This estimate goes towards your 2008 tax liability so it reduces the amount you will owe on your 2008 tax return when you file.

To avoid the penalty for not paying enough estimated tax, you need to pay in at least 90% of your 2008 tax liability or 100% of your 2007 tax liability, whichever is less.

Alternatively, you can choose to file and pay your 2008 taxes by January 31, 2009 to avoid any underpayment penalties.

Use Form 1040-ES to submit your estimated tax payment.

For a refresher on estimated tax payments, see ‘Do I Need to Make Estimated Tax Payments?’

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• W-2s and 1099s Due Monday!

There have been many changes to the tax law this year so you may not even be aware of all the tax credits and deductions that you may qualify for.  Here are some tax planning strategies that you may be able to take advantage of before the year ends:

Real Estate Tax Deduction — New for 2008, there is an additional standard deduction for those who don’t itemize their deductions, but who pay real estate taxes. The additional deduction amount is equal to the amount of real estate taxes paid up to $500 for single filers or up to $1,000 for joint filers. This deduction is available for the 2008 and 2009 tax years and increases your standard deduction.

First-Time Homebuyers Tax Credit — First-time homebuyers may qualify for a new tax credit available for a limited time. The credit applies to primary home purchases between April 9, 2008, and June 30, 2009.  The credit is 10 percent of the purchase price of the home, with a maximum available credit of $7,500 for either a single taxpayer or a married couple filing jointly. This tax credit is more of a loan than a credit in that it must be paid back in equal payments over 15 years. First-time homebuyers are those who have not owned a home in the three years prior to a purchase.

Tuition and Fees Deduction — While this isn’t a new deduction, it was scheduled to expire in 2007 and was recently extended for 2008.  This deduction allows you to deduct qualified tuition and required enrollment fees up to $4,000 that you pay for yourself, your spouse or a dependent. You do not have to itemize to take this deduction. However, a taxpayer cannot take both the tuition and fees deduction and education credits (Hope & Lifetime Learning
Credits) for the same student in the same year. Income limits and other special rules apply to each of these provisions.

Educators’ Out of Pocket Expense Deduction — The educator expense deduction allows teachers and other educators to deduct the cost of books, supplies, equipment and software used in the classroom.  Eligible educators include those who work at least 900 hours during a school year as a teacher, instructor, counselor, principal or aide in a public or private elementary or secondary school. Worth up to $250, the educator expense deduction is available whether or not the educator itemizes deductions on Schedule A.

New Rules for “Cash” Charitable Contributions — Just a reminder that the rules for charitable donations have changed.  Since tax year 2007, to deduct any charitable donation of money, you must have a bank record, credit card statement or a written communication from the recipient showing the name of the organization and the date and amount of the contribution. In determining what may be deducted as a charitable contribution, see IRS Publication 526 for 2008 to be released in the near future.

Planning Your Income — Some taxpayers, such as the self-employed, may have some discretion regarding when they receive income. Properly deferring income until next year can lower your taxable income and tax bill this year. This strategy will, however, raise your tax bill next year. And many taxpayers also have some control over their income via the sale of investments to incur a gain or loss.  This is generally a key area of decision-making for investors. These decisions must be made and executed by Dec. 31 to be counted on a 2008 tax return.

Retirement Savings — While you have until April 15 to make contributions to your IRA for 2008, Dec. 31 is the deadline for contributions to a
401(k) plan and other employer sponsored retirement plans.

New children — If you had or adopted a child in 2008, you need to get a Social Security number for that child as soon as possible to ensure that you can include the child as a dependent on your 2008 return. Also, having or adopting a child in 2008 may mean you will receive a larger recovery rebate credit.  You can claim the higher rebate credit when you file your 2008 tax return.

Related Posts:

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• Year End Tax Tips

The saver’s credit is available in addition to other tax deductions and credits that a person may qualify for, so taxpayers who take a deduction for contributions made to IRAs, 401Ks and other tax-deferred retirement accounts, and who also qualify for the saver’s credit, essentially get a double tax break.

You still have time to make contributions to your retirement accounts and get the saver’s credit, if you qualify.  The deadline for setting up or adding money to IRAs and still get credit for 2008 is April 15, 2009.  But if you’re planning on contributing to your 401K or other employer sponsored plan, you need to get your contributions in by the end of the year.

