There is a popular misconception that you can take the Standard Mileage Rate and depreciate your vehicle when it is used for your employer's benefit. Let's clear up some of these misconceptions.
First, when you have mileage that can be claimed for the use of your personal vehicle for the benefit of your employer, you cannot claim this mileage if your employer has reimbursed your mileage.
Any mileage that you have that is not reimbursed can be claimed on your personal return on Form 2106 - Employee Business Expenses. Make sure that you have documentation, either a mileage log, etc.
Second, when claiming mileage, you have two choices of how you want to claim the deduction. Either the Standard Mileage Rate or Actual Expenses. The IRS requires you to make a determination of which you want to claim; and once you have made your choice....YOU HAVE TO STICK TO IT! You cannot change methods year after year. If the standard mileage rate gives you the best deduction one year and the next year you would get a better deduction if you used the actual, then you cannot flip flop. If you chose the standard the first year, you must continue to use it for every year thereafter.
Now many taxpayers want to take the standard mileage rate and depreciate their vehicles. That is not allowed since the IRS has factored in depreciation in it's yearly rate. You can only depreciate your vehicle if you chose to use the actual expense method.
From my experience, 95% of the time, taking the standard mileage rate always gives you the best deduction.
Besides, why would you want to depreciate your vehicle since you have to recapture all that depreciation when you sell it?
2008 Form 2106
Instructions for Form 2106
Standard Mileage Rates
Friday, June 26, 2009
Mortgage Assistance Payments
The IRS has issued a revenue ruling that states Pay-for-Performance Success Payments that benefit a homeowner under the U.S. government’s Home Affordable Modification Program (HAMP) are excludable from the homeowner’s income under the general welfare exclusion.
This program helps homeowners who have defaulted, or are at risk of default, on their mortgages. A homeowner that makes timely payments on a modified loan is eligible to have incentive payments made to lenders/investors that reduce the principal balance on the loan.
The full text of Rev. Rul. 2009-19 is available on NATP’s website.
This program helps homeowners who have defaulted, or are at risk of default, on their mortgages. A homeowner that makes timely payments on a modified loan is eligible to have incentive payments made to lenders/investors that reduce the principal balance on the loan.
The full text of Rev. Rul. 2009-19 is available on NATP’s website.
Minimum Wage Increase
On July 24, 2009, the federal minimum wage for non-exempt employees increases from $6.55 per hour to $7.25 per hour. This is the final phase of the wage increase that was enacted under the Fair Minimum Wage Act of 2007.
Employers of tipped employees are still only required to pay $2.13 per hour if that amount plus tips received equals the federal minimum wage and:
The employer informed the employee that the tip credit is being taken;
The employee keeps all tips unless they participate in a tip sharing arrangement;
The employee customarily and regularly receives more than $30 per month in tips.
The youth minimum wage also remains the same. Employees under 20 years of age may be paid $4.25 per hour during their first 90 consecutive calendar days of employment.
Many states also have minimum wage laws requiring employers to comply with both. Additional information is available on the Department of Labor website.
Employers of tipped employees are still only required to pay $2.13 per hour if that amount plus tips received equals the federal minimum wage and:
The employer informed the employee that the tip credit is being taken;
The employee keeps all tips unless they participate in a tip sharing arrangement;
The employee customarily and regularly receives more than $30 per month in tips.
The youth minimum wage also remains the same. Employees under 20 years of age may be paid $4.25 per hour during their first 90 consecutive calendar days of employment.
Many states also have minimum wage laws requiring employers to comply with both. Additional information is available on the Department of Labor website.
Obama Gives "Cash for Clunkers"
On June 24, President Obama signed HR 2346, the 2009 Supplemental Appropriations Bill for Iraq, Afghanistan, Pakistan, and Pandemic Flu. Contained within this bill is a provision under Title XIII, Consumer Assistance to Recycle and Save Act of 2009 that provides $1 billion for vouchers of $3,500 or $4,500 to be applied toward the purchase or lease of a new fuel efficient automobile or truck. This provision is more commonly known as “Cash for Clunkers.”
The vehicles must be purchased or leased between July 1 and November 1, 2009. To qualify for a voucher, the vehicle traded in must be scrapped, and the purchased vehicle must achieve greater fuel efficiency than the vehicle to be turned in.
The amount of the voucher the purchaser is entitled to receive will depend on the type of vehicle purchased and the amount of the increased fuel efficiency. Full details of the program and definitions of eligible vehicles is available at Tax Act Summary for "Cash for Clunkers"
The vehicles must be purchased or leased between July 1 and November 1, 2009. To qualify for a voucher, the vehicle traded in must be scrapped, and the purchased vehicle must achieve greater fuel efficiency than the vehicle to be turned in.
The amount of the voucher the purchaser is entitled to receive will depend on the type of vehicle purchased and the amount of the increased fuel efficiency. Full details of the program and definitions of eligible vehicles is available at Tax Act Summary for "Cash for Clunkers"
Thursday, June 25, 2009
Claiming State Refunds As Income
Remember those little cards you receive from the State each year showing how much of a refund you received for the prior year?
