CPA Accounting & Tax Info Blog

OVDI Deadline Extended to Sept. 9, 2011

2011-08-27T10:55:00.000-07:00

As a result of the potential impact of Hurricane Irene, the IRS has extended the due date for Offshore Voluntary Disclosure Initiative (OVDI)to September 9, 2011. The original OVDI deadline was August 31, 2011.

This gives some time to the ones deciding to participate in this program.

IRS Increases Mileage Rate to 55.5 Cents per Mile

2011-06-27T16:07:00.000-07:00

The Internal Revenue Service announced an increase in the optional standard mileage rates for the final six months of 2011. As a result the rate will increase to 55.5 cents a mile for all business miles driven from July 1, 2011, through Dec. 31, 2011 and will be 51 cent for the first six months of 2011.

Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business and other purposes.

New Offshore Accounts Disclosure Scheme 2011

2011-02-09T07:32:00.000-08:00

After the success of the 2009 Offshore Voluntary Disclosure Program, once again, the Internal Revenue Service announced a special voluntary disclosure initiative designed to bring offshore money back into the U.S. tax system and help people with undisclosed income from hidden offshore accounts get current with their taxes. The new voluntary disclosure initiative will be available through Aug. 31, 2011.

For the 2011 initiative, there is a new penalty framework that requires individuals to pay a penalty of 25 percent of the amount in the foreign bank accounts in the year with the highest aggregate account balance covering the 2003 to 2010 time period. Some taxpayers will be eligible for 5 or 12.5 percent penalties. Participants also must pay back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties.

Taxpayers participating in the new initiative must file all original and amended tax returns and include payment for taxes, interest and accuracy-related penalties by the Aug. 31 deadline.

Participants in this intiatite generally face a 25 percent penalty, but taxpayers in limited situations can qualify for a 5 percent penalty.

The IRS also created a new penalty category of 12.5 percent for treating smaller offshore accounts. People whose offshore accounts or assets did not surpass $75,000 in any calendar year covered by the 2011 initiative will qualify for this lower rate.

The 2011 initiative offers clear benefits to encourage taxpayers to come in now rather than risk IRS detection. Taxpayers hiding assets offshore who do not come forward will face far higher penalty scenarios as well as the possibility of criminal prosecution.

Rental Property Owners subject to Form 1099 MISC reporting requirements

2011-01-12T18:57:00.000-08:00

The 2010 Small Business Jobs Act signed by President Obama on September 27, 2010 expanded the scope of Form 1099 MISC reporting. As a result, for purposes of the information reporting requirements, a person receiving rental income from real estate is now considered to be engaged in a trade or business of renting property.

This means, beginning in 2011, persons who receive rental income from real estate (including individuals) are subject to the same information reporting requirements as taxpayers engaged in a trade or business and are required to report payments after 12/31/10 in excess of $600 on Form 1099s.

This will require businesses and individuals to obtain the required information including name, address and social security numbers from those who provide their services to the rental property owners most preferably on Form W-9.

In particular, rental income recipients making payments of $600 or more to a service provider (such as a plumber, landscaper, painter or accountant) in the course of earning rental income are required to provide an information return (typically Form 1099-MISC) to the IRS and to the service provider.

Exceptions to this reporting requirement are payments made for:
• Any individual, including any individual who is an active member of the uniformed services or an employee of the intelligence community [as defined in Sec. 121(d)(9)(C)(iv)], if substantially all rental income is derived from renting the principal residence (within the meaning of Sec. 121) of such individual on a temporary basis;
• Any individual who receives rental income of not more than the minimal amount, as determined under regulations prescribed by the Secretary; and
• Any other individual for whom the requirements would cause hardship, as determined under regulations prescribed by the Secretary.

Some Relief from Self Employment tax for Sch C filers

2011-01-12T15:06:00.000-08:00

Generally, small business owners may not deduct the cost of health insurance when calculating self-employment tax. Under the Small Business Jobs Act, and subject to specific statutory limitations (i.e. deduction is not available if self-employed individual is eligible to participate in an employer-subsidized health plan maintained by the employer of the taxpayer or the taxpayer’s spouse), business owners can deduct the cost of health insurance for themselves and their family in the calculation of their 2010 self-employment tax.
This means atleast some saving for the Sch C filers in the self-employment tax they would owe!

Tax filing begins Mid-February for few Taxpayers

2010-12-27T07:30:00.000-08:00

Tax filing that normally would start first or second week of January has been delayed this year. The delay is to update and program the tax breaks included in a compromise tax bill President Obama signed last week into the IRS tax system.

People claiming any of these three items — involving the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction as well as those taxpayers who itemize deductions on Form 1040 Schedule A — will need to wait to file their tax returns until tax processing systems are ready, which the IRS estimates will be in mid- to late February.

This delay means millions of taxpayers will have to wait longer to get their refunds next year.

2011 Tax Benefits - Inflation Adjustments

2010-12-27T07:22:00.000-08:00

Following inflation adjustments relate to the tax provisions that were either modified or extended by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that became law on Dec. 17 -

Personal & Dependent Exemption increased to $3700
Standard Deduction increased to $11,600 for MFJ, $5800 for Single and MFS, $8,500 for HOH. Additional standard deduction for blind people and senior citizens increased to $1,150 for MFJ and $1,450 for singles and HOH.
Tax-bracket thresholds increase for each filing status.
Maximum earned income tax credit(EITC) for low and moderate income workers and working families increased to $5,751. The maximum income limit for EITC increased to $49,078.
Modified adjusted gross income threshold for lifetime learning credit begins to phase out at $102K for MFJ and $51K for singles and HOH.

HSA & FSA - Allows Prescribed OTC medicines & Drugs

2010-12-27T07:09:00.000-08:00

Notice 2010-59 issued by the IRS on September 3rd, 2010 provides guidance on use of HSA & FSA accounts to pay for over-the-counter medicines and drugs.

As per the rules, beginning January 1, 2011, over-the-counter medicines and drugs will only be reimbursable from these plans if the individual obtains a prescription. The new rules clarify that a "prescription" means a written or electronic order for a medicine or drug that meets the legal requirements of a prescription in the state in which the medical expense is incurred and that is issued by an individual who is legally authorized to issue a prescription in that state.

Online Registration System for Paid Tax Return Preparers

2010-09-28T13:28:00.000-07:00

All compensated tax return preparers are required to register under the new registration system and get a PTIN before preparing returns in 2011. Individuals who currently possess a PTIN will need to reapply under the new system but generally will be reassigned the same number.

Registration fee is $64.25, regardless of whether you currently possess a PTIN or not. Attorneys, Certified Public Accountants (CPAs), and Enrolled Agents (EAs) are not exempt.

Link to the New Registration System

Paid Preparers should apply for or renew their PTINs before January 1st, 2011.

Small Business Jobs Bill of 2010 (HR-5297)

2010-09-22T13:27:00.000-07:00

The Senate passed the Small Business Jobs Act of 2010. The House is set to vote on the bill where its expected to pass.

The following provision is included in the Bill...

1. One-year extension of the 50-percent bonus depreciation provision for qualified property placed in service during 2010.

2. Increase Section 179 expense deduction for 2010 and 2011 to $500,000, combined with an increase in the phase out threshold to $2 million.

Will keep you posted on the developments....

Late filing Penalty for S Corp

2010-08-09T09:51:00.000-07:00

Time is running out and the tax returns for S Corporation are due soon.
The final deadline to file S Corp tax returns (Form 1120S) is September 15th, 2010 if an extension was requested.

S Corporation's no longer enjoy the luxury to file late and not pay the penalty. One of the recent changes by the IRS is charging penalty on late filing of the S Corporation tax returns.

For tax years beginning after 2009, the late filing penalty for an S corporation return is $195 for each month or part of a month (up to 12 months) the return is late (or does not contain the required information) multiplied by the total number of persons who were shareholders in the corporation during any part of the corporation's tax year

So for a S Corp with two or more stockholders this penalty could add up to an exhorbitant amount.

Relief from penalty is available only if the S Corp shows that the late filing was due to reasonable cause.

Late Filing Penalty for Partnership

2010-08-09T09:44:00.000-07:00

Time is running out and the tax returns for partnership are due soon.
The final deadline to file partnership tax returns (Form 1065) is September 15th, 2010 if an extension was requested.

Partnership no longer enjoy the luxury to file late and not pay the penalty.

