Month: December 2011

Tax

Filing Status – What You Need to Know

Your federal tax filing status is based on your marital and family situation. It is an important factor in determining your standard deduction and your correct amount of tax, and whether you must file a return.

Your marital status on the last day of the year determines your status for the entire year. If more than one filing status applies to you, you may choose the one that gives you the lowest tax obligation.

There are five filing status options:

    • Single. Generally, if you are unmarried, divorced, or legally separated according to your state law, and you do not qualify for another filing status, your filing status is Single.

 

    • Married Filing Jointly. If you are married, you and your spouse may file a joint return. If your spouse died during the year and you did not remarry, you may still file a joint return with that spouse for the year of death. This is the last year for which you may file a joint return with that spouse.

 

    • Married Filing Separately. Married taxpayers may elect to file separate returns.

 

    • Head of Household. Generally, you must be unmarried and paid more than half the cost of maintaining a home for you and a qualifying person for more than half a year.

 

  • Qualifying Widow(er) with Dependent Child. You may be able to file as a qualifying widow or widower for the two years following the year your spouse died. To do this, you must meet all four of the following tests:
    1. You were entitled to file a joint return with your spouse for the year he or she died. It does not matter whether you actually filed a joint return.
    2. You did not remarry in the two years following the year your spouse died.
    3. You have a child, stepchild, or adopted child (a foster child does not meet this requirement) for whom you can claim a dependency exemption.
    4. You paid more than half the cost of maintaining a household that was the main home for you and that child, for the whole year.

    After the two years following the year in which your spouse died, you may qualify for head of household status.

We can definitely help you determine which filing status is best for your situation. Just call us up or send an email.

Tax

Should You File a Tax Return?

Do you ever wonder whether your income is high enough to warrant the filing of a tax return? Because the minimum income level varies depending on filing status, age, and the type of income you receive, it can be a bit complicated. The following guide is based on minimum income requirements from tax year 2011.

Single Taxpayers
If you expect to file a single return, the IRS requires you to file a tax return if your gross income for the year is at least $9,500 if you are under age 65 and $10,950 if you are 65 or older.

Married Filing Jointly
For married persons filing jointly, you are required to file a return if gross income for 2011 is at least $19,000 if both of you are under age 65. If one of you was at least age 65 in 2011, the limit is $20,150 – and if both of you were 65 or over, you must file if you made at least $21,300.

If you are not living with your spouse at the end of the year or you weren’t living with them on the day they passed away, the IRS requires you to file a return if your gross income is at least $3,700. This is based on the personal exemptiion, which in tax year 2011 was $3,700.

For married persons filing a separate return, no matter what age, you must file a return if gross income is at least $3,700.

Head of Household
For persons filing as head of household, you must file a return for 2011 if gross income is at least $12,200 if under age 65 and $13,650 if at least age 65.

Qualifying Widow or Widower
For persons filing as a qualifying widow or widower with a dependent child, you must file a return for 2011 if gross income is at least $15,300 if under age 65 and $16,450 if at least age 65.

Other Situations That Require Filing
Even if you don’t earn this much income, other situations necessitate filing a tax return. For example, a dependent has to file a return for 2011 if they received more than $950 in unearned income or more than $5,800 in earned income.

Other situations include:

You Owe Certain Taxes. If you owe FICA or Medicare taxes (also called payroll taxes) on unreported tips or other reported income that were not collected, you must file a return. You must also file a tax return if you are liable for any alternative minimum tax. Finally, you must file a return if you owe taxes on individual retirement accounts, Archer MSA accounts, or an employer-sponsored retirement plan.

Advance Earned Income Tax Credit Payments. The Earned Income Tax Credit is a federal income tax credit for eligible low-income workers. The credit reduces the amount of tax an individual owes, which may be returned in the form of a refund. If you receive advance payments for the earned income credit from your employer, you must file a return.

Self-Employment Earnings. If your net earnings from self-employment are $400 or more, you must file a return.

Church Income. If you earn employee income of at least $108.28 from either a church or a qualified church-controlled organization that is exempt from employer-paid FICA and Medicare taxes, you must file a return.

Questions?
Call us for more information about filing requirements and your eligibility to receive tax credits.

Financial Planning Retirement

Your Pension Plan – Inflation Adjustments for 2012

For 2012, there are a few cost of living adjustments for pension plans and other retirement-related items. Check out what to expect in the new year….

  • The contribution limit for employees who participate in section 401(k), 403(b), or 457(b) plans, and the federal government’s Thrift Savings Plan, increases to $17,000 in 2012, from $16,500 in prior years.
  • The catch-up contribution limit in those plans for those aged 50 and over remains unchanged, at $5,500.
  • IRA contributions and catch up limits remain unchanged for 2012 at $5,000 and $1,000 respectively.
  • The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are active participants in an employer-sponsored retirement plan and have modified adjusted gross incomes (AGI) between $58,000 and $68,000, up from $56,000-$66,000 in 2011.
  • For married couples filing jointly, in which the spouse who makes the IRA contribution is an active participant in an employer-sponsored retirement plan, the income phase-out range is $92,000 to $112,000, up from $90,000 to $110,000. For an IRA contributor who is not an active participant in an employer-sponsored retirement plan and is married to someone who is an active participant, the deduction is phased out if the couple’s income is between $173,000 and $183,000 in 2012, up from $169,000 and $179,000 in 2011.
  • The AGI phase-out range for taxpayers making contributions to a Roth IRA is $173,000 to 183,000 for married couples filing jointly, up from $169,000 to $179,000 in 2011. For singles and heads of household, the income phase-out range is $110,000 to $125,000, up from $107,000 to $122,000. For a married individual filing a separate return who is an active participant in an employer-sponsored retirement plan, the phase-out range remains $0 to $10,000.
  • The AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low- and moderate-income workers is $57,500 for married couples filing jointly, up from $56,500 in 2011; $43,125 for heads of household, up from $42,375; and $28,750 for married individuals filing separately and for singles, up from $28,250.
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