Charitable donations made to Haiti Earthquake relief efforts are tax deductible immediately, according to the IRS, which means they can be deducted on your 2009 tax return if you itemize.

Taxpayers can choose to deduct the donations made to Haitian relief efforts on either their 2009 returns which they will be filing shortly, or on their 2010 tax returns to be filed in 2011, but obviously not both.

Only cash contributions ( as opposed to property or goods donations) made to these charities after Jan. 11, 2010, and before March 1, 2010, are eligible. This includes contributions made by text message, check, credit card or debit card.

Filing Status requirements

The tax deduction is available only to those who itemize using schedule A, those who take the standard deduction are not eligible.

Charity eligibility

Taxpayers should be sure their contributions go to qualified charities. Most organizations eligible to receive tax-deductible donations are listed in a searchable online database available on IRS.gov under Search for Charities. Some organizations, such as churches or governments, may be qualified even though they are not listed on IRS.gov

Records /Receipt required as proof of donation

Federal law requires that taxpayers keep a record of any deductible donations they make. For donations by text message, a telephone bill will meet the record keeping requirement if it shows the name of the donee organization, the date of the contribution and the amount of the contribution. For cash contributions made by other means, be sure to keep a bank record, such as a canceled check, or a receipt from the charity showing the name of the charity and the date and amount of the contribution. Publication 526 has further details on the record keeping rules for cash contributions.

(Source info from irs press release IR-2010-012)

Upromise – Turn your everyday spending into college savings

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E-filing, or electronically filing your taxes, is becoming more and more popular every year.

Last year, IRS e-file delivered 95 million tax returns, 66 percent of all returns filed.

According to the IRS, the error rate is 1% for efiling vs. 20% for paper returns, meaning everyone should consider e filing to reduce their chance of error.

You might think efiling is only for those who are receiving a tax refund, but according to the IRS, for those who owe additional tax, e-file is still the best option. People can file now and pay later, as long as the payment is received by April 15.

As someone who has filed his taxes electronically for the last 4 or 5 years (at least, I would say, but I would have to go back and check to see exactly how long I have been filing my taxes electronically), I can attest to fact that it is much easier than filing out a paper return, and if you are due a refund, you get it much faster than if you fill out a paper form and mail it in. So what are the options for efiling?

E-File for Free Eligibility

If you make under $57,000.00 per year, you are likely eligible to efile for free. The IRS has a page with a list of companies that you can choose from to use for the free efile program, some of which have slightly different criteria for whether or not you qualify to use their service to take part in the free efile program. Some are slightly lower limits than $57,000, while others have certain age restrictions or even provide additional filing eligibility to those in the military, for example.

Free Fillable Forms

For those who do not qualify for the free e-file program, the IRS also provides free fillable forms, if you are interested in filling out the forms yourself (they are fillable pdf forms), which you can then file electronically for free. The forms look just like the regular IRS tax forms (1040EZ, 1040, and 1040A, for example), and according to the site it does provide a basic math calculator, which may be enough to get by with, but I have not tried this option myself.

Online Tax Filing and Software Options for E-Filing

If you want to use tax software or an online tax preparation service to file your taxes, there are many options available to choose from, such as  Turbotax , H&R Block At Home (formerly Taxcut), and Complete Tax.  Most will allow you to file a simple return, using a 1040EZ, for free, so if you are eligible you may be able to file your return for free even if you don’t qualify directly through the IRS sponsored program. Since my tax returns are not always simple, I like using online tax filing vs. paper forms to make sure my math is correct, I am getting all of my deductions or credits, getting my return filed faster and, most importantly, if I am getting a refund, to get that as soon as possible-it’s my money, after all!

Direct deposit of refund

Whether you efile or fill out a paper form, you will have an option for the IRS to mail you a paper check or direct deposit your refund into a bank account, assuming you are getting a refund. I have filled out paper forms and mailed them in and gotten direct deposit of my refund, and based on my experiences you will get your refund quite a bit faster if you opt-in for direct deposit to your checking account as opposed to letting the IRS mail you a paper check. So if you are looking to get a refund as quickly as possible, a direct deposit from the IRS is the way to go.

