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Key Guidelines for Year-End Deductions

December 14th, 2009 No comments

Linda Beale posted this article December 8, 2009 on her blog “ataxingmatter” – It may have some useful information for you to keep in mind while gathering your charitable donation slips.

Publication 526 offers information on charitable contributions, but at the end of the year when many donations are made, the IRS often offers reminders about key guidelines.  IR-2009-114 offers a number of tips for taxpayers who want to be able to deduct year-end gifts.  Here’s the list:

1) Limited time offer (I hope) tax-free deduction for $100,000 contributions direct from IRAs for owners 70 1/2 and older

Clearly this is a benefit for the wealthy donors who already get most of the benefit of the charitable contribution deduction.  Another of those Bush-era options (created in 2006) that should be allowed to bite the dust when it expires at end of this year.

2) Donations of household items and clothing “must be in good used condition” to be deductible

Hmmm. How many people attempt to get a deduction for junk contributed to Salvation Army??? And will whether or not there is this requirement???  Hey folks.  Give that stuff away and don’t try to claim a deduction.  You probably don’t deserve to get to call it charity if it is junk to you–i.e., stuff that you don’t want anyway.

3) Monetary donations require a “bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution.”

The release notes that contributions for credit card charges are dated from the “transaction posting date”, while bank records include “canceled checks” or “bank or credit union statements”.  That seems to conflict with some authority that suggests that the mailing rule applies rather than the cancelation date for the check.  The material in “”reminders”  clarifies, helpfully, that charges to a card by year-end are ok, even if they aren’t paid til 2010, and that checks mailed in 2009 are ok, so long as they are cleared shortly thereafter.

My own advice–be wary of mailed charge-card contributions to charities.  They often take quite a while to process and may not be charged to your account by year-end even if you mailed a charge slip with your donation early in December.

4) Substantiation of gifts is stricter than it used to be

A taxpayer is also supposed to have an acknowledgment from the charity for donations of $250 or more.

If the amount of all noncash contributions is over $500, taxpayers have to complete Form 8283 with their tax return.

5) Donating a motor vehicle, boat, or airplane will permit a deduction limited to the gross proceeds from the charity’s sale of the vehicle.  See Form 1098-C, required to be provided by the charity to the donor and attached to the tax return.

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2010 Mileage Rates

December 14th, 2009 No comments

For those of you who fill out your expense statements each week, here is a bit of information to assist. Beginning January 1, 2010 – the standard mileage rates are:

  • 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

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4 Types of Investment Loss that can Reduce Your Tax Bill

December 3rd, 2009 No comments

The LA Times posted this article written by Kathy Kristoff back in February of 2009, but I think it’s good information to know.

What can you do with investment losses? It depends on the type of loss and whether you have profits in a similar investment category. In some cases, losses can offset your taxable income. In other cases, no way. Investment losses fall into four buckets.

Capital losses — These are the most common. These are the losses you might have generated from the sale of stocks, bonds and mutual funds in 2008.

If you held the security for more than a year, the capital loss would be classified as “long-term.” If you held it for even one day less, it’s a short-term loss. Why does it matter? If you have short-term gains, they’re taxed at your ordinary income tax rate. If you have long-term gains, they’re taxed at a maximum rate of 15%.

If you have more losses than profits — as many people do for the 2008 tax year — you can use the excess to offset up to $3,000 in ordinary income each year.

What to do when there are still losses left? Roll them forward into future years to offset gains and income then. One caveat: Paper losses don’t count. To claim a tax loss you have to have actually sold a security, not just been depressed by its diminished value on a brokerage statement. The one exception is for securities that have become worthless, Holthouse said. You can treat those as if they were sold for nothing at the end of the year as the tax law recognizes it is hard to actually sell something that has no value.

