Obama and Biden Release Tax Returns

 

Just a few days ahead of the tax-filing deadline, President Barack Obama and Vice President Joe Biden released their 2011 tax returns on Friday.

Obama and First Lady Michelle Obama filed a joint tax return, according to White House spokesman Jay Carney, in which they reported adjusted gross income of $798,674. “About half of the first family’s income is the President’s salary; the other half is from sales proceeds of the President’s books,” Carney wrote in a blog post on the White House Web site. “The Obamas paid $162,074 in total tax.” Obama’s effective federal income tax rate is 20.5 percent. The Obamas also released their Illinois income tax return and reported paying $31,941 in state income tax.

In contrast, his likely rival in the November general election, former Massachusetts Governor Mitt Romney, has so far only released an estimate of his 2011 taxes, indicating an effective tax rate of 15.4 percent on earnings mostly from investment income, and a payment of approximately $3.2 million in. Romney filed for an extension on Friday, as he has done in previous years. He and his wife Ann paid $3.4 million in estimated taxes on their joint return, but estimated that they will have only $32.2 million in tax liability for last year.

The Obamas reported donating $172,130—approximately 22 percent of their adjusted gross income—to 39 different charities. The largest donation was a $117,130 contribution to the Fisher House Foundation, a scholarship fund for the children of fallen and disabled soldiers. The President is donating the after-tax proceeds from his children’s book to the cause.

The Bidens also released their 2011 federal income tax returns, along with state income tax returns for both Delaware and Virginia. The couple filed joint federal and combined Delaware income tax returns. Jill Biden filed a separate non-resident tax return for the state of Virginia. Together, they reported adjusted gross income of $379,035. The Bidens paid $87,900 in total federal tax for 2011. They paid $13,843 in Delaware income tax and $3,614 in Virginia income tax. The Bidens contributed $5,540 to charity in 2011.

Obama has been pushing for the so-called “Buffett Rule” in recent months, named after billionaire Warren Buffett, under which millionaires and billionaires would need to pay a minimum tax rate of 30 percent.

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Last-Minute Reminder to Parents and Students; Don’t Overlook College Tax Benefits

Issue Number:    IR-2012-46

The Internal Revenue Service today reminded parents and students rushing to meet this year’s April 17 deadline to be sure and check out several college-related tax benefits before filing their 2011 returns.

Two tax credits and a tax deduction are available to taxpayers who paid tuition and other expenses for an eligible student during 2011. Because an eligible student can be the taxpayer, spouse or dependent, these benefits can, for example, help workers taking continuing education courses and people returning to school, as well as parents paying for their children’s college education.

Given the number of different higher education credits and deductions, the IRS reminds taxpayers to carefully review eligibility requirements so they don’t overlook these important college benefits. Tax benefits include the following:

  • The American Opportunity Tax Credit helps pay for the first four years of post-secondary education. Tuition, required enrollment fees, books and other required course materials generally qualify, and eligible students must be enrolled at least half time. Qualifying expenses of $4,000 or more in 2011 can earn a taxpayer the maximum credit of $2,500 per student per year. Even taxpayers who owe no tax can get a payment of the credit of up to $1,000 for each eligible student. The credit is claimed on Form 8863. But the IRS warns taxpayers to avoid an often-costly tax scam, currently being promoted widely to senior citizens, low-income families and church members falsely claiming that refunds based on the credit are available, even if they’re not currently enrolled in college and even if they went to school decades ago. In addition, some international students, normally considered nonresident aliens for tax purposes, have been improperly advised that they qualify for the credit.
  • The Lifetime Learning Credit, limited to $2,000 per taxpayer per year, can be claimed based on tuition and required enrollment fees paid for any level of post-secondary education. Because of differences between the two credits and the fact that the American Opportunity Tax Credit usually yields greater tax savings at the undergraduate level, the Lifetime Learning Credit may be particularly helpful to graduate students, students taking only one course and those who are not pursuing a degree. The Lifetime Learning Credit is also claimed on Form 8863.
  • The tuition and fees deduction is available for both full-time and part-time students at all levels of post-secondary education. The deduction of up to $4,000 is claimed on Form 8917.

Each year, a student normally receives a Form 1098-T from their college showing tuition payments and other information.

Though a taxpayer often qualifies for more than one of these benefits, he or she can only claim one of them for a particular student in 2011. Income limits and other special rules apply to each of these benefits. The general comparison table in Publication 970 can be a useful guide to taxpayers in determining eligibility for each of these benefits.

Often, tax credits are more valuable, because they reduce the amount of tax owed, whereas deductions reduce the income on which tax is figured. Tax software can often help parents and students determine which benefit yields the greatest tax savings.

