Frequently Asked Questions (and Answers)

I thought that it would be informative to list some of the questions that I have been recently asked, along with the answers. I can only guess about the future of the estate tax for 2010 and beyond, but I will have an answer about this once legislation is actually passed.

Q: What is the IRA contribution limit for 2009 and the due date?

A: The maximum amount is $5,000 with a catch-up contribution of $1,000 for taxpayers over age 50. There may be a limitation of the deductibility of traditional IRA’s if you have a retirement plan at work, and there is an income limitation for the contribution of Roth IRA’s. The due date is 4/15/10 for 2009 contributions.

Q: Is it better to file a separate tax return from my spouse?

A: Also known as “Married Filing Separately,” usually results in a higher amount of taxes being paid, but can be advantageous in certain situations. We always do an analysis to see if this is better for our married clients.

Q: Does an extension also extend the amount of time I have to pay my taxes?

A: An extension only extends the amount of time to file your return, but if you owe taxes, then you will incur penalties and interest.

Q: Do I need to keep receipts for my donations?

A: Yes, you need receipts for all donations, but if the donation was less than $250, a cancelled check is sufficient.

Q: Should I pay my property taxes ahead of time so that I can deduct that payment on my return?

A: It depends on which year you expect to be in a higher tax bracket. You must also take into consideration if you are not subject to the AMT tax, which leads to the next question.

Q: What is the AMT tax?

A: AMT, which stands for “Alternative Minimum Tax” is a tax that parallels the income tax. It was originally design to prevent wealthy individuals from paying zero income taxes. The most common difference between these two taxes is that the AMT does not allow for the deduction of state and local taxes. Taxpayers are responsible for paying whichever tax is greater.

Q: Do I have to make estimated tax payments, and If so, why?

A: Usually self-employed taxpayers, retirees, and anyone who has income from sources that do not have taxes withheld are required to make quarterly estimated tax payments. If you need to make estimated payments and do not, you may be subject to underpayment penalties.