Collectible losses — This is for collectors. Let’s say you got really into the Beanie Baby craze and spent $3,500 for “Chilly” the polar bear, which has been sitting inside a dusty glass case for the last 10 years. Now, Chilly and the rest of the Beanie crew are sporting $1 price tags at your neighborhood garage sale.

When you sell yours you have a “collectible loss” that amounts to the difference between what you paid for them and what they sold for today — assuming that all those plush toys were purchased for investment, not to plop on your kid’s pillow.

Collectible losses can offset collectible gains — such as the profit on the sale of your baseball card collection, which you accidentally accumulated for practically nothing when you were a 10-year-old sports fan. Now, if you sell your 1952 Mickey Mantle card for $9,000, instead of paying a 28% tax on the gain — that’s the tax rate for collectible profits — you get to subtract the net loss on the plush toys. You pay tax only on the difference.

If you’ve got leftover capital losses from the sale of securities, they can be used to offset your 28% collectible gains too.

Passive losses — You bought real estate, thinking you’d fix up that rental home and sell it at a huge profit. But now you’re renting out the home and paying more to keep it up than you are getting in rent.

More bad news: Unless you can show you’re actively managing your properties, what you’ve got here is a passive activity loss, which is only deductible against passive activity gains.

On the bright side, these losses never expire. So, if you manage to pay down the mortgage and start to make a profit in 2025, you can use these built-up passive activity losses to wipe out your future gains.

What if you can show that you “actively participate” in managing and renting this real estate? Then you may be able to write off up to $25,000 in losses against ordinary income. If your adjusted gross income exceeds $100,000, however, you lose a portion of the write-off. It evaporates completely once modified AGI exceeds $150,000.

Personal losses — If you sold your home at a loss, none of the loss is deductible. That’s because tax authorities think that you bought your home for personal use, not as an investment.

What happens if you sell that home at a profit? Well, then, tax authorities consider it an investment.

“It’s not a two-way street,” said Mark Luscombe, principal federal tax analyst with CCH Inc., a Riverwoods, Ill., publisher of tax information.

On the bright side, if you’ve lived in the home for at least two of the past five years, singles can exclude up to $250,000 of the gain and married couples can exclude $500,000 from income. But the rest would be taxed at capital gains rates — unless, of course, you’ve got other capital losses to offset the gain.

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2009 Tax Changes for Businesses

December 1st, 2009 No comments

2009 is almost over and in the next couple of months individuals will be gathering their information to complete their tax documents. E-File Magic is here to make some of that easier for you. Download our FREE 1099 Software now!

The IRS has listed on its website, 35 Tax Changes for Businesses that you may not be aware of. Here they are:

5-Year Carryback of 2008 Net Operating Losses (NOLs) for Eligible Small Businesses (ESBs)
For 2008, you can choose a 3, 4, or 5-year carryback period for the part of your 2008 NOL that is an ESB loss.

Agricultural Chemicals Security Credit
The Food, Conservation, and Energy Act of 2008 added the agricultural chemicals security credit as part of the general business credit.

Alcohol and Cellulosic Biofuel Fuels Credit
There are several changes to alcohol and cellulosic biofuel fuels credits.

Biodiesel and Renewable Diesel Fuels Credit
There are several changes to the biodiesel and renewable diesel fuels credit.

Build America Bonds
Find out what a build America bond is and how to claim a credit.

Business Start-up and Organizational Costs
A separate election statement is no longer required to elect to deduct up to $5,000 of business start-up and organizational costs paid or incurred after September 8, 2008.

Cancellation of Debt
Certain businesses can make an irrevocable election to delay recognition income from the cancellation of business debt arising from the reacquisition of certain types of business debt repurchased in 2009 or 2010.

Capital Gain Tax Rate Reduction for Corporations With Qualified Timber Gain
Corporations with both a net capital gain and a qualified timber gain may have a reduced tax rate.

Carbon Dioxide Sequestration Credit
Carbon dioxide captured after October 3, 2008, from an industrial source may be eligible for a credit.

