IRS Offers Tips for Year-End Donations via IR-2008-138.
Individuals and businesses making contributions to charity should keep in mind several important tax law provisions that have taken effect in recent years.
Special Charitable Contributions for Certain IRA Owners-
An IRA owner, age 70 ½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charitable organization. This option, created in 2006 and recently extended through 2009, is available to eligible IRA owners, regardless of whether they itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.
To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity. Amounts so transferred are not taxable and no deduction is available for the amount given to the charity.
Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.
Transferred amounts are counted in determining whether the owner has met the IRA’s required minimum distribution rules.
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Rules for Clothing and Household Items-
To be deductible, clothing and household items donated to charity must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to be in good used condition or better if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances, and linens.
Guidelines for Monetary Donations-
To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.
For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
Also, a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more.
Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of the year count for 2008. This is true even if the credit card bill isn’t paid until next year. Also, checks count for 2008 as long as they are mailed this year.
Check that the organization is qualified to receive a deduction.
For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value.Additional rules apply for a contribution of $250 or more.
The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value of the vehicle is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.
If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.
Source-IRS website.
Monday, December 29, 2008
Friday, December 19, 2008
Interest Rates Drop - IRS
The Internal Revenue Service today announced in Revenue Ruling 2008-54 that interest rates for the calendar quarter beginning Jan. 1, 2009 will drop by one percentage point. The new rates will be:
Five (5) percent for overpayments [four (4) percent in the case of a corporation];
Five (5) percent for underpayments;
Seven (7) percent for large corporate underpayments; and
Two and one-half (2.5) percent for the portion of a corporate overpayment exceeding $10,000.
Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.
The interest rates announced today are computed from the federal short-term rate during October 2008 to take effect Nov. 1, 2008, based on daily compounding.
source-http://www.irs.gov/newsroom/article/0,,id=201115,00.html
Five (5) percent for overpayments [four (4) percent in the case of a corporation];
Five (5) percent for underpayments;
Seven (7) percent for large corporate underpayments; and
Two and one-half (2.5) percent for the portion of a corporate overpayment exceeding $10,000.
Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.
The interest rates announced today are computed from the federal short-term rate during October 2008 to take effect Nov. 1, 2008, based on daily compounding.
source-http://www.irs.gov/newsroom/article/0,,id=201115,00.html
Friday, December 12, 2008
Buying a SUV for business - Time is running out for the tax break!!
If you are considering purchasing a new SUV (whose weight exceeds 6,000 lbs) for the tax year 2008 and the vehicle will be used 100% in business, than the IRS offers incredible tax breaks up until December 31, 2008.
For example if you are going to buy a new SUV for $45,000 before the current 2008 year end, and the SUV meets the IRS statutory weight requirement of >6,000 lbs, then you can get a tax write-offs of upto $37,000.
Here is the math to help you understand this deduction-
1. You are entitled to write-off $25,000 of the initial cost in the first year.
2. An amount equal to 50% of the balance of the cost $20,000 can be claimed as an additional BONUS depreciation, which adds to an additional $10,000
3. The remaining balance of the cost which is $10,000 can be depreciated over 5 years which may result in an additional $2,000 as regular depreciation.
Thus, in the tax year 2008 the taxpayer can actually get a deduction of $37,000 for purchasing a SUV at $45,000.
Considering that you are in high tax bracket, buying a SUV could give you a considerable tax break.
So, Act now...before the time runs out!
For example if you are going to buy a new SUV for $45,000 before the current 2008 year end, and the SUV meets the IRS statutory weight requirement of >6,000 lbs, then you can get a tax write-offs of upto $37,000.
Here is the math to help you understand this deduction-
1. You are entitled to write-off $25,000 of the initial cost in the first year.
2. An amount equal to 50% of the balance of the cost $20,000 can be claimed as an additional BONUS depreciation, which adds to an additional $10,000
3. The remaining balance of the cost which is $10,000 can be depreciated over 5 years which may result in an additional $2,000 as regular depreciation.
Thus, in the tax year 2008 the taxpayer can actually get a deduction of $37,000 for purchasing a SUV at $45,000.
Considering that you are in high tax bracket, buying a SUV could give you a considerable tax break.
So, Act now...before the time runs out!
Thursday, November 27, 2008
2009 Standard Mileage Rates
Beginning on Jan. 1, 2009, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
55 cents per mile for business miles driven
24 cents per mile driven for medical or moving purposes
14 cents per mile driven in service of charitable organizations
Source:IR-2008-131, Nov. 24, 2008
55 cents per mile for business miles driven
24 cents per mile driven for medical or moving purposes
14 cents per mile driven in service of charitable organizations
Source:IR-2008-131, Nov. 24, 2008
Tax Year - 2009 Inflation Adjustments
- Value of each personal and dependency exemption, available to most taxpayers, is $3,650, up $150 from 2008.
- The new standard deduction is $11,400 for married couples filing a joint return (up $500), $5,700 for singles and married individuals filing separately (up $250) and $8,350 for heads of household (up $350).
- Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $67,900, up from $65,100 in 2008.
- The maximum earned income tax credit for low and moderate income workers and working families with two or more children is $5,028, up from $4,824. The income limit for the credit for joint return filers with two or more children is $43,415, up from $41,646.
- The annual gift exclusion rises to $13,000, up from $12,000 in 2008.
Source:IR-2008-117, Oct. 16, 2008
Wednesday, November 12, 2008
2008 Tax Information
Year 2008 has seen number of legislations such as the Economic Stimulus Act of 2008 (Stimulus Act), the Emergency Economic Stabilization Act of 2008 (H.R. 1424), Housing & Recovery Act all geared towards reviving and restoring the economy. There are several tax relief provisions emerging from these and other legislations which will affect your 2008 tax returns.
Below is the summary of some of the important changes for the 2008 tax year for your reference-
Increased IRA Contribution Limits - In 2008, the maximum IRA (traditional or Roth) contribution increases from $4,000 to $5,000. For taxpayers who reach age 50 before the end of 2008 can contribute another $1,000 as catch up contribution.
Higher Income Limits for Deductible IRAs and for Roth IRAs - If you are covered by a retirement plan at work, you can take a full IRA deduction if your modified adjusted gross income is less than $85,000 (married filing jointly) or $53,000 (single or head of household). A partial deduction is allowed until your adjusted gross income reaches $105,000 if you are married filing jointly or $73,000 if you are single or a head of household.
Contribution to a Roth IRA is now phased out as your modified adjusted gross income rises between $159,000 and $169,000 if you are married filing jointly or $101,000 to $116,000 if you are single or a head of household.
Tuition and Fees Deduction - The above-the-line deduction for up to $4,000 of qualified higher education expenses ($2,000 for higher-income taxpayers) is extended through Dec. 31, 2009. Educator Expenses - Above-the-line $250 deduction for out-of-pocket classroom expenses for teachers K–12 is extended through Dec. 31, 2009.
Personal Exemptions - For 2008, personal exemption is at $3,500.
Higher Standard Deductions - For 2008, the standard deduction for
Married filing a joint return is $10,950
Single filers is $5,450
Head of household is $8,050
Additional standard deduction for state & local property taxes - Taxpayers who do not itemize can claim an additional standard deduction for state and local real property taxes paid. The maximum deduction is $500 ($1,000 MFJ)
Reduction in long term capital gain & Dividend Tax Rates - 0% tax on net long term capital gain and qualified dividends for those taxpayers who are in the 10% -15% tax bracket.
Kiddie tax - will apply to children who are younger than 18, children who are 18 unless they provide more than half of their own support based on earned income, and children who are 19 to 23 and full-time students unless they provide more than half of their own support based on earned income.
Child Tax Credit - For 2008, a taxpayer whose tax liability is exceeded by the $1,000/child tax credit is entitled to a refundable tax credit of up to 15 percent of earned income in excess of $8,500.
Sales Tax Deduction -The choice to deduct state and local sales tax instead of state and local income tax on Schedule A is extended through Dec. 31, 2009.
First-time homebuyer credit - This is a refundable credit equal to the lesser of 10% of the purchase price of a home or $7,500 ($3,750 Married Filing Separately). This is effective for homes purchased by eligible first-time homebuyers after April 8, 2008, and before July 1, 2009. Eligibility for the credit phases out for modified AGI between $75,000–$95,000 ($150,000–$170,000 MFJ).