Does it make your blood boil to think that you have to include that amount into your earnings when you file?
Well, don't get to riled over it, there is a perfectly good justifiable explanation. Let me explain.
The only taxpayers who have to claim their State refunds as income are those who itemize deductions on Schedule A, i.e. mortgage interest, real estate taxes, medical and W-2 withholding of State taxes paid, etc.
Yes, that's right. If you itemize, you get to add to those deductions the amount that you had withheld on your W-2 for State tax withholding (Line 5, Schedule A - State and Local Income Taxes).
So it's more or less a trade-off, a deduction for what you paid into the State for claiming what you received for that benefit. Generally what you have to claim as income (refund) is much less than the benefit of claiming the State taxes withheld, unless, you don't have enough withheld on your W-2 for State withholding, then you're not going to get much of a deduction on your Schedule A.
Now on the other hand, those taxpayers who do not itemize and take the Standard Deduction do not have to claim the State refund on their returns. Why? Because they did not itemize and claim the State tax deduction.
Overall, just think of it as a "give and take" situation, the IRS gives you the deduction and you take the refund as income, pure and simple.
Does it make your blood boil to think that you have to include that amount into your earnings when you file?
Well, don't get to riled over it, there is a perfectly good justifiable explanation. Let me explain.
The only taxpayers who have to claim their State refunds as income are those who itemize deductions on Schedule A, i.e. mortgage interest, real estate taxes, medical and W-2 withholding of State taxes paid, etc.
Yes, that's right. If you itemize, you get to add to those deductions the amount that you had withheld on your W-2 for State tax withholding (Line 5, Schedule A - State and Local Income Taxes).
So it's more or less a trade-off, a deduction for what you paid into the State for claiming what you received for that benefit. Generally what you have to claim as income (refund) is much less than the benefit of claiming the State taxes withheld, unless, you don't have enough withheld on your W-2 for State withholding, then you're not going to get much of a deduction on your Schedule A.
Now on the other hand, those taxpayers who do not itemize and take the Standard Deduction do not have to claim the State refund on their returns. Why? Because they did not itemize and claim the State tax deduction.
Overall, just think of it as a "give and take" situation, the IRS gives you the deduction and you take the refund as income, pure and simple.
Check Your Withholding to Avoid a Tax Surprise
With 2009 nearly half over, the Internal Revenue Service reminds individual taxpayers there is no better time to check their 2009 federal income tax withholding levels to make sure they do not face any surprises when returns are due next spring.
The Making Work Pay Credit lowered tax withholding rates this year for 120 million American households. However, particular taxpayers who fall into any of the following groups should review their tax withholding rates to ensure enough tax is withheld: multiple job holders, families in which both spouses work, workers who can be claimed as dependents by other taxpayers and pensioners.
Failure to adjust your withholding could result in potentially smaller refunds or may cause you to owe tax rather than receive a refund next year. So far in 2009, the average refund amount is $2,675 and 79 percent of all returns received a refund.
Because retirees typically have withholding from their pension payments, pension plan administrators or pension payors should be aware of the optional adjustment procedure for pension withholding announced in Notice 1036-P, Additional Withholding for Pensions for 2009.
Social security beneficiaries, supplemental security income recipients, disabled veterans and railroad retirees that receive this year’s one-time $250 economic recovery payment should be aware that the Making Work Pay credit will be reduced by the $250 payment amount. They may also want to review their withholding.
The IRS withholding calculator on IRS.gov can help a taxpayer compute the proper tax withholding. The worksheets in Publication 919, How Do I Adjust My Withholding?, can also be used to do the calculation. If the result suggests an adjustment is necessary, the taxpayer should submit a new Form W-4, Withholding Allowance Certificate, to his or her employer or adjust the amount of quarterly tax paid.
In addition, the IRS reminds unemployed workers that the first $2,400 of unemployment benefits they receive during 2009 are tax-free for federal income tax purposes. People who expect to receive more than that should consider having tax withheld from their benefit payments in excess of $2,400. Use Form W-4V, Voluntary Withholding Request, or the equivalent form provided by the payer to request withholding to begin or end.
Taxpayers should visit IRS.gov for more information about how to adjust federal income tax withholding. The Web site also has details on various tax incentives in the American Recovery and Reinvestment Act as well as downloadable forms and publications. Free tax forms and publications are also available by calling 1-800-TAX-FORM (1-800-829-3676).
Want to know more? Here's some additional links.
The Making Work Pay Credit
Notice 1036-P, Additional Withholding for Pensions for 2009
IRS withholding calculator
Publication 919, How Do I Adjust My Withholding?
Related News Releases and legal guidance
Publication 4766, Making Work Pay Credit and Form W-4 Withholding Certificate
The Making Work Pay Credit lowered tax withholding rates this year for 120 million American households. However, particular taxpayers who fall into any of the following groups should review their tax withholding rates to ensure enough tax is withheld: multiple job holders, families in which both spouses work, workers who can be claimed as dependents by other taxpayers and pensioners.
