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Archives for May 2015

Do I have to pay these estimated taxes?

This question is a rather common one and the answer is, “It depends”.  The IRS and most states require taxpayers to “pay as you go”.  For many of us, that consists of having taxes withheld from our paychecks.  In that case, estimates are not required unless you receive other types of income (investments, business income, income from partnerships and S-corporations).  For taxpayers who are not solely W-2 wage earners, but receive other forms of compensation, estimates may be necessary.

The federal underpayment/estimated tax penalty is actually interest at the federal rate for underpayments (currently 3%).

For 2015, you could be subject to a federal underpayment penalty if you do not pay in:

  • 90% of your 2015 tax or
  • 100% or 110% of your 2014 tax (110% applies for high income earners)

 

* Qualified farmers and fishermen have alternative methods for calculating estimates.

Estimates must be paid in four equal installments to avoid a penalty.  Due dates for 2015 estimates are April 15th, June 15th, September 15th, and January 15th.  If the estimated tax payment is paid late, penalty is charged from the date it is due until the date of payment.  You cannot avoid penalty by doubling up on your next payment, since the penalty runs from the due date of the original payment.  If you are a W-2 wage earner with other taxable income, you might be able to avoid an underpayment penalty by increasing your federal withholding.  Withholdings are considered to be paid equally throughout the year, regardless of when the tax is withheld.

If you have a spike in income at the end of the year, there are methods to reduce the penalty for not having paid in higher estimates at the beginning of the year.  Mention this to your tax preparer if this happens to you.

Coming soon….June 15th estimated tax deadline.  Get your checkbook ready unless you are OK with tacking on extra to your tax bill!

http://www.irs.gov/pub/irs-pdf/f1040es.pdf – Federal Tax Voucher

http://www.revenue.louisiana.gov/IndividualIncomeTax#det – LA Est Tax

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Tax season is over…now what?

Your tax return has been submitted electronically to Federal and state taxing agencies.  Your refunds have been direct deposited.  Whew!!  Now you can leave the mess of taxes alone until next April, right?? Wrong!

The tax “off season” is a great time to get organized in preparation of filing your 2015 tax returns due 4/15/16.  Here are a few things to consider:

1. Did you incur costly out-of-pocket medical expenses that provided little or no benefit tax benefit due to the high threshold (> 10% of adjusted gross income) medical expenses have to exceed before they’re deductible?

If your health insurance carries a high deductible and meets certain other criteria, you could make tax deductible contributions to a health savings account (H.S.A.). Contributions TO a health savings account are deductible and distributions FROM a health savings account are non taxable to the extent distributions are used to pay for qualified medical expenses.  You could now deduct those previously non-deductible medical expenses by diverting the money to a health savings account.  For 2015 the maximum contribution to a health savings account is $3,350 for single coverage and $6,650 for family coverage ($4,350/$7,650 for taxpayers over 55).  Here’s a quick list of eligible expenses that meet the definition of “qualified medical expenses” for purposes of H.S.A. distributions

http://www.hsacenter.com/qualified-med-expenses.htm

2. Does the bulk of your income consist of W-2 wages for yourself and/or spouse? Did you receive a large refund or have a substantial balance due to the IRS or state?  If so, now is the time to review your withholding allowances on Federal form W-4 and LA form L-4 (R-1300) for LA residents.

Maybe your traditional method of filing single with zero (0) withholding allowances (or something similar) has your employer withholding WAY too much throughout the year. Changing your withholding status (single vs. married) and/or the number of withholding allowances claimed could leave you with more money in your pocket throughout the year avoiding the long wait until tax time to recoup your over payment (essentially a loan to the government).  Run a few scenarios with the payroll processor at your company to see what works for you.

Here are quick links to the current Federal and LA withholding forms.

http://www.irs.gov/pub/irs-pdf/fw4.pdf

http://revenue.louisiana.gov/TaxForms/1300(4_11)F.pdf

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