important facts

Tax

Eight Facts on Late Filing and Late Payment Penalties

April 15 is the annual deadline for most people to file their federal income tax return and pay any taxes they owe. If, for whatever reason, you missed the deadline you may be assessed penalties for both failing to file a tax return and for failing to pay taxes they owe by the deadline. Here are eight important facts every taxpayer should know about penalties for filing or paying late:

1. A failure-to-file penalty may apply if you did not file by the tax filing deadline. A failure-to-pay penalty may apply if you did not pay all of the taxes you owe by the tax filing deadline.

2. The failure-to-file penalty is generally more than the failure-to-pay penalty. You should file your tax return on time each year, even if you’re not able to pay all the taxes you owe by the due date. You can reduce additional interest and penalties by paying as much as you can with your tax return. You should explore other payment options such as getting a loan or making an installment agreement to make payments. Contact us if you need help figuring out how to pay what you owe.

3. The penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent of your unpaid taxes.

4. If you do not pay your taxes by the tax deadline, you normally will face a failure-to-pay penalty of 1/2 of 1 percent of your unpaid taxes. That penalty applies for each month or part of a month after the due date and starts accruing the day after the tax-filing due date.

5. If you timely requested an extension of time to file your individual income tax return and paid at least 90 percent of the taxes you owe with your request, you may not face a failure-to-pay penalty. However, you must pay any remaining balance by the extended due date.

6. If both the 5 percent failure-to-file penalty and the 1/2 percent failure-to-pay penalties apply in any month, the maximum penalty that you’ll pay for both is 5 percent.

7. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

8. You will not have to pay a late-filing or late-payment penalty if you can show reasonable cause for not filing or paying on time. Give us a call if you have any questions about what constitutes reasonable cause.

Special penalty relief may apply to taxpayers who requested an extension of time to file their 2012 federal income tax returns and some victims of the recent severe storms in parts of the South and Midwest.

In addition, taxpayers affected by the Boston explosions tragedy also qualify for individual tax filing and payment extensions. If you need assistance, please don’t hesitate to call us. We are here to help you.

Tax

Dependents and Exemptions: 6 Important Facts

Even though each individual tax return is different, some tax rules affect every person who may have to file a federal income tax return. These rules include dependents and exemptions. The IRS has six important facts about dependents and exemptions that will help you file your 2011 tax return.

1. Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,700 on your 2011 tax return.

2. Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.

3. Exemptions for dependents. You generally can take an exemption for each of your dependents. A dependent is your qualifying child or qualifying relative. You must list the Social Security number of any dependent for whom you claim an exemption.

4. If someone else claims you as a dependent, you may still be required to file your own tax return. Whether you must file a return depends on several factors including the amount of your unearned, earned or gross income, your marital status and any special taxes you owe.

5. If you are a dependent, you may not claim an exemption. If someone else — such as your parent — claims you as a dependent, you may not claim your personal exemption on your own tax return.

6. Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children.

If you need help determining who you can claim as a dependent and how much you can deduct for each exemption you claim, don’t hesitate to call. We’re here to help!

Financial Planning Tax

College Tax Credit – It’s Not Too Late!

It’s not too late to take advantage of the American Opportunity Tax Credit, a credit that helps parents and college students offset the cost of college. This tax credit is part of the American Recovery and Reinvestment Act of 2009 and is available through December 31, 2012. It can be claimed by eligible taxpayers for college expenses paid until 2012.

Here are six important facts about the American Opportunity Tax Credit:

  1. This credit, formerly known as the Hope Credit, has been expanded. Eligible taxpayers can claim qualified tuition and related expenses paid for higher education through 2012. Qualified tuition and related expenses include tuition, related fees, books, and other required course materials.

    2.  

  2. The credit is equal to 100 percent of the first $2,000 spent per student each year and 25 percent of the next $2,000. Therefore, the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualifying expenses for an eligible student.

    3.  

  3. The full credit is generally available to eligible taxpayers who make less than $80,000, or $160,000 for married couples filing jointly. The credit is gradually reduced, however, for taxpayers with incomes above these levels.

    4.  

  4. Forty percent of the credit is refundable, so even those who owe no tax can get up to $1,000 of the credit for each eligible student as cash back.

    5.  

  5. The credit can be claimed for qualified expenses paid during any of the first four years of post-secondary education.

    6.  

  6. You cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to take either the credit or the deduction.

    7.  

If you would like more information about the American Opportunity Tax Credit please call us. We’re more than happy to help.

 

Scroll to top