This is a disguised loan as the credit must be repaid in 15 equal installments starting in 2010. Repayment is accelerated if the home is sold or no longer used as a principal residence.
Discharge of Mortgage Indebtedness - Complete or partial discharge of a homeowner’s indebtedness on a qualified principal residence is not included in the gross income of a taxpayer. This provision is now applicable through January 1, 2013. This exclusion is not applicable in the case of Chapter 11 bankruptcy.
Modification to Section 121 exclusion - Sec 121 allowed for exclusion of $250,000($500,000 for married filing joint) if they owned and used the house as their primary residence for atleast 2 years in the 5 years immediately preceding the sale. This provision has not been modified and so gain on the sale of a principal residence allocated to a nonqualified use period (a period after Dec. 31, 2008, during which the home is not used as a principal residence of the taxpayer or spouse) is not excludable from gross income. This provision is effective for sales or exchanges on or after Jan. 1, 2009. An exception to this rule: Nonqualified use does not include the period after a home was last used as a principal residence. Taxpayers who are temporarily renting out their former principal residences until the home can be sold shouldn't be affected by this change.
Qualified Charitable Distributions -Taxpayers age 70 1/2 or older may contribute up to $100,000 tax-free from an IRA to a qualified charity. This transfer will be taken into account for meeting the required minimum distribution for the year. This provision has been extended through Dec. 31, 2009.
Nonbusiness Energy Property Credit -Note that this credit is not available for 2008 but has been reinstated for 2009. It's a credit of up to $500 for energy-efficient home improvements to a main residence. The credit is limited to 10% of the cost of building envelope improvements (insulation, exterior windows and doors, etc.) and qualifying heating and hot water equipment. In addition, qualifying home heating property (maximum $300 credit) is expanded to include energy-efficient biomass fuel stoves.
Energy Efficient Property Purchase Credit -Through 2017, a taxpayer may claim a credit for 30 percent of the purchase price of specific residential energy efficient property placed in service in a taxpayer’s residence. There is no longer a $2,000 limit on credit for qualified solar energy expenditures.
Section 179 deduction - The maximum Section 179 deduction for tax years starting in 2008 has been increased to $250,000. A phase-out of this amount starts when more than $800,000 of qualifying property is placed in service during the tax year. In addition, first-year additional 50% "bonus" depreciation is allowed for property placed in service in 2008.
Alternative Minimum Tax -The AMT exemption amounts are increased to $46,200 ($69,950 MFJ) up from 2007 amounts of $44,350 ($66,250 MFJ). Nonrefundable personal tax credits (e.g. child and dependant care credit, lifetime learning credits, credit for elective deferrals and IRA contributions) may be used to offset both the AMT and regular tax through the 2008 tax year.
Federal Disaster Relief provision provides for additional standard deduction for federally declared disaster losses in 2008–2012, Five-year net operating loss (NOL) carryback and Qualified Disaster Expense Deduction.
Below is the summary of some of the important changes for the 2008 tax year for your reference-
Increased IRA Contribution Limits - In 2008, the maximum IRA (traditional or Roth) contribution increases from $4,000 to $5,000. For taxpayers who reach age 50 before the end of 2008 can contribute another $1,000 as catch up contribution.
Higher Income Limits for Deductible IRAs and for Roth IRAs - If you are covered by a retirement plan at work, you can take a full IRA deduction if your modified adjusted gross income is less than $85,000 (married filing jointly) or $53,000 (single or head of household). A partial deduction is allowed until your adjusted gross income reaches $105,000 if you are married filing jointly or $73,000 if you are single or a head of household.
Contribution to a Roth IRA is now phased out as your modified adjusted gross income rises between $159,000 and $169,000 if you are married filing jointly or $101,000 to $116,000 if you are single or a head of household.
Tuition and Fees Deduction - The above-the-line deduction for up to $4,000 of qualified higher education expenses ($2,000 for higher-income taxpayers) is extended through Dec. 31, 2009. Educator Expenses - Above-the-line $250 deduction for out-of-pocket classroom expenses for teachers K–12 is extended through Dec. 31, 2009.
Personal Exemptions - For 2008, personal exemption is at $3,500.
Higher Standard Deductions - For 2008, the standard deduction for
Married filing a joint return is $10,950
Single filers is $5,450
Head of household is $8,050
Additional standard deduction for state & local property taxes - Taxpayers who do not itemize can claim an additional standard deduction for state and local real property taxes paid. The maximum deduction is $500 ($1,000 MFJ)
Reduction in long term capital gain & Dividend Tax Rates - 0% tax on net long term capital gain and qualified dividends for those taxpayers who are in the 10% -15% tax bracket.
Kiddie tax - will apply to children who are younger than 18, children who are 18 unless they provide more than half of their own support based on earned income, and children who are 19 to 23 and full-time students unless they provide more than half of their own support based on earned income.
Child Tax Credit - For 2008, a taxpayer whose tax liability is exceeded by the $1,000/child tax credit is entitled to a refundable tax credit of up to 15 percent of earned income in excess of $8,500.
Sales Tax Deduction -The choice to deduct state and local sales tax instead of state and local income tax on Schedule A is extended through Dec. 31, 2009.
First-time homebuyer credit - This is a refundable credit equal to the lesser of 10% of the purchase price of a home or $7,500 ($3,750 Married Filing Separately). This is effective for homes purchased by eligible first-time homebuyers after April 8, 2008, and before July 1, 2009. Eligibility for the credit phases out for modified AGI between $75,000–$95,000 ($150,000–$170,000 MFJ).
This is a disguised loan as the credit must be repaid in 15 equal installments starting in 2010. Repayment is accelerated if the home is sold or no longer used as a principal residence.
Discharge of Mortgage Indebtedness - Complete or partial discharge of a homeowner’s indebtedness on a qualified principal residence is not included in the gross income of a taxpayer. This provision is now applicable through January 1, 2013. This exclusion is not applicable in the case of Chapter 11 bankruptcy.
Modification to Section 121 exclusion - Sec 121 allowed for exclusion of $250,000($500,000 for married filing joint) if they owned and used the house as their primary residence for atleast 2 years in the 5 years immediately preceding the sale. This provision has not been modified and so gain on the sale of a principal residence allocated to a nonqualified use period (a period after Dec. 31, 2008, during which the home is not used as a principal residence of the taxpayer or spouse) is not excludable from gross income. This provision is effective for sales or exchanges on or after Jan. 1, 2009. An exception to this rule: Nonqualified use does not include the period after a home was last used as a principal residence. Taxpayers who are temporarily renting out their former principal residences until the home can be sold shouldn't be affected by this change.
Qualified Charitable Distributions -Taxpayers age 70 1/2 or older may contribute up to $100,000 tax-free from an IRA to a qualified charity. This transfer will be taken into account for meeting the required minimum distribution for the year. This provision has been extended through Dec. 31, 2009.
Nonbusiness Energy Property Credit -Note that this credit is not available for 2008 but has been reinstated for 2009. It's a credit of up to $500 for energy-efficient home improvements to a main residence. The credit is limited to 10% of the cost of building envelope improvements (insulation, exterior windows and doors, etc.) and qualifying heating and hot water equipment. In addition, qualifying home heating property (maximum $300 credit) is expanded to include energy-efficient biomass fuel stoves.
Energy Efficient Property Purchase Credit -Through 2017, a taxpayer may claim a credit for 30 percent of the purchase price of specific residential energy efficient property placed in service in a taxpayer’s residence. There is no longer a $2,000 limit on credit for qualified solar energy expenditures.
Section 179 deduction - The maximum Section 179 deduction for tax years starting in 2008 has been increased to $250,000. A phase-out of this amount starts when more than $800,000 of qualifying property is placed in service during the tax year. In addition, first-year additional 50% "bonus" depreciation is allowed for property placed in service in 2008.
Alternative Minimum Tax -The AMT exemption amounts are increased to $46,200 ($69,950 MFJ) up from 2007 amounts of $44,350 ($66,250 MFJ). Nonrefundable personal tax credits (e.g. child and dependant care credit, lifetime learning credits, credit for elective deferrals and IRA contributions) may be used to offset both the AMT and regular tax through the 2008 tax year.
Federal Disaster Relief provision provides for additional standard deduction for federally declared disaster losses in 2008–2012, Five-year net operating loss (NOL) carryback and Qualified Disaster Expense Deduction.
