TAX

IRS Form 4868: Get a Six-Month Extension to File Your Taxes

It’s very easy to get an extension of time to file your federal income tax return.  IRS Form 4868 is simple and easy to fill out and mail to the IRS.  Even easier is if you file your taxes electronically and you can file for the extension online, too.  Here’s how to get an extra six months to complete your taxes.

File a Paper Version of IRS Form 4868

You can go to the IRS website and download a PDF version of IRS Form 4868.  It’s available here for printing and mailing in to the IRS.  The form is so short you might miss it while scrolling down through the four pages of instructions.  It’s at the bottom of page one and it’s about as big as a payment voucher, not much bigger than a check.  All you do is identify yourself and estimate how much you think you’ll owe.  You have to provide that estimate because if you owe taxes you still have to pay on time.

IRS Form 4868 is due by April 15, which is when taxes would have been due if you weren’t applying for an IRS extension.  That means some payment is due also, if you will end up owing the IRS rather than being owed an IRS refund.  Remember: IRS Form 4868 is an extension of time to file, not an extension of time to pay!

File IRS Form 4868 Online

Filing IRS form 4868 is a little misleading.  You need to start registering with an electronic tax-preparation company to file for the IRS extension online.  It’s simple: just choose from the IRS-approved providers like TaxAct, TurboTax and more.  Here’s a link to the IRS website page where you can find an approved e-file provider for individuals.  Register and provide your basic personal info and just save, file Form 4868 and hit save for later and then go back and finish later when you’re ready.

 

 

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IRS Form 8917: If You Can’t Take Education Credits, At Least There’s a Deduction

If there’s one golden rule regarding tax credits and deductions, it’s that credits are more desirable.  The education tax credits available to taxpayers who pay for college are the American Opportunity Tax Credit and the Lifetime Learning tax credit.  Both of these remove money from your tax bill, which is why they are desirable.  However, both also have stipulations that make them unusable for some taxpayers.

That’s why IRS Form 8917 is a valuable tax tool for many taxpayers.  Titled Tuition and Fees Deduction, this form allows taxpayers to at least take a tax deduction, even when the education credits are out of reach.  Deductions are less desirable than credits because while they do lower your taxable income and save you  money, they represent not near as much tax savings as a tax credit.

Why Use IRS Form 8917?

Use this form to claim an education tax deduction if you don’t qualify for two tax credits mentioned above.  Reasons for this could be any of the following…

  • You’ve already used the American Opportunity Tax Credit for the limit of four years
  • The student got a drug felony, making him or her ineligible for the above-named tax credit
  • You don’t owe the IRS any money and you aren’t eligible to claim the American Opportunity tax credit*

 

The last reason needs a bit of explanation…

Tax credits can be refundable or nonrefundable.  That makes all the difference in the world to some people.  You see, if a tax credit takes so much money off your tax bill that your bill drops below zero and it looks like the IRS owes you money, you’ll want the credit to be refundable.  That means it’s able to be included in an IRS refund to you…a check.  However, if a credit is nonrefundable and your tax bill drops below zero because of the credit, you just forfeit the credit.  The IRS will not give you money back if the tax credit is not refundable.

The Lifetime Learning Credit is not refundable.  The American Opportunity tax credit is refundable.  But if you aren’t eligible for the latter and you don’t have a tax bill with the IRS, then neither tax credit is going to do you much good, it it?  That’s when you are thankful to have IRS Form 8917 the Education Tax Deduction.

To take a look at IRS Form 8917 go directly to the IRS website and you’ll find a PDF  version here.

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IRS Form 8283: When You Donate Property

The IRS likes it when you give things away.  They will give you a tax deduction for donating things that are worth money, and IRS Form 8283 is how you claim this deduction.  It’s called Noncash Charitable Contribution.  It’s for property you donate to charity and believe me you can’t ignore the rules on donations because the IRS has a tight system for checking up on charitable donations.

What are the Rules for Charitable Contributions?

“Noncash charitable donations” means anything  but cash money.  The word “property” means something different to the IRS than what it means to you and me in everyday life.  To the IRS, and when we’re talking taxes, “property” means anything but cash.  It can mean a painting, a piece of land, some stocks you own, or a copyright in your name. When you give any of this kind of thing away and it’s worth more than $500, it’s called a Noncash Charitable Contribution.

Now, it matters to whom you give the contribution.  Donating a used sofa worth $600 to your niece does not count.  That’s because your niece is not an official charity, recognized by the IRS.  If you want your charitable contribution to be tax-deductible, you must donate to a tax-exempt organization that’s officially recognized by the IRS.  They must apply for the status and once they’re accepted they must make public their business records so the public can check them out and make sure that’s where they really want their contributions to go.

You can look up the charitable organizations that have properly applied for tax-exempt status and can therefore accept your deductible donations…go to the GuideStar website at http://www.guidestar.org/rxg/give-to-charity/index.aspx. You can also review their IRS Form 990 submissions, which are informational tax returns if you want to check out their financial and business proceedings.

How Do I Fill out IRS Form 8283?

