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July 2010 1. This credit – still available for 2010 – equals 6.2 percent of a taxpayer’s earned income. The maximum credit for a married couple filing a joint return is $800 and $400 for other taxpayers. 2. Eligible self-employed taxpayers can benefit from the credit by evaluating their expected income tax liability and, if they are eligible, by making the appropriate adjustments to the amounts of their estimated tax payments. The subsidy was extended to workers terminated before March 1, 2010 and provides for six more months of financial assistance. Ex-employees whose subsidy ran out after November also qualify for the extra six months of aid. They must be notified of this change by Jan. 29, and employers have to send out notices by Feb. 17 to all laid off workers to explain the new law. The Dept. of Labor has sample notices that employers can use. The new law adds a small easing to the subsidy eligibility rules: Workers no longer have to qualify for COBRA coverage in the same month that they are let go in order to be eligible for the 65% subsidy. This helps employees who, for example, are terminated in mid-Feb. but don’t lose employer-paid health benefits until March. (Kiplinger Tax Letter 1/22/10) IRS is beefing up oversight of the home buyer credit to stop bogus claims. To get the credit, filers must attach more documentation to Form 5405, which has been revised by the Service. A signed copy of the settlement statement must now accompany the form. Mobile home buyers who don’t have that document should include a signed sales contract. Likewise, filers who have a residence built for them should instead attach a copy of the certificate of occupancy to their 5405. The Service also wants information from buyers who are claiming the $6,500 credit. They should enclose Form 1098 or records of property taxes or insurance coverage to document that they owned a home for five consecutive years out of the last eight. Filers taking the credit on their 2009 returns must use the new 5405, which is dated Dec. 2009. If you’re claiming the credit for a 2009 home purchase on an amended 2008 return, you must use the revised 5405 if the home was bought after Nov. 6, 2009. Use the 2008 version for homes purchased before Nov. 7, 2009. Returns claiming the credit can’t be e-filed because of the attachment rules. And the IRS won’t start processing 2009 returns with 5405s until mid-Feb., when it expects to have its computers reprogrammed to handle the rule changes. Factoring in the extra processing time needed for paper returns, the first refunds for returns claiming the home buyer credit will not be issued until late March. (Kiplinger Tax Letter 1/22/10) Casual gamblers must net their winnings or losses on a daily basis when figuring their taxes, the Tax Court says. A couple played the slots on occasion. On one day, they hit a $2,000 jackpot and netted $1,100 for the day. They lost a total of $2,264 on their other trips. In the Court’s view, the $1,100 in winnings is taxed as income and the offsetting $1,100 in losses can be claimed as an itemized deduction. However, since the couple took the standard deduction, they cannot write off the $1,100 in losses (Shollenberger, TC Memo. 2009-306). Remember, too, that gambling losses in excess of winnings cannot be deducted. (Kiplinger Tax Letter 1/22/10) Enforcement: The Service likes to crow about tighter enforcement of the tax laws. But the overall return examination rate barely rose for individuals in fiscal 2009. The Revenue Service audited 1.03% of personal income tax returns, or one out of every 97 returns, up just a tad from the 1.01% exam rate in 2008. People with incomes of $1 million or more did see an increase in audits, 6.42% in 2009, up from 5.57% the previous year. That’s one out of every 16 returns. For those with incomes of at least $200,000 but less than $1 million, the exam rate was 2.55%, down from 2.69% in 2008. For folks with incomes below $200,000, the rate was 0.96% in 2009, just slightly higher than the 0.95% rate the prior year. Businesses both large and small felt a little less audit heat in 2009. For partnerships, 0.38% of returns were eyed, compared with 0.42% the year before. Also, the examination rate for small corporations decreased from 0.95% to 0.85%. And despite the Service’s much publicized campaign to do more exams of S firms, just 0.40%, or one out of every 250, were audited in 2009, the same as in 2008. (Kiplinger Tax Letter 1/22/10)
Facts about the Making Work Pay Tax Credit:
Recordkeeping: Take advantage of paperless recordkeeping for financial and tax records. Many people receive bank statements and documents by e-mail. This method is an outstanding way to secure financial records. Important tax records such as W-2s, tax returns and other paper documents can be scanned onto an electronic format. You can copy them onto a ‘key’ or ‘jump drive’ periodically and then keep the electronic records in a safe place.