For tax years beginning in 2009, the late filing penalty for a partnership return is $89 for each month or part of a month (up to 12 months) the return is late (or does not contain the required information) multiplied by the total number of persons who were partners in the partnership during any part of the partnership's tax year.

For tax years beginning after 2009, the late filing penalty for a partnership return is $195 for each month or part of a month (up to 12 months) the return is late (or does not contain the required information) multiplied by the total number of persons who were partners in the partnership during any part of the partnership's tax year.

So for a partnership with two or more partnership this penalty could add up to an exhorbitant amount.

Relief from penalty is available only if the partnership shows that the late filing was due to reasonable cause.

Early Distribution from Retirement Plan & Taxes

2010-08-06T06:23:00.000-07:00

Considering the current economic conditions, most of us are turning to our retirement funds for financial needs. However, we need to be aware of the tax consequences that may follow with such distributions.

Since the contributions to these plans are made from our before tax dollars (I have excluded Roth contributions/plans from the discussion here), the distributions when taken out will be fully taxable. In addition,the law imposes a 10% additional tax on early distributions from a qualified retirement plan or deferred annuity contract before reaching age 59 1/2. Whereas you cannot get out of the resulting tax liability, you may be able to save the early withdrawal penalty.

There are certain exceptions to 10% early withdrawal penalty.

The following six exceptions apply to distributions from any qualified retirement plan:

1. Distributions made to your beneficiary or estate on or after your death.
2. Distributions made if you are are totally and permanently disabled.
3. Distributions made as part of a series of substantially equal periodic payments over the life expectancy of the owner or life expectancies of the owner and the beneficiary. If these distributions are from a qualified plan other than an IRA, you must separate from service with this employer before the payments begin for this exception to apply.
4. Distributions that are equal to or less than your deductible medical expenses, that is, the amount of your medical expenses that is more than 7.5% of your adjusted gross income.
5. Distributions made due to an IRS levy of the plan.
6. Distributions to qualified reservists.

The following additional exceptions apply only to distributions from a qualified retirement plan other than an IRA:

1. Distributions made to you after you separated from service with your employer (State or local government), if the separation occurred in or after the year you reached age 55 or distributions from qualified governmental defined benefit plans if you were a qualified public safety employee who separated from service on or after you reached age 50,
2. Distributions made to an alternate payee under a qualified domestic relations order(QDRO), and
3. Distributions of dividends from employee stock ownership plans.

Affordable Care Act & Health Care

2010-08-05T19:29:00.000-07:00

Employer-Provided Health Coverage — Not Taxable
Starting in tax year 2011, the Affordable Care Act requires employers to report the value of the health insurance coverage they provide employees on each employee's annual Form W-2. This reporting is for informational purposes only, to show employees the value of their health care benefits so they can be more informed consumers. The amount reported does not affect tax liability, as the value of the employer contribution to health coverage continues to be excludible from an employee's income and it is not taxable.

Small Business Health Care Tax Credit
This new credit helps small businesses and small tax-exempt organizations afford the cost of covering their employees and is specifically targeted for those with low- and moderate-income workers. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees.

Health Coverage for Older Children
Health coverage for an employee's children under 27 years of age is now generally tax-free to the employee. It applies to various work place and retiree health plans. These changes allow employers with cafeteria plans to permit employees to begin making pre-tax contributions to pay for this expanded benefit. This also applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return.

Tax Tip - Review your 2009 Tax Return to determine the need to Amend the Return.

2010-08-02T19:14:00.001-07:00

If you forgot to include some income or to take a deduction or to claim a credit(including the first time homebuyer or repeat homebuyer credit) on your tax return – you can correct it by amending your tax return.

Generally, to claim a refund, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.

Use Form 1040X, Amended U.S. Individual Income Tax Return, to correct a previously filed Form 1040, 1040A or 1040EZ. Be sure to check the box for the year of the return you are amending on the Form 1040X, Line B. The newly revised Form 1040X (Rev. January 2010) has only one column used to show the corrected figures and an area on the front of the form where you explain why you are filing Form 1040X.

Closing Deadline Extended - Eligible Homebuyer Credit

2010-08-02T18:19:00.000-07:00

Eligible taxpayers who contracted to buy a home, qualifying for the first-time homebuyer credit, before the end of April now have until Sept. 30, 2010 to close the deal.

The Homebuyer Assistance and Improvement Act of 2010, signed by the President, extended the closing deadline from June 30 to Sept. 30 for any eligible homebuyer who entered into a binding purchase contract on or before April 30 to close on the purchase of the home on or before June 30, 2010.

Time is running out for all those who can benefit from IRA conversion in 2010

2010-07-30T15:01:00.001-07:00

Beginning in 2010, the rules for conversions of traditional IRA money to a Roth IRA are changing by eliminating the MAGI limitations and hence, making more investors eligible to convert their traditional IRAs to Roth IRAs.

However, look before you leap....just because you can convert to a Roth IRA doesn't necessarily mean that you should.
First of all, you need to evaluate if you should convert the traditional IRA to Roth. There are various factors to consider including the age to retirement, your income source at retirement, your need for funds, tax rates in future and appreciation expected in these accounts.

If you are already retired and over 59 1/2 years than you can take distribution over a period of time and spread the taxes over a number of years.

Higher your tax bracket, the more tax you will have to pay on conversion. But if you expect taxes to go up in the long term, conversion will make sense as you may have to pay a higher tax rate on these distributions later.

Also to note is the special tax treatment for Roth IRA conversions available for 2010 which allows taxpayers to spread the taxes due on the conversion over two years and thus making the tax burden much easier to handle by requiring only one-half of the taxes to be paid during 2011 and the other half of the Roth conversion taxes to be paid in 2012.

Feel free to contact for a detailed evaluation considering your financials facts and long term goals.

One-Time Special Filing Relief Program for Small Charities

2010-07-27T12:45:00.000-07:00

Small nonprofit organizations at risk of losing their tax-exempt status because they failed to file required returns for 2007, 2008 and 2009 can preserve their status by filing returns by Oct. 15, 2010, under a one-time relief program.

The relief announced is not available to larger organizations required to file the Form 990 or to private foundations that file the Form 990-PF.

Fees for Preparer Tax Identification Numbers

2010-07-23T10:23:00.000-07:00

IRS released proposed regulations that would establish a fee for individuals who apply for a preparer tax identification number (PTIN).

The proposed regulations (REG-139343-08) would establish a fee of $50, payable to the IRS, to cover technology costs, as well as compliance and outreach efforts associated with the new PTIN program. The proposed regulations would also provide for an additional fee (expected to be substantially lower than $50) to be charged by the third-party vendor chosen to operate the new online system. That fee amount is expected to be announced soon, as well as additional details about the launch of a new online application system. These fees could change in future years as program costs are reevaluated.

Click the link to find more details on Oversight of Federal tax return preparation

Estate tax to return in 2011

2010-07-21T14:34:00.000-07:00

Estate tax is repealed for the tax year 2010. So everyone inheriting in 2010 can look forward to a hefty inheritance due to a big estate tax saving.

Good things don't last long and speculations are on that federal estate tax will come back. Only fact unknown is what will be the exemption amount.

Many believe that the the Federal estate tax is scheduled to return on Jan. 1, 2011, imposing a levy of up to 55% on estates valued at more than $1 million. However, a $1 million exemption would affect a lot of families considering the fact that cost of living and property values have gone up from what it was 8 to 10 years ago.

Considering the current economic conditions it seems reasonable to enact the estate tax to its 2009 level, with a $3.5 million exemption and a 45% rate on assets that exceed that amount, But, whether it will be approved at this level is what the future will tell....

Small Business Health Care Tax Credit

2010-07-21T14:04:00.000-07:00

Small businesses can avail of the health care tax credit beginning 2010.

Eligibility.
To be eligible for the tax credit-
• A qualifying employer must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate.
• A qualifying employer must have less than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible).
• A qualifying employer must pay average annual wages below $50,000.
• Both taxable (for profit) and tax-exempt firms qualify.

Maximum Amount.
The credit is worth up to 35 percent of a small business' premium costs in 2010. On Jan. 1, 2014, this rate increases to 50 percent (35 percent for tax-exempt employers).

Phase-out.
The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.

2010 Florida Tax Amnesty Program

2010-07-14T12:08:00.000-07:00

Florida's tax amnesty program is an opportunity for taxpayers to voluntarily pay overdue taxes with no penalty and reduced interest. Florida's Tax Amnesty Days start July 1 and end on September 30, 2010.

