally long time for your tax refund.

Gather Some Information

The first thing you should do when you have yet to receive your federal tax refund is to gather your social security number, filing status and the exact amount that you expect to get so you can check your return status online or over the phone. Having this information close at hand is necessary to start the process.

Check the Status of Your Return

It’s important to first check your return status before you check your refund status. You can do so over the phone or by logging in securely to your account on the IRS website. If you used an e-filing service to process your return, inquire about your status with that company. Many such services offer online log-ins where you can easily check your account. If you didn’t use an e-file service, you can call the IRS toll-free at 1-800-829-1040. If you are lucky to speak to an agent during your first call, hopefully they will be able to tell you if there was a delay, and what the cause was. Often, the return simply hasn’t been processed yet.

Once you’ve confirmed that your tax return has been processed, you can check your federal tax refund status. If you opted for a direct deposit into your bank account, call the bank and see if the check has been deposited. If it hasn’t, a quick way to check on your status is to use the Where’s My Refund? tool provided by the IRS and you can track where your refund is at any time. The site is updated every 24 hours in the evening, so you can start checking it the day after you e-file your return (or a month after you’ve mailed it in).  You can also call the IRS at 1-800-829-1954 to determine where your check is and why it’s taking so long.

Reasons for Delay

Tax season is a notoriously busy time for the IRS: people are filing taxes, refunds are being processed and issues are being sorted. If you wait to file close to the deadline of April 15th, you could wait longer than if you filed a month or two earlier. In some cases, refunds and identities can be stolen. If you suspect suspicious activity as the reason for your refund delay, contact the IRS immediately at 1-800-829-1040.

Often times, there are good reasons why your refund has been delayed. If you opted for a paper check from the IRS, expect to wait at least twice as long as if you did direct deposit. In order to minimize wait time in the future, plan on e-filing with a direct deposit option next year.

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What If I Forgot To Include Information On My Taxes?

May 30th, 2014 — 2:56pm

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Forgot Something On Your Tax Return? Don’t Worry!

So, you worked hours on your tax return, gathered your documents, filed on time and you are now awaiting your tax refund with eager anticipation. All is well until that moment of mild terror when you realize you forgot to include a vital document or deduction on your taxes. Don’t panic: all is not lost. There are ways to include missed information on your taxes, even if you’ve already filed them.

File an Amended Tax Return

When you’ve omitted information on your return, the IRS allows you to file an Amended U.S. Individual Income Tax Return called Form 1040X. However, you can’t e-file amended returns; they’ll have to be submitted it in paper form which increases the wait time by many weeks for any potential additional refunds.

Reasons to File

There are lots of reasons you might need to file an amended tax return, but there are some things that don’t necessitate one. You’ll need to file a 1040X form if you have experienced a change in your filing status, income, credits or deductions. But you do not have to file if you caught a math error after the fact. The IRS is pretty good about catching these types of mistakes and usually adjust these automatically for you. For example, If you forgot to attach the proper tax forms and a W2 is missing,  there’s no need to file this amended form. You should get a request from the IRS requesting any missing items. The IRS can easily find income that you may have omitted from your tax return, but sometimes it can take a very long time for the IRS to notify you.  That means if you made an error where you underpaid your taxes in some manner, you will accrue penalties and interest until your tax liability is paid in full.  It could pay for you to file an amended return to minimize penalties & interests.  On the other hand,  the IRS isn’t as well-equipped for finding missing credits or deductions that you may have overlooked, and which could increase your refund.  In this case, don’t wait until you get a letter from the IRS looking for more information. Instead, be proactive and file the amended return.  After all it’s your money and the IRS does NOT have to pay you interest for holding onto your well deserved refunds.

Rules

You have three years from the original filing date to submit Form 1040X, or two years from the date of tax payment.   You’ll need to submit a separate 1040X form for each tax return you’re amending and mail them separately to the IRS. Also, don’t assume they are all being mailed to the same mailing address.  There are usually separate processing PO Boxes for each tax year you are amending.  If you plan on claiming more of a refund, you must wait until you get your original refund in the mail or via direct deposit before filing the 1040X. Again, keep in mind that amended refunds take awhile to process, so it could take up to 12 weeks before you receive anything. If you owe more taxes as a result of the amended return, pay what you owe right away to avoid fees and penalties from piling up, as the IRS will begin charging you based on the due date of your original tax return.

Track Your Status

Similar to tracking your original refund status, the IRS has a Where’s My Amended Return? tool (you can also check R&G Brenner’s Where’s My Refund page as we include State Refund links as well) that you can use to track your amended return’s status. Alternatively, you can call the IRS at 866-464-2050. Have your taxpayer identification number or social security number handy, along with your date of birth and zip code.

If you forgot to include some vital information on your tax return, follow the steps above to make sure you pay all the right taxes and get your full refund.  Or, simply contact an experience R&G Brenner tax professional today, and we’d be happy to assist you.