2009 Pension Plan Limits
IRS has announced the 2009 Pension plan limits.
Accordingly,
Accordingly,
- 401(k) or 403(b) Deferral Limit - $16,500 and Catch-Up Contribution Limit(Age 50 or older) - $5,500
- Simple IRA Account Deferral - $11,500 and Catch-Up Contribution Limit(Age 50 or older) - $2,500
- Maximum annual contribution to 401 (k) or SEP IRA - $49,000
- Maximum Compensation Limit - $245,000
Thursday, August 28, 2008
IRS Disaster Relief - Tropical Storm Fay Victims
Due to severe storms and flooding on Aug. 18, the federal government has declared Brevard, Hendry, Okeechobee, St. Lucie and Volusia counties in Florida as presidential disaster areas that qualify for Individual Assistance.
As a result, the IRS is postponing until Nov. 17 certain deadlines for taxpayers who reside or have a business in the disaster area. The postponement applies to return filing, tax payment and certain other time-sensitive acts otherwise due between Aug. 18, 2008 and Nov. 17, 2008.
In addition, the IRS will waive the failure to deposit penalties for employment and excise deposits due on or after Aug. 18 and on or before Sept. 2, as long as the deposits were made by Sept. 2.
As a result, the IRS is postponing until Nov. 17 certain deadlines for taxpayers who reside or have a business in the disaster area. The postponement applies to return filing, tax payment and certain other time-sensitive acts otherwise due between Aug. 18, 2008 and Nov. 17, 2008.
In addition, the IRS will waive the failure to deposit penalties for employment and excise deposits due on or after Aug. 18 and on or before Sept. 2, as long as the deposits were made by Sept. 2.
Monday, August 25, 2008
Mortgage Interest Credit
The mortgage interest credit is intended to help lower-income individuals afford home ownership. If you qualify, you can claim the credit each year for part of the home mortgage interest you pay.
You may be eligible for the credit if you were issued a mortgage credit certificate (MCC) from your state or local government. Generally, an MCC is issued only in connection with a new mortgage for the purchase of your main home.
The MCC will show the certificate credit rate you will use to figure your credit. It also will show the certified indebtedness amount. Only the interest on that amount qualifies for the credit.
How to claim the credit. To claim the credit, complete Form 8396 and attach it to your Form 1040. Include the credit in your total for Form 1040, line 54; be sure to check box a on that line.
Reducing your home mortgage interest deduction. If you itemize your deductions on Schedule A (Form 1040), you must reduce your home mortgage interest deduction by the amount of the mortgage interest credit shown on Form 8396, line 3. You must do this even if part of that amount is to be carried forward to 2008.
Selling your home. If you purchase a home after 1990 using an MCC, and you sell that home within 9 years, you may have to recapture (repay) all or part of the benefit you received from the MCC program.
Limit based on credit rate. If the certificate credit rate is higher than 20%, the credit you are allowed cannot be more than $2,000.
Limit based on tax. Your credit (after applying the limit based on the credit rate) generally cannot be more than your regular tax liability on Form 1040, line 44, plus any alternative minimum tax on Form 1040, line 45, minus certain other credits. Use Form 8396 to figure this limit.
Carryforward. If your allowable credit is reduced because of the limit based on your tax, you can carry forward the unused portion of the credit to the next 3 years or until used, whichever comes first.
Refinancing. If you refinance your original mortgage loan on which you had been given an MCC, you must get a new MCC to be able to claim the credit on the new loan. The amount of credit you can claim on the new loan may change.
An issuer may reissue an MCC after you refinance your mortgage. If you did not get a new MCC, you may want to contact the state or local housing finance agency that issued your original MCC for information about whether you can get a reissued MCC.
You may be eligible for the credit if you were issued a mortgage credit certificate (MCC) from your state or local government. Generally, an MCC is issued only in connection with a new mortgage for the purchase of your main home.
The MCC will show the certificate credit rate you will use to figure your credit. It also will show the certified indebtedness amount. Only the interest on that amount qualifies for the credit.
How to claim the credit. To claim the credit, complete Form 8396 and attach it to your Form 1040. Include the credit in your total for Form 1040, line 54; be sure to check box a on that line.
Reducing your home mortgage interest deduction. If you itemize your deductions on Schedule A (Form 1040), you must reduce your home mortgage interest deduction by the amount of the mortgage interest credit shown on Form 8396, line 3. You must do this even if part of that amount is to be carried forward to 2008.
Selling your home. If you purchase a home after 1990 using an MCC, and you sell that home within 9 years, you may have to recapture (repay) all or part of the benefit you received from the MCC program.
Limit based on credit rate. If the certificate credit rate is higher than 20%, the credit you are allowed cannot be more than $2,000.
Limit based on tax. Your credit (after applying the limit based on the credit rate) generally cannot be more than your regular tax liability on Form 1040, line 44, plus any alternative minimum tax on Form 1040, line 45, minus certain other credits. Use Form 8396 to figure this limit.
Carryforward. If your allowable credit is reduced because of the limit based on your tax, you can carry forward the unused portion of the credit to the next 3 years or until used, whichever comes first.
Refinancing. If you refinance your original mortgage loan on which you had been given an MCC, you must get a new MCC to be able to claim the credit on the new loan. The amount of credit you can claim on the new loan may change.
An issuer may reissue an MCC after you refinance your mortgage. If you did not get a new MCC, you may want to contact the state or local housing finance agency that issued your original MCC for information about whether you can get a reissued MCC.
Thursday, August 21, 2008
Refinancing & Mortgage Interest deduction
With interest rate being low and everyone trying to refinance the mortgage and cash out – you may want to find out if your mortgage interest deduction on your tax return will be affected.
IRC 163 defines qualified mortgage interest (interest you can deduct if you itemize on Schedule A) as interest paid or accrued during the taxable year on
1. Acquisition indebtedness, which is a loan used to acquire, build, or substantially improve a residence. Interest on up to $1,000,000 such acquisition indebtedness is deductible for taxpayers who itemize their deductions.
2. Home equity indebtedness which is any kind of borrowing against your residence that is not used to acquire, build, or substantially improve that particular residence. It includes the typical "home equity line of credit," as well as the cash-out from a refinance that is not used to substantially improve the home(but may be used to pay your credit card debt, car loan and so on). Interest on up to $100,000 of home equity indebtedness is deductible.
Note that a taxpayer who is subject to the AMT is not allowed the deduction of interest on home equity indebtedness that is not used to acquire, build, or substantially improve the residence.
Revenue Ruling 2005-11 provides an interesting analysis on this issue and every person refinancing and subject to AMT must understand this.
IRC 163 defines qualified mortgage interest (interest you can deduct if you itemize on Schedule A) as interest paid or accrued during the taxable year on
1. Acquisition indebtedness, which is a loan used to acquire, build, or substantially improve a residence. Interest on up to $1,000,000 such acquisition indebtedness is deductible for taxpayers who itemize their deductions.
2. Home equity indebtedness which is any kind of borrowing against your residence that is not used to acquire, build, or substantially improve that particular residence. It includes the typical "home equity line of credit," as well as the cash-out from a refinance that is not used to substantially improve the home(but may be used to pay your credit card debt, car loan and so on). Interest on up to $100,000 of home equity indebtedness is deductible.
Note that a taxpayer who is subject to the AMT is not allowed the deduction of interest on home equity indebtedness that is not used to acquire, build, or substantially improve the residence.
Revenue Ruling 2005-11 provides an interesting analysis on this issue and every person refinancing and subject to AMT must understand this.
Tuesday, August 19, 2008
Debt Consolidation:
Most of the time people do not budget their expenses and enjoy a lavish life. The result- they are head to toe in debt. Most of their paycheck goes out in making monthly payments towards these debts. So to meet their bare minimum requirements they again look forward to new debt and hence the cycle goes on. They are stuck in debt forever.
In order to get rid of this debt there are a few things which everyone should consider-
1. Budget & Plan your expenses.
2. Consolidate your debt in a in a single low-interest loan which can save on interest payments and speed the process of paying off debts.
3. Save for future needs and emergencies.
Debt Consolidation may sound as a good option but, beware of the consolidators who promise to get you out of the debt trap but infact drag you into another. Many of these debt consolidators build in a fee and collect it as part of the monthly payment you make to them towards the loan. They may promise you lot of things and present a picture that may make you feel that you can sit back and relax. But, all that is not so true.