All taxes administered by the Department of Revenue are eligible, except unemployment tax and Miami-Dade County Lake Belt Fees.

Taxpayers eligible for amnesty are ones with liability for tax, penalty, or interest due before July 1, 2010 and:

•have completed a Tax Amnesty Agreement.
•have liability not already covered by a settlement or payment agreement.
•are not under criminal investigation, indictment, information, or prosecution regarding a Florida revenue law.
•are not under a pretrial intervention or diversion program, probation, community control, or in a work camp, jail, state prison, or another correctional system regarding a Florida revenue law.

2010 Sales Tax Holiday

2010-07-14T12:06:00.000-07:00

Just in time for Back to School Shopping.....

Florida law directs that no sales tax or discretionary sales surtax will be collected on sales of books, clothing, footwear, and certain accessories selling for $50 or less, or on certain school supplies selling for $10 or less. This three-day tax exemption is in effect from 12:01 a.m., Friday, August 13, 2010, through midnight, Sunday, August 15, 2010.

The sales tax exemption applies to each eligible book or item of clothing selling for $50 or less and to each eligible school supply item selling for $10 or less. The exemption will still apply no matter how many items are sold on the same invoice to a customer as the limit is applicable on a per item basis.

Education Tax Break for 2009 & 2010

2010-01-26T10:45:00.000-08:00

The American Recovery and Reinvestment Act (ARRA) allows for the American Opportunity Credit, to pay for college expenses.

The American Opportunity Credit modifies the existing Hope Credit for tax years 2009 and 2010, making the Hope Credit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.

The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels. These income limits are higher than under the existing Hope and Lifetime Learning Credits.

Haiti Earthquake Relief -Donate Now and Claim Deduction in 2009

2010-01-23T19:40:00.000-08:00

People who contribute in 2010 to charities providing earthquake relief in Haiti can take a tax deduction for the contribution on their 2009 tax return instead of their 2010 return. This means you can receive an immediate tax benefit, rather than having to wait until you file next year’s return.

Note that only cash contributions made to these charities after Jan. 11, 2010, and before March 1, 2010, are eligible and the contributions must be made specifically for the relief of victims in areas affected by the Jan. 12 earthquake in Haiti.
You may deduct these contributions on either your 2009 or 2010 returns, but not both.

Source: www.irs.gov

AMT Exemption & Phase Out - 2009

2009-12-08T16:06:00.000-08:00

AMT tax is a parallel tax that aims to tax the wealthy taxpayers who have lower regular tax liability due to preferential tax benefits.
To calculate AMT-
· Itemized deductions allowed under the AMT are mortgage interest used to buy, build or improve your home, charitable contributions, casualty losses, medical expenses in excess of 10% of adjusted gross income (AGI), the deduction for sales and excise taxes on qualified motor vehicle purchases after February 16, 2009, and miscellaneous itemized deductions not subject to the 2% of AGI floor.
· Personal Exemptions are not allowed but the AMT exemption is allowed.
· AMT Exemption that is allowed for 2009 from the AMTI income:
o Married Filing Jointly and Qualifying Widow(er): $70,950
o Single and Head of Household: $46,700
o Married Filing Separately: $35,475
· As with every exemptions there is phase-out rules for the AMT exemption. The phase-out range is based upon alternative minimum taxable income (AMTI). The AMTI phase-out ranges for 2009 are as follows:
o Married Filing Jointly and Qualifying Widow(er): $150,000 to $433,800
o Single and Head of Household: $112,500 to $299,300
o Married Filing Separately: $75,000 to $216,900
· Tentative AMT is calculated as 26% of the AMTI upto $175,000 and 28% on the balance.
· If the Tentative AMT is greater than the Regular tax liability than the difference is the AMT tax liability.

IRS announces 2010 standard mileage rates

2009-12-07T17:47:00.000-08:00

Beginning on Jan. 1, 2010, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
50 cents per mile for business miles driven
16.5 cents per mile driven for medical or moving purposes
14 cents per mile driven in service of charitable organizations
Source: www.irs.gov

Do Not Miss These On Your 2009 Tax Return

2009-11-11T08:50:00.000-08:00

We are just around the start of another tax season! and it seems quite evident that as the economy picks up, taxes will go higher and many of the targeted tax deductions and credits will phase out. Alternative minimum tax and Estate tax will be there to affect us all.
To make you conversant with the tax changes so that you can take benefits of these on your tax returns, I have listed some of the tax deductions and credits that may apply to you. Do not miss out on these credits and deductions as they may not last long....

Higher Section 179 equipment expensing limit allowing small businesses to write off as much as $250,000 of new or used equipment purchased this year. In addition, brand new equipment, software, and leasehold improvements can qualify for a 50% first-year bonus depreciation deduction if purchased and placed in service before the end of 2009.

Sec 529 Plan expanded the Qualified Tuition Expense which now includes the cost to purchase computer technology equipment and Internet access if it is used by the student enrolled at eligible educational institution.

Retirement Savings Limits for 2009 401(k)- You can contribute up to $16,500 ($22,000 for 50 and older). Roth or Traditional IRA- You can contribute $5,000 to an IRA ($6,000 for 50 and older). Simple- You can contribute up to $11,500 ($14,000 for 50 and older). . Income limitations may apply.

Forgiveness of Debt Generally debt cancellation is tax free if it is debt forgiven on primary residence unless cash from such debt was used for non-home acquisition debt. If the debt was used for personal property or the debt is forgiven on your rental or investment property than this could be taxable income to you unless the debt is discharged in bankruptcy or insolvency exclusion exception applies.

Gain on sale of primary residence Much known Sec 121 exclusion which allowed exclusion of gain upto $250K($500K if married filing joint) has changed. Depending on whether the home was used exclusively as a primary residence or partly as primary residence and partly as investment or rental property, the exclusion of gain could be affected and part of the gain could be subject to tax.
Hence, New rules should be considered when selling your home so that the timing of the sale can be planned in a manner to get maximum benefit from this change.

Unemployment Benefits The first $2,400 of benefits in 2009 is now exempt from federal income taxes. You will pay tax only on benefits received in excess of this amount.

Sales Tax Deduction for New Vehicle Purchase Sales tax on new vehicle purchases on or after February 17, 2009 and before January 1, 2010 is deductible as an itemized deduction or as additional standard deduction on your 2009 tax return. The deduction is limited to the lower of the sales tax paid or the sales tax that would have been paid on a vehicle costing $49,500. Deduction phases out for taxpayers with adjusted gross incomes of $125,000 and $250,000 for married couples filing jointly.

Net Operating Loss for Small Business The Worker, Homeownership, and Business Assistance Act of 2009 provides an election for small business to carry back net operating losses (NOLs) from 2008 or 2009 for up to five years, thereby increasing the carryback period for such NOLs from the general two-year carryback period.

First time Home Buyer Credit for home purchases made after January 1, 2009 and before December 1, 2009(extended to before April 30, 2010) , a first-time home buyer can receive a refundable tax credit equal to 10% of the purchase price of the home with a cap of $8,000 ($4000 for married taxpayers filing separately). Income limitations apply.

Qualified Repeat Home Buyer Credit The Worker, Homeownership, and Business Assistance Act of 2009 has extended the tax credit of up to $6,500 for qualified repeat home buyers (Buyers who have owned and resided in their primary home for at least 5 years in the preceding 8 years). Income limitations apply.

Hope credit now termed as the American Opportunity Tax Credit has been increased to $2,500 a year and applies to four years of college (not just the first two) and 40% of the credit is refundable. Income limitations apply.

Nonbusiness Energy Property Credit available to a homeowner investment in eligible energy-saving improvements. Tax credits are available at 30% of the cost, up to $1,500, in 2009 & 2010 (for existing homes only). The cost of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass all qualify, along with labor costs for installing these items. In addition, the cost of energy-efficient windows and skylights, energy-efficient doors, qualifying insulation and certain roofs also qualify for the credit, though the cost of installing these items does not count.

Residential Energy Efficient Property Credit available on investment in alternative energy equipment. Tax credits are available at 30% of the cost, with no upper limit through 2016 (for existing homes & new construction) for the amount spent on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property. Generally, labor costs are included when calculating this credit.

Work Pay Credit $400 refundable tax credit for individuals ($800 for married filing joint) limited to 6.2% of earned income for 2009 and 2010. Income Limitation apply.