Changes to Investment Credit
There are several changes to the investment credit.

COBRA Premium Assistance Credit
The American Recovery and Reinvestment Act of 2009 (ARRA) allows a credit against employment taxes for providing COBRA premium assistance to assistance eligible individuals.

Credit for Employer Differential Wage Payments
Eligible small business employers may be able to claim a credit for differential wage payments.

Depletion
Changes to the taxable income limitation on percentage depletion for tax years 2007-2010.

Depreciation and Section 179 Expense
Section 179 deduction limits have increased, depreciation limits on certain electric vehicles have changed and the special depreciation allowance has changed for certain New York Liberty Zone property.

Disqualified Corporate Interest Expense Disallowed Under Section 163(j) and Related Information
For tax years beginning after 2007, corporations will use Form 8926, Disqualified Corporate Interest Expense Disallowed Under Section 163(j) and Related Information, to figure the amount of any corporate interest expense deduction disallowed by section 163(j).

Domestic Production Activities Deduction
For tax years beginning in 2007, 2008, or 2009, the percentage used to figure the domestic production activities deduction increases to 6%.

Election to Accelerate Certain Credits in Lieu of the Special Depreciation Allowance
Corporations and a certain automotive partnership can elect to accelerate certain credits.

Employer-Owned Life Insurance Contracts
Policyholders owning one or more employer-owned life insurance contracts may have to file a report.

Health Savings Accounts (HSAs)
Information on changes for Health Savings Accounts (HSAs).

Low-Income Housing Credit
Rules for the credit attributable to buildings placed in service after 2007.

Maximum Automobile Value for Using the Cents-Per-Mile Valuation Rule
An employer providing a passenger automobile for the first time for personal use by an employeeay use special rules for determining the value of the personal use.

Meal Expenses When Subject to “Hours of Service” Limits
Special rules for deducting business-related meal expenses.

New Forms to Adjust Employment Tax Returns
There are several new forms for adjusting employment tax returns.

Nonqualified Deferred Compensation Plans
There are new regulations on reporting requirements for amounts deferred under a nonqualified deferred compensation plan.

Original Issue Discount (OID)Tables
Contains latest version of OID tables. Prior year tables are also available.

Partial Exclusion Increased for Gain From Certain Small Business Stock
Exclusion of gain from the sale of qualifying small business stock is increased.

Penalty for Late Filing of a Partnership Return
The late filing penalty has increased for certain late filed partnership returns.

Penalty for Late Filing of an S Corporation Return
The late filing penalty has increased for certain late filed S-corporation returns.

Qualified Transportation Fringe Benefits
Monthly exclusion amounts have increased.

S Corporation Built-in Gains Tax
There is no tax imposed on the net built-in gain for a certain period.

Self-Employment Tax
The maximum amount of net earnings subject to the social security part of the self-employment tax has increased.

Social Security and Medicare Taxes
The maximum amount of wages subject to the social security tax and Medicare tax has increased.

Standard Mileage Rate
The standard mileage rate for business use of your vehicle, medical and move- related use and charitable use has increased for 2008.

Vehicle Credits
Information on new alternative motor vehicle credits.

Work Opportunity Credit
The qualified veterans group and high-risk youth groups have been expanded.

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IRS Issues Proposed Regulations on Reporting Requirement for Payment Card and Paypal Transactions

November 25th, 2009 No comments

The Housing Assistance Act of 2008 had Paypal and ebay bloggers outlining what would be in store for them in the future. The IRS posted this article on the proposed regulations for merchant card and third party transactions reported to the IRS beginning in 2011. They are allowing the public to make comments on the new form 1099-K.

I thought this might be interesting for those of you who have small businesses and rely primarily on internet transactions.

R-2009-106, Nov. 23, 2009 WASHINGTON — The Internal Revenue Service today issued proposed regulations under a new statute requiring that, starting with transactions in calendar year 2011, the gross amount of payment card and third-party network transactions be reported annually to participating merchants and the IRS.