Balance transfer may also not be a good option to consider as the rates are guaranteed only for a short period of time and if you cannot make the payment in full by then than you will be subject to their exorbitant interest rate.
In order to get out of the debt,
Some of the options you may want to consider are –
1. Refinance your home mortgage if you have equity in the house and cash out to pay off the high interest loans. Interest rates are low and this may be a good option to consider.
2. Get a home equity loan.
3. Negotiate better terms with the current creditors.
4. Sell off any asset/investment that you may own which is not earning you good returns.
5. Take a loan from family members or relatives.
Do your own homework. Everyone has a right to a debt free life and you can achieve it too if you plan ahead and stay firm on your decision…
In order to get rid of this debt there are a few things which everyone should consider-
1. Budget & Plan your expenses.
2. Consolidate your debt in a in a single low-interest loan which can save on interest payments and speed the process of paying off debts.
3. Save for future needs and emergencies.
Debt Consolidation may sound as a good option but, beware of the consolidators who promise to get you out of the debt trap but infact drag you into another. Many of these debt consolidators build in a fee and collect it as part of the monthly payment you make to them towards the loan. They may promise you lot of things and present a picture that may make you feel that you can sit back and relax. But, all that is not so true.
Balance transfer may also not be a good option to consider as the rates are guaranteed only for a short period of time and if you cannot make the payment in full by then than you will be subject to their exorbitant interest rate.
In order to get out of the debt,
Some of the options you may want to consider are –
1. Refinance your home mortgage if you have equity in the house and cash out to pay off the high interest loans. Interest rates are low and this may be a good option to consider.
2. Get a home equity loan.
3. Negotiate better terms with the current creditors.
4. Sell off any asset/investment that you may own which is not earning you good returns.
5. Take a loan from family members or relatives.
Do your own homework. Everyone has a right to a debt free life and you can achieve it too if you plan ahead and stay firm on your decision…
Friday, August 15, 2008
India's Independence Day
India celebrates it's 61st independence day!
After more than 200 years of British rule, India became a free nation on 15th August, 1947. We all should be thankful to the hundreds and thousand of martyred souls who laid down their lives to give us the freedom that we are enjoying today. It is because of these freedom fighters that we have come so far and have been recognized in the world for our intelligence, knowledge, hard work & dedication. We have our presence in every country and every field you can name.
Happy Independence Day to You All !!
After more than 200 years of British rule, India became a free nation on 15th August, 1947. We all should be thankful to the hundreds and thousand of martyred souls who laid down their lives to give us the freedom that we are enjoying today. It is because of these freedom fighters that we have come so far and have been recognized in the world for our intelligence, knowledge, hard work & dedication. We have our presence in every country and every field you can name.
Happy Independence Day to You All !!
Tuesday, August 12, 2008
Globalization - Often asked TAX Question !!
With growing globalization, US Citizens and Permanent resident aliens have been working outside the country more than ever. They often have a misconception that since they are working outside the country, they do not have US Source income so they do not need to file and pay taxes. However, this is not true. I have addressed this issue several times. Here it goes again....
If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are subject to tax on your worldwide income. However, you may qualify to exclude from income up to $87.600 for 2008 ($85,700 for 2007) of your foreign earnings. In addition, you can exclude or deduct certain foreign housing amounts.
You may also be entitled to exclude from income the value of meals and lodging provided to you by your employer.
To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must have foreign earned income, your tax home must be in a foreign country, and you must be one of the following:
1. A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year
2. A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
3. A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months
The foreign earned income exclusion and the foreign housing cost amount exclusion are figured on Form 2555 (PDF), which must be attached to Form 1040 (PDF). However, if you claim only the foreign earned income exclusion, you may be able to use Form 2555-EZ (PDF) instead.
In case where you do not qualify for the exclusion discussed above, you will be able to claim foreign tax credit. Which means that, to some extent, you will be able to offset your tax liability in US with the foreign taxes you paid on that income to a foreign country. You will have to fill Form 1116 for this purpose and attach to Form 1040.
Friday, August 8, 2008
Beijing host to the 2008 Olympic Games
Wow ….awesome…stunning!
Opening ceremony was– very artistic and well planned.
I have browsed through their website too. It is very informative and has all the possible details that you can think of.
All the best to all the contestants!
Opening ceremony was– very artistic and well planned.
I have browsed through their website too. It is very informative and has all the possible details that you can think of.
All the best to all the contestants!
Thursday, August 7, 2008
Loan Consolidation
With rates being at the all time lows, now may be a good time to consolidate your school or college loans, car loans, credit card loans, variable rate mortgage loans or the adjustable rate mortgage loans.
Refinancing your high interest current mortgages could bring in lot of savings but BEWARE!
Do your homework and get quotes from various lenders, do not let them run your credit unless you are certain that you agree to their terms, make sure that there aren't any hidden fees or costs attached to the loans and of course - NO prepayment penalty!
One of the websites that I often recommend for getting detailed information on consolidating your loans, refinancing or getting mortgage on your primary home is
http://www.bankrate.com/
This website also provides you a comparative list of the lenders in your area with the current offered interest rate.
Good Luck!
Refinancing your high interest current mortgages could bring in lot of savings but BEWARE!
Do your homework and get quotes from various lenders, do not let them run your credit unless you are certain that you agree to their terms, make sure that there aren't any hidden fees or costs attached to the loans and of course - NO prepayment penalty!
One of the websites that I often recommend for getting detailed information on consolidating your loans, refinancing or getting mortgage on your primary home is
http://www.bankrate.com/
This website also provides you a comparative list of the lenders in your area with the current offered interest rate.
Good Luck!
Accounting Software
Accounting is a vital element of business. It has been in place since ages. It has evolved from the hand written notes, ledgers, journals to computerized data entry and report generation.
I still remember the time when we used to hand write the vouchers, journals, ledgers and financial statements and than one change in one of the entries would cause us to change all the other books and statements.....Wow that was laborious and time consuming!
Now, computers have made it easy. Everything is instantaneous. Infact, a variety of reports can be generated with a click of mouse.
Markets are filled with various accounting software and finding one which will meet all your needs is challenging. Each software has its advantages and disadvantages and ofcourse you do have options to customize accounting software to meet your needs if you are willing to pay the cost.
Quickbooks, Peachtree, Microsoft Money, Quicken are some of the ones that are most commonly used by small business.
I would suggest you review the needs of your business, consult with the CPA or the tax professional and compare the compatibility of the POS system (if you plan to have one) with your accounting software before you make this decision.
I still remember the time when we used to hand write the vouchers, journals, ledgers and financial statements and than one change in one of the entries would cause us to change all the other books and statements.....Wow that was laborious and time consuming!
Now, computers have made it easy. Everything is instantaneous. Infact, a variety of reports can be generated with a click of mouse.
Markets are filled with various accounting software and finding one which will meet all your needs is challenging. Each software has its advantages and disadvantages and ofcourse you do have options to customize accounting software to meet your needs if you are willing to pay the cost.
Quickbooks, Peachtree, Microsoft Money, Quicken are some of the ones that are most commonly used by small business.
I would suggest you review the needs of your business, consult with the CPA or the tax professional and compare the compatibility of the POS system (if you plan to have one) with your accounting software before you make this decision.
Tuesday, August 5, 2008
Stock Markets Rally....
Dow, Nasdaq & S&P were up considerably as the Federal Reserve held U.S. interest rates steady and gave no hint to push borrowing costs higher anytime soon. Crude Oil prices were on a slide too.
Considering the volatility in the market....it is difficult to predict where it would be heading next!
Considering the volatility in the market....it is difficult to predict where it would be heading next!
American Housing Rescue and Foreclosure Prevention Act of 2008
H.R. 3221, the “American Housing Rescue and Foreclosure Prevention Act of 2008,” was signed into law by the President on July 30, 2008 to support the failing housing market ad help the troubled homeowners. It also aims at tightening lending practices and reform financial institutions associated with that market.
It includes the “Housing Assistance Tax Act of 2008 which provides for important tax law changes that will impact individuals and small businesses.
Some of the highlights are-
Tax credit for First-Time Homebuyers
First time homebuyers purchasing a qualified home after Apr. 8, 2008 and before July 1, 2009, are eligible for a refundable tax credit equal to the lesser of 10% of the purchase price of a principal residence or $7,500 ($3,750 for married individuals filing separately). Though it is a tax credit, it is more like an interest free loan. The credit that is availed by the taxpayers will need to be repaid in equal annual installments over 15 years.