• Not Going to Finish Your Taxes by April 15th?- How to File For An Extension
• 7 Reasons You May Not Have Received Your Economic Stimulus Rebate Yet
• When Will I Get My Economic Stimulus Rebate Check from the IRS?
• Don’t Let Last Year’s Stimulus Check Mess Up Your 2008 Tax Return
• Why You Should Prepare Your Taxes Now

The death of the estate tax in 2010 has some wealthy people jumping for joy, some confused, and many people wondering what is going to happen to the estate tax exemption and rate in 2010 and going forward.

The estate tax problems started in 2001, when Congress passed legislation which incrementally reduced the estate tax rate while increasing the amount of the exemption through 2009, but had it expiring completely beginning in 2010. The amount of the exemption for 2009 was $3.5 million per individual, with a tax rate at 45%.

Based on the law passed in 2001, the estate tax will reappear in 2011 with a low(er) $1 million exemption and a whopping 55% tax rate.

So what will Congress do in regards to the estate tax?

• If Congress does nothing, which most experts think is unlikely, the estate tax will reappear in 2011 with very unfavorable term, likely angering everyone but those who happen to receive an inheritance in 2010.
• More than likely, Congress will pass new legislation sometime in 2010, and may apply it retroactively to Jan. 1, 2010. Some Congressmen have already publicly sated that this is what they intend to do, but you know how politics go.
• Most pundits also believe that Congress will also make changes to the severe estate tax limitations set to be imposed in 2011, and many people are hoping they are, I would imagine, as it will effect a whole lot more families in the estate tax amount drops to $1 million with a 55% tax rate.

Another problem with the current situation is that in 2010, there is a $1.3 million dollars limit on the step up in cost basis, which would typically allow heirs to use the date of death of the person leaving them money as the basis for establishing their value of the assets when it was later sold. When the asset are later sold, the value at the date of death is used to determine the value for capital gains purposes. In past years, the amount that could be stepped up in cost basis was unlimited, subject of course to the estate tax. This year, however it is limited, so that any amount above the $1.3 million uses the cost-basis of the deceased, which could add quite a bit to an heir’s tax bill if the amount inherited were to exceed that amount. This could cause a paperwork nightmare, especially if the assets were purchased many years ago and good records were not kept.

Although most people think that these issues are only for the ultra-wealthy, it can effect many families that have and run small businesses, for example, and have a significant amount of that money tied up in the business.

It is quite interesting that Congress could not find the time to extend the tax from 2009, or even begin to work on fixing the mess that the estate tax is now. They all knew it was coming up, and had plenty of time to make adjustments to prevent the current estate tax quagmire, but did not do so.

Do you think the estate tax is even fair? Many don’t think so, as it seems as if it is a “double tax” in some ways, since the income used to invest and build assets was already taxed once.

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It is a tax-free holiday this weekend in Louisiana for the purchase of hurricane preparedness items, so it got me thinking about updating my list from 2008 of states with tax free holidays.

Many states have tax free (state tax free, to be specific) holidays, or days where you can purchase certain categories of items without having to pay state sales tax. It may not always amount to much, but it is still better than having to pay the tax.

Below is an updated list of states with tax-free holidays in 2009.

For additional details, I would recommend visiting each state’s individual tax department website also listed below.

Alabama
3 Days-August 7-9
http://www.ador.state.al.us/salestax/SalesTaxHol.htm
clothing – $100
computers – $750
school supplies – $50
Books – $30

Connecticut
7 Days- August 16-22
http://www.ct.gov/
clothing and footwear – $300

District of Columbia
9 Days-August 1-9
http://otr.cfo.dc.gov/otr/ (link not updated from 2008)
clothing – $100
school supplies – $100
17 Days-Nov. 27 – Dec. 6
clothing – $100

Georgia
4 days- July 30-Aug 2nd
clothing under $100
Computers/computer equipment under $1500
School supplies under $20
Energy Efficient Items
4 days- Oct 1-4
Under $1500

Iowa
2 Days-August 7-8
http://www.iowaccess.org/tax/
clothing – $100

Louisiana
http://www.rev.state.la.us/
2 Days-May 30-31
hurricane preparedness items – $1,500

Mississippi
http://www.ltgovbryant.com/news/2009/Mar/SalesTaxHoliday.html
2 days- July 31-August 1
Clothing under $100