The provision was enacted as part of the Housing Assistance Tax Act of 2008 and is designed to improve voluntary tax compliance by business taxpayers and help the IRS determine whether their tax returns are correct and complete.

“Time and time again, we have seen that better information reporting helps the tax system work better by ensuring that everyone pays what they owe,” said IRS Commissioner Doug Shulman. “The new law gives us an important new tool for closing the tax gap and also provides business taxpayers better documentation to compute and report their income and expenses. The IRS will work closely with stakeholder groups to ensure a smooth implementation of this new program.”

These proposed regulations, posted today on IRS.gov, propose rules to implement reporting of credit card, debit card and similar transactions, as well as transactions settled through third-party payment networks, such as third-party organizations that settle online transactions. The IRS also released for comment a draft version of new Form 1099K, Merchant Card and Third-Party Payments, which will be used to make these reports.

The new law requires banks and other payment settlement entities to report payment card and third-party network transactions with their participating merchants. The IRS emphasized that individual cardholders are unaffected by this requirement, and none of the cardholder’s personal information will be shared with the IRS.

The IRS has created Form 1099-K, which is similar to the existing Forms 1099 used to report interest, dividends and other payments. The first information return covering calendar year 2011 must be filed with the IRS and furnished to participating merchants in early 2012. Among other things, the proposed regulations describe who is required to file a return and which payment card and third-party network transactions are subject to the reporting requirement. The proposed regulations also provide numerous examples.

The IRS welcomes comments on these proposed regulations and the draft Form 1099-K. Comments must be received by Jan. 25, 2010, and may be submitted electronically, by mail or hand delivered to the IRS. A public hearing is scheduled for Feb. 10, 2010, in Washington, D.C.

The proposed regulations provide details on submitting comments or participating in the public hearing.

The IRS continues to work closely with stakeholders to ensure the smooth implementation of this new information reporting program, including the mitigation of penalties in the early stages of implementation for all but particularly egregious cases.

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Vegetarianism, Agribusiness – Taxing Meat Eaters Anyone?

November 23rd, 2009 No comments

Not long ago my diet consisted of mostly vegetables and rice with meat being consumed once, maybe twice a week. Since becoming pregnant, I eat meat everyday to meet my 100 grams of protein a day. I plan on teaching my son about the effect meat has on the environment and the benefits of fresh produce (home grown and within 100 miles if possible). I found the following article by Linda M. Beale to be informative, entertaining and it made me think that her idea of taxing agribusiness might not be a bad idea. Linda M. Beale is a Law Professor who teaches courses on various types of taxes, including Federal Income Tax.

This article is from her blog “A Taxing Matter” dated November 19, 2009:

As some of you may know, I am one of the many people who eat a vegetarian diet.  I don’t eat cows, pigs, fish, whales, sharks, chicken, turkey, sheep, wild game, tame game… As I sometimes say when people ask me about my diet, I eat everything you eat, except for a very short list of items–the critters that can move themselves from one place to another (or move their appendages) under their own propulsion.

(Note that we often have two words for animals that we eat–their live-form word –e.g., cow, sheep, pig– and their edible-corpse form word –e.g., beef, mutton, pork.  That evolved when we borrowed the Romance language word for what we ate but kept the Germanic language word for the animals.)

It started when I was a child–I was one of those who would cut the meat into tiny pieces and then spread it all over my plate so it looked like I’d eaten it.  The idea of eating a cow, with those beautiful liquid brown eyes, was repulsive.  (My father came from a family with thirteen kids in the hills of Tennessee, so I’d seen cows up close.)  I even took a whole piece of veal once and hid it behind the dining room cabinet (taking it out to the wastebasket after it dried)!  I refused to eat the squirrel and venison that my dad brought home from hunting trips (mostly, if not always, somebody else’s kill).  I even refused to let my cocker spaniel share in that dead stock.