Additional standard deduction available for property taxes
Taxpayers who claim the standard deduction instead of itemizing deductions are allowed to claim an additional standard deduction for state and local property taxes paid in 2008. Note that this deduction is available for 2008 only. As with all the deductions/credits, the deduction cannot exceed the lesser of state and local property taxes actually paid or $500 ($1,000 for joint filers). Considering that the property appraisals are at all time high, I wonder if this would do any good…
Information Reporting of Merchants' Credit Card and Third-Party Network Sales starting 2011.
In the year 2011, the gross amount of credit and debit card payments(gross annual revenue) a merchant receives during the year, along with the merchant's name, address, and taxpayer identification number (TIN) will be required to be reported to the IRS. This has been enacted to nail down the merchants who fail to correctly report income. It, of course, has exceptions for some small businesses with receipts under $20,000 a year. It is believed this will raise over $9.8 billion over ten-years.
Primary residence capital gains exclusion prorated
Capital gain exclusion of $250,000 ($500,000 for married filing joint) that was available on gain from sale of home will now be pro-rated based on the percentage of time the house was used as primary residence in the 5 year period. So if you used the property as rental for 2 years and as your primary residence for 3 years and than you sold the property for a gain of $200,000 than your exclusion under sec 121 will be 60% of $200,000 which is $120,000 since you used your property as primary residence for 60% of the time in the 5 year period. In addition, depreciation recapture rules will apply too. This provision will become effective for sale of residence after December 31, 2008 and will be based only on the non qualified use period that begin on or after January 1, 2009.
Interest Earned on Exempt Facility, Qualified Residential Rental, and Veterans' Mortgage Bonds Isn't an AMT Preference
The Act provides that for bonds issued after July 30, 2008, tax-exempt interest earned on the following instruments is not a preference item for AMT purposes-
(1) exempt facility bonds -95% or more of the net proceeds of which are used to provide qualified residential rental projects (2) qualified mortgage bonds and (3) qualified veterans' mortgage bonds.
Detailed breifing of the Act can be found at
http://tax.cchgroup.com/legislation/2008-Housing-Assistance-Act.pdf
It includes the “Housing Assistance Tax Act of 2008 which provides for important tax law changes that will impact individuals and small businesses.
Some of the highlights are-
Tax credit for First-Time Homebuyers
First time homebuyers purchasing a qualified home after Apr. 8, 2008 and before July 1, 2009, are eligible for a refundable tax credit equal to the lesser of 10% of the purchase price of a principal residence or $7,500 ($3,750 for married individuals filing separately). Though it is a tax credit, it is more like an interest free loan. The credit that is availed by the taxpayers will need to be repaid in equal annual installments over 15 years.
Additional standard deduction available for property taxes
Taxpayers who claim the standard deduction instead of itemizing deductions are allowed to claim an additional standard deduction for state and local property taxes paid in 2008. Note that this deduction is available for 2008 only. As with all the deductions/credits, the deduction cannot exceed the lesser of state and local property taxes actually paid or $500 ($1,000 for joint filers). Considering that the property appraisals are at all time high, I wonder if this would do any good…
Information Reporting of Merchants' Credit Card and Third-Party Network Sales starting 2011.
In the year 2011, the gross amount of credit and debit card payments(gross annual revenue) a merchant receives during the year, along with the merchant's name, address, and taxpayer identification number (TIN) will be required to be reported to the IRS. This has been enacted to nail down the merchants who fail to correctly report income. It, of course, has exceptions for some small businesses with receipts under $20,000 a year. It is believed this will raise over $9.8 billion over ten-years.
Primary residence capital gains exclusion prorated
Capital gain exclusion of $250,000 ($500,000 for married filing joint) that was available on gain from sale of home will now be pro-rated based on the percentage of time the house was used as primary residence in the 5 year period. So if you used the property as rental for 2 years and as your primary residence for 3 years and than you sold the property for a gain of $200,000 than your exclusion under sec 121 will be 60% of $200,000 which is $120,000 since you used your property as primary residence for 60% of the time in the 5 year period. In addition, depreciation recapture rules will apply too. This provision will become effective for sale of residence after December 31, 2008 and will be based only on the non qualified use period that begin on or after January 1, 2009.
Interest Earned on Exempt Facility, Qualified Residential Rental, and Veterans' Mortgage Bonds Isn't an AMT Preference
The Act provides that for bonds issued after July 30, 2008, tax-exempt interest earned on the following instruments is not a preference item for AMT purposes-
(1) exempt facility bonds -95% or more of the net proceeds of which are used to provide qualified residential rental projects (2) qualified mortgage bonds and (3) qualified veterans' mortgage bonds.
Detailed breifing of the Act can be found at
http://tax.cchgroup.com/legislation/2008-Housing-Assistance-Act.pdf
Monday, August 4, 2008
NEW GUIDANCE ON ACCOUNTABLE PLANS
If you are an employer who provides allowances or reimburses employees for travel expenses, you should be aware of new published guidance regarding the requirements of accountable plans.
In Revenue Ruling 2006-56, the IRS analyzed a plan for reimbursing employees for travel and determined that it does not properly track excess payments exhibits a pattern of abuse and therefore fails to qualify as an accountable plan, and is subject to all payments to employees under the plan are subject to employment taxes.
Under IRC sections 62(a)(2) and 62(c), reimbursements for travel (including amounts allowable under established per diem rates) that meet established tests for an accountable plan, are not subject to employment taxes (federal income tax withholding, social security and Medicare).
The following are the three requirements for an accountable plan:
1. There must be a business connection and the expense must be reasonable.
2. There must be reasonable accounting for the expenses.
3. All excess reimbursements must be repaid in a reasonable time.
For Test #2, amounts paid up to the allowable federal per diem rates for meals, expenses for incidental expenses and lodging are deemed substantiated, without the usual requirements for keeping records of the expenses with receipts.
The Regulations provide that, in addition to these three tests, the plan cannot exhibit a “pattern of abuse.” Regulation 1.62-2(k) states that:
If a payer’s reimbursement or other expense allowance arrangement evidences a pattern of abuse of the rules of section 62(c) and this section, all payments made under the arrangement will be treated as made under a nonaccountable plan.
In the case addressed in the revenue ruling, the employer reimbursed truck drivers for meals and incidental expenses incurred on days when they were traveling away from home. The number of travel days was estimated, and paid at a special annually-published daily rate allowable for the transportation industry. Advances were paid based on the expected number of days in out-of-town travel each month. However, it was determined that the system provided no way to track whether the drivers were actually out-of-town on all the days indicated. It was determined that the employer routinely failed to track the excess allowances and to treat them as wages. Therefore, even though the tests for business connection, substantiation, and repayment were met, the plan fails to meet the requirements of an accountable plan.
As a result of the determination that this was not an accountable plan, all reimbursements (not just the amounts in excess of the allowable per diem) were determined to be wages subject to employment tax withholding. The failure to implement and use a mechanism or process to track the excess allowances and to treat any excess allowances as wages subject to employment tax evidences a pattern of abuse under the regulations.
An employer who reimburses employees for travel expenses should be aware of the accountable plan rules and tracking requirements, and understand that amounts paid under nonaccountable plans will be deemed to be wages, includible on Form W-2 and subject to income tax withholding, social security and Medicare taxes. In this case the employer would be liable for penalties and interest on taxes assessed for prior periods. If the anti-abuse requirements are not met, an otherwise accountable plan may be deemed nonaccountable and all reimbursements could be deemed wages subject to tax.
source- http://www.irs.gov/
In Revenue Ruling 2006-56, the IRS analyzed a plan for reimbursing employees for travel and determined that it does not properly track excess payments exhibits a pattern of abuse and therefore fails to qualify as an accountable plan, and is subject to all payments to employees under the plan are subject to employment taxes.
Under IRC sections 62(a)(2) and 62(c), reimbursements for travel (including amounts allowable under established per diem rates) that meet established tests for an accountable plan, are not subject to employment taxes (federal income tax withholding, social security and Medicare).