Besides these tax benefits, parents, students and former students who made student loan payments during 2011 can deduct up to $2,500 of student loan interest. Normally, borrowers receive from their financial institution Form 1098-E showing student loan interest paid for the year. This deduction is claimed on Form 1040 Line 33 or Form 1040A Line 18. Income limits and other special rules apply. For example, the student must have been enrolled at least half time in a degree or certificate program. A worksheet in the tax form instructions can help taxpayers figure the deduction correctly.

The student loan interest deduction, the tuition and fees deduction and both tax credits can be claimed by eligible taxpayers, regardless of whether they itemize deductions on Schedule A. These benefits are available to both Form 1040 and 1040A filers. Details on these and other education-related deductions and credits can be found in the Tax Benefits for Education Information Center on IRS.gov.

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Managing Your Tax Records After You Have Filed

Issue Number:    IRS TAX TIP 2012-71

Keeping good records after you file your taxes is a good idea, as they will help you with documentation and substantiation if the IRS selects your return for an audit. Here are five tips from the IRS about keeping good records.

1. Normally, tax records should be kept for three years.

2. Some documents — such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property — should be kept longer.

3. In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your federal tax return.

4. Records you should keep include bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return.

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Need Extra Time to Complete Your Tax Return? File for an Extension

 

IRS Tax Tip 2012-70, April 11, 2012

Even though the tax filing deadline is later than usual this year – April 17 – many taxpayers may still need more time to file their tax return. If you need extra time, you can get an automatic six-month extension of time to file from the IRS.

Here are seven important things you need to know about filing an extension:

1. File on time even if you can’t pay If you completed your return but you are unable to pay the full amount of tax due, do not request an extension. File your return on time and pay as much as you can. To pay the balance, apply online for a payment plan using the Online Payment Agreement application at www.irs.gov or send Form 9465, Installment Agreement Request, with your return. If you are unable to make payments, call the IRS at 800-829-1040 to discuss your options.

2. Extra time to file An extension will give you extra time to get your paperwork to the IRS, but it does not extend the time you have to pay any tax due. You will owe interest on any amount not paid by the April 17 deadline, plus you may owe penalties.

3. Form to file Request an extension to file by submitting Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return to the IRS. It must be postmarked by April 17, 2012. You also can make an extension-related electronic credit card payment. For more information about extension-related credit card payments, see Form 4868.

4. E-file extension You can e-file an extension request using tax preparation software with your own computer or by going to a tax preparer who has the software. You must e-file the request by midnight on April 17, 2012. The IRS will acknowledge receipt of the extension request if you e-file your extension.

5. Traditional Free File and Free File Fillable Forms You can use both Free File options to file an extension. Access the Free File page at www.irs.gov.

6. Electronic funds withdrawal If you ask for an extension via one of the electronic methods, you can also pay any expected balance due by authorizing an electronic funds withdrawal from a checking or savings account. You will need the appropriate bank routing and account numbers. For information about these and other methods of payment, visit the IRS website at www.irs.gov or call 800-TAX-1040 (800-829-1040).

7. How to get forms Form 4868 is available for download from the IRS website or you can pick up the form at your local IRS office.

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Tax Credits Available for Certain Energy-Efficient Home Improvements

Issue Number:    IRS Tax Tip 2012-45

The IRS would like you to get some credit for qualified home energy improvements this year. Perhaps you installed solar equipment or recently insulated your home? Here are two tax credits that may be available to you:

1. The Non-business Energy Property Credit  Homeowners who install energy-efficient improvements may qualify for this credit. The 2011 credit is 10 percent of the cost of qualified energy-efficient improvements, up to $500. Qualifying improvements include adding insulation, energy-efficient exterior windows and doors and certain roofs. The cost of installing these items does not count. You can also claim a credit including installation costs, for certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass fuel. The credit has a lifetime limit of $500, of which only $200 may be used for windows. If you’ve claimed more than $500 of non-business energy property credits since 2005, you can not claim the credit for 2011. Qualifying improvements must have been placed into service in the taxpayer’s principal residence located in the United States before Jan. 1, 2012.

2. Residential Energy Efficient Property Credit This tax credit helps individual taxpayers pay for qualified residential alternative energy equipment, such as solar hot water heaters, solar electricity equipment and wind turbines. The credit, which runs through 2016, is 30 percent of the cost of qualified property. There is no cap on the amount of credit available, except for fuel cell property. Generally, you may include labor costs when figuring the credit and you can carry forward any unused portions of this credit. Qualifying equipment must have been installed on or in connection with your home located in the United States; geothermal heat pumps qualify only when installed on or in connection with your main home located in the United States.

Not all energy-efficient improvements qualify so be sure you have the manufacturer’s tax credit certification statement, which can usually be found on the manufacturer’s website or with the product packaging.
 