But now that I’m an adult, why do I maintain that diet?  I get asked that a lot.

Funny, nobody says (with shocked exression)–”Gee, you eat meat?  Why would anyone ever want to eat a toxins-laden dead corpse of an animal that lived a horrendous life and suffered an agonizing death? ” But they do often ask–usually treating it as a good-natured tease about a wacky alternative diet–why I’d want to avoid eating corpses.

James McWilliams got me thinking about this again this morning, when I read his “Bellying up to environmentalism” in the Washington Post for Nov. 16, 2009, where he noted that we should be asking questions in the reverse, that make meateaters feel uncomfortable at defending their own meateating.  After all, there’s really no good reason for eating meat other than that someone is so addicted to its taste that he or she  can’t exert the willpower to do without it.

The whys for not eating meat, on the other hand, are legion.  Let me just list a few here, from the mundane to the truly significant:

1. cooking is easier–throw veggies in a pot and steam them; throw veggies in a pot and make soup, throw veggies in a fry pan and fry them, throw beggies in a pot and bake them; and variants thereon

2. clean-up is a lot easier–none of that icky clinging greasy layer of animal fat on every pan

3. refrigerated leftover use is easier–throw the leftovers in a pot and steam them (etc. from one above) and there’s none of that congealed lard on top of the leftovers in the fridge

4. rotten vegetables in the fridge are less disgusting than rotten corpses in the fridge

5. a decent diet is generally considerably cheaper

6. the more people who adopt a vegetarian diet, the more people who are currently going hungry could be fed:  one of the many articles I’ve read said something that stuck with me (sorry, don’t have the cite)–that it takes the same resources to feed one meat-eater that it takes to feed about 80 vegetarians.  That’s because of the huge waste as you use up primary foodstuffs to feed the animals that will be slaughtered, then use up primary energy stuffs to slaughter, process, ship and deliver the meat to the meat eater, compared to even transported vegetables (localvore, with vegetables, is even more saving of resources)

7. without meat-eating, there are no  feedlots where animals literally eat and sleep out the remainder of their short lives in their own shit

8. you can have a small flock of hens who live out their natural lives with nice living conditions (indoor/outdoor)

  • disclosure: I had one hen who lived to be 22; she was still laying eggs up until the week or so before her death from natural causes

9. Hens lay bigger and bigger eggs each year that they live past the first year w(hen most are slaughtered) and they still lay fairly regularly

  • disclosure:  6 eggs every 7 days was typical in my experience

10. Even hens have personalities

  • disclosure:  when I lived in upstate New York, I had one named Gumption who loved to fly up to the top of a two-story house and survey her domain, and another named “kiss me” who would follow me around all day like a pet dog

11. Animals that we eat are as smart as–or smarter than–animals that we keep for pets (pigs compared to dogs, for example)

12. Animals care for their young and suffer when their young are taken from them (think dairy cattle and the young that are bred so that the mothers will give milk)

13. Some eating of animals is even more obnoxious than the norm (think “veal calves” that are taken and put in tiny sheds to they can fatten without any musculature development or “foie gras” where geese are fattened by having food stuffed down their throats with a tube)

14. Life is precious: there is no reason to sacrifice animal lives to lead a decent human life, so why do it?

15. Agribusiness–the main way that animals are raised and sold for meat–is an environmental nightmare

  • use of fertilizers to grow the grain that is fed to the cattle that are fed to the humans results in polluted land, water and air and uses up petroleum and other resources
  • consolidation results in long transportation (inhumane to animals; wasteful of oil and gas resources)
  • the subsidies (including some tax expenditures) for agriculture have gotten out of control–costly, misdirected, ill-conceived, and essentially now a form of corporate welfare for huge agribusiness enterprises

16. A meatless diet is healthier for humans than a meat-based diet, so we could cut health-care costs by simply cutting out meat