Missouri
3 Days- August 7-9
http://www.dor.mo.gov/tax/
clothing – $100
computers – $3500
school supplies – $50

New Mexico
3 Days-August 7-9
http://www.state.nm.us/tax/
clothing – $100
computers – $1,000
school supplies – $15

North Carolina
3 Days-August 7-9
http://www.dor.state.nc.us/
clothing – $100
school supplies – $100
computers – $3,500
other comp. – $250
sports equip – $50

Oklahoma
3 Days-August 1-3
http://www.tax.ok.gov/ (Link for 2008)
clothing – $100

South Carolina
3 Days-August 7-9
http://www.sctax.org/
clothing
school supplies
computers
other

Tennessee
3 Days-August 7-9
http://tn.gov/revenue/
clothing – $100
school supplies – $100
computers – $1,500
Texas
http://www.window.state.tx.us/
3 Days-August 21-23
clothing and backpacks – $100

Virginia
7 Days-May 25-31
hurricane preparedness items – $60
generators-$1000
http://www.tax.virginia.gov/
3 Days-August -TBD
clothing – $100
school supplies – $20
4 Days October-TBD
energy efficient products – $2,500

West Virginia
90  Days-September 1-November 30th
http://www.state.wv.us/taxdiv/
energy efficient products – $5,000

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• States With Upcoming Tax Free Holidays in 2008
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One of the ways the U.S. Government is trying to stimulate the economy is through a first time home buyer tax credit in 2009.

Passed as part of Obama’s Stimulus Bill, officially known as the American Recovery and Reinvestment Act of 2009, the credit is a refundable tax credit of $8,000, or 10% of the home’s purchase price, whichever is less, for first time home buyers who purchase a home between January 1, 2009 and November 30, 2009.

For purposes of the credit, a “first time home buyer” is a person who has not owned a home in the past three years. There are also restrictions on income. Home buyers must make less than $75,000 for singles, or $150,000 for couples to qualify for the full credit. (Partial credit is available for higher incomes earners).

The refundable tax credit can actually be claimed immediately, either by filing your 2008 taxes (if you have not filed yet), or filing an amended 2008 return if you have already filed for 2008. Since it is a tax credit, you are entitled to the full $8000, plus or minus either whatever you either owed to the IRS or whatever you were due as a refund.

Obviously, getting $8000 free is nice. But will it stimulate the real estate market enough? I guess only time will tell. Another thing that could potentially happen, is that people will “stretch” themselves when they are not quite ready financially, trying to purchase a home before the deadline of November 30, 2009.

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• $6500 Tax Credit for Existing Homeowners Who Purchase New Home Signed into Law, Not Retroactive, $8000 New Homebuyer Credit Extended
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• Don’t Let Last Year’s Stimulus Check Mess Up Your 2008 Tax Return
• Why You Should Prepare Your Taxes Now

Even the best of intentions don’t always work out, and if you planned to have your taxes done by the April 15th deadline but are not going to get them done in time, you are going to have to file for an extension to avoid a late penalty, if you owe the IRS taxes.

Remember, an extension is only an extension to file, not an extension to pay the taxes you owe. You must send in any taxes you owe by April 15th irregardless of whether you file for an extension or not. In fact, if you are filing for an extension, and have to estimate how much you owe, you are probably better off slightly overestimating this amount, in order to avoid an underpaying your taxes.

File for an extension on paper and mailing it in

To file for an extension  the traditional way, fill out Form 4868 from the IRS and mail it in along with any estimated payment, if you owe one.

Filing for an extension electronically

You can also use FreeFile to file an extension, regardless of your income or FreeFile Fillable Forms (looks like the simpler route of the two) to file your extension electronically.

To use Free File FillableForms to file an extension:

If you are a new user, just simply click the “Create An Account” button.  Then at the top of the menu, access “File an Extension”.   If you need any help, then click on the Filing An Extension Instructions button at the bottom of the screen.   Good news!  You may e-file your Federal Extension too.

Good Luck!

Are you filing an extension this year?