FBAR Reporting If you own or have authority over a foreign financial account, including a bank account, brokerage account, mutual fund, unit trust, or other types of financial accounts with balance over $10,000, then you may be required to report the account yearly to the Internal Revenue Service. Account holders who do not comply with the FBAR reporting requirements may be subject to civil penalties, criminal penalties, or both.

Expanded Homebuyer Tax Credit

2009-11-06T13:35:00.000-08:00

First-time home buyers, who are defined by the law as buyers who have not owned a principal residence during the three-year period prior to the purchase, get a tax credit for 10% of their purchase price, capped at a maximum of $8,000.
To qualify for the new tax credits, buyers must sign a purchase agreement by April 30, 2010, and close escrow on the deal by June 30, 2010. So the earlier deadline of closing before December 1, 2009 has been extended.

Existing home owners who have been residing in their principal residence for five consecutive years out of the last eight and are purchasing a home to be their principal residence, may also be eligible for up to a $6,500 tax credit.
To qualify for the new tax credits, buyers must sign a purchase agreement by April 30, 2010, and close escrow on the deal by June 30, 2010.
The information is not clear as to whether the homebuyer can convert the existing home to a second home, rental property or investment home....so we will have to wait for the fine print..

529 Plans Expanded

2009-11-03T09:30:00.000-08:00

Generally expenses for computer technology are not qualified expenses for the American opportunity credit(Hope credit), lifetime learning credit or tuition and fees deduction.

However the Recovery Act has has included the cost to purchase computer technology equipment and Internet access as qualified education expense for distribution from Sec 529 plans for the tax year 2009 and 2010 if it is to be used by the student enrolled at an eligible institution.

Fight Recession - Save Every Bit...

2009-10-31T08:54:00.000-07:00

Current recession seems to be never ending. Considering the current economic crunch – Everyone’s aim should be to save as much possible. Here are few tips that may help you in the right direction...
1. First of all set a budget and determine what cost can be controlled.
2. Avoid frequent dine outs. Dining at home would be healthy and cost effective.
3. Buy necessary items and stop stocking on items just because they are on deals….small expenses add to big bills…
4. Avoid memberships to clubs and other programs that you do not frequently visit.
5. Plan your trips in advance to finish all the chores simultaneously to save gas and time.
6. Save on some the costs such as maids for house cleaning, remodeling expenses for the house unless it is necessary.
7. Conserve electricity by switching off when not in use. Control the use of air conditioner or heater to the extent required.
8. Use Washer with full loads.
9. Car pool whenever and wherever possible.
10. Avoid expensive and long vacations. Take a trip close by.
11. Save on dry cleaning costs by avoiding frequent washing

Save Energy and Lower Your Tax Bill

2009-10-31T07:43:00.000-07:00

The American Recovery and Reinvestment Act (Recovery Act), enacted earlier this year, expanded two home energy tax credits: the nonbusiness energy property credit and the residential energy efficient property credit. Eligible homeowners can claim both of these credits when they file their 2009 federal income tax return. Note that these credits are not refundable and the credit either reduces the tax owed by the taxpayer or increases the refund of a taxpayer. An eligible taxpayer can claim these credits on Form 5695, regardless of whether he or she itemizes deductions on Schedule A.

Nonbusiness Energy Property Credit
This credit is available on a homeowners expense on eligible energy-saving improvements. Tax credits are available at 30% of the cost, up to $1,500, in 2009 & 2010 (for existing homes only). The cost of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass all qualify, along with labor costs for installing these items. In addition, the cost of energy-efficient windows and skylights, energy-efficient doors, qualifying insulation and certain roofs also qualify for the credit, though the cost of installing these items does not count.
So an expense of $5,000 before the end of the year on eligible energy-saving improvements can save as much as $1,500 on a taxpayer's 2009 federal income tax return.
Residential Energy Efficient Property Credit
This credit is available on investment in alternative energy equipment. Tax credits are available at 30% of the cost, with no upper limit through 2016 (for existing homes & new construction) for the amount spent on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property. Generally, labor costs are included when calculating this credit.

Not all energy-efficient improvements qualify for these tax credits. For that reason, homeowners should check the manufacturer’s tax credit certification statement before purchasing or installing any of these improvements. The manufacturer’s certification is different from the Department of Energy’s Energy Star label, and not all Energy Star labeled products qualify for the tax credits.

Ordering Tax Return Transcripts Made Simple

2009-10-30T19:13:00.003-07:00

Taxpayers often need copies of their tax return information, especially when they are obtaining a new mortgage or when they are refinancing or modifying an existing mortgage. Taxpayers can use Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript, to order a Form 1040 series tax return transcript free of charge.
A transcript is a computer print-out that includes most lines on the original return. A transcript often is an acceptable substitute for a copy of the original tax return for purposes of verifying income.
Form 4506T-EZ is a streamlined version of the Form 4506T, Request for Transcript of Tax Return. The Form 4506T-EZ is only for individuals who filed a Form 1040 series. Businesses, partnerships and individuals who need transcript information from other forms must still use the Form 4506T.

IRS 2009 IRPAC Report

2009-10-30T19:00:00.000-07:00

The Information Reporting Program Advisory Committee (IRPAC) released the advisory group’s 2009 recommendations on a wide range of tax administration issues.
Key recommendation were -

Creating a new form and modified rules on information reporting of payments made in settlement of payment card and third party network transactions.
Providing guidance on tax information reporting and withholding.
Reporting of customer’s basis in securities transactions.
Creating online Form W-4 instructions for non-resident aliens.
Withholding on certain payments made by government entities
Providing additional guidance to government entities that must comply with the withholding provisions.
Permitting payers to issue payee statements showing only the last four digits of a payee’s TIN.

Source: http://www.irs.gov/

Voluntary Disclosure - Extended

2009-09-21T09:21:00.000-07:00

Taxpayers with undisclosed foreign accounts or entities and unreported offshore income should make a voluntary disclosure because it enables them to become compliant, avoid substantial civil penalties and generally eliminate the risk of criminal prosecution. Making a voluntary disclosure also provides the opportunity to calculate, with a reasonable degree of certainty, the total cost of resolving all offshore tax issues. Taxpayers who do not submit a voluntary disclosure run the risk of detection by the IRS and the imposition of substantial penalties, including the fraud penalty and foreign information return penalties, and an increased risk of criminal prosecution.

The IRS announced a one-time extension of the September 23, 2009 deadline for special voluntary disclosures by taxpayers with unreported income from offshore accounts. Taxpayers now have until October 15, 2009. There will be no further extensions.

The September 23, 2009, deadline for certain FBAR filers and certain offshore-related information returns who have no unreported income is also extended to Oct. 15, 2009.

Rev. Proc. 84-35 - Reasonable cause safe harbor for Small Partnerships

2009-09-15T08:35:00.000-07:00

Rev. Proc. 84-35 provides a reasonable-cause safe harbor for certain small partnerships. Under this procedure, a domestic partnership composed of 10 or fewer partners, each of whom is a natural person (other than a nonresident alien) and each of whom has fully reported his or her share of the income, deductions, and credits of the partnership on timely filed income tax returns(including extension), is considered to have met the reasonable cause test and is not subject to the penalty under Sec. 6698.

If a partnership of 10 or fewer partners fails to qualify for relief under Rev. Proc. 84-35, the partnership may still show reasonable cause for failure to file a timely and complete return (Rev. Proc. 84-35, §3.03).

Though S Corp are also considered pass thru entities there is no clear guidance if the S Corp can also qualify for this safe harbor and get relief from any statutory penalty for the late or incomplete filing of Form 1120S.

Expanded 529 Plan Features - American Recovery and Reinvestment Act of 2009

2009-09-15T08:32:00.000-07:00

The American Recovery and Reinvestment Act of 2009 (ARRA) added computer technology to the list of college expenses (tuition, books, etc.) that can be paid for by a 529 plan.
As a result, for 2009 and 2010, the definition of qualified higher education expenses includes expenses for computer technology and equipment or Internet access and related services to be used by the designated beneficiary of the 529 plan while enrolled at an eligible educational institution. Software designed for sports, games or hobbies does not qualify, unless it is predominantly educational in nature.

Additional Relief to file late classification election for Eligible Entities

2009-09-10T06:23:00.001-07:00

Revenue Procedure 2009-41 (IRB 2009-39) provides guidance with regard to eligible entities seeking relief to file late classification elections. An entity classification election is necessary only when an eligible entity chooses to be classified initially as other than its default classification or when an eligible entity chooses to change its classification.

