TaxMamas TaxQuips

Today TaxMama hears from Chris in the TaxQuips Forum, who puts out a challenge to TaxMama. He says, “Tax mama has advice for business owners. But how does an individual get more money on their paychecks?”

Dear Chris,

Goodness have I been neglecting wage-earners here at TaxMama.com? I am sorry! My daily TaxQuips are guided by the questions people ask. So thank you for asking!

Here are some ideas to help you:

1) Take full advantage of the cafeteria plans offered by your employer.

When you are paying expenses out of pocket anyway, running them through the company cafeteria plan means you don’t pay ANY taxes on that money – no income tax, no FICA, no Medicare. For many people, that’s worth 35% – 40% of each dollar.

• If you are paying for child care anyway, do it through the cafeteria plan – up to $5,000


• Medical insurance costs – if the company isn’t paying for it, or not paying for the whole premium, pay the rest through the cafeteria plan.


• Medical expenses – plan your medical costs, things like braces, Lasik surgery, elective surgeries, co-pays, dental work, etc. Run it through here.

2) If your company offers education plans – you may exclude up to $5,500 from wages.

3) Maximize the amount you set aside in your company’s retirement plan. Although you will pay the FICA and Medicare on those dollars, you won’t pay IRS or State taxes. That’s worth 25% – 35% savings per dollar. AND you have money set aside for when you need it.

• Some company retirement plans include employer matching of your contributions. Be sure to contribute enough to your own plan to get the maximum matching from your employer. If they’re willing to pay it – take full advantage of it.


• Note: Some company plans offer ROTH components. That means you don’t get a deduction for your contributions at all. BUT, you get all that money and the earnings on it tax-free when you retire.


• If your adjusted gross income (AGI) is low enough, you might even get a tax credit from IRS or your state for contributing to the plan.

4) Review your withholding. If you are getting high refunds when you file your tax returns each year, perhaps you should decrease your withholding so you have more money to live on, if money is tight each month. Use Form W-4 to make the adjustments.

These are some ideas to help you get started.

You will also find a wealth of articles to help people keep your taxes lowest in my weekly Equifax Blog. Have you seen it? It covers ways to take advantage of energy credits, writing off summer camp, getting money back by amending your tax returns, tax benefits for savers, and child-friendly tax credits…and more.

And there are even more tips in my MarketWatch column – every week during tax season and every month the rest of the year. That is purely devoted to ways individuals can keep their taxes lowest.

Does that help?

And remember, you can find answers to all kinds of questions about getting more money back, and other tax issues, free. Where? Where else? At www.TaxMama.com.

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]

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Today TaxMama wants to discuss a tax issue that will affect tax preparers, certain taxpayers – and perhaps your friends and relatives around the country. Same-Sex marriage. Please don’t turn away because the topic is odious to you. You probably know someone affected – and may be able to help them.

Dear Friends,

Right now, California is experiencing a yo-yo affect when it comes to same-sex marriages due to a case working its way through the legal system. As you know, things often start in California and spread across the country. There is no doubt this case will reach the Supreme Court. Whether the Court will hear it or not…no one knows for certain. Sooner or later, the Supreme Court must address this issue once and for all. This is probably going to be the time.

Spidell Publishing reported last week that the United States District Court for the Northern District of California lifted the temporary ban on same-sex marriages on August 12, 2010. (Order on Motion to Stay in Perry et al. v. Schwarzenegger et al. U.S. District Court, Northern District of California Case No. 09-2292) This means that same-sex marriages will be legal in California beginning August 18, 2010, while the ruling that Proposition 8 is unconstitutional is appealed to the higher courts. That was last week.

On Monday, before the end of their working day, the 9^th Circuit Court of Appeals restored the ban on same-sex marriages, stopping the weddings that were all set for today. The Court will hear the arguments during the week of December 6. Regardless of the ruling of the 9^th Circuit, it will be appealed.

Why am I wasting your time with this? Because this is a tax issue.

Spidell Publishing explains, for income tax purposes, California treated all same-sex married couples who were married prior to the ban the same as registered domestic partners (RDPs). (FTB Notice 2008-5) This means that community property rules will apply in California, and they must file as married for California purposes, even though they must file as single for federal purposes.

To clarify the situation for IRS purposes, the California Legislature passed a resolution (AJR 29) on August 9, 2010, asking the IRS to issue a revenue ruling that says that same-sex married couples should be treated the same as RDPs for federal purposes, too. The request is in response to CCA 201021050, which states that RDPs in California must now combine their income and each report half of it on his or her federal tax return, but does not address same-sex married couples.

The issues reach far beyond the complexities of filing different tax returns for IRS and your state. There are several states where same-sex marriage is presently legal. These couples will face estate tax issues, gift tax issues, parental custody issues – and even divorce issues, that are a wasp’s nest – even if you address them up front. See TaxMama’s 2007 MarketWatch article for some of the problems.

If you are affected, or anyone you know is contemplating a same-sex marriage, a registered domestic partnership – or just living together without any legal contracts, please encourage them to meet with both a tax professional and a legal professional who can help them protect their union, their family and determine the correct disposition of their assets and children, should anything happen to either person – or both of them.

And remember, you can find answers to all kinds of questions about same-sex marriages, and other tax issues, free. Where? Where else? At www.TaxMama.com.

