Archive for the 'Taxes' Category
Friday, July 1st, 2011
California, along with many other states, is broke. As part of an attempt to create more revenue, California passed a more aggressive law to force online merchants to collect sales tax. A 1992 Supreme Court decision stated that retailers that don’t have a physical presence in a state don’t have to collect sales taxes for sales to that state. But some states have passed new laws that redefine “physical presence” to include online affiliates and any subsidiaries.
Amazon.com affiliates are the thousands of websites like this one, where if you click on a link to a book or other product and buy something within a certain time frame, I get a commission of a few percent of your purchase. It’s a safe bet that the majority of blogs you read participate, even if the actual revenue is relatively small. But, by California’s new definition, if just one person is both an affiliate and lives in California, then Amazon.com has to start collecting sales tax from everyone in the state. What’s Amazon’s solution? Easy, cut off all CA affiliates immediately. That’s what they’ve done everywhere else. From CNN:
Other states that have passed the so-called “Amazon tax” in recent years include Connecticut, Illinois, New York, North Carolina, Arkansas and Rhode Island. The retailer has dropped the associates program in all these states, except New York, where it has a brought a lawsuit against the state.
Many other merchants that operate online like Overstock.com have been doing the same thing. They’d much rather lose the incremental revenue from affiliates than have to effectively increase prices for all customers from an entire state. For many website owners, Amazon is their primary source of income, and this move will force many of them to pick up and move.
At the same time, not paying sales tax is one of the expected benefits of buying from Amazon. (Even though in many states you’re technically still supposed to calculate and send it in manually, people rarely do.) This understandably annoys the national brick-and-mortar merchants like Walmart or Target.
As both a consumer and an Amazon affiliate, I am a concerned onlooker. These are two behemoths playing a high-stakes game, but I feel empathy towards those small businesses that just lost a huge chunk of their revenue overnight through no fault of their own. They seem to be collateral damage in this battle.
More reading: NYT, IBT
Tuesday, April 19th, 2011
Tax Day has come and gone (unless you filed an extension). Recently, there was a competition to see who could best “create data visualizations that would make it easier for U.S. citizens to understand how the government spends our tax money”. I’m guessing that most people really don’t know, including myself. The winner was WhereDidMyTaxDollarsGo.com, where you simply type in your income and filing status and off it goes.
I certainly found it very visually appealing. It appears to assume you take the standard deduction. I figured that national defense, Social Security, Medicare, and debt interest payments were going to be a big chunk, but wasn’t really aware of how big the “Income Security” category was. Overall, it reminded me of a less-intimidating version of the US Budget poster.
Wednesday, April 13th, 2011
A rep from TurboTax contacted me to help give away three copies of their TurboTax Online software as a last-minute promotion reminding folks that the filing deadline this year is extended to Monday, April 18th due to the usual April 15th being a holiday in the District of Columbia (Emancipation Day). Apparently, 27% of taxpayers wait until the last two weeks to file their returns. I seem to wait longer and longer, especially with all these 1099s to wait for.
The giveaway is for a code redeemable at TurboTax.com and good for one free federal + state preparation and e-file with TurboTax Premier Online 2010 ($87 retail value). This is the level above Deluxe, which has added guidance for investments and those with rental income (Schedule E).
If you’d like to be entered for the giveaway, just leave a comment with a valid e-mail below by 1pm Eastern on Friday, April 15th. You don’t need to include your full name, but one entry per reader please. I’ll randomly pick 3 winners and contact you via e-mail later that same day so you can finish the darn things over the weekend.
Wednesday, April 13th, 2011
The deadline for filing your federal taxes this year is Monday, April 18th, 2011. If you file for an extension, you will automatically be extended to Monday, October 17, 2011. Here’s how you can e-File a federal extension online in minutes for free.
Option #1: TaxACT
This is how I did my extension last year. Just sign up with TaxACT and e-file your extension for free through them. It’s quick. It’s easy. You don’t even need to actually use them to file your taxes later, although TaxACT is also free for federal taxes with e-File included regardless of income, and is only $14.95 for state returns with free e-File.
(That’s cheaper than TurboTax or TaxCut, although if you’re already familiar with those programs it may be worth the extra bucks to stick with them, since you can save time by importing your previous year’s data.)
To register with TaxACT, you just need an e-mail and to set your passwords. To go directly to the extension form, click on the “Filing” tab on the top, and then the “File Extension” link right below it (see below). You will then be walked through the Form 4868 in a question-and-answer format. You will then be able to have the form filed electronically instantly (or you can print and snail mail).
If you wish to make a tax payment, you will be able to choose to pay with direct withdrawal from a bank account (account and routing numbers required) or pay with a credit card (IRS fees apply). Afterward, they will send a confirmation of your accepted extension e-file by e-mail or text message. I got mine within a few hours.