May 2010
Unreported Income: The IRS is becoming even more aggessive in finding taxpayer's unreported income. Targeting "cash" heavy industries such as convenience stores, hair salons and other small companies that typically accept cash as a major source of payment, the IRS is instructing its agents on how to identify potential under-reporters. Among their "discovery" methods is a "lifestyle" assessment that may have an agent visiting the taxpayers place of business or even home to see if lifestyle indicators are far above the income reported on tax returns.
Turbo Tax Defense: An argument for leiniency for taxpayers who relied on tax software has fallen on deaf ears with the Tax Court. Errors and/or emissions by a taxpayer when using tax software to prepare their tax return are still errors and subject to penalties.
COBRA Extended: Employees terminated after March 31st and before June 1, 2010, who did not take the company offered COBRA health insurance can now apply for it. The subsidy is 65% of the coverage premium for up to 15 months.
Earlier Posts:
Health Insurance for Laid-Off Employees:
More on the extension of the COBRA health coverage subsidy rules: Employers must act quickly to notify ex-workers about the changes made to the subsidy law. It originally allowed those who were let go after Aug. 31, 2008 and before Jan. 1, 2010 to get a nine-month subsidy for 65% of premiums they paid.
Real Estate - 2010:
Gambling:
Client Report: 2009 Year-End Tax Planning for Individuals (December 11, 2009)
Year-end tax planning for 2009 presents a unique chance for you to lower your tax liability, especially in light of the significant tax law changes that were enacted in response to the struggling economy. Although traditional planning techniques remain fundamentally important considerations, new opportunities and risks provide planning variables unique to this year-end.
Managing the income that you recognize or defer in 2009 may be beneficial, but with tax reform on the horizon, balancing tax rates between 2009 and 2010 and beyond becomes more difficult. Proposed increases in income and capital gain tax rates for 2011 make the traditional year-end strategy of deferring your 2009 income into 2010 less attractive. Deferring too much income could result in excessive income in 2010, especially if you also accelerate 2011 income into 2010 to escape higher rates. However, many of the tax breaks in recent stimulus tax bills are due to expire at the end of this year. (The House just passed a bill to contine the breaks through 2010; however, the Senate has it's own ideas on what it wants. When Congress gets it together it most likely will extend these tax breaks. If passage is in 2010 the breaks will probably be retroactive to January 1st.) Since it is uncertain whether Congress will extend any or all of the expiring tax incentives, taking advantage of this tax relief while it is still available should be considered. Some tax incentives that are set to expire include: · the above-the-line deduction for teachers' classroom expenses; · the above-the-line higher education tuition deduction; · the additional standard deduction for real property taxes; · the AMT exemption amount patch; · the itemized state and local sales tax deduction; · the moratorium on required minimum distributions (RMDs); · the motor vehicle sales tax deduction, which applies to qualified new vehicle purchases after February 16, 2009 and before January 1, 2010; · tax-free IRA distributions to charity; · the nonrefundable tax credit offset of regular and AMT tax liability; and · COBRA premium assistance for unemployed workers who are involuntarily terminated between September 1, 2008 and December 1, 2009. In addition to those provisions that are scheduled to expire in 2009, there are others that continue to apply. A variety of popular tax exclusions, deductions and credits for individuals were provided, extended or enhanced by the American Recovery and Reinvestment Tax Act of 2009 (2009 Recovery Act), as follows: Exclusions from Income: · Qualified bike commuting reimbursements of up to $20 per month · Discharged principal residence indebtedness of up to $2,000,000 ($1,000,000 for married separate filers) · $250 economic recovery payments · Increased $460 per month limitation for