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]

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Today TaxMama hears from Bill in the TaxQuips Forum, who is angry “I don’t want to pay a fee nor spend my time and money on exams and continuing education that I do not choose. I spent my money going through H&R Block tax courses and subscribe to magazines and websites to keep up-to-date with the ever-changing tax laws. Another reason for dislike – Attorneys, CPA’s and EA’s have gotten themselves exempted from these new rules being proposed on the rest of us.” There’s more – a lot more. Please read it.

Well Folks,

Bill got a detailed answer from Kristine Hicks, EA, who explained why EA’s, CPAs, and attorneys ‘got themselves exempted.” Kris outlined the amount of CPE we already have to do – and the money we already spend to stay up to date. Please read her note.

TaxMama replies: Bill, you’ve missed the point of Kris’ post. And you’ve missed the point of the IRS’ new regulations.

1) CPAs, EAs, and tax attorneys have always been required, in order to keep their licenses, to do extensive continuing education, in order to keep up with the changes in the laws and reporting requirements. 2) Unenrolled preparers have had no regulation and oversight whatsoever – except in Oregon and California, until recently. Which means, ANYONE could open a tax office in 48 states, plus the US territories without ever knowing anything at all about how to fill out a tax return – or about any tax laws at all. And they did. 3) There have been a flood of fraudulent tax returns prepared by such operators around the country – and, after audits, the taxpayers were the victims, facing the back taxes, penalties and interest. Protecting them from fraudulent or ignorant tax professionals is one of the reasons for the law. 4) There are some very competent unenrolled tax practitioners out there. But in order to stay up to date with the tax laws, they have all be been doing continuing education courses; they have been members of professional organizations like NATP or NSA, or other professional societies that provide publications with articles about the tax law changes. These preparers’ pocketbooks really won’t be affected. They are already spending the time and money to stay up-to-date. 5) It doesn’t need to cost anything to keep current. IRS provides online teleseminars year-round. Also IRS and your state provide workshops on things like electronic filing, payroll taxes, and other updates, generally for free. You can use those courses to fulfill your education requirements. Besides the new education requirements for tax practitioners are far lower than those for EAs, CPAs and tax attorneys. This should only be a burden to those tax practictioners who have been lazy and haven’t kept up. And they should be weeded out, for the protection of all. 6) Do I want to see individuals doing their own tax returns rather than going to an incompetent or fraudulent tax preparer? YOU BET! They’d be better off. Now, Bill, I doubt very much that you are among the lazy, ignorant or fraudulent community of fly-by-night tax offices. This will not be a burden on you. You’re already doing the education you choose. And you’ll continue to be able to choose the education you do. But it will take a year to adjust. After that, you’ll be fine.

And remember, you can find answers to all kinds of questions about tax professionals, and other tax issues, free. Where? Where else? At www.TaxMama.com.

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]

Please post all Comments and Replies in the new TaxQuips Forum

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Today TaxMama hears from Terri in the TaxQuips Forum, with an delightful problem to have. “What is the best way to reduce the tax consequences of inheriting land? The person inheriting the land is not related to the owner. He could possibly marry her if that would help matters. The land was inherited and has very low basis. Could the land be given as a gift and use up the lifetime gifting limit? What if the fair market value (FMV) is over $1 Million?”

Hi Terri,

We’d need to know a LOT more to be able to give you a useful answer. If the land was inherited in the first place, it should have gotten a step-up in basis at the time of the inheritance. Why is the basis so low?

Is the man who is willing to marry this woman about to die? Will he die this year? If so, it could be worthwhile to get married. Then she would get a total exclusion from the estate tax of $4.3 million.

If he dies next year, it won’t matter any more. As of right now, the estate tax exclusion drops back to $1 million in 2011 – unless Congress writes new law.

Incidentally, gifting the land doesn’t help at all with basis. If the basis is really low now, it will be just as low in the hands of the person receiving the gift. In a gift, the basis passes to the donee (the recipient). Only as an inheritance does it get that step-up in basis.

And remember, you can find answers to all kinds of questions about gifts and estates, and other tax issues, free. Where? Where else? At www.TaxMama.com.

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]

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Today TaxMama hears from Karol in the TaxQuips Forum, with an odd question. “I have a paid internship in the Rhode Island state vocational rehabilitation agency and they pay me $11 an hour (I work the most 35 hrs/wk) without taking out taxes. I am worried about what I will owe when I do my taxes later this year. Any idea what I will have to pay?”

Dear Karol,

Your question is odd to me because you are working for a state department. You should be on payroll. Are you not?

You’re quite right to be concerned. If you are paid at that rate for a year, you are apt to owe taxes. How much, I don’t know.

That depends on whether you pay a mortgage, are married or not, have children, have education credits, open an IRA, or a Health Savings Arrangement, have moving expenses – and a whole lot of other things only you know about your life. This article provides information on how to estimate your own taxes due – and how to make estimated tax payments, if you will owe taxes. However, before rushing off to make estimated tax payments, please go back and talk your employer’s payroll department. If you are working for a state agency, you are most likely on payroll. They should be able to take withholding out of your paycheck. Perhaps the only reason they are not doing that is because of the information you entered on your Form W-4. Once you know how much you expect to owe for the year, go back to the payroll department and have them help you fill out the W-4 so you get the correct amount of withholding. OK? If that doesn’t work, then follow the instructions in the Estimated Tax Payments article. And remember, you can find answers to all kinds of questions about withholding and estimated tax payments, and other tax issues, free. Where? Where else? At www.TaxMama.com.

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]

Please post all Comments and Replies in the new TaxQuips Forum

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Ask TaxMama

Where taxes are fun and answers are free

www.TaxQuips.com

The number ONE free tax podcast online