Friday, April 9, 2010

Need tax help? Ask the IRS. Really.

People love to hate the IRS. It is a government bureaucracy. It collects taxes. It enforces tax laws. (Congress writes the laws, but that is another topic.) It makes mistakes. What is there to like?

Actually there is a lot to like. The IRS’ mission statement is to, “Provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.” That is a tough job. According to the IRS:

This mission statement describes our role and the public’s expectation about how we should perform that role.
  • In the United States, the Congress passes tax laws and requires taxpayers to comply.
  • The taxpayer’s role is to understand and meet his or her tax obligations.
  • The IRS role is to help the large majority of compliant taxpayers with the tax law, while ensuring that the minority who are unwilling to comply pay their fair share.
One thing the IRS does very well is provide information, lots of information. Sometimes the information is overwhelming. Sometimes it is contradictory. Sometimes it is late. (In defense of the IRS, it promulgates rules and writes instructions according to laws passed by Congress. That has a lot to do with conflicting rules and with delay. For good examples of this, read up on the AMT and the Estate Tax.)
Another thing the IRS does well is make it easy to get help. You can call, write, e-mail, fax, or even stop by a local office. If that does not get you the help you need, you can even contact the Taxpayer Advocate Service. (If you have ideas about how to make the process better, the IRS even has a way for you to provide feedback and submit ideas for improvement, the Taxpayer Advocacy Panel.)

Here are five ways to get help from the IRS.
  1. Call the IRS: (800) 829-1040
  2. Call the Web Site Help Desk: United States and Canada (800) 876-1715 / International (319) 464-3291
  3. E-mail the Web Site Help Desk:
  4. Check out the Frequently Asked Questions (FAQ) page:  
  5. Stop by your local office or Taxpayer Assistance Center. Click here to find out how to contact your local Center.  

For other help, check out the directory at 

Thursday, April 8, 2010

Wondering about your tax refund? Look it up online!

You can find out about the status of your tax refund by using the Where's My Refund? tool on the IRS website.

The IRS says that you can get information about your refund 72 hours after IRS acknowledges receipt of your e-filed return or three to four weeks after mailing a paper return.

You will need to provide the following information from your return to identify yourself:

  • Your Social Security Number (or Individual Taxpayer Identification Number)
  • Your Filing Status
  • The exact whole dollar amount of your refund

Wednesday, April 7, 2010

Save Energy! Save Money! What you need to know about Energy Tax Credits

Saving energy in your home is green in more ways than one. Saving energy can help you save the planet. It can also save you money by lowering your energy bills and reducing your taxes. This is what you need to know about the residential energy provisions of the American Recovery and Reinvestment Act of 2009.

Taxpayers have two ways to reduce their tax bills.
  1. Residential Energy Property Credit
  2. Residential Energy Efficient Property Credit

Residential Energy Property Credit
This credit allows taxpayers to take a credit for 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 for improvements placed in service in 2009 and 2010. These improvements include items such as adding insulation, energy efficient exterior windows and energy-efficient heating and air conditioning systems. Homeowners contemplating renovations should check to make sure that their improvements will qualify for the credit.

Residential Energy Efficient Property Credit
This energy tax credit will help individual taxpayers pay for "qualified residential alternative energy equipment." This includes solar hot water heaters, solar electric systems, geothermal heat pumps and wind turbines. The law allows for a credit equal to 30 percent of the cost of qualified property. There is no cap on this credit.

How to claim the credits
  • The first step in claiming the credits takes place before doing any improvements. Check with suppliers and contractors to make sure that your plans will qualify. Be certain that windows, roofing material, or other efficiency upgrades meet the applicable requirements. You can check with the Energy Star progam.
  • Keep records and all of your receipts. You should keep the product labels.
  • File Form 5695 when you file your tax return.
  • Enjoy your energy improvements and your tax credits.

How to save money on accounting fees!