The following are the three requirements for an accountable plan:
1. There must be a business connection and the expense must be reasonable.
2. There must be reasonable accounting for the expenses.
3. All excess reimbursements must be repaid in a reasonable time.
For Test #2, amounts paid up to the allowable federal per diem rates for meals, expenses for incidental expenses and lodging are deemed substantiated, without the usual requirements for keeping records of the expenses with receipts.
The Regulations provide that, in addition to these three tests, the plan cannot exhibit a “pattern of abuse.” Regulation 1.62-2(k) states that:
If a payer’s reimbursement or other expense allowance arrangement evidences a pattern of abuse of the rules of section 62(c) and this section, all payments made under the arrangement will be treated as made under a nonaccountable plan.
In the case addressed in the revenue ruling, the employer reimbursed truck drivers for meals and incidental expenses incurred on days when they were traveling away from home. The number of travel days was estimated, and paid at a special annually-published daily rate allowable for the transportation industry. Advances were paid based on the expected number of days in out-of-town travel each month. However, it was determined that the system provided no way to track whether the drivers were actually out-of-town on all the days indicated. It was determined that the employer routinely failed to track the excess allowances and to treat them as wages. Therefore, even though the tests for business connection, substantiation, and repayment were met, the plan fails to meet the requirements of an accountable plan.
As a result of the determination that this was not an accountable plan, all reimbursements (not just the amounts in excess of the allowable per diem) were determined to be wages subject to employment tax withholding. The failure to implement and use a mechanism or process to track the excess allowances and to treat any excess allowances as wages subject to employment tax evidences a pattern of abuse under the regulations.
An employer who reimburses employees for travel expenses should be aware of the accountable plan rules and tracking requirements, and understand that amounts paid under nonaccountable plans will be deemed to be wages, includible on Form W-2 and subject to income tax withholding, social security and Medicare taxes. In this case the employer would be liable for penalties and interest on taxes assessed for prior periods. If the anti-abuse requirements are not met, an otherwise accountable plan may be deemed nonaccountable and all reimbursements could be deemed wages subject to tax.
source- http://www.irs.gov/
Thursday, July 31, 2008
The Mortgage Forgiveness Debt Relief Act of 2007 to the rescue...
The Mortgage Forgiveness Debt Relief Act of 2007 was signed by President Bush on December 20, 2007.
Mortgage Debt Forgiveness:
Normally a forgiven debt is counted as income for the taxpayer. However Mortgage Relief Act of 2007 allowed taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualified for this relief.
Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion doesn’t apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
The amount excluded reduces the taxpayer’s cost basis in the home
The new law applies to debt forgiven in 2007, 2008 or 2009. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, may qualify for this relief. In most cases, eligible homeowners only need to fill out a few lines on Form 982 (specifically, lines 1e, 2 and 10b).
The debt must have been used to buy, build or substantially improve the taxpayer's principal residence and must have been secured by that residence. Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing.
Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the new tax-relief provision. In some cases, however, other kinds of tax relief, based on insolvency, for example, may be available
Mortgage Insurance Premiums:
Taxpayer can deduct mortgage insurance premiums as “home mortgage” interest on premiums paid after December 31, 2006 and before January 1, 2011.
Tuesday, July 29, 2008
Much Awaited Stimulus Check!
Most of you must have received the stimulus rebate. For those who did'nt..
You can check the status of the stimulus rebate(on IRS website) at the link
You can check the status of the stimulus rebate(on IRS website) at the link
Where's My Refund?
Still waiting for the IRS tax refund check!
You can check the status of the refund(IRS website) at the link
You can check the status of the refund(IRS website) at the link
Tax Refund Status
Still waiting for the IRS tax refund check!
You can check the status of the refund(IRS website) at the link below-
https://sa1.www4.irs.gov/irfof/lang/en/irfofgetstatus.jsp
You can check the status of the refund(IRS website) at the link below-
https://sa1.www4.irs.gov/irfof/lang/en/irfofgetstatus.jsp
Thursday, July 24, 2008
Minimum Wage Increase
Effective today, July 24, 2008, the federal minimum wage for covered nonexempt employees is $6.55. The federal minimum wage provisions are contained in the Fair Labor Standards Act (FLSA).
Many states have minimum wage laws. In cases where an employee is subject to both state and federal minimum wages laws, the employee is entitled to the higher of the two minimum wages.
Many states have minimum wage laws. In cases where an employee is subject to both state and federal minimum wages laws, the employee is entitled to the higher of the two minimum wages.
Recent Scams to steal identity - Posing as IRS
IRS has cautioned taxpayers to be very careful of scams consisting of e-mails requesting detailed personal information.
IRS generally does not send e-mails to taxpayers, does not discuss tax account matters with taxpayers in e-mails, and does not request security-related personal information, such as PIN numbers, from taxpayers.
Most of these scams involve tax refunds and economic stimulus rebate receipt.
These are all scams to steal to identity......Hence, beware...
IRS generally does not send e-mails to taxpayers, does not discuss tax account matters with taxpayers in e-mails, and does not request security-related personal information, such as PIN numbers, from taxpayers.
Most of these scams involve tax refunds and economic stimulus rebate receipt.
These are all scams to steal to identity......Hence, beware...
Filing Extensions Changing for Some Business Taxpayers Later this Year
IR-2008-084
IRS has announced a change in the extended due date on certain business returns to help individuals better meet their filing obligations. As a result the six month extension for Partnership and trust will change to five month and will be due on September 15th instead of October 15th.
This change will be effective for extension requests with respect to tax returns due on or after Jan. 1, 2009, and applies to business entities that file the following returns and forms that have a tax year ending on or after Sept. 30, 2008:
1. Form 1065, U.S.Return of Partnership Income
2. Form 1041, U.S. Income Tax Return for Estates & Trusts
3. Form 8804, Annual Return for Partnership Withholding Tax (Section 1446)
The regulation does not change the process for requesting an extension of time to file, nor does it affect extensions of time to file other types of business returns, such as those used by S corporations.
Extended Due Date
The due date for Corporation tax returns that filed an extension for 2008 is due September 15th, 2008. For individuals and Partnerships the due date is October 15th, 2008.
Thursday, July 10, 2008
Capital Gain exclusion on Primary residence
As per IRC 121-
When you sell your primary residence, you can make up to $250,000 in profit if you're a single owner, twice that if you're married, and not owe any capital gains taxes if you meet the ownership and use tests. You will generally only need to report the sale of your home if your gain exceeds a certain dollar prescribed by law. You may be entitled to exclude gain from income if during the 5-year period ending on the date of the sale, you must have:
Owned the home for at least 2 years (the ownership test), and
Lived in the home as your main home for at least 2 years (the use test).
During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home.
If you owned and lived in the property as your main home for less than 2 years, you may still be able to claim an exclusion in some cases (change in place of employment, health or unforseen circumstances)
When you sell your primary residence, you can make up to $250,000 in profit if you're a single owner, twice that if you're married, and not owe any capital gains taxes if you meet the ownership and use tests. You will generally only need to report the sale of your home if your gain exceeds a certain dollar prescribed by law. You may be entitled to exclude gain from income if during the 5-year period ending on the date of the sale, you must have:
Owned the home for at least 2 years (the ownership test), and
Lived in the home as your main home for at least 2 years (the use test).
During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home.
If you owned and lived in the property as your main home for less than 2 years, you may still be able to claim an exclusion in some cases (change in place of employment, health or unforseen circumstances)
2008 Auto Mileage Rate-
This is sent for informational purposes only- and may be helpful in tax planning for the year.
Effective July 1, 2008, the standard mileage rate deductible forbusiness purposes increases to 58.5 per mile. It was 50.5 cents per mile for Jan 1st 2008 thru June 30th 2008. It is advisable to keep written records that can prove the business purpose for miles claimed as this could mean a significant mileage deduction for the year.
Effective July 1, 2008, the standard mileage rate deductible forbusiness purposes increases to 58.5 per mile. It was 50.5 cents per mile for Jan 1st 2008 thru June 30th 2008. It is advisable to keep written records that can prove the business purpose for miles claimed as this could mean a significant mileage deduction for the year.
Friday, January 25, 2008
2007 Tax Law Changes
Quick Facts
A number of favorable provisions were extended for 2007-
· The deduction for State Sales Taxes in lieu of State Income Taxes
· The $250 deduction for teacher’s supplies
· The deduction for Tuition and Fees for lower income taxpayers
Increase in credit and phaseout limits
· The Adoption Tax Credit increases to $11,390 and the credit begins to phase out at an AGI of $170,820.