Option #2: Free File Fillable Forms
This one’s a little harder to find, but here are some step-by-step instructions. Go to the Free File Fillable Forms site (go alliteration!) and click on “Start Free File Fillable Forms”. Click “Sign-in” on the top left, and create a new account with your e-mail and password information. After you’re signed in, click on “Continue” and pick your form. Go with the full form 1040. On the top right, you should see an icon with the label “File an Extension”.
This will bring up Form 4868. Click around the form to fill the boxes out. You’ll need to estimate your total tax liability, but since this is just an online version of the form so there is no guidance included. As above, you can request your estimated tax payment to be withdrawn electronically by supplying your bank’s routing and account numbers. For identification purposes, you’ll need your adjusted gross income (AGI) from your 2009 tax return.
Please note that filing an extension only extends the time to file your return and does not extend the time to pay any tax due. To avoid late payment penalties and interest you must estimate what tax will be due and pay that when you file the extension. I would overestimate my tax liability a bit to avoid penalties, and get a slight refund when I eventually file my full return.
Got state income taxes as well? Here is a helpful page on state-specific tax extensions.
Wednesday, February 16th, 2011
Here’s another infographic from the New York Times illustrating the proposed budget for 2012. Rectangles are sized according to the proposed spending. Color shows severity of cut or increase from 2010 (green increase, red decrease).
If you like such visualizations, check out Death and Taxes 2011.
Friday, February 11th, 2011
H&R Block contacted me to help give away six copies of their H&R Block At Home tax preparation software (formerly TaxCut). Specifically, you will get a free code for H&R Block At Home Premium edition ($49.95 retail value), the level above Deluxe, which has added guidance for the self-employed (Schedule C) and those with rental income (Schedule E). Federal E-file is included. State filing is $34.95 extra.
First, please consider my other H&R Block At Home findings:
- Amazon.com has H&R Block At Home Deluxe Federal + Federal E-File + State for $24.99. State E-file looks to be another $19.95 extra. (If you are willing to download directly onto your computer, it’s only $21.99. Here are the direct download links for Windows or Mac.) Premium is $44.77.
- If you are okay with mail-in rebates, you can get H&R Block Deluxe bundled with some anti-virus software for $20 + $2 shipping, and get a $20 prepaid VISA card via rebate at TigerDirect. I couldn’t get the rebate form to download.
- Until February 15th, you can visit a physical H&R Block location and get your return done for free, but only if you qualify for a 1040-EZ. (No itemized deductions, no dependents, no capital gains.) Otherwise, you’ll have to pay significantly more than the DIY software. Considering the 1040-EZ is only like a page long, if you qualify your taxes should pretty easy to do yourself anyway.
- You can save 25% off all the online versions here.
If you’d like to be entered for the giveaway, just leave a comment with a valid e-mail below by 11:59pm Pacific on Tuesday, February 15th. Name not necessary. I’ll randomly pick 6 winners and contact you via e-mail.
Monday, January 31st, 2011
With doing our taxes properly on our minds, what are the chances we’ll get caught if we don’t? Well, there are several ways that the IRS can detect if your return is suspicious, especially if your inputs don’t match up with their W-2 and 1099 records.
Here are the number of IRS audits and the respective probabilities for individuals and businesses during 2010. Large corporations and wealthy individuals have the highest chance of getting audited, which makes sense since they offer the largest potential payoff. If you are an individual making under $200k a year, then your overall chances are 1 in 100. However, I’m sure if your tax return is clean and you didn’t claim to donate $10,000 in used clothing, your actual odds are even better.
Anyone out there get audited last year?
Saturday, January 29th, 2011
Ready to do your taxes already? I haven’t seen any really good discounts from the Office Supply stores, even after rebate. With all these 1099s coming in, I took a look around for what discounts were available on the intertubes now.
When shopping for tax software, be sure to compare the total price if you have to complete a state tax returns, as that’s where they getcha these days. For reference, retail for TurboTax Deluxe Online for Federal is $49.95 with free eFile, while TurboTax Online State retails for $36.95 with eFile. Most places knock down the Federal price to at least $29.95. Total for Fed + State: $66.90. If your return is simple, often you can paper file your state return pretty easily yourself.
Free TurboTax Federal for Simple Returns
If you have a simple return with no itemized deductions like mortgage interest, no rental property, or sold any investments, then you can get the TurboTax Free edition with free eFile.
Free TurboTax Federal w/ Income Restrictions and Military
If you meet the income and/or military status requirements, the TurboTax Freedom Edition is free for Federal including eFile. Your adjusted gross income must be $31,000 or less, or you must qualify for the Earned Income Credit.