The following people qualify for the saver’s credit:

• Married couples filing jointly with incomes below $53,000 ($55,500 in 2009),
• Taxpayers filing as head of household, with income below $39,750 ($41,625 in 2009), and
• Single taxpayers (including married individuals who file separately) with incomes up to $26,500 in 2008 (or $27,750 in 2009)

While these income limits may seem low, if you are starting a new business, are unemployed or underemployed in any given tax year, this tax credit provides incentive to continue saving for your retirement by giving you some of your contributions back in the form of a credit.

The saver’s credit is a refundable tax credit which means it can increase your refund or reduce any tax you owe.  The maximum saver’s credit is $1,000 ($2,000 for married couples), but most people qualify for much less, depending on how much you save in your retirement account, your income, and other deductions and credits.

To claim the saver’s credit, file Form 8880 and attach it to your tax return (Form 1040).  This credit was made a permanent part of the tax code in 2006, and is adjusted annually to keep up with inflation.

For more information about the saver’s tax credit, please visit the IRS website at www.irs.gov.

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Since then, gas prices have dropped dramatically.  Prices were as high as $4.10 in some states during the summertime, but have dropped to a national average of $1.90 in this last week in November.

I was wondering how the IRS would respond to the drop in prices.  After all the increase to 58.5 cents per gallon was based on prices that were twice as high as they are now.

Earlier this week, the IRS announced that the standard mileage rate for business use of your automobile in 2009 will be 55 cents per mile.  That’s still well above the beginning rate in 2008, so I think the new rate is very generous.

For home and online business owners who use their car for business purposes, the automobile deduction can really add up.  Make sure you keep a log of all of your business related trips, including the date, the total miles driven and the purpose of the trip.

You can find travel or mileage logs in any office supply store, or you can use your calendar or a spreadsheet to keep track of your miles.  The most important thing is to keep good and accurate records in case you are ever audited.

If you keep track of your mileage for medical or charity purposes, not that the standard mileage rate for medical purposes is 24 cents per mile, and the rate for charitable purposes is 14 cents per mile.

For more information on the new mileage rates, please visit ‘IRS Announced 2009 Standard Mileage Rates’.

Related Posts:

• Standard Mileage Rates To Go Down In 2010
• Final Tax Estimate for 2008 Approaching Quickly
• December 31st Is The Last Day for Most Tax Planning Strategies

One of the biggest challenges will be the economy, specifically taxes.  A lot was said during the election about tax rebates and raising taxes on the middle class, especially after “Joe the Plumber” asked the fateful question that made him famous (well, semi-famous).

There is a lot of fear that Obama will raise taxes for the middle class Americans, but according to BarackObama.com, President-Elect Obama will actually cut taxes for 95 percent of workers and their families, with a tax cut of $500 for working individuals (or $1,000 for working couples).

Here are some key points about the tax plan from BarackObama.com:

Obama’s Comprehensive Tax Policy Plan for America will:

* Cut taxes for 95 percent of workers and their families with a tax cut of $500 for workers or $1,000 for working couples.

* Provide generous tax cuts for low- and middle-income seniors, homeowners, the uninsured, and families sending a child to college or looking to save and accumulate wealth.

* Eliminate capital gains taxes for small businesses, cut corporate taxes for firms that invest and create jobs in the United States, and provide tax credits to reduce the cost of health-care and to reward investments in innovation.

* Dramatically simplify taxes by consolidating existing tax credits, eliminating the need for millions of senior citizens to file tax forms, and enabling as many as 40 million middle-class Americans to do their own taxes in less than five minutes without an accountant.

Under the Obama Plan:

* Middle class families will see their taxes cut – and no family making less than $250,000 will see their taxes increase. The typical middle class family will receive well over $1,000 in tax relief under the Obama plan, and will pay tax rates that are 20% lower than they faced under President Reagan. According to the Tax Policy Center, the Obama plan provides three times as much tax relief for middle class families as the McCain plan.

* Families making more than $250,000 will pay either the same or lower tax rates than they paid in the 1990s. Obama will ask the wealthiest 2% of families to give back a portion of the tax cuts they have received over the past eight years to ensure we are restoring fairness and returning to fiscal responsibility. But no family will pay higher tax rates than they would have paid in the 1990s. In fact, dividend rates would be 39 percent lower than what President Bush proposed in his 2001 tax cut.

* Obama’s plan will cut taxes overall, reducing revenues to below the levels that prevailed under Ronald Reagan (less than 18.2 percent of GDP). The Obama tax plan is a net tax cut – his tax relief for middle class families is larger than the revenue raised by his tax changes for families over $250,000. Coupled with his commitment to cut unnecessary spending, Obama will pay for this tax relief while bringing down the budget deficit.