This revenue procedure supersedes Rev. Proc. 2002-59 by extending late entity classification relief to both initial classification elections and changes in classification elections along with extending the time for filing late entity classification elections to within 3 years and 75 days of the requested effective date of the eligible entity’s classification. Thus, the extended filing period no longer is limited, as it was under Rev. Proc. 2002-59, to entities newly formed under local law requesting relief to file an initial classification election and to the due date for the first federal tax return (excluding extensions) of the entity’s desired classification for the year of the entity’s formation.

The revenue procedure also provides guidance for those eligible entities that do not qualify for relief under this revenue procedure.

Cost Segregation Studies

2009-08-20T11:39:00.000-07:00

In order to calculate depreciation for Federal income tax purposes, taxpayers must use the correct method and proper recovery period for each asset or property owned. Property, whether acquired or constructed, often consists of numerous asset types with different recovery periods. Thus, property must be separated into individual components or asset groups having the same recovery periods and placed-in-service dates in order to properly compute depreciation.

What is Cost Segregation:
When lumpsum cost of a project is known, cost estimating techniques may be required to "segregate" or "allocate" costs to individual components of property (e.g., land, land improvements, buildings, equipment, furniture and fixtures, etc.). This type of analysis is generally called a "cost segregation study," "cost segregation analysis," or "cost allocation study."
Two important things to note in a cost segregation study:
1. Rationale used to segregate property into its various components and
2. Method used to allocate the total project costs among these components.

Benefits of Cost Segregation:
The most common situation is the allocation or reallocation of building costs to tangible personal property. A building, termed "section (§) 1250 property", is generally 39-year property eligible for straight-line depreciation. Equipment, furniture and fixtures, termed "section (§) 1245 property", are tangible personal property. Tangible personal property has a short recovery period (e.g., 5 or 7 years) and is also eligible for accelerated depreciation (e.g., double declining balance). Thus, a faster depreciation write-off (and tax benefit) can be obtained by allocating property costs to § 1245 property, or by reallocating § 1250 property costs to § 1245 property.

Cost Segregation Methods:
Neither the Service nor any group or association of practitioners has established any requirements or standards for the preparation of cost segregation studies. The courts have addressed component depreciateion, but have not specifically addressed the methodologies of cost segregation studies. So there is no standardized method to use. Various methodologies are utilized in preparing cost segregation studies, including:
1. Detailed Engineering Approach from Actual Cost Records
2. Detailed Engineering Cost Estimate Approach
3. Survey or Letter Approach
4. Residual Estimation Approach
5. Sampling or Modeling Approach
6. "Rule of Thumb" Approach
Though there is not standardized method, generally the IRS documents emphasize that the determination of § 1245 property must be factually intensive and must be supported by corroborating evidence.

IRS to Receive Unprecedented Amount of Information in UBS Agreement

2009-08-20T10:33:00.000-07:00

The Internal Revenue Service and the Department of Justice today announced the successful negotiation of an agreement that will result in the IRS receiving an unprecedented amount of information on United States holders of accounts at the Swiss bank UBS.

As a result of this agreement, the IRS will receive substantially all of the accounts that it was interested in when it initiated the John Doe summons against UBS.

Under the agreement, the IRS will submit a treaty request to the Swiss government describing the accounts for which it is requesting information. The Swiss government will then direct UBS to initiate procedures to turn over information on thousands of accounts to the IRS. The IRS will receive information on accounts of various amounts and types, including bank-only accounts, custody accounts in which securities or other investment assets were held and offshore company nominee accounts through which an individual indirectly held beneficial ownership in the accounts.

Also, the agreement retains the U.S. Government’s right, if the results are significantly lower than expected and other measures fail, to seek appropriate judicial remedies, including resuming actions to enforce the John Doe summons.

The agreement involves a number of simultaneous legal actions:

The judicial enforcement of the John Doe summons will be dismissed. While this enforcement motion will be withdrawn, the underlying summons remains in effect.
Upon receiving the treaty request, the Swiss government will direct UBS to notify account holders that their information is included in the IRS treaty request. It is expected that these notices will be sent on a rolling basis with some being sent over the coming weeks and others over the coming months. Receipt of this notice will not by itself preclude the account holder from coming into the IRS under the Voluntary Disclosure Program.
In addition, the Swiss Government has agreed to review and process additional requests for information for other banks regarding their account holders to the extent that such a request is based on a pattern of facts and circumstances equivalent to those of the UBS case.

Information provided to the IRS through this process will be thoroughly examined for all potential civil and criminal tax violations. The IRS will assess any additional tax, interest and a number of applicable penalties. This includes the penalty for the willful failure to file an FBAR. This penalty can be up to 50 percent of the value of the account for each year an FBAR was not filed.

The IRS will also recommend criminal prosecution in those cases where the facts warrant such an action. To date, the IRS and the Department of Justice have successfully prosecuted four United States customers of UBS whose information was provided to the IRS by UBS as part of the Deferred Prosecution Agreement.

Individuals whose information is obtained by the IRS through this process will, by longstanding policy, not be eligible for the voluntary disclosure program.

Source: IR-2009-075

Small Business and Cash for Clunkers Program

2009-08-19T12:40:00.001-07:00

The Cash for Clunkers program starts July 1st and ends November 1st 2009, or whenever funds run out, whichever happens first. The entire program is centered towards scrapping the old gas guzzlers and protect environment by destroying these clunkers and provide better cars to the consumers. Eligible cars (clunkers) can be traded in for a voucher redeemable toward the purchase of a new, more fuel efficient vehicle. Vouchers are worth either $3,500 (or $4,500 if the new car is 10 mpg higher than the trade-in)

Small businesses can take advantage of the Cash for Clunkers Program by trading in their work truck and buying another qualifying vehicle or taking up a five year auto lease contract. Generally, to qualify for the credit under this program your vehicle must be:

• manufactured less than 25 years before the date you trade it in and, in the case of a category 3 vehicle, must also have been manufactured not later than model year 2001
• get 18 miles a gallon or less.
• be drivable.
• registered to the same owner for atleast a year and
• insured for the past year.

When you apply for the program, you initially will receive $3,500(or $4,500) voucher towards your new fuel saving vehicle. You won’t actually receive the cash value of the vouchers in hand. Instead the government will provide the credit to the dealership where the qualifying new vehicle is being purchased or leased electronically. This credit will be applied towards all or part of the down payment. Note that the new vehicle must have a sale price of $45,000 or less and get at least 22 mpg.

Before you apply for this program: DO YOUR HOMEWORK!

1. Evaluate your decision - The voucher value replaces the trade-in value, and does not add to the trade-in value. Hence the small businesses should evaluate their decision on whether to utilize the voucher program based upon the value of their trade-in vehicle. If the trade-in value is greater than the voucher amount, it may not be beneficial to apply to this program for your old vehicle. On the other hand, if it is worth less, then you certainly will want the higher voucher value.

2. Consider the tax impact -The vouchers are not treated as taxable income. They take the place of your trade-in value. Hence a business that utilizes the voucher program is treated as if it traded in the old vehicle and received zero for it. Its basis in the new vehicle would be the amount paid net of the voucher and any other rebates. There is no tax due on trading-in their old vehicle for new under this program.

3. Compare Scenarios - In fact for a business, it may be more beneficial to use the voucher program and defer taxes rather than selling the old vehicle (which is fully depreciated) for a price equal to or less than the credit amount and paying taxes on the gain on sale of the vehicle. Hence, tax impact on sale of old vehicle versus trade-in needs to be considered too.

Small Businesses-Deadline Approaching for Special Refund Claims

2009-08-17T14:49:00.000-07:00

Under ARRA, eligible taxpayers can choose to carry back a NOL arising in a taxable year beginning or ending in 2008 for three, four or five years instead of two. The option is available for an eligible small business (ESB) that has no more than an average of $15 million in gross receipts over a three-year period ending with the tax year of the NOL. This choice may be made for only one tax year. This means that a business that had a net operating loss (NOL) in 2008 could carry that loss as far back as tax-year 2003, rather than the usual 2006.

By doing this the small businesses can
-Offset the loss against income earned in up to five prior tax years,
-Get a refund of taxes paid up to five years ago,
-Use up part or all of the loss now, rather than waiting to claim it on future tax returns.