You’ll need to know a lot about the value and history of the item(s) you are donating, as well as information about the actual charity.

As for the donated property, you must fill in the following information:

  • when you acquired it
  • when you donated it
  • how you acquired it
  • what it cost you
  • the current value (Fair Market Value- FMV)
  • how you determined the FMV

The charitable organization must sign Form 8283 also, acknowledging that they are a recognized tax-exempt organization under section 170(c).  Then you sign, and you’re ready to claim that tax deduction!

 

 

 

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IRS Form 5329-t: a Tax for When You Don’t Follow the Rules

The IRS doesn’t like it when you break the rules.  In fact, it drives them crazy and makes them lash out at taxpayers…audits, penalties, fines you name it they’re going to get you if you break the rules.  This is especially true when they are generous, and we throw that back in their face.  What is the world is this all about?  We’re talking about tax-favored accounts (the gift from the IRS), which come with stipulations (the “rules”).  When we break the rules on those tax-favored accounts, the IRS says pay up.  That’s where IRS Form 5329-t comes in.

IRS Form 5329-t is for Tax-Favored Accounts: What’s a Tax-Favored Account?

A tax-favored account is a savings account or retirement account that comes with tax-related incentives.  That means, it’s a account that’s good for you so the IRS gives you a tax break on the money you put into it.  For example, an Individual Retirement Account (IRA) is good for you because you’re saving for your retirement.  The more you save for old age, the less the government will have to worry about your sorry self wandering the streets and taking up taxpayer money because you didn’t plan for retirement.

Another example of a tax-favored account is a Coverdell Education Savings Account (ESA).  The money you put into these accounts is tax-free.  It’s a tax deduction, in other words.  But you’re only supposed to use the money in those accounts for education-related expenses.  The IRS has tight stipulations on this…if you withdraw money from your Coverdell and use it for something other than what it’s meant to be used for, you’ll have to pay taxes on that withdrawal.  Enter IRS Form 5329-t, once again.

Or let’s say you love your IRA so much you contributed more than the limit.  IRA contributions are limited to around $5000 per year (it goes up a bit each year).  If you go over the limit, IRS Form 5329-t is for paying the additional tax you’ll owe because you broke the IRA contribution limit rules.  Starting to get the picture?

There are also several types of Medical (Health) Savings Accounts which have rules: you can deduct the contributions but you must use that money for qualified medical costs only.  Otherwise, get yourself a copy of IRS Form 5329-t and pay the additional tax.

IRS Form 5329-t is really IRS Form 5329

The form you want is actually IRS Form 5329.  There is no “t”.  It’s called Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts.  It’s not that difficult a form, just two pages long.  You only fill out the parts that apply to your type of Tax-Favored account.  Here are the types of accounts on which if you  break the rules you’ll have to use IRS Form 5329 to pay additional taxes:

  • Excess Contributions to Archer Medical Savings Accounts (MSAs)
  • Excess Contributions to Health Savings Accounts (HSAs)
  • Excess Contributions to Coverdell ESAs
  • Excess Accumulation in Qualified Retirement Plans (including IRAs)*
  • Excess Contributions to Roth IRAs
  • Excess Contributions to Traditional IRAs
  • Early Distributions on your IRA
  • Certain Distributions from Education Accounts

*IRAs have one more rule: once you hit retirement age, you MUST start withdrawing money from your tax-favored retirement account.  If you don’t do this, it’s called excess accumulation and you must use IRS Form 5329 to pay the additional tax you now owe.  Pretty stupid not to take those required distributions, isn’t it?

 

 

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IRS Form 5695: Geothermal Tax Credit

IRS Form 5695 is the energy saver’s dream.  If you own a home and have installed energy-saving components to your home, the IRS will shave dollars right off your tax bill, in the form of the Residential Energy Credit.  It’s a dream because applying energy-saving devices and systems to your home is a savings in itself.  Getting a tax credit just adds one more reason to go for it and make your home more energy efficient.

One of the largest overhauls you can do for saving on energy costs in your home is to install a geothermal heat pump.  This means your home will be heated and cooled by the earth.  You see, if you go down deep enough, the dirt is a constant temperature of around 55 degrees Fahrenheit.  That means, if you send pipes down to bring that air up into your home in winter, it will heat your home.  In summer, it will cool your home.

Air that cools or heats your home is brought up from the ground, so it’s transported, not created.  That means nothing is burned…no oil, no gas, no wood.  It’s totally clean!  In fact, you don’t get any cleaner, cost-effective or efficient than a geothermal heat pump system in your home.  The EPA says so.

That’s why the IRS likes it too.  You can deduct 30% of the cost of your geothermal installation, which is quite a lot.  These systems cost around $25,000 to install.  Therefore, a 30% credit is going to be worth almost $8,000.  The geothermal tax credit is going to give you the most bang for your buck on IRS Form 5695.

What’s more, you can apply the Residential Energy Credit to your vacation home as well!  This is not the norm for the IRS.  But this whole great opportunity is going to go away in 2016, unless extended once again by Congress.  If you’re thinking about a Geothermal Heat Pump in your home, now’s the time for sure.