If you’re eligible, you can claim both of these credits on Form 5695, Residential Energy Credits when you file your 2011 federal income tax return. Also, note these are tax credits and not deductions, so they will generally reduce the amount of tax owed dollar for dollar. Finally, you may claim these credits regardless of whether you itemize deductions on IRS Schedule A.

You can find Form 5695 at IRS.gov or order it by calling 1-800-TAX-FORM (800-829-3676).

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Mortgage Debt Forgiveness: 10 Key Points

IRS Tax Tip 2012-39

 Canceled debt is normally taxable to you, but there are exceptions. One of those exceptions is available to homeowners whose mortgage debt is partly or entirely forgiven during tax years 2007 through 2012.

The IRS would like you to know these 10 facts about Mortgage Debt Forgiveness:

1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.

2. The limit is $1 million for a married person filing a separate return.

3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.

4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.

5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.

6. Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.

7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.

8. Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.

9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.

10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.

For more information about the Mortgage Forgiveness Debt Relief Act of 2007, visit www.irs.gov. IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments, is also an excellent resource.

You can also use the Interactive Tax Assistant available on the IRS website to determine if your cancelled debt is taxable. The ITA takes you through a series of questions and provides you with responses to tax law questions.

Finally, you may obtain copies of IRS publications and forms either by downloading them from www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

 

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IRS Offers Advice to Late Filers to Avoid Penalties

The Internal Revenue Service said Tuesday that taxpayers who are unable to file their taxes by the April 17 deadline can still use its Free File facility to apply for a six-month extension.

The IRS said not to panic. Tax-filing extensions are available to taxpayers who need more time to finish their returns. The IRS cautioned that this is an extension of time to file, but not an extension of time to pay. However, taxpayers who are having trouble paying what they owe usually qualify for payment plans and other relief. Last month, for example, the IRS, as part of its Fresh Start initiative announced penalty relief for unemployed taxpayers and self-employed individuals whose income has dropped.

Either way, taxpayers will avoid stiff penalties if they file either a regular income tax return or a request for a tax-filing extension by this year’s April 17 deadline. Taxpayers should file, even if they can’t pay the full amount due. Here are further details on the options available.

People who haven’t finished filling out their return can get an automatic six-month extension. The fastest and easiest way to get the extra time is through the Free File link on IRS.gov. Anyone, regardless of income, can use this free service to electronically request an automatic tax-filing extension on Form 4868.

Filing this form gives taxpayers until Oct. 15 to file a return. To get the extension, taxpayers must estimate their tax liability on this form and should also pay any amount due.

By properly filing this form, a taxpayer will avoid the late-filing penalty, normally 5 percent per month based on the unpaid balance, which applies to returns filed after the deadline. In addition, any payment made with an extension request will reduce or eliminate interest and late-payment penalties that apply to payments made after April 17. The current interest rate is 3 percent per year, compounded daily, and the late-payment penalty is normally 0.5 percent per month.

Besides Free File, taxpayers can choose to request an extension through a paid tax preparer, using tax-preparation software or by filing a paper Form 4868, available on IRS.gov. Of the 10.5 million extension forms received by the IRS last year, about 4 million were filed electronically.
Some taxpayers get more time to file without having to ask for it. These include:

•  Taxpayers abroad. U.S. citizens and resident aliens who live and work abroad, as well as members of the military on duty outside the U.S., have until June 15 to file. Tax payments are still due April 17.

• Members of the military and others serving in Iraq, Afghanistan or other combat zone localities. Typically, taxpayers can wait until at least 180 days after they leave the combat zone to file returns and pay any taxes due. For details, see Extensions of Deadlines in Publication 3, Armed Forces Tax Guide.

• People affected by certain tornadoes, severe storms, floods and other recent natural disasters. Currently, parts of Indiana, Kentucky, Tennessee and West Virginia are covered by federal disaster declarations, and affected individuals and businesses in these areas have until May 31 to file and pay.

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Six Tips for People Who Pay Estimated Taxes

Issue Number:    IRS Tax Tip 2012-65

 You may need to pay estimated taxes to the IRS during the year if you have income that is not subject to withholding. This depends on what you do for a living and the types of income you receive.

These six tips from the IRS explain estimated taxes and how to pay them.

1. If you have income from sources such as self-employment, interest, dividends, alimony, rent, gains from the sales of assets, prizes or awards, then you may have to pay estimated tax.

2. As a general rule, you must pay estimated taxes in 2012 if both of these statements apply: 1) You expect to owe at least $1,000 in tax after subtracting your tax withholding (if you have any) and tax credits, and 2) You expect your withholding and credits to be less than the smaller of 90 percent of your 2012 taxes or 100 percent of the tax on your 2011 return. Special rules apply for farmers, fishermen, certain household employers and certain higher income taxpayers.