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April 15 Countdown & Last Minute Tax Tips

April 14th, 2014 — 2:50pm
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Tick Tock, TickTock…April 15th Deadline

With the clock about to strike midnight on the 2013 Tax Year Filing season, the following is a quick list of tax tips for all you last minute filers out there:

April 15th Deadline

Yes, we all know the saying “Death & Taxes…”. And nothing drums up the cold sweats and association with taxes like the April 15th deadline. However, here is something that many taxpayers do not know: This deadline is only if you OWE taxes to the IRS.  If you are due a refund from the IRS, you actually have 3 full years from the April 15th deadline to claim and receive your refund before it becomes the property of the U.S. Government.  So, as long as you file your 2013 tax return by April 15th, 2017 you will get your refund.  There are of course, many reasons to file your 2013 tax return before the deadline.  It’s your money!  So don’t let the government hold on to it especially when they do not have to pay interest on it.  If you owe, and you do not have all of your tax documents ready, you can always file an extension.  Extensions must also be filed before the April 15th deadline.  REMEMBER: An extension is only an extension to file your final tax return, NOT to pay the taxes you owe.  Therefore, expect to send payment for the estimated amount of taxes you owe along with any extension.

Beware of IRS Scams

IRS & Tax related Scams have been steadily increasing over the last few years.  The most common scam going around is IRS impersonators contacting unsuspecting taxpayers and getting them to divulge their confidential personal information which can be used to open up credit cards in the victims name and/or to a file a fraudulent tax return in their name in order to steal refunds.  NOTE: The IRS will NEVER initiate contact with your via email, phone, fax or text.  They will always send you a written notification with instructions.  Even if you receive written communication, double check that the contact information on the letter matches the IRS contact information from the IRS website.  If you think that you are the target of a tax related scam, report it to phishing@irs.gov.

Sign Your Return & Mail To Correct Address

While this may sound trivial, many taxpayers forget to sign their tax returns!  Your tax return is technically not considered filed if it is not signed.  While the majority of tax returns are filed electronically, there are still many reasons why a return would be filed as paper.  Furthermore, if you had your return prepared by a professional, be sure that they signed the return as well.  While the taxpayer is ultimately responsible for what is listed on their return, a common scam that many “professionals” use to avoid any liability is to file a tax return as “self-prepared”.  In other words, the IRS thinks that the taxpayer prepared and filed the tax return themselves when in reality it was filed by a paid income tax preparer.  So be sure to check for all appropriate signatures!  Furthermore, be sure you are mailing your tax return to the right IRS processing center.  The IRS tends to change their mailing addresses annually and some  have separate mailing addresses for refunds and taxes due.  Here is a list of all the IRS tax processing centers.

Keep Your Tax Records

So you just sent in your taxes and now you can throw all of your W2s, 1099s, receipts & other tax related documentation into the fireplace, right?  WRONG! Depending on your situation, the IRS says to keep all of your tax records between 3 & 6 years.  So, just to be on the safe side, keep all of your tax records for at least 6 years.  Sometimes it could take years before the IRS notifies you with an issue and/or adjustment on your tax return.  If you plan on contesting changes in the IRS’ favor, you’ll need your backup documentation.  Recent budget cuts to the IRS will probably delay the notification process even more.

File With A Tax Professional

While millions of taxpayers are electing to forego using a tax professional in favor of filing themselves, the numbers don’t add up.  A couple of years ago R&G Brenner investigated The True Cost Of Preparing Your Own Tax Return and found that taxpayers who filed themselves were losing an average of $594 in refunds as opposed to using a Tax Professional.  Similarly, H&R Block is running ads this year that found 1 in 5 taxpayers who prepares their own taxes are not claiming all the deductions they are entitled to and are losing $490 in refunds.  Now there are many taxpayers who have very simple returns (standard deductions, no house, no kids, etc) and can easily file themselves.  However, the moment your tax return gets even a little bit complicated, you should seek professional help.  If you are going to Itemize Deductions (Schedule A), claim mortgage interest, have children (Earned Income Tax Credit), deduct business expenses (Schedule C), have rental income (Schedule E), or other complex tax positions, it is almost never a good idea to prepare your own tax return.

If you would like information about R&G Brenner, our services or if you need any tax assistance before or after the April 15th deadline, please feel free to contact us here, or call us toll free at (888) APRIL-15.

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NY Suspending Drivers Licenses For Those That Fail To Pay Taxes

March 24th, 2014 — 12:29pm

 

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NY Suspending Licenses For Those That Owe $10k+

Governor Andrew M. Cuomo today announced that 8,900 New Yorkers had their driver licenses suspended for failing to pay taxes they owe the State. The crackdown is the result of legislation signed into law last year aimed at encouraging individuals who owe more than $10,000 in back taxes to settle their bills with the Tax Department.

