Tag Archives: taxes

The IRS Took Money Out Of My Refund!

Posted by in Money • 12 Comments

I submitted my taxes on February 17th, and for the next two weeks, I checked the Where’s My Refund? tool provided by the IRS. But about 2 weeks after submitted my tax refund, it finally said that my refund was processed and approved. Great, right?

The thing is that while I thought I was getting a $2,955 refund (yay for getting married and filing a joint tax return for the first time), the IRS only approved a $2,745 refund. Where did that $210 go? Where was my explanation?

It’s been over 4 weeks now, and I expected to get a letter in the mail from the IRS explaining what happened. But now I’m going to have to contact them. Which I’m sure will be very easy now that we’re just weeks away from the April 15th tax filing deadline. Nobody else will have questions, right?

I tried to think of any reason why the IRS would take out $210 from my refund. At a 25% rate, that means that they found $840 in income that they think I did not report. That’s a lot more than just a slight oversight!

I am brutally honest with my taxes and try to report any and all income I earned during the year. However, I did find about $85 from a 1099 that I had not accounted for from an investment funds account I no longer use.

You can’t hide income reported on 1099 forms from the IRS. When, in this case, a bank sends you a 1099 form, they send the same one to the IRS. So if you don’t report it to the IRS, it’s glaringly obvious.

But that $85 was only a small fraction of the unaccounted for funds that the IRS thinks I did not include in my tax return.

I did some research and found information about IRS notices and letters. There are lots of reasons (210 options, according to their website) why you might get a letter from the IRS. For my situation, it would likely be the CP20 Notice, which you receive when the IRS believes “you incorrectly claimed one or more deductions or credits. As a result, your refund is less than you expected.”

So for now, I just wait. I already expected to receive some communication from the IRS, but now I’m going to have to try and seek out the information myself. I will definitely be following up with another post when I find out what was the issue was!

Roth vs. Traditional IRA: Have The Rules Changed?

Posted by in Retirement • 8 Comments

For years, we’ve heard the same story when it comes to investing for your retirement. If you fall into the tax brackets where you can invest in a Roth IRA, do it. The theory’s always been that since you pay taxes on the front end of a Roth, allowing your investment to grow tax free, that you’d be able to make more money over time. That’s been especially true since 2001, when the first of the so-called Bush tax cuts (the official name is the Economic Growth and Tax Relief Reconciliation Act of 2001) became law.

But now that President Obama and Congress have permanently extended those tax cuts for 98 percent of us, have the rules of the game changed when it comes to investing in a Roth IRA compared to a traditional IRA?

Reviewing The New Tax Cuts

Since Congress didn’t pass new legislation on or before December 31, 2012, the Bush-era tax cuts were allowed to expire. For a day or two, they rebounded to the Clinton-era tax rates, before Congress and the President signed the new Obama tax legislation into law. In other words, these were truly tax cuts on income under $400,000 for individuals and $450,000 for families.

The Rules Haven’t Changed…But Everything Else Has

Although the rules for contributing to a Roth IRA haven’t changed – the contribution limit has gone up to a maximum of $5,500 per person ($6,500 for individuals age 50 or older) for the 2013 tax year – some investors are looking at their Roth accounts a little differently now.

Now that we have assurances on tax rates for years to come, the argument that you need to invest in a Roth instead of a traditional IRA because tax rates during your retirement years will be unpredictable doesn’t hold as much water. The fact is, if you qualify to contribute up to those limits into a Roth – meaning you make less than $178,000 as a married couple filing jointly or more than $112,000 for an individual – then your tax rates haven’t changed, and likely won’t (yes, this is a point of contention and debate politically, but this article isn’t about politics, it’s about investment strategies).

Will You Do Things Differently?

I’m still trying to decide for myself whether or not (1) I actually think the permanence of these tax cuts has the potential to affect retirement investments and (2) if I should change mine in any way to accommodate these new tax rates.

What do you think? Am I way off course here, or are any of you thinking of putting more pre-tax money into a traditional IRA instead of a Roth now that tax cuts for most of us have been “guaranteed” in perpetuity?

Planning To Donate To Charity? Do It Before The IRS Deadline

Posted by in Taxes • 3 Comments

Time is running out if you’re planning to donate more to charity in 2012, with hopes of writing off your charitable contributions on your tax returns.

December 31, 2012

This year, New Year’s Eve falls on a Monday, which is a good thing if you still want to donate to charity. Last year, the last business day of the year – and the IRS deadline for charitable donations – was December 30th, which left a lot of would-be donors up a creek.

Of course, it’s best if you don’t want until the last minute to make your donation. Ever tried to drop off a pile of goods at your local Goodwill or Salvation Army depot the last week of December? It’s a nightmare, and a logistical headache. Instead, make your contribution well ahead of time. You can make a donation to a charity using your credit card, even if your billing cycle doesn’t end until sometime in 2013; as long as the payment is processed before midnight on the 31st, you’re in the clear. Just remember that not every charity is located in the same time zone, so if you’re a West Coast resident like me donating to an East Coast-based charity, don’t forget the three hour time difference, which could affect the day on which your payment is recorded.

What You Can Write Off

Not all contributions can be written off the same way. For example, say you attend a holiday auction for a charitable organization, where you place a $500 bid on two tickets to a sporting event. Now, let’s pretend you win that auction – hooray! Now you’ve got the tickets and the tax deduction, right?

Not so fast, my friend.

The IRS stipulates that you can only write off the overage compared to the fair market value. So if you “donated” $500 to get those tickets, which would normally sell for $80 each, you can only write off $340 of your donation instead of the full amount. This goes for every donation you make, so if you participated in a charity 5K with a $25 entry fee and got a t-shirt in exchange, you’d better find out the market value of that shirt (many sites suggest $3-$5) before filling out the Schedule A on your Form 1040.

Cash vs. Non-Cash Donations

Making a large non-cash donation to a qualified charity requires a little extra legwork. The IRS requires all non-cash contributions over $250 be accompanied by additional verification of the transaction, via bank records of a receipt from the organization itself. Donate more than $500 in non-cash goods over the course of the calendar year and you’ll have to not only provide the IRS with those records to receive your tax deduction, you’ll also have to fill out IRS Form 8283 to get credit for your contributions.

April 15, 2013

Unlike last year, when Tax Day fell on Tuesday the 17th of April (thanks to an obscure holiday celebrated only in Washington, DC, on the 16th), this year Tax Day will be on the usual April 15th. Why remind you of this date, when the IRS deadline for charitable contributions is three and a half months earlier? Because even though your donations are due before the end of the calendar year, you can still make contributions to your Traditional and Roth IRA accounts through midnight on Tax Day.

And one last bit of information, just so the Federal Government doesn’t make a liar out of me in a few months. After some extreme catastrophes, like the 2010 earthquake in Haiti, the U.S. Government and the IRS extends the deadline for charitable contributions in order to facilitate donations. If this happens – and we all hope it won’t – it won’t be a blanket extension of the deadline, but will only apply to donations made to specific charities that are aiding in specific disaster relief efforts.