Many people are surprised at how much it costs for their CPA to prepare their returns. Hiring an expert to do your taxes is a good idea, and most of the fees are money well spent. However, some habits may be costing you a lot of money, and they could lead to errors. What are these habits?
  • Disorganization
  • Sloppy bookkeeping
  • Unresponsiveness
This is how those habits cost you and what you can do about them.


It is amazing how many people simply gather up any documents that they think might somehow be related to their income tax, stuff them in folders or large envelopes, and send them to their CPA. The CPA will review and make copies of everything. Many of the documents will turn out to be unnecessary. Even so, once their CPAs start going through the files, they find that many important items are not included. The CPA will then have to contact the client and ask for the missing documents. This adds to the expense of preparing the return because the accountant spends additional time and expense on the unnecessary items and them spends extra time tracking down the missing items.

A few common examples are listed below.

Housing related items

Taxpayers that own homes may be eligible to deduct mortgage interest, PMI, and property taxes. The only documents that the accountant needs are the mortgage interest statements from the holder of the mortgage and property tax receipts. It is generally not necessary to provide monthly statements for the mortgage or tax notices. Taxpayers should be sure to let their accountants know what they paid, and in instances where they may not have paid an item (such as delaying a property tax payment) what they have not paid.
Taxpayers that sold or purchased a home should generally provide the settlement statements to their accountants. This will help the accountant evaluate whether there are deductible expenses related to the transaction, and it will help confirm whether the taxpayer qualifies for gain exclusions. If the home was converted to or from rental use or vacation property, then it is especially important to provide this information.

Clients with home offices should keep additional records.

Bank and brokerage accounts

Clients with bank and brokerage accounts will often provide monthly, quarterly, and annual reports. Clients may, or may not, provide the relevant 1099s. The CPA will review all of the documents. If the 1099's are not provided, the CPA will contact the client and ask for them. It is especially important for clients that receive stock based compensation and clients that do a lot of trading to review their documents and make sure that the CPA has what he or she needs to complete the return, and that unnecessary information is not included in the file.

Business expenses

Unless your accountant set up and maintains your bookkeeping, he or she has no way of knowing the details of your expenses. Clients frequently bring folders and envelopes full of receipts to their CPA. All that is really necessary is a set of financial statements and a summary of expenses. The reason that this increases the cost of the return is that the accountant will have to organize the receipts, and this takes time. It is much less expensive to organize expenses than it is to pay the accountant to organize them for you.
Clients who use automobiles for business should keep records and provide them to their accountant.

Childcare expenses

Clients with children who pay for childcare should provide information about the care provider including the address, tax ID number and the amount paid. If the client used a flexible spending account, or if the employer provided a childcare benefit, then the client should provide that information as well.

Sloppy (or no) bookkeeping

Many business owners try to save money by limiting their record keeping. When the do decide to keep detailed records, they often consist of spreadsheets. Once the records get to complex for spreadsheets then business owners will buy a bookkeeping program. In the long run, none of this saves money. If the books are not well organized then the accountant may have to virtually redo them in order to prepare the tax return. This adds to the cost of the return, and it is more expensive than it would have been to have had the books properly prepared before bringing them to the CPA for tax filing.
Another thing that adds to the cost of preparing tax returns is when accounts are set up incorrectly. When accounts are set up correctly, then they can be configured in a way that makes it simple to produce reports in standard formats. These formats include tax reporting formats as well as formats designed to help manage a business.

A final problem for many taxpayers is failing to separate personal and business expenses. Ideally, business owners will have different bank accounts for business and personal use. If that is not possible, then at the very least, they should keep personal items out of their business records by flagging them appropriately so that they can be identified and excluded from reports.


Many clients do not respond when their accountant tries to contact them. The reason the accountant is calling is either to find missing information or to clarify something that is not clear. When clients do not respond, their returns remain unfinished. Tax preparers have to set the return aside and wait for the additional information. When the client does respond, sometimes weeks later after several emails or telephone calls, the preparer will reopen the file and begin working on the return. Unfortunately, it will probably not be fresh in the preparer's mind, and it will take longer to complete than if the missing information had been available sooner. Unresponsiveness increases the cost of preparing your return because it is difficult to work with missing information and it takes longer to prepare the return. In addition, every one of those phone calls and emails take time.