transportation fringe benefits offered by an employer · Exclusion of the first $2,400 (per person) of unemployment compensation benefits received · The percentage of exclusion is increased to 75% for sales of small business stock acquired after February 17, 2009 and before January 1, 2011 (stock must be owned and held for more than five years). Deductions: · Safe harbor method to calculate theft loss deduction for fraudulent investment (Ponzi) schemes · Qualified mortgage insurance premiums obtained in connection with acquisition indebtedness · Computer equipment and technology, and internet access and related service costs are qualified higher education expenses for qualified tuition programs for 2009 and 2010 Tax Credits: · The American Opportunity Tax Credit replaces the Hope Scholarship Credit for 2009 and 2010, and now applies to the first four rather than the first two years of a student's post-secondary education. The maximum credit is increased to $2,500 per eligible student. · The refundable earned income credit is increased to a maximum of $5,657 for qualifying families with three or more children. · Beginning with purchases after December 31, 2008, the maximum first-time homebuyer credit (FTHBC) amount is increased to $8,000 ($4,000 for married separate filers). The FTHBC is extended by the Worker, Homeownership, and Business Assistance Act of 2009 (2009 Worker Act) to include qualifying purchases after April 9, 2008, and before May 1, 2010. In addition, for 2009 and 2010, the 2009 Worker Act waives the recapture of the credit if the home is used as a principal residence for at least three years. · Certain government retirees can claim a refundable $250 tax credit ($500 on a joint return if both spouses are eligible). · A refundable Making Work Pay Credit (MWPC) is advanced to eligible workers, generally through reduced income tax withholding. The MWPC is equal to the lesser of 6.2 percent of earned income, or $400 ($800 for married joint filers). · The refundable portion of the child tax credit (CTC) is increased to 15% of earned income in excess of $3,000 (the previous threshold amount was $12,550, making the maximum increase in the refundable CTC $1,432.50). · The credit for non-business energy property (CNEP) is extended through 2010, and the credit amount increases from 10 to 30 percent of qualified energy efficiency improvements (including doors, windows, furnaces, central air conditioners, water heaters, heat pumps, biomass stoves, and certain asphalt roofs). The credit is limited to a total of $1,500 over the 2009 and 2010 tax years. · The residential energy efficient property (REEP) annual credit maximums of $2,000 for solar hot water heaters, $500 for each half kilowatt of electric capacity generated by a wind turbine (not to exceed $4,000 annually), and $2,000 for geothermal heat pumps are eliminated for tax years 2009 through 2016. The maximum annual credit for each half kilowatt of electric capacity from fuel cell plants remains at $500. · For tax years beginning in 2009, the alternative motor vehicle (AMV) credit is treated as a nonrefundable personal tax credit. · A credit is available for qualified plug-in electric drive motor vehicles (PEDMVs) placed in service in 2009 through 2014. The maximum PEDMV credit is between $7,500 and $15,000 depending upon the weight of the vehicle. · A new credit is available for converting an existing motor vehicle into a qualified PEDMV. The maximum credit of $4,000 applies to conversions made after February 17, 2009 and before December 31, 2011. · The new plug-in electric vehicle credit (PEVC) is modeled on the PEDMV credit, and provides a credit equal to 10% of the cost of acquiring certain electrically powered 2-wheeled, 3-wheeled, and low-speed vehicles. The PEVC is capped at $2,500, and generally applies to vehicles purchased after February 17, 2009 and before January 1, 2012. With the year drawing to a close, now is an ideal time to review your tax situation and evaluate strategies that may help minimize your tax bill. Hopefully, this letter provides some alternatives that you would like to discuss in greater detail. Please call my office at your earliest convenience to arrange an appointment to discuss any income tax matters. (Resource: National Association of Accountants)