Credit Crisis Concerns? Get 20% off FICO credit scores now

• E-File 101- Options for the Fast and Simple Way to Electronically File Your Taxes
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• Weekly Personal Finance Links- The Taxman Cometh
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• Don’t Let Last Year’s Stimulus Check Mess Up Your 2008 Tax Return

It’s time to stoke up that old debate again-the one about to be heard in break rooms across corporate America between now and April 15th.

Is it good or bad to get a large tax refund ?

Having gotten my W-2 form from my employer, and armed with all the other paperwork I needed, I did my taxes a few weeks ago and got my refund last Friday. It was more than I thought it would be, and although I wasn’t really upset about it (I lowered my withholding last year to try to make it smaller than the previous year), I still felt like I got too much back.

I didn’t feel that way in the past though. I used to be ecstatic to get a sizable tax refund from Uncle Sam, and I would always hope for one.  A few years back though, I came to the realization that I could find better things to do with my money than the US Government, and I tried to minimize my tax refund to a degree afterward.

I had a friend a few years back, who after he told me he was getting a $6000 tax refund (he had 4 kids), that it was his “savings plan”. Ironically, he had told me several months before that that he just did not have enough money to contribute to his 401k plan (even to get the company match). To me, he would have been much better off taking that money and putting it into a retirement savings or a savings account, but I guess he did not trust himself not to spend it.

Want to keep your money in your pocket instead of Uncle Sam’s?

Change your withholding- Increase the number of exemptions on your W-4 to keep more money in your pocket. Check out the IRS Withholding Calculator to help you estimate the # of exemptions you should put on the form. I have used this in the past, and it worked pretty well.

What do with your extra money each paycheck-

Use it to pay off debt- If you have debt, you are missing out on paying that down over the entire year (and not reducing the total interest you will pay)

Boost your emergency fund- Increasing your cash reserves is probably a good idea right now for just about everyone, given the state of the economy.

Put that money directly into retirement savings- like a 401k or Roth IRA.

Set up automatic deposits to a savings account- even though interest rates are dropping like a rock (ING Direct dropped their rate again today!), keeping it separated will force you to save.

Do you think large tax refunds are a bad thing, a good thing, or that it doesn’t really matter?

Credit Crisis Concerns? Get 20% off FICO credit scores now

• How to Put Next Year’s Tax Refund to Work for You Right Now
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• Obama Announces Initiative to Increase Retirement Savings Rate
• The Health Savings Account (HSA) and Can I Do Better Than a Health Insurance Company?

With the passage of the stimulus bill, officially called the American Recovery and Reinvestment Act of 2009, by the U.S. Senate on Friday, the stimulus plan as approved by Congress now awaits President Obama’s signature before it takes effect. Totaling $787 billion, and coming in at a massive 1,071 pages, there are grumblings that the bill was “rushed” through congress, not giving enough time for the senators and representatives to actually read the entire bill in its final form.

Some of the highlights that might directly affect individuals include:

• A $400 payroll tax credit for individuals, $800 for couples. The full credit will be applied to individuals making less than $75,000, and couples less than $150,000. Partial credits will be applied to individuals making up to $100,000 and couples up to $200,000.
• AMT tax relief
• A $250 credit for those who do not pay taxes such as retirees and those on disability.
• An $8000 credit for 1st time home buyers, who purchase a house between Jan 1 and Dec 1, 2009. Unlike the previous $7500 home buyers credit, this does not have to be paid back.
• Sales tax deduction for those who purchase a new car in 2009

The bill also  provides billions of dollars in unemployment benefits, food stamps, medical care, job retraining and more to those hit hard by the recession. It also includes billions for a variety of other social programs, many of which are unlikely to create or preserve jobs. Do you think the stimulus bill will really stimulate the economy? I am not convinced at this point, but I would love it if I was wrong.

Want to read the full text of the stimulus bill and find out what is really in there?

Below are links to the 2 parts of the stimulus bill, in pdf format, if you are interested in finding out for yourself where all of that money is really going.