· The Hope credit is equal to 100 percent of the qualified expenses up to the base amount and 50 percent of the qualified expenses in excess of the base amount, up to twice the base amount. For 2007, the base will remain at $1,100. As a result, the maximum Hope Scholarship credit in 2007 will be $1,650 (100 percent of the first $1,100 of qualifying expenses and 50 percent of the next $1,100). Phase out of the Hope Scholarship Credit and Lifetime Learning Credit begins at taxable income of $94,000 for joint filers, $47,000 for singles. That means more individuals can benefit from these two important education credits.
· The above-the-line deduction for student-loan interest is limited to $2,500, but the deduction is phased out beginning at an AGI of $110,000 for married filing jointly, and $55,000 for other taxpayers, completely phased out at $140,000 and $70,000 respectively.
Standard Mileage Rates
· Business-related mileage. For 2007, the standard mileage rate for the cost of operating your car for business use is 48 ½ cents per mile.
· Medical- and move-related mileage. For 2007, the standard mileage rate for the cost of operating your car for medical reasons or as part of a deductible move is 20 cents per mile.
· Charitable-related mileage. For 2007, the standard mileage rate for the cost of operating your car for charitable purposes remains 14 cents per mile.
Charitable Contributions
Effective for contributions made on or after August 17, 2006 you cannot take a charitable contribution deduction for donations of clothing or household items unless the item is in "good used condition or better." The law does not define "good condition" so you will need to be a little more discriminating with the items you are donating and you may want to take photos of large items to help verify their condition.
Mortgage Insurance Premiums
Treated as Home Mortgage Interest
Premiums that you pay or accrue for "qualified mortgage insurance" during 2007 in connection with home acquisition debt on your qualified home are deductible as home mortgage interest. The amount you can deduct is reduced by 10% (.10) for every $1,000 ($500 if your filing status is married filing separately) by which your adjusted gross income exceeds $100,000 ($50,000 if your filing status is married filing separately).
Kiddie Tax
Beginning in 2008, the age threshold to escape the ‘Kiddie Tax” increases to 19. That means 2007 is the last year an 18 year old can use the individual tax brackets for investment income, unless at least 50 percent of their future income will be “earned income.” So for those of you in business with children approaching these age limits, who have significant investment income and plan to continue their education, you should consider arranging employment for the child in order to avoid higher taxes on the investment income.
Parents may avoid the necessity of filing a tax return for the child by including the child’s income on their return, but only if the income consists solely of dividends and interest and the amount is between $850 and $8,500.
Health Related Payments
Long Term-Care Premiums:
Deductible long-term-care premiums for taxpayers 71 and older increase to $3,680 per year and the maximum tax free benefit increases to $260 per day. Other long-term-care limits increase as well
Health Savings Plan:
In 2007, a high-deductible health plan is one with an annual deductible of at least $1,100 for individual coverage ($2,200 for family coverage) and maximum out-of-pocket expenses of $5,500 for individual coverage ($11,000 for family coverage).
You can deduct up to $2,850 for individuals, $5,650 for families. The dollar amount of your tax deduction no longer will be restricted to the amount of your insurance deductible. People age 55 and older can make an extra catch-up contribution of $800 in 2007.
A one time transfer of funds from an IRA or a Flexible spending account to a health savings account is permitted for 2007 up the maximum annual HSA limit.
AMT
AMT Exemption Increased for One Year
For tax-year 2007, Congress raised the alternative minimum tax exemption to $66,250 for a married couple filing a joint return, up from $62,550 in 2006. The exemption rises to $33,125 for a married person filing separately, up from $31,275, and it rises to $44,350 for singles and heads of household, up from $42,500.
Retirement Plans
Defined-benefit plans
The maximum defined-benefit plan will increase to $180,000($185,000 for 2008).
Defined-contribution plans
The maximum annual addition to a defined-contribution plan will increase to $45,000 ($46,000 for 2008).
Elective deferrals
The maximum elective deferral an individual may make to all plans permitting a deferral increases to $15,500. While this limit also applies to §401(k) arrangements, however, a SIMPLE plan limits the elective deferrals to $10,500. The catch-up contribution remains at $5,000 for most of these plans; in the case of a SIMPLE §401(k) or SIMPLE plan, the maximum catch-up is $2,500.
Compensation
The compensation that may be taken into account in determining benefits and contributions goes up to $225,000($230,000 for 2008).
Increase in contribution Limits
Limits on contributions to retirement plans are all increased for 2007 . . .
IRA contribution can be $4,000 plus $1,000 for persons over 50. Whether deductible or not, it’s wise to make that IRA contribution as early as possible to begin earning a tax free return.
The phaseout range when Adjusted Gross Income begins to limit a deductible IRA contribution by an “active participant” in an employer plan increases to $83,000 for a couple and $52,000 for a single person and completely phased out at $103,000 and $62,000 resp.
Roth IRA contributions of singles are limited when Adjusted Gross Income exceeds $99,000, marrieds filing jointly are limited when AGI exceeds $156,000.
Rollover of inherited IRA
Some non-spousal heirs may be able to roll inherited amounts from qualified plans into IRA accounts, thereby avoiding current income tax or a 5 year distribution scheme. After 2006, you may be able to roll over tax free all or a portion of a distribution you receive from an eligible retirement plan of a deceased employee. You must be the designated beneficiary of the employee, but you cannot be the surviving spouse. The distribution must be a direct trustee-to-trustee transfer to your IRA that was set up to receive the distribution. The transfer will be treated as an eligible rollover distribution and the receiving plan will be treated as an inherited IRA.
Retirement Savings Contribution credit
Modified AGI Limit for Retirement Savings Contribution Credit Increased
For 2007, you may be able to claim the retirement savings contribution credit if your modified adjusted gross income is not more than:
•$52,000 (up from $50,000) if your filing status is married filing jointly,
•$39,000 (up from $37,500) if your filing status is head of household, or
•$26,000 (up from $25,000) if your filing status is single, married filing separately, or qualifying widow(er).
Your credit rate can be as low as 10% or as high as 50%, depending on your adjusted gross income. The lower your income, the higher the credit rate; your credit rate also depends on your filing status.
Earned Income Credit
The maximum earned income tax credit is $4,716 for taxpayers with two or more qualifying children, $2,853 for those with one child and $428 for people with no children. Last year’s maximums were $4,536, $2,747 and $412, respectively.
Available to low and moderate income workers and working families, the EITC helps taxpayers whose incomes are below certain income thresholds, which in 2007 rise to $39,783 for those with two or more children, $35,241 for people with one child and $14,590 for those with no children.
EITC, unlike most tax breaks, is refundable, meaning that people can get it even if they owe no tax and even if no tax is taken out of their paychecks.
Forgiven Debt
Taxpayers can exclude up to $2 million of debt forgiven on their principal residence. The limit is $1 million for a married person filing a separate return. This provision applies to debt forgiven in 2007, 2008 or 2009. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure qualify for this relief.
Gift Tax
Annual Exclusion for Gifts for 2007
For calendar year 2007, the first $12,000 of gifts to any person (other than gifts of future interests in property) are not included in the total amount of taxable gifts made during that year.
For calendar year 2007, the first $125,000 of gifts to a spouse who is not a citizen of the United States (other than gifts of future interests in property) are not included in the total amount of taxable gifts made during that year.
Estate Tax
An estate tax return for a U.S. citizen or resident needs to be filed only if the gross estate exceeds the applicable exclusion amount which is $2,000,000 for 2007 & 2008 and is $3,500,000 for 2009.
Social Security Benefits
Earnings test
The earnings test for those reaching full retirement age during 2007 will be $2,870 per month for all months prior to attaining that age; amounts in excess cause a $1 reduction in benefit for each $3 of excess. For all other beneficiaries who have not reached full retirement age in 2007, the $1 reduction for each $2 of excess earnings begins for monthly earnings in excess of $1,080.
Full retirement age
The full retirement age for persons born in 1941 remains 65 years 8 months, while those born in 1942 may receive full retirement benefits beginning at age 65 years 10 months.
Maximum monthly Social Security benefits
An individual may receive at full retirement age up to $2,116.