Most taxpayers still have time to choose this special carryback and get a refund. A calendar-year corporation that qualifies as an ESB must file a claim by Sept. 15, 2009. For individuals, the deadline is Oct. 15, 2009. This includes a sole proprietor that qualifies as an ESB, an individual partner in a partnership that qualifies as an ESB and a shareholder in an S corporation that qualifies as an ESB. Deadlines vary for fiscal-year taxpayers, depending upon when their fiscal year ends and whether they are making the choice for the tax year that ends or begins in 2008.

Individuals can accelerate a refund by filing Form 1045, Application for Tentative Refund. Similarly, corporations with NOLs may also accelerate a refund by using Form 1139, Corporation Application for Tentative Refund. Normally, refunds are issued within 45 days.

Source: IR-2009-072

Due date extended for Report of Foreign Bank and Financial Accounts

2009-08-13T18:40:00.000-07:00

Extension available to file FBAR
The Internal Revenue Service has issued Notice 2009-62, which extends until June 30, 2010 the filing date for filing the Report of Foreign Bank and Financial Accounts (FBAR) for 2008 and earlier calendar years with respect to their foreign financial accounts for:
(i) persons with signature authority over, but no financial interest in, a foreign financial account, and
(ii) persons with a financial interest in, or signature authority over, a foreign commingled fund.

When do you file a Report of Foreign Bank and Financial Accounts(FBAR)
Generally if you own or have authority over a foreign financial account, including a bank account, brokerage account, mutual fund, unit trust, or other types of financial accounts, then you may be required to report the account yearly to the Internal Revenue Service. Under the Bank Secrecy Act, each United States person must file a Report of Foreign Bank and Financial Accounts (FBAR), if

1. The person has a financial interest in, or signature authority (or other authority that is comparable to signature authority) over one or more accounts in a foreign country, and
2. The aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.

Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts
Hence, holding a foreign account requires some reporting though no income is earned on such account. Checking the appropriate block on Form 1040 Schedule B, and filing Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, satisfies the account holder’s reporting obligation.

The Form TD F 90-22.1 must be mailed on or before June 30 of the following year to:

U.S. Department of the Treasury
P.O. Box 32621
Detroit, MI 48232-0621.

The FBAR is not to be filed with the filer’s Federal income tax return.
The granting, by IRS, of an extension to file Federal income tax returns does not extend the due date for filing an FBAR. There is no extension available for filing the FBAR.

Account holders who do not comply with the FBAR reporting requirements may be subject to civil penalties, criminal penalties, or both.

Seven Tax Facts About Selling Your Home

2009-08-13T12:16:00.000-07:00

During summer months, some people sell their home. Many of those individuals will make a profit on the sale and still will not have to pay a single dime of additional income tax to the IRS.

Here are seven tax facts about selling your home.

1. Ownership and Use Tests In general, you are eligible to exclude from your income all or part of any gain from the sale of your main home if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its sale. Refer to Publication 523, Selling Your Home, for the complete eligibility requirements as well as exceptions to the two year rule.

2. Main Home Your main home is the one in which you live most of the time.

3. Capital Gain Exclusion If you have a gain from the sale of your main home and you meet the ownership and use tests, you may be able to exclude up to $250,000 of the gain from your income or $500,000 on a joint return in most cases. The exclusion may be claimed each time that you sell your main home, but generally no more often than once every two years.

4. Reduced Exclusion If you do not meet the requirements to qualify for the $250,000 or $500,000 exclusion, you may still qualify for a reduced maximum exclusion. But you must have sold the home for other specific reasons such as serious health issues, a change in your place of employment, or certain unforeseen circumstances such as a divorce or legal separation, natural or man-made disasters resulting in a casualty to your home, or an involuntary conversion of your home.

5. Reporting the Gain Do not report the gain of your main home on your tax return unless you have a gain and at least part of it is taxable. Report any taxable gain on Form 1040, Schedule D, Capital Gains and Losses.

6. More Than One Home If you have more than one home, you can exclude gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.

7. Loss You cannot deduct a loss from the sale of your main home. If you have a loss on the sale of your main home for which you received a Form 1099-S, Proceeds From Real Estate Transactions you must report the loss on Form 1040 Schedule D, even though the loss is not deductible.

Source: http://www.irs.gov/

Residential Energy Credits - Saves taxes and energy bills

2009-08-06T08:00:00.000-07:00

In 2009- you can save on utility bills and taxes by making energy efficient improvements to your house. So it is the right time to start planning to take advantage of these credits...

Nonbusiness energy property credit.
This credit, which expired after 2007, has been reinstated. You may be able to claim a nonbusiness energy property credit of 30% of the cost of certain energy-efficient property or improvements you placed in service in 2009. This property can include high-efficiency heat pumps, air conditioners, and water heaters. It also may include energy-efficient windows, doors, insulation materials, and certain roofs. The credit has been expanded to include certain asphalt roofs and stoves that burn biomass fuel.
Limitation.
The total amount of credit you can claim in 2009 and 2010 is limited to $1,500.

Residential energy efficient property credit.
Beginning in 2009, there is no limitation on the credit amount for qualified solar electric property costs, qualified solar water heating property costs, qualified small wind energy property costs, and qualified geothermal heat pump property costs. The limitation on the credit amount for qualified fuel cell property costs remains the same.

Tax Relief for Ponzi-Scheme Victims

2009-08-06T07:49:00.000-07:00

Generally investment losses are capital losses. Capital losses can only be deducted to the extent of capital gains for the year, plus another $3,000 ($1,500 if you use married filing separate status). Any balance capital losses get carried forward to the following year, and is subject to similar limitation in future years.
Hence, it can take years to fully deduct huge capital losses.
In contrast, ordinary losses can be written off against any other type of income. Also, If you have a big ordinary loss that exceeds the income for the year, the excess will result in net operating loss which can be carried back to previous years and/or carried forward to offset income in future years.

IRS now allows Ordinary Loss Treatment for Ponzi-Scheme Victims
According to IRS Revenue Ruling 2009-9 and IRS Revenue Procedure 2009-20, the ordinary loss from a Ponzi investment scheme can be written off as an itemized deduction (on Schedule A of Form 1040) as Casualty and Theft Losses.
Note that-
· It can be deducted in full without regard to the limitations that apply to personal theft losses.
· It can be deducted in full without regard to other rules that reduce write-offs for other types of itemized deductions.
· It can be deducted in full under the alternative minimum tax (AMT) rules.
· It can be deducted on Form 1040 for the year in which you discover the loss. However, the loss must be reduced by claims for reimbursement for which you have a reasonable prospect of recovery.
· Losses that create a net operating loss can be carried back to the three previous years or forward to the next 20 years. You may also be able to carry back a net operating loss created by a 2008 Ponzi loss for up to five years.
· Losses are deductible in the year in which the loss was suffered. Determining the amount and timing of losses from these schemes is difficult and dependent on the prospect of recovering the lost money timing of losses from these schemes. Hence IRS now allows you to deduct a safe-harbor loss amount on the return for the year that the loss is discovered. The safe-harbor privilege is only allowed for losses discovered after 2007. IRS Revenue Procedure 2009-20 simplifies compliance for taxpayers by providing a safe-harbor means of determining the year in which the loss is deemed to occur and a simplified means of computing the amount of the loss.

How to get the First Time Home Buyer Credit ASAP

2009-07-09T16:19:00.000-07:00

Under the American Recovery and Reinvestment Act of 2009, qualifying taxpayers who purchase a home before Dec. 1 receive up to $8,000, or $4,000 for married individuals filing separately. People can claim the credit either on their 2008 tax returns due April 15 or on their 2009 tax returns next year.

The filing options to consider are:

File an extension. Taxpayers who haven’t yet filed their 2008 returns but are buying a home soon can request a six-month extension to October 15. This step would be faster than waiting until next year to claim it on the 2009 tax return. Even with an extension, taxpayers could still file electronically, receiving their refund in as few as 10 days with direct deposit.

File now, amend later. Taxpayers due a sizable refund for their 2008 tax return but who also are considering buying a house in the next few months can file their return now and claim the credit later. Taxpayers would file their 2008 tax forms as usual, then follow up with an amended return later this year to claim the homebuyer credit.

Amend the 2008 tax return. Taxpayers buying a home in the near future who have already filed their 2008 tax return can consider filing an amended tax return. The amended tax return will allow them to claim the homebuyer credit on the 2008 return without waiting until next year to claim it on the 2009 return.