17. The process of butchering animals is a cruel leftover from the dark ages–people who work in slaughterhouses are inured to suffering, and that may well spill over into their “normal” lives outside work

18. The process of butchering animals is itself a source of harm–

  • sick animals are slaughtered, making it possible that eaters of that dead flesh will be sickened as well (mad cow disease);
  • animals are slaughtered in the midst of their own excrement, and some of that excrement gets into the food chain (making people sick as well);
  • the leftovers from the animal slaughter have to be gotten rid of somehow, leading to even more water, land and air pollution
  • workers are exposed to awful conditions–not just the process of mercilessly killing animals day in and day out, but also the risk of infection and injury on the line

19. The use of antibiotics in animal feed (given to healthy and unhealthy animals alike) ensures that resistant strains will develop even more rapidly, while leaving excess antibiotics not absorbed by the animals to pass out in their urine and excrement and into the land and water to act as toxins to others (including fish and birds and humans) leading to additional environmental nightmares…

20. Agribusiness pig farms and cattle feedlots are a blight on any humans within their vicinity (as well as a disaster for the natural world, noted above under environmental problems) from the stench of the manure (that can pollute the countryside for miles around) to the ugliness of the barren, treeless manure-laden fields.

So what to do?  Maybe we should enact an excise tax on all meat products, like a”sin” tax for sodas and sweets and cigarettes.   Comments, anyone?

I will be interested in checking her site after a week or so to see what others think in the comment section.

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First Time Homebuyer Credit extended into 2010

November 20th, 2009 No comments

First time homebuyers were rushing to find their first dream home in 2009, for those who thought they were running out of time – it has been extended into 2010.

The IRS webpage has posted some information outlining the details:

New Legislation

New legislation, the Worker, Homeownership and Business Assistance Act of 2009, which was signed into law on Nov. 6, 2009, extends and expands the first-time homebuyer credit allowed by previous Acts. The new law:

  • Extends deadlines for purchasing and closing on a home.
  • Authorizes the credit for long-time homeowners buying a replacement principal residence.
  • Raises the income limitations for homeowners claiming the credit.

Under the new law, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2010 and close on the home by June 30, 2010. For qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 return.

For the first time, long-time homeowners who buy a replacement principal residence may also claim a homebuyer credit of up to $6,500 (up to $3,250 for a married individual filing separately). They must have lived  in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the replacement home is purchased.

People with higher incomes can now qualify for the credit. The new law raises the income limits for homes purchased after Nov. 6, 2009. The credit phases out for individual taxpayers with modified adjusted gross income (MAGI) between $125,000 and $145,000 or between $225,000 and $245,000 for joint filers. The existing MAGI phase-outs of $75,000 to $95,000 or $150,000 to $170,000 for joint filers still apply to purchases on or before Nov. 6, 2009.

Several new restrictions apply to homes purchased after Nov. 6, 2009.

  • Purchasers must attach a properly executed settlement statement to their return.
  • No credit is available if the purchase price of the home exceeds $800,000.
  • The purchaser must be at least 18 years old on the date of purchase. For a married couple, only one spouse must meet this age requirement.
  • A dependent is not eligible for the credit.
  • The new law gives the IRS broader authority to deny first-time homebuyer credit claims, without having to first audit a taxpayer’s return. Known as math error authority, this authority applies, retroactively, to credits claimed on original and amended 2008 returns, as well as to claims yet to be filed.

Additionally, there are new benefits for members of the military and certain other federal employees:

  • Members of the uniformed services, members of the Foreign Service and employees of the intelligence community serving outside the U.S. have an extra year to buy a principal residence in the U.S. and qualify for the credit.
  • In many cases, the credit repayment (recapture) requirement is waived for members of the uniformed services, members of the Foreign Service and employees of the intelligence community.

More information on these new benefits for the military, Foreign Service and intelligence community serving outside the U.S. is available.