Recovery Bill-Part A

Recovery Bill-Part B

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• A Look at the $8000 First Time Home Buyer Tax Credit for 2009
• $6500 Tax Credit for Existing Homeowners Who Purchase New Home Signed into Law, Not Retroactive, $8000 New Homebuyer Credit Extended
• Time for Homebuyer’s Tax Credit Running Out, Will it be Extended?
• Don’t Let Last Year’s Stimulus Check Mess Up Your 2008 Tax Return
• 5 Tips for Dealing With Medical Debt

According to the IRS, approximately 15% of tax returns filed so far have an error relating to the stimulus checks sent out last spring, the Recovery Rebate Credit. I filed my taxes last weekend, and although I had not heard of the troublesome issue some were having with the Recovery Rebate credit when filing taxes yet, I did manage to navigate my way through my tax return without any problems.

One of the main reasons this is causing confusion is because you must know and record the amount of your stimulus check, or recovery rebate credit on a worksheet if you are doing a paper return, or enter it correctly if using tax software, to accurately prepare your return. If you do not include it, it is like claiming that you did not receive a credit and you are still entitled to the recovery rebate credit.

Several of the issues with the stimulus checks include:

Not understanding that the stimulus check was an advance of a tax reduction for 2008. Basically, if you got a stimulus check, the government lowered your taxes for 2008, and gave you that in advance via the stimulus check. It does not count as income in 2008, nor did it reduce the amount of a refund you will get if you are due a refund.

Not remembering how much your stimulus check was for (the amount). If you put down the wrong amount of your stimulus refund, it will incorrectly calculate the amount you are due. If you are unsure or do not have a record of your stimulus check, visit “How Much Was My 2008 Stimulus Payment” at the IRS website.

If you did not get a stimulus check but are eligible for one, or your family status changed (i.e., birth of another child, etc.), you may be entitled to the credit on your return, but this applies only to a small percentage of the population, less that 5%.

There are several problems you can encounter if you do not account for your stimulus check payment properly:

You may claim a refund you are not entitled to- in which case your are claiming that your refund, if you are due one, is larger than it should be; or if you owe taxes, it could incorrectly reduce the amount you owe.

If you are lucky, the IRS will catch your mistake and the only problem you may run into may be a delay in your return being processed. If you owe, you could underestimate that amount, and end up owing a good deal more than you are expecting. Worse than that, if you owe taxes and do not file until April 15th, it is possible(although the IRS has not indicated they will do so) that you could get charged interest and penalties for underpaying your taxes.

It is definitely worth taking a few minutes to make sure you have the correct amount of your 2008 stimulus check, and that you accurately account for that amount on your 2008 tax return and do not take the Recovery Rebate Credit on your return unless you are truly eligible.

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• 7 Reasons You May Not Have Received Your Economic Stimulus Rebate Yet
• When Will I Get My Economic Stimulus Rebate Check from the IRS?
• A Look at the $8000 First Time Home Buyer Tax Credit for 2009
• E-File 101- Options for the Fast and Simple Way to Electronically File Your Taxes
• How to Spend Your Tax Refund or Economic Stimulus Rebate Wisely

With all of the recent bailouts of investment firms, mortgage brokers (Bear Sterns, Fannie Mae, Freddie Mac), and other financial institutions, as well as the economic stimulus rebate checks and talks of a second one, at some point it will have to be paid back in some fashion. Whether or not inflation continues to remain high, at some point the government will likely stop printing more money to cover everything, and will look to get that money back from someone, probably John Q. Public. While it is not guaranteed that taxes will go up in the future, it really seems like the odds are in favor of higher taxes somewhere on the horizon.

If that assumption seems reasonable to you, lowering your taxable income in the future as well as diversifying the tax treatment of your future income streams, like retirement savings, seems like a good thing to do. Fortunately, there is already a vehicle in place that will allow tax-free withdrawals of income needed at retirement age, the Roth IRA. If you haven’t opened a Roth IRA yet (which I have not), now is a good time to start thinking about it and putting it on the “to do” list. I have it as #2 on my financial planning list, right after eliminating credit card debt. I am putting in the amount required to get my 401k match from my employer, but the Roth IRA will be opened before I increase contributions to my 401k.

I guess you could say I am guessing that my taxes will be higher in the future, but to me, all signs seem to point to that being a strong possibility.