Claim the credit in 2009 rather than 2008. For some taxpayers, it may make more financial sense to wait and claim the homebuyer credit next year when they file the 2009 tax return rather than claiming it now on the 2008 tax return. This could benefit taxpayers who might qualify for a higher credit on the 2009 tax return. This could include people who have less income in 2009 than 2008 because of factors such as a job loss or drop in investment income.

Source: http://www.irs.gov/

Federal Minimum Wage effective July 24, 2009

2009-07-09T13:28:00.000-07:00

Effective July 24, 2009, the federal minimum wage for covered non-exempt employees will be $7.25 per hour. The federal tipped minimum wage rate will stay the same at $2.13 per hour.

For state specific minimum wage rates you can use the link below:
www.dol.gov/esa/minwage/america.htm

Monetization of the First Time Home Buyer Credit

2009-07-02T07:31:00.000-07:00

The American Recovery and Reinvestment Act of 2009 offers homebuyers a tax credit of up to $8,000 for purchasing their first home.

In May 2009 FHA ruled that state Housing Finance Agencies and certain non-profits can "monetize" up to the full amount of the tax credit (depending on the amount of the mortgage). This means that the lenders will purchase the tax credit from the home buyer in advance and so the home buyer can immediately apply the funds toward their down payments and closing/other upfront costs.

Currently, borrowers applying for an FHA-insured mortgage are required to make a minimum 3.5 percent down payment on the purchase of their home.

With this ruling the Home buyers using FHA-approved lenders can apply the tax credit to their down payment in excess of 3.5 percent of appraised value or their closing costs, which can help achieve a lower interest rate. But they cannot monetize tax credit to meet the required 3.5 percent minimum down payment.

Some of the things one should be aware of before using this credit-

1. The credit can be only used for some upfront cost or down payment in excess of 3.5%. The tax credit can only be monetized and used towards these costs. It will not be refunded to you as cash back.

2. Note that the monetization of the tax credit will be through short-term bridge loans secured against the repayment of the first time homebuyer tax credit and hence there will be a cost associated with such loan so consumers have to be aware of potential abuse and be cautious in selecting the mortgage institution.

3. These programs will place a second lien on the house as collateral to secure the repayment of the loan in most cases.

Reporting requirements and Civil Penalties

2009-07-02T06:22:00.000-07:00

IRS requires you to file the required tax returns and information returns by the provided deadlines. Failure to do so results in penalties and interest.

Below is a summary of potential reporting requirements and civil penalties that could apply to a taxpayer, depending on his or her particular facts and circumstances.

A penalty for failing to file the Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts, commonly known as an “FBAR”).United States citizens, residents and certain other persons must annually report their direct or indirect financial interest in, or signature authority (or other authority that is comparable to signature authority) over, a financial account that is maintained with a financial institution located in a foreign country if, for any calendar year, the aggregate value of all foreign accounts exceeded $10,000 at any time during the year.Generally, the civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign account.See 31 U.S.C. § 5321(a)(5). Nonwillful violations are subject to a civil penalty of not more than $10,000.

A penalty for failing to file Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. Taxpayers must also report various transactions involving foreign trusts, including creation of a foreign trust by a United States person, transfers of property from a United States person to a foreign trust and receipt of distributions from foreign trusts under section 6048.This return also reports the receipt of gifts from foreign entities under section 6039F.The penalty for failing to file each one of these information returns, or for filing an incomplete return, is 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.

A penalty for failing to file Form 3520-A, Information Return of Foreign Trust With a U.S. Owner.Taxpayers must also report ownership interests in foreign trusts, by United States persons with various interests in and powers over those trusts under section 6048(b).The penalty for failing to file each one of these information returns or for filing an incomplete return, is five percent of the gross value of trust assets determined to be owned by the United States person.

A penalty for failing to file Form 5471, Information Return of U.S. Person with Respect to Certain Foreign Corporations. Certain United States persons who are officers, directors or shareholders in certain foreign corporations (including International Business Corporations) are required to report information under sections 6035, 6038 and 6046.The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A penalty for failing to file Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business.Taxpayers may be required to report transactions between a 25 percent foreign-owned domestic corporation or a foreign corporation engaged in a trade or business in the United States and a related party as required by sections 6038A and 6038C.The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A penalty for failing to file Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation.Taxpayers are required to report transfers of property to foreign corporations and other information under section 6038B.The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.

A penalty for failing to file Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships. United States persons with certain interests in foreign partnerships use this form to report interests in and transactions of the foreign partnerships, transfers of property to the foreign partnerships, and acquisitions, dispositions and changes in foreign partnership interests under sections 6038, 6038B, and 6046A.Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.

Fraud penalties imposed under sections 6651(f) or 6663.Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.

A penalty for failing to file a tax return imposed under section 6651(a)(1).Generally, taxpayers are required to file income tax returns.If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.

A penalty for failing to pay the amount of tax shown on the return under section 6651(a)(2).If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.

An accuracy-related penalty on underpayments imposed under section 6662. Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty.

Source: www.irs.gov

Interest Rates for the Third Quarter of 2009

2009-05-28T09:43:00.000-07:00

The Internal Revenue Service today announced that interest rates for the calendar quarter beginning July 1, 2009, will remain the same as the last quarter. The rates will be:
four (4) percent for overpayments [three (3) percent in the case of a corporation];
four (4) percent for underpayments;
six (6) percent for large corporate underpayments; and
one and one-half (1.5) 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 April 2009 to take effect May 1, 2009, based on daily compounding.
Revenue Ruling 2009-17, announcing the rates of interest, is attached and will appear in Internal Revenue Bulletin No. 2009-26, dated June 29, 2009.

Source: www.irs.gov

May 15 - Tax Deadline for e-Postcards

2009-05-12T10:41:00.001-07:00

Small tax-exempt organizations are required to file their annual electronic informational return with the IRS by the May 15 deadline.
This is a requirement for tax-exempt organizations whose gross annual receipts are normally $25,000 or less. They are required to file Form 990-N also known as e-Postcards.
The deadline applies to all small organizations whose tax year ends on Dec. 31. Organizations whose tax year is different from the calendar year must file the e-Postcard by the 15th day of the 5th month after the close of their tax year.

COBRA Health Insurance Continuation Premium Subsidy

2009-03-26T15:16:00.000-07:00

Under the American Recovery and Reinvestment Act of 2009, certain individuals who are eligible for COBRA continuation health coverage, or similar coverage under state law, may receive a subsidy for 65 percent of the premium. These individuals are required to pay only 35 percent of the premium. The employer may recover the subsidy provided to assistance-eligible individuals by taking the subsidy amount as a credit on its quarterly employment tax return. The employer may provide the subsidy — and take the credit on its employment tax return — only after it has received the 35 percent premium payment from the individual.

To qualify, a worker must have been involuntarily separated between Sept. 1, 2008, and Dec. 31, 2009. Workers who lost their jobs between Sept. 1, 2008, and enactment, but failed to initially elect COBRA because it was unaffordable, get an additional 60 days to elect COBRA and receive the subsidy.

This subsidy phases out for individuals whose modified adjusted gross income exceeds $125,000, or $250,000 for those filing joint returns. Taxpayers with modified adjusted gross income exceeding $145,000, or $290,000 for those filing joint returns, do not qualify for the subsidy.

Work Pay Tax Credit

2009-03-26T15:14:00.000-07:00

For 2009 and 2010, the Making Work Pay provision of the American Recovery and Reinvestment Act will provide a refundable tax credit of up to $400 for working individuals and $800 for married taxpayers filing joint returns.
This tax credit will be calculated at a rate of 6.2 percent of earned income and will phase out for taxpayers with adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly.
For people who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes in early spring. These changes may result in an increase in take-home pay. The amount of the credit must be reported on the employee's 2009 income tax return filed in 2010. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return.
It is not necessary to submit a Form W-4 to get the automatic withholding change. However, an employee with multiple jobs or married couples whose combined incomes place them in a higher tax bracket may elect to submit a revised W-4 to ensure enough withholding is held to cover the tax for his or her combined income

NOL can be carried back 2, 3 or 5 years

2009-03-26T15:10:00.000-07:00

Small businesses with deductions exceeding their income in 2008 can use a new net operating loss tax provision in the American Recovery and Reinvestment Act to get a refund of taxes paid over the past five years instead of the usual two.