Covers all the forms, not just 1040EZ. State filing may also be free for those in AL, AR, AZ, GA, IA, ID, KY, MI, MN, MO, MS, NY, NC, ND, OK, OR, RI,
SC, VA, VT, WV. Otherwise it is $14.95.
Free TurboTax Deluxe with State Farm Bank
If you have a banking relationship with State Farm, you get free TurboTax Deluxe (log-in required). I can’t tell if this includes State? Reportedly it includes State e-File. Pretty good deal considering you can open up an account for $100 and get a $50 value every year for the past few years. Valid for first 25,000 registrants.
25% off Fed & State through Vanguard, Fidelity, State Farm
Several other financial institution site visitors all can save 25% off TurboTax online for both federal and state. Anyone can be a “site visitor”. This results in final prices of $22.45 Federal and $27.70 State. Total: $50.15 for Deluxe.
If you’ve got Flagship status at Vanguard (usually $1M in assets) or use their Asset Management Services, then you get TurboTax Federal and State online for free.
35% off Federal only via TD Ameritrade
TD Ameritrade “site visitors” can get 35% off TurboTax Federal, for a final price of $19.45. However, there is no discount on State, making it cheaper to go with the offer above unless you only want Federal. (You can’t mix and match discounts.)
35% off Fed + State Desktop Edition via Amazon.com
If you’re okay with the desktop edition instead of online, Amazon.com has it for $39.78 total, which includes Federal + State w/ eFile. This is about 35% off, but Amazon does fiddle with its prices all the time, so buy it now if you think it’s a good deal. This is the price to download the software yourself (less than 10 minutes on broadband).
More Free Alternative Options – IRS FreeFile and TaxACT
Not devoted to TurboTax? You can also check with the IRS FreeFile site to see if you qualify for other free software, usually restricted by income or military status.
Then there’s always the best no-hassle deal around: TaxACT Free Edition, which again offers a free Federal return + free eFile. Covers everything including itemized deductions and capital gains. State return is $14.95. Total for Fed + State: $14.95.
Thursday, January 13th, 2011
If you have extra income outside of your W-2 paycheck in 2010, this is a reminder that the deadline for 4th Quarter 2010 estimated tax payments is Tuesday, January 18th, 2011. (Updated: January 15th falls on a Saturday, and the 17th is a federal holiday.) Estimated tax payments help you make sure Uncle Sam gets his share of income that doesn’t automatically withhold taxes. This is the last chance for 2010, otherwise you may be hit with taxes and penalties by the time you file your tax return.
According to IRS.gov, generally you must pay estimated tax for 2010 if both of the following apply:
- You expect to owe at least $1,000 in tax for 2010 after subtracting your withholding and credits.
- You expect your withholding and credits to be less than the smaller of;
- 90% of the tax to be shown on your 2010 tax return, or
- 100% of the tax shown on your 2009 tax return. Your 2009 tax return must cover all 12 months.
Need help estimating how much tax you’ll owe? Try the new TaxCaster widget from TurboTax. It’s free and designed to estimate your refund, but that also means it estimates your potential tax bill as well. Since an estimate is all you’re looking for, I found the tool quite handy. Be sure to enter all your extra income in the Total Income section:
How do I pay? You can pay estimated taxes using the 1040-ES mail-in voucher or online at EFTPS.gov.
Thursday, December 23rd, 2010
I just received the following e-mail from Half.com, where I occasionally sell used books:
We’re writing to let you know that starting with transactions occurring on or after January 1, 2011, new Internal Revenue Service (IRS) regulations require Half.com (and other businesses that process payments) to file a Form 1099-K for all sellers with more than 200 transactions and $20,000 USD in sales per year.
If you’re a high-volume seller who has met or is close to meeting the IRS thresholds, we may need to generate a Form 1099-K for you. If you have multiple accounts, we’ll take all of them into consideration when calculating your volume status. If you exceed the IRS thresholds, we’ll send your first Form 1099-K to you in early 2012. Your Form 1099-K will give you a consolidated report of all payments received through Half.com for 2011. This information will also be reported to the IRS.
Apparently, as part of new legislation designed to help track down (and tax) unreported income, starting in 2011 any credit or debit card payment processor with clients that have more than 200 transactions and $20,000 in sales per year must file a 1099-K with the IRS.
In addition to Half.com, this also includes individual sellers using services like PayPal and Amazon.com. Perhaps also sites like Etsy and Zazzle? This won’t affect me, but I think it’s a pretty good idea. I do feel that lots of eBay income goes unreported, and the limits are reasonable. If you’re clearing 200 transactions and $20k in payments, you should be tracking your income and expenses like a business. This 1099-K won’t really matter as it just reports gross amounts.
