Posts Tagged ‘tax credit’

How to Claim the Making Work Pay Credit

Posted on: March 7th, 2011 by

CPA - Rockville, MDThis year, the IRS wants a Schedule M filled out if you file a long Form 1040 or the slightly shorter Form 1040A.  Taxpayers who can file the shortest return, 1040EZ, will simply use a work sheet on the back of that form.  Calculations made on Schedule M will help taxpayers determine whether they received the full credit in their paychecks or are due more money from the credit.  Once you complete Schedule M, you’ll transfer the dollar figure you come up with on line 11 of that document to either line 63 of Form 1040 or line 40 of Form 1040A.  Form 1040EZ filers will take their work sheet calculation and enter it on the EZ’s line 8.

All these lines on the various tax returns are in the section that records all your tax payments. This includes withholding amounts from your W-2s, certain 1099s and any estimated tax payments you made.  Essentially, at filing time the credit is treated as additional withholding that can increase your refund or reduce any tax you might owe.

Because the Making Work Pay credit was in effect for all of 2010, there shouldn’t be as much filing confusion as there was at this time last year.  Also, retirees didn’t receive a special payment last year, so they don’t have to file the form this year.  But there still could be some issues with claiming the credit, especially for higher income earners.  The Making Work Pay amount is reduced for joint filers whose modified adjusted gross income, or MAGI, is between $150,000 and $190,000.  Single taxpayers whose MAGI is more than $75,000, but less than $95,000, also won’t get the full credit amount.  If your adjusted income is greater than the maximum for your filing status, then you won’t get any of the credit.  Also, the Making Work Pay tax credit is not available to nonresident alien workers or to individuals who can be claimed as a dependent on someone else’s tax return.

Picky Buyers Lead to a Slowed Housing Market

Posted on: June 21st, 2010 by

Financial Planning - Taxes - Rockville, MDPrior to the recession, people simply looked for a house, any house, to buy.  Later on, buyers were hesitant just thinking about buying.  Now, they seem to be on a quest for perfection at the perfect price.  Perfection seeking buyers are turning the battered real estate market upside-down.  Agents are saying that this is leading to last-minute demands for multiple concessions, bruised feelings on all sides and many more collapsed deals than usual.

It is a complete reversal of roles from the boom, when competing buyers were sometimes reduced to writing heartfelt letters saying how much they loved the house and how they promised to eternally worship the memory of the previous owners.  Nowadays days, it is the buyers who are coldly seeking the absolute best deal while the sellers are left in emotional turmoil.

It was largely expected that the housing market would suffer at least a temporary hangover after the government’s $8,000 tax credit expired in April, but not necessarily this much.  In some places, sales dropped more than 20 percent from May 2009, when the worst of the financial crisis had subsided.  Builders have been affected too.  The Commerce Department has stated that the construction of new homes in May dropped 17.2 percent from April, which is significantly lower than forecast.  Permits for future construction dropped 10 percent, suggesting a sluggish summer.  Even the lowest home mortgage rates in decades are not doing much to promote deals.  The Mortgage Bankers Association has said that applications for loans to buy houses were down by a third compared with last year.

Against such a backdrop of misery, buyers are empowered — and are taking full advantage of their position.  Buyers, of course, say they are merely being smart.  In some cases, however, agents have said that sellers literally cannot afford to make concessions.  Another $10,000 will push them underwater, which means they will have to arrange the sale through the bank.  Even when a sale can be worked out, it is not uncommon for everyone to walk away feeling more aggravated than excited.

How People Lose Money Trying to Save Money

Posted on: May 11th, 2010 by

Estate Planning - Financial Planning - CPA - Rockville, MDDeath and taxes are the two inevitabilities in life that induce strong feelings of loss that can take over our decision-making, especially with regard to money.  No one wants to hand over their hard earned money to a government that can often be wasteful, well more wasteful than they would be.  In their zeal to avoid such fate, investors often overlook the big picture, which is their net profits, rather than tax savings.  From this, mistakes are made.  A lot of investors will sell their investments that have taken a loss at the end of the year to offset a gain elsewhere.  While this is a good tax move, that should not ultimately drive your investment decisions. Those stocks have often shown to rebound.  Instead, you should sell holdings whose investment thesis you no longer believe in or stocks you were planning to sell anyhow.

On the flip side, people all too often  hold stocks way too long to avoid paying taxes on the gains.  If you believe a stock is at its peak or is high enough for you to be happy with the gains, you should sell, rather than wait for it to slowly decline.  What goes up, must come down.

Minimizing taxes is an important part of estate planning, but definitely not the only part.  In setting up a trust, it’s vital to make sure you can live with the terms.  A charitable remainder trust, for example, will provide tax-advantaged income in exchange for your charitable gift.  The downside, however, is that once you make the gift, you can’t undo it.  Make sure you explore all of your options with your estate planner before jumping to a decision.

After Congress extended the Worker, Homeownership, and Business Assistance Act of 2009, floods of people rushed to buy homes by April 30 just to receive the tax credit.  You really need to regard a credit just for what it is, a credit or added bonus, not a reason to act.  Instead, with the home credit, people bought homes they couldn’t afford, paid to much, or failed to undertake proper inspections.  This goes to the same theory that just because something is on sale doesn’t mean you need to buy it.

What have we learned?  Speak with a financial adviser if you have questions.  Don’t base your investment strategies entirely around taxes.  And don’t get mixed up by incentive traps.  Always take the time to research and think reasonably about what you are doing.