What you can do to save money

The most important thing is to be away of habits that may be costing you money. Once you know what they are, change them!

Get organized!

Talk to your CPA or the professional that prepares your filing. He or she can tell you exactly what you need to do in order to simplify your tax filing and to make it less expensive to prepare your return. Take advantage of the checklists and organizers your accountant provides. Spend a little time reviewing your documents before you take them to your accountant.

Keep records throughout the year, and organize them so that they will be ready for your accountant. If you drive an automobile for work, get one of those auto record books and keep it. Keep your business and personal records separate.

Organize your records. Think about buying a bookkeeping program. Consider hiring a bookkeeper.

It is worth your time to talk to your CPA or to a bookkeeper to learn how to set up your records. If you have a small business, seriously consider purchasing bookkeeping software such as QuickBooks or Peachtree. If you do, it is worth your while to ask your accountant or bookkeeper to help you set up your books. If you simply don't want to organize your own records, or if they are too complex, then hire a bookkeeper. The cost of paying a bookkeeper to do your books throughout the year will be less than the cost of asking your accountant to do it a month before your taxes are due.

Return your calls! Respond to email!

When the CPA calls or emails, assume it is important and respond! If you do not return your calls or answer your email, then one contact becomes two or three or more. Your CPA will be able to complete your return faster and for less cost if you respond when he or she tries to contact you.

Monday, April 5, 2010

Surprised by the size of your tax refund? Adjust your withholding.

Every year during tax filing season people complete their income tax returns and discover one of three things.
  1. They owe tax,
  2. They paid just the right amount during the year, or
  3. They will receive a refund.
In the US tax system, employers withhold a variety of taxes, including income tax from employees' pay. Self-employed individuals, and people who have income from sources other than an employer, are supposed to make estimated tax payments throughout the year. Ideally, if the withholding is calculated correctly or if the estimated taxes are figured accurately, the amount forwarded to the government during the year will equal the amount that will be due. If the amount sent is more than the tax that will be due, then the taxpayer has made an interest free loan to the government. If the amount sent is too small, then the taxpayer may be subject to penalties.

There are many reasons that people may choose to have a larger than necessary amount withheld. For example, some people like the idea of the receiving a large refund and think of it as a forced savings plan. Another reason is that people may have an uncommon amount of deductions or credits. There may also be many reasons that withholding amounts are too small. Employees that have several jobs may find that their employers may not withhold enough. Employees may also have income from other sources. In either case, employees should either adjust their withholding or make estimated tax payments.

If your refund was too big or too small, then you should adjust your withholding or recalculate your estimated taxes. Follow the instructions that accompany the W-4. You can also use the IRS' Withholding Calculator. If you need more detailed information, it is available in Publication 919.

Overwhelmed? Afraid you won’t make the April 15, 2010 filing deadline?

File an extension. Individuals may qualify for an automatic 6-month extension of time. File Form 4868, Application for Automatic Extension of Time to File U.S. Income Tax Return. The extension only extends your filing deadline. It does not extend the deadline for paying taxes that you owe.
If you:
  • Live outside the United States,
  • Are out of the country when your extension expires, or
  • You are serving in a combat zone or other qualified hazardous duty area
Special rules may apply.
Corporations, partnerships, and other entities such as trusts are subject to different rules.

Sunday, April 4, 2010

It is not too late to contribute to an IRA or Roth IRA for 2009.

If you have not already made your contributions to an IRA or a Roth IRA for 2009, you still have time. The deadline for contributing to an IRA is the due date for filing your return, not including extensions. For most people, that means the due date is April 15, 2010. If you make your contribution for 2009 in 2010, be sure to designate your contribution as a 2009 contribution.

Be sure to talk to your CPA and your financial institution before April 15th. If you want to read all the details for yourself, check out IRS Publication 590.

You may also qualify for a Savers Credit. Check out Form 8880 when you complete your 1040 or 1040A.