For more details, please read the full Obama tax plan.

Related Posts:

• Final Tax Estimate for 2008 Approaching Quickly
• More About Obama’s Proposed ‘Paycheck Bonus’
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Here are a few smart tax moves you can do now to make next year’s tax season less painful:

Get organized: If your tax filing system consists of shoeboxes and shopping bags, now is a good time to move your finances to your computer. You still need to save key receipts and documents, but entering spending, savings and investment information into a program like Quicken or Microsoft Money (whichever is easier for you to use), will not only give you a clearer idea of your finances, but it will make your tax filing process much easier for your tax professional or if you do it yourself.

How long to keep documents: you should keep your tax returns and all
supporting documents for a minimum of three years, up to seven years.
A good idea is to setup a new tax folder for each new year and file all
receipts and tax documents in this folder as soon as you receive them.
When your taxes are complete, put everything in a manila envelope and
file away with your previous years’ tax returns.

Adjust your tax withholding: If you got a large tax refund on your tax
return, consider increasing your number of exemptions so that less
money is taken out of your paycheck and more goes into your pocket.
Use Form W-4 to adjust your withholding.

Make estimated tax payments: on the flip side, if you owed Uncle Sam a
pretty big chunk this year, then you may need to make estimated tax
payments. Estimated tax payments are made quarterly using Form
1040-ES. If you owe more than $1,000 on your tax return, you
definitely should make estimated tax payments to avoid owing penalties.

Business owners: there are many things you can do to make next tax
season easier if you have a small or home based business, but here are
a couple to get started. First, if you earned a substantial profit,
review your business structure… it may be time to incorporate or to
start a retirement plan. You should also consider hiring your children
in your business to save taxes. And most importantly, make sure you
understand what expenses are deductible so you won’t miss any at tax
time.

Keep an eye on new tax laws. A new tax credit or deduction may create
tax planning opportunities. For example, in 2007 we had several energy
credits, so that was a perfect opportunity to make improvements to your
home. In 2008, the long term capital gain rate is 0% for taxpayers in
the two lowest tax brackets. This is a great opportunity for taxpayers
to rebalance their portfolio or reduce large stock positions without
paying a ton of taxes on the gain.

Get help: whether you need a bookkeeper for your small business or you
need a tax preparer to prepare your tax return next year, get help
BEFORE tax season gets here. If you wait until tax season actually
starts, you may have trouble finding an accountant who can (or is
willing to) take you on as a client.

Bottom line: the more prepared you are for tax season the better you’ll
fare. You are more likely to get all the tax credits and deductions
you are entitled to – and thus to pay only your fair share of taxes -
the more organized and prepared you are.

Related Posts:

• Final Tax Estimate for 2008 Approaching Quickly
• December 31st Is The Last Day for Most Tax Planning Strategies
• Savers Credit Helps Low to Middle Income Taxpayers Save for Retirement

Attention coaches, eBay sellers, affiliate marketers, and other online business owners…

• Do you worry that you’re paying too much in income taxes?
• Do you worry that you’re not getting all of the deductions you’re entitled to?
• Do you want to learn
  how to pay fewer taxes and keep more of your profits?

Announcing the Free teleseminar, ‘Your Top Tax Questions Answered’!

Join me on Thursday February 14th at 12:00 CST for this exclusive teleclass, to answer your top tax questions!

Click here for more information and to sign up today!

*** Note: This teleclass has already taken place, but you can get access to the recording, a special report, and a bonus recording, by clicking here now! ***

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First, consider whether or not you’ve allowed enough time for the
mailing to reach you.  Employers need only mail the document by the
31st of January, not have it in your hands by that date.

Ok, you’ve patiently waited out the normal delivery time frame of
your postal service and still no W2; what now?  Your first step at this
point should be to contact your employer; normally the Human Resources
department.  Most often, it’s as simple as that.  If it’s simply a
matter of delivery, your company should be able to easily supply you
with another copy. 

If you absolutely can’t get a W2 from your employer – because
they’ve gone out of business, they don’t have good records, etc. – then
you can download Form 4852, which is a substitute W2, from the IRS website, and use this form to prepare your tax return.

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Right now I’m sitting in front of a cozy fire, watching "The Mystery of Christmas" (a 48-Hours special) on tv, and catching up on reading blogs.

Here are a couple that have caught my attention on this Christmas night…

The Bible and Taxes, Now and Then – this is an interesting post about how taxes are mentioned in the Bible, and how many states may actually be violating biblical principals in the way they tax their residents.