3. For Sole Proprietors, Partners and S Corporation shareholders, you generally have to make estimated tax payments if you expect to owe $1,000 or more in tax when you file your return.

4. To figure your estimated tax, include your expected gross income, taxable income, taxes, deductions and credits for the year. Use the worksheet in Form 1040-ES, Estimated Tax for Individuals, for this. You want to be as accurate as possible to avoid penalties. Also, consider changes in your situation and recent tax law changes.

5. The year is divided into four payment periods, or due dates, for estimated tax purposes. Those dates generally are April 15, June 15, Sept. 15 and Jan. 15 of the next or following year.

6. Form 1040-ES, Estimated Tax for Individuals, has everything you need to pay estimated taxes. It includes instructions, worksheets, schedules and payment vouchers. However, the easiest way to pay estimated taxes is electronically through the Electronic Federal Tax Payment System, or EFTPS, at www.irs.gov. You can also pay estimated taxes by check or money order using the Estimated Tax Payment Voucher or by credit or debit card.

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Tips for Taxpayers Who Can’t Pay Their Taxes on Time

IRS Tax Tip 2012-64

 

If you owe tax with your federal tax return, but can’t afford to pay it all when you file, the IRS wants you to know your options and help you keep interest and penalties to a minimum.

Here are five tips:

1. File your return on time and pay as much as you can with the return. These steps will eliminate the late filing penalty, reduce the late payment penalty and cut down on interest charges. For electronic and credit card options for paying see IRS.gov.  You may also mail a check payable to the United States Treasury

2. Consider obtaining a loan or paying by credit card. The interest rate and fees charged by a bank or credit card company may be lower than interest and penalties imposed by the Internal Revenue Code.

3. Request an installment payment agreement. You do not need to wait for IRS to send you a bill before requesting a payment agreement. Options for requesting an agreement include:
• Using the Online Payment Agreement application  and
• Completing and submitting IRS Form 9465-FS, Installment Agreement Request, with your return
IRS charges a user fee to set up your payment agreement. Seewww.irs.gov or the installment agreement request form for fee amounts.

4. Request an extension of time to pay. For tax year 2011, qualifying individuals may request an extension of time to pay and have the late payment penalty waived as part of the IRS Fresh Start Initiative. To see if you qualify visit www.irs.gov and get form 1127-A, Application for Extension of Time for Payment. But hurry, your application must be filed by April 17, 2012.

5. If you receive a bill from the IRS, please contact us immediately to discuss these and other payment options. Ignoring the bill will only compound your problem and could lead to IRS collection action.

If you can’t pay in full and on time, the key to minimizing your penalty and interest charges is to pay as much as possible by the tax deadline and the balance as soon as you can. For more information on the IRS collection process go to or see IRSVideos.gov/OweTaxes.

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U.S. Corporate Tax Rate Becomes Highest on April 1

The U.S. is set to have the highest combined federal and state statutory corporate tax rate in the industrialized world on Sunday, April 1, once Japan drops its top rate to 38.1 percent.

While the U.S. corporate tax rate at the federal level is a maximum of 35 percent, tax cut proponents argue that the combined federal, state and local tax rates amount to 39.2 percent, beating Japan’s newly lowered rate.

Corporations have been lobbying Congress to lower the statutory corporate tax rate, even though many corporations pay far lower effective tax rates than 35 percent. On Thursday, the House passed a Republican-backed budget introduced by House Budget Committee Chairman Paul Ryan, R-Wis., which would lower the top corporate tax rate from 35 to 25. The plan builds on corporate tax reform work in the House Ways and Means Committee.

However, the Ryan budget plan is not expected to go far in the Democratic-controlled Senate. A similar budget plan from Ryan also was approved in the House last year, but failed to make headway in the Senate.

The RATE Coalition, a group of 26 companies and organizations lobbying for corporate tax reform, called for lowering the tax rate. “America taking the ‘lead’ in gaining the dubious distinction of being the world ‘leader’ in high corporate taxation is no April Fool’s joke. The United States is soon to be ‘number one’ in anti-competitiveness,” said James Pinkerton, co-chair of the RATE Coalition and a former White House domestic policy adviser to Presidents Ronald Reagan and George H.W. Bush. “Our corporate tax code, including the world-leading rate of 35 percent, leaves us in a weaker position relative to other leading economies. That’s bad news for growth and jobs. But the good news is there’s a sensible solution: lower the corporate rate to be in line with our competitors. And there are many signs that the bipartisan political will exists to achieve that lowering.”

Dean Zerbe, the former senior counsel and tax counsel to the U.S. Senate Committee on Finance and the current managing director of alliantgroup, does not expect to see much action in Congress on tax reform until after the November election, although he believes there may be some movement on small business tax cuts, especially in areas such as research and development.

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