General Information

Homebuyers who purchased a home in 2008, 2009 or 2010 may be able to take advantage of the first-time homebuyer credit. The credit:

  • Applies only to homes used as a taxpayer’s principal residence.
  • Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
  • Is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.

The credit is claimed using Form 5405, which you file with your original or amended tax return.

For 2008 Home Purchases

The Housing and Economic Recovery Act of 2008 established a tax credit for first-time homebuyers that can be worth up to $7,500. For homes purchased in 2008, the credit is similar to a no-interest loan and must be repaid in 15 equal, annual installments beginning with the 2010 income tax year.

For 2009 Home Purchases

The American Recovery and Reinvestment Act of 2009 expanded the first-time homebuyer credit by increasing the credit amount to $8,000 for purchases made in 2009 before Dec. 1. However, the new Worker, Homeownership and Business Assistance Act of 2009 has extended the deadline. Now, taxpayers who have a binding contract to purchase a home before May 1, 2010, are eligible for the credit. Buyers must close on the home before July 1, 2010. [Added Nov. 12, 2009]

For home purchased in 2009, the credit does not have to be paid back unless the home ceases to be the taxpayer’s main residence within a three-year period following the purchase.

First-time homebuyers who purchase a home in 2009 can claim the credit on either a 2008 tax return, due April 15, 2009, or a 2009 tax return, due April 15, 2010. The credit may not be claimed before the closing date. But, if the closing occurs after April 15, 2009, a taxpayer can still claim it on a 2008 tax return by requesting an extension of time to file or by filing an amended return. News release 2009-27 has more information on these options.

Don’t forget to talk to your tax preparer if you’ve made a home purchase in 2008 or 2009 and if you paid any contractors this year – Don’t forget to use our free 1099 Software.

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Tax Credits that Help Homeowners Winterize their Homes and Save Energy

November 18th, 2009 No comments

It seemed like just a few years ago “going green” was going to be a trend. Each day new reports educate all of us on the necessity of this initiative. It’s reassuring to see as time goes on, the government is doing it’s part to assist in the transition for a healthier environment. The Expanded Recovery Act includes two credits, the Nonbusiness Energy Property Credit and the Residential Energy Efficient Property Credit, that you may be able to take advantage of. The IRS website breaks down these two credits and how you can claim them for a variety of products.

IR-2009-98, Oct. 29, 2009

WASHINGTON — People can now weatherize their homes and be rewarded for their efforts. According to the Internal Revenue Service, homeowners making energy-saving improvements this fall can cut their winter heating bills and lower their 2009 tax bill as well.

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.

Nonbusiness Energy Property Credit

This credit equals 30 percent of what a homeowner spends on eligible energy-saving improvements, up to a maximum tax credit of $1,500 for the combined 2009 and 2010 tax years. 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.

By spending as little as $5,000 before the end of the year on eligible energy-saving improvements, a homeowner can save as much as $1,500 on his or her 2009 federal income tax return. Due to limits based on tax liability, other credits claimed by a particular taxpayer and other factors, actual tax savings will vary. These tax savings are on top of any energy savings that may result.

Residential Energy Efficient Property Credit

Homeowners going green should also check out a second tax credit designed to spur investment in alternative energy equipment. The residential energy efficient property credit, equals 30 percent of what a homeowner spends 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.  Also, no cap exists on the amount of credit available except in the case of fuel cell property.

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 certification statement can usually be found on the manufacturer’s website or with the product packaging. Normally, a homeowner can rely on this certification.  The IRS cautions that 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.

Eligible homeowners can claim both of these credits when they file their 2009 federal income tax return. Because these are credits, not deductions, they increase a taxpayer’s refund or reduce the tax he or she owes. An eligible taxpayer can claim these credits, regardless of whether he or she itemizes deductions on Schedule A. Use Form 5695, Residential Energy Credits, to figure and claim these credits. A draft version of this form is available now on IRS.gov.