Tax Relief for Homeowners Struggling to Pay PI and PMI – The Mortgage Forgiveness Debt Relief Act of 2007 eliminates the tax on debt that is discharged or cancelled, and also extends the deduction for PMI thru 2010.

Plop, Plop, Fizz, Fizz: Lame AMT Relief It Is – the name says it all… we finally got  the long awaited AMT relief we have been waiting for, but it’s just another patch.  Looks like we’ll have to wait for permanent AMT relief.

That’s all my tired eyes can handle at the moment.  Enjoy!

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FS-2007-26, November 2007

While most people are aware they must include wages, salaries, interest, dividends, tips and commissions as income on their tax returns, many don’t realize that they must also report most other income, such as:

    * cash earned from side jobs,
    * barter exchanges of goods or services,
    * awards, prizes, contest winnings and
    * gambling proceeds.

This fact sheet, the 18th in the Tax Gap series, will help taxpayers better understand miscellaneous income and what they are required to report as taxable on their Form 1040.

The tax gap, or the amount of taxes that go unpaid each year,
results from taxpayers underreporting their taxable income. Fortunately
most people want to pay their fair share of taxes and many simply need
a better understanding of their obligations.

What is Taxable?

Taxpayers must report all income from any source and any country
unless it is explicitly exempt under the U.S. tax code. There may be
taxable income from certain transactions even if no money changes hands.

Generally, the IRS considers all income received in the form of
money, property or services to be taxable income unless the law
specifically provides an exemption. This document discusses a few types
of reportable income. Information on how to report other types of
income can be found in Publication 525, Taxable and Nontaxable Income.

Self-Employment Income

It is a common misconception that if a taxpayer does not receive a
Form 1099-MISC or if the income is under $600 per payer, the income is
not taxable. There is no minimum amount that a taxpayer may exclude
from gross income.

All income earned through the taxpayer’s business, as an independent
contractor or from informal side jobs is self-employment income, which
is fully taxable and must be reported on Form 1040.

Use Form 1040, Schedule C, Profit or Loss from Business, or Form
1040, Schedule C-EZ, Net Profit from Business (Sole Proprietorship) to
report income and expenses. Taxpayers will also need to prepare Form
1040 Schedule SE for self-employment taxes if the net profit exceeds
$400 for a year. Do not report this income on Form 1040 Line 21 as
Other Income.

Independent contractors must report all income as taxable, even if
it is less than $600. Even if the client does not issue a Form
1099-MISC, the income, whatever the amount, is still reportable by the
taxpayer.

Fees received for babysitting, housecleaning and lawn cutting are
all examples of taxable income, even if each client paid less than $600
for the year. Someone who repairs computers in his or her spare time
needs to report all monies earned as self-employment income even if no
one person paid more than $600 for repairs.

Bartering

Bartering is an exchange of property or services. The fair market
value of goods and services exchanged is fully taxable and must be
included on Form 1040 in the income of both parties.

An example of bartering is a plumber doing repair work for a dentist
in exchange for dental services. Income from bartering is taxable in
the year in which the taxpayer received the goods or services.

Gambling winnings

Gambling winnings are fully taxable and must be reported on Form 1040.

Gambling income includes, among other things, winnings from
lotteries, raffles, horse races, poker tournaments and casinos. It
includes cash winnings as well as the fair market value of prizes such
as cars and trips.

Even if a W-2G is not issued, all gambling winnings must be reported
as taxable income regardless of whether any portion is subject to
withholding. In addition, taxpayers may be required to pay an estimated
tax on the gambling winnings.

Losses may be deducted only if the taxpayer itemizes deductions and
only if he or she also has gambling winnings. The losses deducted may
not be more than the gambling income reported on the return.

Prizes and awards

Subject to certain exceptions, the cash value of prizes or awards
won in a drawing, quiz show program, beauty contest, or other event,
must be included on the tax return as taxable income.

Taxpayers must also report the fair market value of merchandise or products won as a prize or award, as taxable income.

For example, both a $500 cash prize and the fair market value of a
new range won in a baking contest must be reported as other income on
Form 1040, Line 21.

Related Items:

• Publication 525, Taxable and Nontaxable Income
• Publication 505, Tax Withholding and Estimated Tax
• Publication 529, Miscellaneous Deductions

Related Posts:

• Final Tax Estimate for 2008 Approaching Quickly
• December 31st Is The Last Day for Most Tax Planning Strategies
• Savers Credit Helps Low to Middle Income Taxpayers Save for Retirement