“We are sending a clear message to tax delinquents that they either have to pay the taxes they owe, or face real consequences,” said Governor Cuomo. “For many, this message is getting through and as a result thousands of people have come forward to do the right thing and find a way to pay their taxes. Those who haven’t are losing their drivers licenses.”

“Driver licenses are a privilege, not a right, and this program has prompted unprecedented action from tax delinquents who were otherwise ignoring their debt,” said Commissioner Thomas H. Mattox. “Thousands have contacted us to do the right thing – pay their tax bills in full, or work with us to arrange a payment plan that satisfies the debt. Those who continued to ignore their debt have had their licenses suspended.”

In the first round of notifications, more than 17,700 drivers were contacted beginning in August, 2013. Along with the 8,900 suspensions, 6,500 tax debtors have either paid in full or are making payments on their debt, while 2,300 were determined to be ineligible for suspension.

As a result of the program, tax collections increased nearly $56.4 million on a state and local basis – a 34 percent increase over the initial estimate of $42 million. The program will continue to raise millions of dollars annually as thousands of other debtors are notified and, ultimately, resolve their debt.

When a driver gets a license suspension notice from the Tax Department, they have 60 days from the mailing date to arrange payment. If the taxpayer fails to do so, the Department of Motor Vehicles sends a second letter providing an additional 15 days to respond. If the delinquent taxpayer again fails to make contact, DMV is authorized to suspend the license until the debt is paid or a payment plan is arranged.

A taxpayer who drives with a suspension in effect is subject to arrest and penalties. Those with a suspended license can, however, apply for a restricted license that allows them to drive to work, and return directly home.

In New York State, 96 percent of taxes are paid by businesses and individuals who voluntarily meet their tax responsibilities. The remaining four percent is collected through the Tax Department’s audit, collections and criminal investigations programs. Through enforcement programs, such as suspension of driver licenses, the Department ensures fair tax administration for all New Yorkers.

Contact the NY Sate Tax Department

  • Visit www.tax.ny.gov 

  • Call (518) 862-6000 to settle a tax debt or arrange a payment plan

If you need additional assistance with this or filing your current or back taxes, contact an R&G Brenner tax professional today.

Source: NY State Department Of Finance & Taxation

1 comment » | Tax & Financial News

Tax Breaks for New Parents

March 13th, 2014 — 3:03pm
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Tax Breaks For New Parents

Having a child changes your life in countless ways, one of which is how you are taxed. New parents unlock several different tax breaks not otherwise offered which are designed to make raising a family financially easier. Here’s a look at a few of them.

Adoption Credit/Adoption Assistance

If you adopt a child, you might be able to use the costs associated with the adoption to reduce your tax burden. Adoption tax breaks come in two forms: a tax credit and a tax exclusion for adoption assistance provided by an employer. These apply if the adopted person is under 18 or unable to care for themselves. In 2013, the overall amount was worth up to $12,970 per child.

Here’s how it works: In one example provided by the IRS, you pay $12,970 in adoption expenses. You receive $2,970 from your employer to help, which lets you reduce your gross (taxable) income by that amount. The remainder ($10,000) becomes a tax credit—so you owe $10,000 less in taxes.

Higher Education Tuition Deduction

If you pay for a child’s higher education at an eligible institution, you can probably deduct many of the expenses and fees involved. The IRS defines an eligible institution as “any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education. It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions.” 

Regardless of whether you take the standard deduction or itemize your deductions, you can adjust your taxable income by up to $4,000 by paying for the education of a dependent. Tuition and fees are deductible, but some expenses (such as room and board) are not. 

Child Tax Credit

In perhaps the simplest of all child-driven tax breaks, the child tax credit might let you “reduce your federal income tax by up to $1,000 for each qualifying child under the age of 17,” per the IRS. There are several conditions to this credit, which are easy to meet for many, if not most, families.  For instance:

  • The child must be under the age of 17
  • The child must live with the taxpayer for the majority of the year
  • the child itself must provide less than half of their support

A phase-out of the credit starts at the following income levels: $110,000 for married taxpayers filing jointly, $55,000 for separately-filing married taxpayers, and $75,000 for everyone else.

Earned Income Tax Credit (EITC)

This one’s a bit more complicated than the child tax credit, but can be just as rewarding. The EITC applies to some individuals with no children, but its amount scales up the more children there are in a family. In an IRS-provided example from 2013, a joint-filing married couple making less than $48,378 (in both earned an adjusted gross income) with two qualifying children could receive a $5,372 maximum credit. With three or more children, the maximum income goes to $51,567 and the maximum credit leaps to $6,044. Several more combinations work as well, so some research may be necessary to see if your family qualifies. Note: to receive the EITC, a family must have earned no more than $3,300 in investment income.

Having a child can be a wonderful, if stressful, experience. However, new parents can rest a bit easier knowing that there are new tax options open to them. Contact an R&G Brenner tax professional to see if you qualify for these tax exemptions, credits and deductions and new parents can spend more time enjoying their family, and less time stressing about their finances. 

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