Obviously we are not ready for any unpleasant surprise when we file our taxes. We always remain optimistic for a nice and attractive tax refund and we never want to end up paying tax balance. Generally, the tax refund takes place only when the taxes paid plus the available tax credits are more than what we owe towards taxes. If this is not true, then we owe a tax balance.

With busy life style and more pressing issues around, we hardly think about this tax refund/balance payment situation until the end of the year. But if we want to be able to avoid unpleasant surprise (tax balance), then we really need to be little more proactive and keep an eye throughout the year, on what increases our tax liability. Here are some areas that need our monitoring.

Monitor Pay Check Tax Deductions: You need to make sure that right taxes are withheld from every paycheck. Please make sure that Federal Income Tax deduction is in compliance with Federal Income Tax withholding table and your W-4. If necessary, call your Payroll Company to have correct and better understanding of this issue. If necessary, submit new W-4 for voluntary higher tax deduction.

American Recovery and Reinvestment Act: One of the the other possible reason for under deduction of Federal Income Tax (FIT) could be the new withholding table under the American Recovery and Reinvestment Act reduces the Federal Income Tax withholding (FITW) to reflect the ‘Make Work Pay’ tax credit. With this, some of the employees might end up with under deduction of taxes and resulting in possible penalties. Employees most likely to be affected are: Two-earner married couple, Individuals with more than one job, A dependent on another’s tax return (they do not qualify for the credit but you will withhold as though they were), Individual receiving pension, and/or Economic Recovery Payments. Individuals falling under these categories need to review FITW. If it is too late to submit a new W-4 for higher tax deductions, please see if you can make some estimated tax payments to save some possible late fees and penalties. (more…)

United States citizens, who are living and earning outside the country, do not have to pay taxes on all or part of their income to the government. These citizens are entitled to an exclusion of up to $91,400 per annum, and are further entitled to exclude the amount that they spend for housing under the “Foreign Housing Deduction” along with the amount spent on meals.

To be eligible for these deductions, one must spend at least one whole calendar year abroad. This holds true even if the citizen returns to the United States for a short time. He can also go to other places for short visits, and still retain his eligibility to these deductions. A citizen can claim the normal tax exclusion of all other foreign earners if he is self-employed and working abroad. However, he is expected to pay self employment tax to the government. (more…)

For the first time ever the United States government is providing tax credits for Americans who buy their first home. Many of the program’s provisions can be complex and confusing, especially for those unfamiliar with the process of purchasing a home. In order to take advantage of this system it is important to understand the specifics.

In an effort to jump start the collapsing housing market, this year’s stimulus package included an up to $8,000 tax credit for first time home buyers. However, time is running out on this program as only homes purchased before November 30 will be eligible to be included in the tax credit program. That is unless Congress decides to extend the program. (more…)

When you retire it is more than likely you will be attempting to live on income that is as much as half of what you had while you were working. Even if you have a pension very few employers today offer a cost of living increase that comes anywhere near the actual increase in the cost of living-many companies don’t even offer increases to their retirees. This leaves those who are retired struggling to make ends meet as the cost of even basic necessities such as food, clothing, utilities, insurance, heat and gas go through the roof. This forces many people to continue working into their 70s and even 80s in order to keep a roof over their heads. Others are forced to sell their beloved homes and move in with their children because they can no longer afford the cost of living on their own.

While it may seem feasible for some to return to work if only part-time there is an important issue to remember-the money you make working is taxable and will have an effect on the amount of Social Security income that is taxable. In addition the money from a job is taxable as well. This is where a reverse mortgage is advantageous-the funds you withdraw from your reverse mortgage loan are not taxable! Whether you use the funds to supplement your monthly income, take a trip, pay for a child or grandchild to go to college or make home repairs the funds are still not taxable. You will pay interest on the funds but the interest you pay may indeed be less than you would pay in taxes if you were to obtain the same funds from a taxable source. Even the distributions from a 401K Plan are taxable when you make withdrawals. (more…)