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The Dutch Soon to be Taxed on a per-Kilometer-Driven Basis

November 17th, 2009 No comments

Many countries are doing their part to cut emissions and the amount of vehicles on the road. This is a very interesting article posted by Taxgirl – a frequent tax blogger on the internet.

Effective in 2012, Dutch drivers will be monitored by GPS and will pay taxes on a per-kilometers-driven basis. For the average passenger car, the rate will be about € 0.03 per kilometer (or roughly $.07 US per mile). Drivers of trucks, commercial vehicles and less fuel efficient cars will pay more. Public transit and cabs will be exempt from the tax.

Additionally, the cost will increase for drivers at peak times.

How will it work? GPS will track the time, hour and place each car moves and send the information to a billing agency. The billing agency will deduct the taxes directly from drivers’ accounts.

If it works as anticipated, the Dutch government estimates that traffic will drop by 15% – and rush hour traffic will drop by 50%. Minister of Transportation Camiel Eurlings believes that carbon emissions will be cut in half.

Interestingly, the law will abolish current road taxes and sales taxes for cars. The final numbers should work out so that 6 out of 10 drivers are better off under the new scheme and reportedly, tax revenue will remain the same.

According to the German newspaper, Deutsche Welle, the tax will increase every year until 2018.

The news has stirred interest in nearby Germany with top German automotive expert Ferdinand Dudenhoeffer saying that Germany should “take the progressive (Dutch) model as an example.” Interesting for sure. But there’s one or two (or three or four or five) obstacles: namely Audi, BMW, Mercedes, Porsche and Volkswagen. Long considered an automaker’s paradise, Germany tends to be known for heavier, more luxurious, power cars – not so much the cheaper, smaller more efficient cars encouraged under the Dutch scheme. With that in mind, in a tough economy, Germany is highly unlikely to adopt a policy which might negatively affect the car industry any time soon.

But that doesn’t mean that it’s not on the radar of other countries. Singapore already utilizes Electronic Road Pricing, a pay-per-use principle, and in the UK, there is a congestion charge for some drivers in the designated Congestion Charge Zone (CCZ). Which makes you wonder… Which country, if any, will be next?

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The American Recovery & Reinvestment Act of 2009 (ARRA) Provides Special Deductions for Car Purchases

November 17th, 2009 No comments

McKonly & Asbury posted some helpful resources to help you understand if you will qualify for special tax deductions for cars purchased in 2009.

With 2010 models arriving in dealer showrooms, the Internal Revenue Service is reminding taxpayers that purchasing a new car, light truck, motor home or motorcycle could qualify them for a special deduction for the state and local sales and excise taxes on their 2009 tax returns.

Purchases made before January 1, 2010, will qualify for this deduction under the American Recovery & Reinvestment Act of 2009 (ARRA).

The deduction is limited to the sales and excise taxes and similar fees paid on up to $49,500 of the purchase price of a new vehicle. The deduction is reduced for joint filers with modified adjusted gross incomes (MAGI) between $250,000 and $260,000 and other taxpayers with MAGI between $125,000 and $135,000. Taxpayers with higher incomes do not qualify.

Taxpayers who make qualifying new vehicle purchases this year can estimate the deduction with the help of Worksheet 10 in IRS Publication 919, How Do I Adjust My Withholding? Lines 10a to 10k of the worksheet show how to take into account purchases above the $49,500 limit, as well as the reduced deductions for taxpayers at higher income levels.

The special deduction is available regardless of whether taxpayers itemize deductions on their returns. Taxpayers who do not itemize will add this additional amount to the standard deduction on their 2009 tax return.

For those that have questions about the deduction for sales tax and other fees, these questions and answers might help. A video on the IRS Youtube.com channel and audio podcasts in English and Spanish are also available to help taxpayers take full advantage of the deduction.

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