I’m more scared about the upcoming changes in 2012 that says that a business has to file a 1099-MISC for any person or business it pays more than $600 in a calendar year. Corporations are no longer exempt. That’s a ton of 1099 forms swirling around. I’m going to have to send W-9 forms to everyone from Staples to my web hosting company. I still hope they’ll change this rule before it goes into effect and swamps tons of small businesses.
More info: CNN Money, Journal of Accountancy, Stop1099.org
Monday, December 20th, 2010
Our tax rates for the next two years have been decided, a two whole weeks before January 1st! Just in time for their winter break, what a coincidence. The “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010″ was signed into law last Friday. There’s a lot of stuff in it, as with any tax-related it seems, but here are the two big highlights for individuals:
Payroll Tax Cut
The employee portion of the Social Security tax is reduced to 4.2% in 2011, down from 6.2%. This lasts only for one year. The employer portion remains unchanged at 6.2%. The limits on wages subject to Social Security tax remains at at $106,800 for 2011. Medicare taxes remain unchanged at 1.45% each for employers and employees.
For example, someone earning $50,000 will pay 2% less towards Social Security, for a tax savings of $1,000 spread out over a year of paychecks. The maximum savings per person is then $2,136. Your future Social Security benefit is not directly affected by this change.
However, what has been expired is the “Making Work Pay Tax Credit” of 2009 and 2010, which was a refundable tax credit 6.2 percent of earned income, up to $400 (single) or $800 (married filing jointly). This meant that if you were single with earned income of at least $6,452 in 2010, you got a $400 tax credit. Married couples filing joint returns earning over $12,903 got $800. Note that this tax credit was phased out for taxpayers with modified adjusted gross income in excess of $75,000 (single) or $150,000 (married couples filing jointly).
Here’s a chart from the Tax Policy Center showing the net difference in tax savings from two as a function of earnings.
As you can see, our example of a single person earning $50,000 would be paying approximately $600 less in taxes in 2011. (Gain of $1,000 payroll tax cut, loss of $400 MWP tax credit.)
Current Individual Income Tax Rates Extended
The current income tax rates, sometimes referred to as the “Bush Tax Cuts”, are extended for everyone for two years. Although the exact income ranges are not set, here are projections from the tax software provider CCH Group. They are slightly higher than the 2010 Federal tax brackets, due to inflation.
For the curious, it is estimated that an individual earning $50,000 in 2011 will paying $890 less in federal income taxes as compared to what would happen if no action was taken (even though that was highly unlikely).
- The top rate of 15% for qualified capital gains and dividends is extended for another two years, along with the 0% rate for taxpayers in the 10 and 15 percent income tax brackets.
- Another last-minute patch was made for those subject to the Alternative Minimum Tax because the brackets were not mandated to be adjusted with inflation. The 2010 exemption amount will be $47,450 (single) and $72,450 (married filing jointly).
- Extended unemployment benefits are to be continued at their current level for 13 months.
Since we know that the income and capital gains tax rates will stay the same for the next two years, the standard end-of-year tax actions should apply. The general idea being to take any deductions you can right now, and defer as much income as possible until next year.
Friday, December 17th, 2010
It’s that time of year again, to frantically use up any remaining balances in our Flexible Spending Accounts (FSA). This year, it may be good to stock up on over-the-counter (OTC) medications that you use regularly. (Watch out for expiration dates, but read this Harvard Medical School article first before throwing anything out.)
Effective January 1, 2011, the cost of OTC medications will no longer be payable through a FSA, unless the medication was prescribed by a doctor. If your FSA administrator allows you a certain grace period in 2011 to use leftover funds from the 2010 calendar year, the your actual purchase date must still be before 12/31 to remain eligible. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles. [IRS FAQ]
If you still need certain OTC drugs in 2011, you can always ask your primary doctor to write a prescription for them during your annual checkup. In addition, Target and Walmart offer 30-day supplies for $4 and 90-day supplies for $10 on many generic drugs.
Quick Ideas For Last-Minute FSA Spending
- Advanced refill of prescriptions
- Eye exams
- Contact lenses and lens solution
- Pain killers
- Cold and flu medicines
- First aid supplies for emergency kits
- Condoms and other birth control items
- Ear plugs
- Acne medication
If you’re looking for detailed guidance on what is eligible or not, check out these handy guides from health insurer Aetna and from administrator Conexis.
Honestly, I wonder when this whole guess-how-sick-you’ll-be-this-year madness will finally end. If this is our money, why shouldn’t it just roll over every year until we use it for a valid medical expense? Health Savings Accounts have already been around for years now, we can use the existing infrastructure.