It's Tax Time

So it’s the time of year to talk seriously about tax deadlines.  Your IRA contribution for 2011 can be made as late as April 17^th of this year.  If you’re finding out bad news about your tax bill, this is a quick fix that you can still make.  If you contribute to a Coverdell education savings account you have until April 17^th to do that. 

Your income taxes are due this year on April 17^th.  Even though April 16^th falls on a Monday, Washington D.C. celebrates Emancipation Day on that date, so they moved the tax deadline one more day.  Presumably there’s a sense of irony associated with mixing emancipation and income taxes that enabled this decision. 

While you can file for an extension if you’re not ready to file a tax return, you must PAY all taxes owed for 2011 by April 17^th.  This is a hard and fast rule.  You file for an extension using IRS form 4868.  That can be e-filed as well.  You can pay by check, or charge it through an IRS approved credit card processer.  There are fees for using a credit or debit card, so you’re better off with a check if you can do that.  Any option is cheaper than the penalties and interest for not paying.  If you can’t afford to pay the whole thing at once the IRS does allow you to apply for an installment plan using Form 9465.  Again, this is expensive, but cheaper than the alternative of not paying anything up front.  It’s also important to remember that failing to file creates a whole other set of penalties and interest.  My advice is that you file and pay what you can.

If you get an extension you have until October 15^th to get the final tax return done.  If you have a Keogh plan in place and you file an extension you can wait until October 15^th to make that contribution.  Your Keogh plan must have been up and running by January 1^st of 2012 for this to work.  If you don’t meet that criterion, you can set up a SEP-IRA. 

Let me emphasize one more time how important it is to timely file and pay.  If you make mistakes it’s much easier to get them fixed if you can point out to the IRS that you tried to do the right thing.

 Back to doing tax returns….

Deja vu All Over Again

So Congress did come through with tax legislation at the last minute.  Here’s my summary of highlights from the legislation.



For “wage slaves” like myself there is the reduction in payroll taxes from 6.2% to 4.2% for 2011.  According to the Tax Foundation this will result in a $1,500 reduction in taxes paid for a couple earning $75,000. The maximum savings available up to income of $106,800 is $2,316.

Many of the tax breaks due to expire, will now continue.  These include a basket of incoherent incentives to engage or abstain from certain behaviors in the marketplace.  The list includes, but is not limited to:

For individuals:

-     Extensions of the dependent-care credit and the adoption tax credit.  The adoption tax credit was made refundable through 2011 in the health care legislation.  This tax bill moves that feature into 2012 as well.

-      Teachers still get up to $250 “above-the-line” deduction for buying supplies for their classrooms.

-      Through 2012, you can still:   apply for The American Opportunity tax credit for education, use the exclusion for employer-paid education, and deduct your student loan interest.

For businesses:

-      The R& D credit is in place now through 2011.

-      The special 15-year cost recovery for certain leasehold, restaurant and retail improvements remains.

-      Expansion of bonus depreciation to 100% for new assets placed in service starting September 9, 2010 through 2011.  We’ll go back to 50% for bonus depreciation for 2012.  Then it is supposed to go away permanently. 

-   Speaking of Section 179 – earlier legislation passed this year will let you take up to $500,000 in expense for capital assets this year and next.  Unlike bonus depreciation, the Sec. 179 deduction is also available for used assets.

For everyone:

The AMT patch was passed, so the 2010 exemption will be $47,450 for individuals and $72,450 for joint filers.

The estate tax is back with a 35% rate and a $5 million lifetime exclusion.  It can be applied retroactive to January 1, 2010, or estates of 2010 decedents can elect the previous 2010 rules, with no estate tax but a limited step up in the basis of inherited assets.

For me to do next:

Now that this bill has passed I have no more excuses.  If Congress can meet an end-of-year deadline, then it’s really pathetic if I can’t do the same.  Time to get to work on the New Year’s Resolution list….