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• Saving Money for College- Education Savings Accounts and 529 Plans

I guess I was lucky, I received my economic stimulus rebate via direct deposit right on schedule. But many people, thinking they should have received it via direct deposit according to the IRS economic stimulus rebate schedule, did not. All direct deposit rebates for taxpayers who filed before April 15th were due to taxpayers by May 16th, according to the schedule. If you believe you should have gotten your stimulus rebate via direct deposit but did not, here are several reasons you may not have received it  (or a paper check) yet or may be getting a paper check in the mail as opposed to direct deposit.

Didn’t get a tax refund- If you didn’t get a tax refund (that is, you owed taxes) you may not be getting your economic stimulus rebate via direct deposit. To have qualified for direct deposit, you would have to have provided the IRS with your banking information (routing number and account number) which many people likely would not have done. Some people who did provide the IRS with that information have still reported not receiving it via direct deposit.

Didn’t file soon enough before deadline- If your tax return was not processed by the April 15th deadline- meaning you mailed it only a few days ahead of time- your refund may be delayed. If you filed after April 15th, it may take up to 6 weeks. If you are getting an income tax refund, the IRS will send you that refund first. Normally, your stimulus payment will follow one to two weeks later. You may still get it via direct deposit.

Split your tax refund between two accounts- If you had your tax refund split between two accounts- that is, a portion deposited into two different bank accounts, the IRS will mail your refund to you by check.

Paid for preparation fees out of refund- If you paid H &R Block, or some other tax preparer your filing or preparation fees out of your refund instead of separately, you will not receive your stimulus rebate via direct deposit, it will be mailed to you.

Received a refund anticipation loan- If you received a refund anticipation loan from your tax preparer, you will receive a paper check.

Closed your bank account- If the IRS tried to send you your refund via direct deposit but your bank account was closed, it would have been rejected. The IRS will then mail you a check to the address on your tax return.

If you moved- You should file a Form 8822 with the IRS and a change of address notice with the U.S. Postal Service. This will ensure your check is sent to your new address. Without your current address, the check could be returned to the IRS as undeliverable.

Credit Crisis Concerns? Get 20% off FICO credit scores now

• When Will I Get My Economic Stimulus Rebate Check from the IRS?
• E-File 101- Options for the Fast and Simple Way to Electronically File Your Taxes
• Don’t Let Last Year’s Stimulus Check Mess Up Your 2008 Tax Return
• How to Spend Your Tax Refund or Economic Stimulus Rebate Wisely
• Open an Online Checking Account from ING Direct and Get $121 Bonus – Today Only Black Friday Deal

Did you get a large tax refund last year?

Did you like getting a tax refund if you did?

While it was probably nice to receive a “windfall”, if you are still in debt or not saving enough for retirement, wouldn’t you rather have next year’s money now, to pay off debt at a high interest rate or to save for retirement by opening a Roth IRA, or save it in a high interest savings account? More than two-thirds of tax filers get a refund every year, with an average refund of over $2000. That’s almost $200/month that could be in your pocket now, if your refund was about average. I got a tax refund this past year, and although it was nice, I am changing my tax withholding to minimize the size of the refund I get next year. Look at it this way: If you have credit card debt at 15%, not only are you paying the credit card interest rate on that money when you could be paying off the amount this year , but you are losing an additional few percent to inflation.

If you do owe credit card debt or don’t have the money to open a Roth IRA, or just want to be in control of your own money, you should really consider changing your tax withholding by increasing the number of exemptions on your W-4 . Estimate the number of exemptions you should have on your W-4 by using the IRS Withholding Calculator on the IRS website.
Tips For Using The Program

• Have your most recent pay stubs handy.
• Have your most recent income tax return handy.
• Fill in all information that applies to your situation.
• Estimate values if necessary, remembering that the results can only be as accurate as the input you provide.
• Consult the information links embedded in the program whenever you have a question.
• Print out the final screen that summarizes your input and the results, then use it to complete a new Form W-4 (if necessary), and keep it for your records.

While it’s easy to look at getting a substantial tax refund every year as forced savings, I am sure you can come up with better uses for that money now. If not, change your withholding anyway, set up a direct debit from an online savings account such as ingdirect, and force yourself to save.

Credit Crisis Concerns? Get 20% off FICO credit scores now

• Large Tax Refunds- Good or Bad?
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• Creating an Aggressive Credit Card Debt Elimination Plan