A number of favorable provisions were extended for 2007-
· The deduction for State Sales Taxes in lieu of State Income Taxes
· The $250 deduction for teacher’s supplies
· The deduction for Tuition and Fees for lower income taxpayers
Increase in credit and phaseout limits
· The Adoption Tax Credit increases to $11,390 and the credit begins to phase out at an AGI of $170,820.
· The Hope credit is equal to 100 percent of the qualified expenses up to the base amount and 50 percent of the qualified expenses in excess of the base amount, up to twice the base amount. For 2007, the base will remain at $1,100. As a result, the maximum Hope Scholarship credit in 2007 will be $1,650 (100 percent of the first $1,100 of qualifying expenses and 50 percent of the next $1,100). Phase out of the Hope Scholarship Credit and Lifetime Learning Credit begins at taxable income of $94,000 for joint filers, $47,000 for singles. That means more individuals can benefit from these two important education credits.
· The above-the-line deduction for student-loan interest is limited to $2,500, but the deduction is phased out beginning at an AGI of $110,000 for married filing jointly, and $55,000 for other taxpayers, completely phased out at $140,000 and $70,000 respectively.
Standard Mileage Rates
· Business-related mileage. For 2007, the standard mileage rate for the cost of operating your car for business use is 48 ½ cents per mile.
· Medical- and move-related mileage. For 2007, the standard mileage rate for the cost of operating your car for medical reasons or as part of a deductible move is 20 cents per mile.
· Charitable-related mileage. For 2007, the standard mileage rate for the cost of operating your car for charitable purposes remains 14 cents per mile.
Charitable Contributions
Effective for contributions made on or after August 17, 2006 you cannot take a charitable contribution deduction for donations of clothing or household items unless the item is in "good used condition or better." The law does not define "good condition" so you will need to be a little more discriminating with the items you are donating and you may want to take photos of large items to help verify their condition.
Mortgage Insurance Premiums
Treated as Home Mortgage Interest
Premiums that you pay or accrue for "qualified mortgage insurance" during 2007 in connection with home acquisition debt on your qualified home are deductible as home mortgage interest. The amount you can deduct is reduced by 10% (.10) for every $1,000 ($500 if your filing status is married filing separately) by which your adjusted gross income exceeds $100,000 ($50,000 if your filing status is married filing separately).
Kiddie Tax
Beginning in 2008, the age threshold to escape the ‘Kiddie Tax” increases to 19. That means 2007 is the last year an 18 year old can use the individual tax brackets for investment income, unless at least 50 percent of their future income will be “earned income.” So for those of you in business with children approaching these age limits, who have significant investment income and plan to continue their education, you should consider arranging employment for the child in order to avoid higher taxes on the investment income.
Parents may avoid the necessity of filing a tax return for the child by including the child’s income on their return, but only if the income consists solely of dividends and interest and the amount is between $850 and $8,500.
Health Related Payments
Long Term-Care Premiums:
Deductible long-term-care premiums for taxpayers 71 and older increase to $3,680 per year and the maximum tax free benefit increases to $260 per day. Other long-term-care limits increase as well
Health Savings Plan:
In 2007, a high-deductible health plan is one with an annual deductible of at least $1,100 for individual coverage ($2,200 for family coverage) and maximum out-of-pocket expenses of $5,500 for individual coverage ($11,000 for family coverage).
You can deduct up to $2,850 for individuals, $5,650 for families. The dollar amount of your tax deduction no longer will be restricted to the amount of your insurance deductible. People age 55 and older can make an extra catch-up contribution of $800 in 2007.
A one time transfer of funds from an IRA or a Flexible spending account to a health savings account is permitted for 2007 up the maximum annual HSA limit.
AMT
AMT Exemption Increased for One Year
For tax-year 2007, Congress raised the alternative minimum tax exemption to $66,250 for a married couple filing a joint return, up from $62,550 in 2006. The exemption rises to $33,125 for a married person filing separately, up from $31,275, and it rises to $44,350 for singles and heads of household, up from $42,500.
Retirement Plans
Defined-benefit plans
The maximum defined-benefit plan will increase to $180,000($185,000 for 2008).
Defined-contribution plans
The maximum annual addition to a defined-contribution plan will increase to $45,000 ($46,000 for 2008).
Elective deferrals
The maximum elective deferral an individual may make to all plans permitting a deferral increases to $15,500. While this limit also applies to §401(k) arrangements, however, a SIMPLE plan limits the elective deferrals to $10,500. The catch-up contribution remains at $5,000 for most of these plans; in the case of a SIMPLE §401(k) or SIMPLE plan, the maximum catch-up is $2,500.
Compensation
The compensation that may be taken into account in determining benefits and contributions goes up to $225,000($230,000 for 2008).
Increase in contribution Limits
Limits on contributions to retirement plans are all increased for 2007 . . .
IRA contribution can be $4,000 plus $1,000 for persons over 50. Whether deductible or not, it’s wise to make that IRA contribution as early as possible to begin earning a tax free return.
The phaseout range when Adjusted Gross Income begins to limit a deductible IRA contribution by an “active participant” in an employer plan increases to $83,000 for a couple and $52,000 for a single person and completely phased out at $103,000 and $62,000 resp.
Roth IRA contributions of singles are limited when Adjusted Gross Income exceeds $99,000, marrieds filing jointly are limited when AGI exceeds $156,000.
Rollover of inherited IRA
Some non-spousal heirs may be able to roll inherited amounts from qualified plans into IRA accounts, thereby avoiding current income tax or a 5 year distribution scheme. After 2006, you may be able to roll over tax free all or a portion of a distribution you receive from an eligible retirement plan of a deceased employee. You must be the designated beneficiary of the employee, but you cannot be the surviving spouse. The distribution must be a direct trustee-to-trustee transfer to your IRA that was set up to receive the distribution. The transfer will be treated as an eligible rollover distribution and the receiving plan will be treated as an inherited IRA.
Retirement Savings Contribution credit
Modified AGI Limit for Retirement Savings Contribution Credit Increased
For 2007, you may be able to claim the retirement savings contribution credit if your modified adjusted gross income is not more than:
•$52,000 (up from $50,000) if your filing status is married filing jointly,
•$39,000 (up from $37,500) if your filing status is head of household, or
•$26,000 (up from $25,000) if your filing status is single, married filing separately, or qualifying widow(er).
Your credit rate can be as low as 10% or as high as 50%, depending on your adjusted gross income. The lower your income, the higher the credit rate; your credit rate also depends on your filing status.
Earned Income Credit
The maximum earned income tax credit is $4,716 for taxpayers with two or more qualifying children, $2,853 for those with one child and $428 for people with no children. Last year’s maximums were $4,536, $2,747 and $412, respectively.
Available to low and moderate income workers and working families, the EITC helps taxpayers whose incomes are below certain income thresholds, which in 2007 rise to $39,783 for those with two or more children, $35,241 for people with one child and $14,590 for those with no children.
EITC, unlike most tax breaks, is refundable, meaning that people can get it even if they owe no tax and even if no tax is taken out of their paychecks.
Forgiven Debt
Taxpayers can exclude up to $2 million of debt forgiven on their principal residence. The limit is $1 million for a married person filing a separate return. This provision applies to debt forgiven in 2007, 2008 or 2009. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure qualify for this relief.
Gift Tax
Annual Exclusion for Gifts for 2007
For calendar year 2007, the first $12,000 of gifts to any person (other than gifts of future interests in property) are not included in the total amount of taxable gifts made during that year.
For calendar year 2007, the first $125,000 of gifts to a spouse who is not a citizen of the United States (other than gifts of future interests in property) are not included in the total amount of taxable gifts made during that year.
Estate Tax
An estate tax return for a U.S. citizen or resident needs to be filed only if the gross estate exceeds the applicable exclusion amount which is $2,000,000 for 2007 & 2008 and is $3,500,000 for 2009.
Social Security Benefits
Earnings test
The earnings test for those reaching full retirement age during 2007 will be $2,870 per month for all months prior to attaining that age; amounts in excess cause a $1 reduction in benefit for each $3 of excess. For all other beneficiaries who have not reached full retirement age in 2007, the $1 reduction for each $2 of excess earnings begins for monthly earnings in excess of $1,080.
Full retirement age
The full retirement age for persons born in 1941 remains 65 years 8 months, while those born in 1942 may receive full retirement benefits beginning at age 65 years 10 months.
Maximum monthly Social Security benefits
An individual may receive at full retirement age up to $2,116.
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