AMT Exemption & Phase Out - 2009

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

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

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

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

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...

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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?

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

1. Your Social Security Number
2. Your 2007 Filing Status
3. Number of Exemptions claimed your 2007 tax return

Recovery Rebate Credit

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:

1. Individuals who did not receive an economic stimulus payment.
2. 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.
3. Families who gained an additional qualifying child in 2008.
4. 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.
5. 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

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

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

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

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

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.

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)