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April 11: Your Money Matters - Your 2010 Tax Return

WGN News

10:27 AM EDT, May 28, 2012

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Grant Thornton's Tax Tips:

Tax planning at the midnight hour

How to beat the filing deadline

CHICAGO, April 7, 2011 – With the April 18, 2011, tax filing deadline fast approaching, Grant Thornton LLP wants to assure American taxpayers that there's no need to panic.

"A lot of people don't want to think about taxes until they absolutely can't avoid it, but don't bury your head in the sand," said Dan Potter, director of Grant Thornton's family wealth planning (FWP) services practice in the Midwest region. "There are plenty of things you can do to beat the upcoming deadline and even some last-minute strategies you can use to affect your 2010 return."

Grant Thornton is pleased to offer seven last-minute tax tips for those procrastinators who need help with tax planning at the midnight hour:

1. Contribute to an IRA. You can still get an above-the-line deduction for your 2010 return by contributing to an Individual Retirement Account now. You can make contributions that are deductible on your 2010 return any time before April 18, 2011 -- and can even set up the account now if you don't have one already. Contribution limits for 2010 are $5,000 plus a $1,000 catch-up for those 50 and over. Whether the contribution will be deductible depends on whether you and/or your spouse participate in other qualified retirement plans, and on your adjusted gross income (AGI). 2. Consider a Roth IRA. If you are not eligible to make a deductible IRA contribution, see if you are eligible to contribute to a Roth IRA. AGI limits applicable to Roth IRAs can be significantly higher, particularly where both spouses work and are covered by other qualified retirement plans. A contribution to a Roth IRA will not get you a current tax deduction, but any future earnings will be exempt from tax. 3. Set up and contribute to an HSA. If you were covered by a high deductible health insurance plan at any time in 2010, you are likely still eligible to set up a Health Savings Account (HSA) and make tax-deductible contributions for 2010 by April 18, 2011. You're allowed to contribute up to $6,150 for a family or $3,050 for individual coverage (plus a $1,000 catch-up contribution for those 55 or older). High deductible health plans require users to pay for their health care costs out-of-pocket until they reach a deductible where their insurance kicks in, while protecting against catastrophic medical bills with an out-of-pocket maximum. 4. Get your charitable house in order. A charitable cash contribution must be documented to be deductible. If you claim a charitable deduction of over $500 in donated property, you must attach Form 8283. If you are claiming a deduction of $250 or more for a car donation, you will need a contemporaneous written acknowledgement from the charity that includes a description of the car. Remember, you cannot deduct donations to individuals, social clubs, political groups or foreign organizations. 5. Consider filing electronically. Filing electronically will speed up your refund and can save you from simple mistakes. Before the IRS accepts an electronic return, it checks for several critical errors. The IRS gives you the chance to correct the problems before it accepts and processes your electronic return. The IRS has also indicated that it will not process paper returns during a government shutdown, potentially delaying refunds if Congress is not able to agree on a budget. 6. Check your numbers twice. Avoid math errors and make sure to get your Social Security numbers right. IRS computers automatically match all Social Security numbers and check for simple math mistakes. If you wrote down the wrong Social Security number for one of your dependents, the IRS will disallow the dependent, recalculate the return and usually send you a brand new tax bill. Millions of returns also generate math error notices that often come as unwelcome surprises to unsuspecting taxpayers. These problems can be a hassle to unwind. 7. Don't miss the deadline for filing an extension. Don't bury your head in the sand if you're not going to get your return filed on time. Filing for an automatic extension with Form 4868 is painless and will spare you penalties for missing the deadline. But remember, extending the filing deadline does not extend the time for making a contribution to an IRA or HSA, and it does not extend the time for payment. By the filing deadline, you must have paid at least 90 percent of your 2010 tax liability through withholding, estimated payments and any payment made with your extension.