Link:
http://www.irs.gov/pub/irs-drop/rp-09-19.pdf

First $2,400 of Unemployment Benefits Tax Free for 2009

2009-03-26T15:09:00.000-07:00

All or part of unemployment benefits received in 2009 will be tax free for many unemployed workers, according to the Internal Revenue Service.
You can get more information on this at the link below
http://www.irs.gov/newsroom/article/0,,id=205633,00.html

How Much Was My 2008 Stimulus Payment?

2009-01-15T06:48:00.000-08:00

To determine How Much Was My 2008 Stimulus Payment you'll need the following information from your 2007 tax return:

Your Social Security Number
Your 2007 Filing Status
Number of Exemptions claimed your 2007 tax return

Recovery Rebate Credit

2009-01-15T06:43:00.000-08:00

The recovery rebate credit is a one-time benefit for people who didn't receive the full economic stimulus payment last year and whose circumstances may have changed, making them eligible now for some or all of the unpaid portion.

Who are Eligible:

People who fall into the categories described below may be eligible for the recovery rebate credit this year:

Individuals who did not receive an economic stimulus payment.
Those who received less than the maximum economic stimulus payment in 2008 — $600 per tapayer; $1,200 if married filing jointly — because their qualifying or gross income was either too high or too low.
Families who gained an additional qualifying child in 2008.
Individuals who could be claimed as a dependent on someone else’s tax return in 2007, but who cannot be claimed as a dependent on another return in 2008.
Individuals who did not have a valid Social Security number in 2007 but who did receive one in 2008.

How to Claim:

You need to claim the recovery rebate credit on Form 1040, 1040A or 1040EZ. Unlike the economic stimulus payment, the recovery rebate credit will be included in your tax refund for 2008 and will not be issued as a separate payment.

Source: www.irs.gov

2008 Efiling Starts Jan 16th, 2009

2009-01-14T11:46:00.000-08:00

The Internal Revenue Service today announced the Jan. 16 opening of an expanded IRS e-file program for 2008 federal tax returns. The efile program is highlighted by new features that will allow expanded access to electronic filing and help people looking for faster refunds.
Taxpayers who use e-file and who choose direct deposit can receive their refund in as few as 10 days. That's because with e-file, there's no paper return going to the IRS. And with direct deposit, there's no paper refund going to the taxpayer. So it’s all electronic and much faster than paper.
IRS e-file allows taxpayers to file their returns now and pay later if they owe taxes. It allows taxpayers to file both federal and most state returns at the same time.

Source:IR-2009-005

IRS To Help Financially Distressed Taxpayers

2009-01-07T07:52:00.000-08:00

Taxpayers in hardship situations may be able to adjust payments for back taxes, avoid defaulting on payment agreements or possibly defer collection action as IRS is considering several options to help the taxpayers.

Some of the areas considered by IRS to help the taxpayers-

Postponement of Collection Actions in certain hardship situation.
Added Flexibility for Missed Payments in existing Installment Agreements who have difficulty making payments because of a job loss or other financial hardship.
Additional Review for Offers in Compromise on Home Values.
Prevention of Offer in Compromise Defaults by considering other available options.
Expedited Levy Releases for hardship reasons.

For detailed information-

http://www.irs.gov/newsroom/article/0,,id=202244,00.html

Source:IR-2009-2, Jan. 6, 2009

Obama Stimulus Plan Includes $300 Billion Tax Cut

2009-01-06T14:12:00.000-08:00

President-elect Barack Obama plans to include about $300 billion in tax cuts for workers and businesses in his economic recovery program as he seeks to win over Congressional skeptics worried that he was too focused on government spending, advisers said Sunday.
Read more....
http://www.nytimes.com/2009/01/05/us/politics/05spend.html
http://money.cnn.com/2009/01/05/news/economy/obama_stimulus/index.htm?postversion=2009010511
http://online.wsj.com/article/SB123117214431054061.html

Gift Tax 2009

2009-01-06T14:08:00.000-08:00

Normally a person can give up to the annual exclusion amount $13000 for 2009 to a person, every year ($ 26000 in 2009 if spouses joins in for the gift) without facing any gift taxes and note that such amounts do not count as part of your $1,000,000 lifetime total.

Further, IRS allows a person to give up to $1,000,000 in gifts, total, in their lifetime, before they start owing the gift tax. (This gift is not per (donee)person but its a per donor limit). So you can make gifts that are worth up to a $1,000,000 during your lifetime without paying the gift tax. . Even if you do not owe a gift tax because you have not reached the $1,000,000 limit, you are still required to file gift tax return if you made a gift that does not qualify as excludable.

Required Minimum Distribution Suspended For 2009

2009-01-06T14:03:00.000-08:00

On December 23, 2008, President Bush signed the Worker, Retiree, and Employer Recovery Act of 2008 (H.R. 7327) (the "WRER Act"), which provides that owners and beneficiaries of IRAs and other defined contribution plans who are required to take required minimum distributions ("RMDs") from their plans in tax year 2009, will generally be able to leave their money in their plans without suffering any penalty for failure to withdraw. The normal rules are still in effect for 2008.

Florida Corporate Income Tax Estimated Tax Due Dates Are One Day Earlier After January 1, 2009.

2009-01-06T11:05:00.001-08:00

Effective January 1, 2009, regardless of the tax year, the due dates for declarations of estimated tax and the due dates for payments of estimated tax will be one day earlier than previously required. This change will require declarations and payments of estimated tax to be made on or before the last day of the 4th month, the last day of the 6th month, the last day of the 9th month, and the last day of the tax year. This earlier payment due date must be taken into consideration when making electronic payments, which must be initiated before the due date.

TIP #08C01-08 (FLDOR)

Year End Charitable Contribution

2008-12-29T12:05:00.000-08:00

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.
.
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.

Interest Rates Drop - IRS

2008-12-19T09:04:00.000-08:00

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

Buying a SUV for business - Time is running out for the tax break!!

2008-12-12T08:45:00.001-08:00

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!

2009 Standard Mileage Rates

2008-11-27T06:29:00.000-08:00

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

Tax Year - 2009 Inflation Adjustments

2008-11-27T06:25:00.000-08:00

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

2008 Tax Information

2008-11-12T09:06:00.001-08:00

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.

2009 Pension Plan Limits

2008-11-12T08:53:00.000-08:00

IRS has announced the 2009 Pension plan limits.
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

IRS Disaster Relief - Tropical Storm Fay Victims

2008-08-28T06:50:00.000-07:00

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.

Mortgage Interest Credit

2008-08-25T11:14:00.000-07:00

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.

Refinancing & Mortgage Interest deduction

2008-08-21T09:54:00.000-07:00

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.

Debt Consolidation:

2008-08-19T19:05:00.000-07:00

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…

India's Independence Day

2008-08-15T12:50:00.001-07:00

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 !!

Globalization - Often asked TAX Question !!

2008-08-12T09:47:00.000-07:00

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.

For detailed information

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.

Beijing host to the 2008 Olympic Games

2008-08-08T18:17:00.000-07:00

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!

Loan Consolidation

2008-08-07T18:46:00.000-07:00

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!

Accounting Software

2008-08-07T17:53:00.000-07:00

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.

Stock Markets Rally....

2008-08-05T15:11:00.000-07:00

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!

American Housing Rescue and Foreclosure Prevention Act of 2008

2008-08-05T15:04:00.000-07:00

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

NEW GUIDANCE ON ACCOUNTABLE PLANS

2008-08-04T09:46:00.000-07:00

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/

The Mortgage Forgiveness Debt Relief Act of 2007 to the rescue...

2008-07-31T09:42:00.000-07:00

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.

Much Awaited Stimulus Check!

2008-07-29T15:50:00.000-07:00

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

Where's My Refund?

2008-07-29T15:49:00.000-07:00

Still waiting for the IRS tax refund check!

You can check the status of the refund(IRS website) at the link

Tax Refund Status

2008-07-29T15:47:00.000-07:00

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

Minimum Wage Increase

2008-07-24T15:16:00.001-07:00

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.

Recent Scams to steal identity - Posing as IRS

2008-07-24T15:08:00.001-07:00

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...

Filing Extensions Changing for Some Business Taxpayers Later this Year

2008-07-24T15:00:00.000-07:00

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

2008-07-24T14:25:00.000-07:00

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.

Capital Gain exclusion on Primary residence

2008-07-10T18:34:00.000-07:00

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)

2008 Auto Mileage Rate-

2008-07-10T18:31:00.000-07:00

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.

2007 Tax Law Changes

2008-01-25T14:34:00.000-08:00

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.