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Contribute to a traditional IRA.
You can still get an above-the-line deduction for your 2010 return by contributing to a traditional Individual Retirement Account (IRA) now. This does not include a Roth Individual Retirement Account. You can make contributions that are deductible on your 2010 return any time before April 18, 2011 -- and can even set up the account now if you don't have one already. Contribution limits for 2010 are $5,000 plus a $1,000 catch up for those 50 and over, but contributions only offer deductions at income levels below $109,000 for joint filers and $66,000 for singles.

Reconsider a Roth IRA rollover.
The $100,000 income limit on rollovers from an IRA or 401(k) to a Roth IRA disappeared in 2010. This type of rollover allows you to pay tax on the conversion in exchange for no taxes in the future (if withdrawals are made properly). A special provision allows you to pay the taxes on a 2010 conversion in equal installments in 2011 and 2012. If you converted to a Roth IRA last year, keep an eye on the account to see whether it decreases in value. If it does, you may want to unwind the conversion and then reconvert to a Roth IRA. By doing so, you will pay taxes on the lower value, which means the taxes due as a result of the conversion will be lower. You can unwind the conversion as late as the due date of your 2010 income tax return. Thus, if you extend your return, you will have until Oct. 17, 2011, to unwind the conversion. You can then convert again to a Roth IRA, as long as you wait at least 31 days after unwinding the initial conversion to do so.

Get your charitable house in order.
A charitable cash contribution must be documented to be deductible. If you claim a charitable deduction of over $500 in donated property, you must attach Form 8283. If you are claiming a deduction of $250 or more for a car donation, you will need a contemporaneous written acknowledgement from the charity that includes a description of the car. Remember, you cannot deduct donations to individuals, social clubs, political groups or foreign organizations.

Consider filing electronically.
Filing electronically will speed up your refund and can save you from simple mistakes. Before the IRS accepts an electronic return, it checks for several critical errors. The IRS gives you the chance to correct the problems before it accepts and processes your electronic return.

Check your numbers twice.
Avoid math errors and make sure to get your Social Security numbers right. IRS computers automatically match all Social Security numbers and check for simple math mistakes. If you wrote down the wrong Social Security number for one of your dependents, the IRS will disallow the dependent, recalculate the return and usually send you a brand new tax bill. Millions of returns also generate math error notices that often come as unwelcome surprises to unsuspecting taxpayers. These problems can be a hassle to unwind.

Know your filing deadline.
The IRS has announced that taxpayers this year will have until Monday, April 18 to file their returns and pay tax because April 15 is Emancipation Day. Missing the deadline can cause penalties and interest.

Don't miss the deadline for filing an extension.
Don't bury your head in the sand if you're not going to get your return filed on time. Filing for an automatic extension with Form 4868 is painless and will spare you penalties for missing the deadline. But remember, extending the filing deadline does not extend the time for making a contribution to an IRA, and it does not extend the time for payment. By the filing deadline, you must have paid at least 90 percent of your 2010 tax liability through withholding, estimated payments and any payment made with your extension.

Looking forward to 2011:

Recalculate your remodel.
Lawmakers extended a tax credit for energy-efficient home improvements for 2011, but at a considerably less generous level. For 2011 you are only entitled to a 10 percent credit of up to $500 for installing energy-efficient property such as insulation, windows, roofs, fans, furnaces or water heaters (down from 30 percent and $1,500 in 2010). Don't count on last year's more generous tax credit when estimating your costs for a future remodel.

Payroll tax deduction.
Lawmakers enacted a one-year reduction in the employee portion of the Social Security tax in 2011 from 6.2 percent to 4.2 percent. The reduction applies all the way up to the Social Security wage limit of $106,800 and reduces self-employment taxes from 15.3 percent to 13.3 percent. It does not affect the deduction for self-employment taxes. If you can afford it, consider using your tax savings to contribute to a tax-favored savings vehicle like a 401(k) retirement account or 529 education savings plan.

For more information:

www.grantthornton.com