Failure to adjust your withholding could result in potentially smaller refunds or may cause you to owe tax rather than receive a refund next year. So far in 2009, the average refund amount is $2,675 and 79 percent of all returns received a refund.
Because retirees typically have withholding from their pension payments, pension plan administrators or pension payors should be aware of the optional adjustment procedure for pension withholding announced in Notice 1036-P, Additional Withholding for Pensions for 2009.
Social security beneficiaries, supplemental security income recipients, disabled veterans and railroad retirees that receive this year’s one-time $250 economic recovery payment should be aware that the Making Work Pay credit will be reduced by the $250 payment amount. They may also want to review their withholding.
The IRS withholding calculator on IRS.gov can help a taxpayer compute the proper tax withholding. The worksheets in Publication 919, How Do I Adjust My Withholding?, can also be used to do the calculation. If the result suggests an adjustment is necessary, the taxpayer should submit a new Form W-4, Withholding Allowance Certificate, to his or her employer or adjust the amount of quarterly tax paid.
In addition, the IRS reminds unemployed workers that the first $2,400 of unemployment benefits they receive during 2009 are tax-free for federal income tax purposes. People who expect to receive more than that should consider having tax withheld from their benefit payments in excess of $2,400. Use Form W-4V, Voluntary Withholding Request, or the equivalent form provided by the payer to request withholding to begin or end.
Taxpayers should visit IRS.gov for more information about how to adjust federal income tax withholding. The Web site also has details on various tax incentives in the American Recovery and Reinvestment Act as well as downloadable forms and publications. Free tax forms and publications are also available by calling 1-800-TAX-FORM (1-800-829-3676).
Want to know more? Here's some additional links.
The Making Work Pay Credit
Notice 1036-P, Additional Withholding for Pensions for 2009
IRS withholding calculator
Publication 919, How Do I Adjust My Withholding?
Related News Releases and legal guidance
Publication 4766, Making Work Pay Credit and Form W-4 Withholding Certificate
Tuesday, June 23, 2009
Safeguarding Tax Records for Hurricane Season
With the 2009 hurricane season now underway, the Internal Revenue Service encourages individuals and businesses to safeguard themselves by taking a few simple steps.
Create a Backup Set of Records Electronically
Taxpayers should keep a set of backup records in a safe place. The backup should be stored away from the original set.
Keeping a backup set of records –– including, for example, bank statements, tax returns, insurance policies home, etc. –– is easier now that many financial institutions provide statements and documents electronically, and much financial information is available on the Internet. Even if the original records are provided only on paper, they can be scanned into an electronic format.
With documents in electronic form, taxpayers can download them to a backup storage device, like an external hard drive, or burn them to a CD or DVD.
Document Valuables
Another step a taxpayer can take to prepare for disaster is to photograph or videotape the contents of his or her home, especially items of higher value. The IRS has a disaster loss workbook, Publication 584, which can help taxpayers compile a room-by-room list of belongings.
A photographic record can help an individual prove the market value of items for insurance and casualty loss claims. Photos should be stored with a friend or family member who lives outside the area.
Update Emergency Plans
Emergency plans should be reviewed annually. Personal and business situations change over time as do preparedness needs. When employers hire new employees or when a company or organization changes functions, plans should be updated accordingly and employees should be informed of the changes.
Check on Fiduciary Bonds
Employers who use payroll service providers should ask the provider if it has a fiduciary bond in place. The bond could protect the employer in the event of default by the payroll service provider.
IRS Ready to Help
If disaster strikes, an affected taxpayer can call 1-866-562-5227 to speak with an IRS specialist trained to handle disaster-related issues.
Back copies of tax returns and all attachments, including Forms W-2, can be requested by filing Form 4506, Request for Copy of Tax Return. Likewise, transcripts can be ordered using Form 4506-T, Request for Transcript of Tax Return. Returns or transcripts can also be ordered by calling 1-800-829-1040.
There is no fee for a transcript or tax return copy for a taxpayer located in a federal disaster area qualifying for individual assistance. Taxpayers should put the assigned Disaster Designation in red ink at the top of the request form.
Tax Relief in Disaster Situations
Frequently Asked Questions for Disaster Victims
Publication 552, Recordkeeping for Individuals
Publication 583, Starting a Business and Keeping Records
Create a Backup Set of Records Electronically
Taxpayers should keep a set of backup records in a safe place. The backup should be stored away from the original set.
Keeping a backup set of records –– including, for example, bank statements, tax returns, insurance policies home, etc. –– is easier now that many financial institutions provide statements and documents electronically, and much financial information is available on the Internet. Even if the original records are provided only on paper, they can be scanned into an electronic format.
With documents in electronic form, taxpayers can download them to a backup storage device, like an external hard drive, or burn them to a CD or DVD.
Document Valuables
Another step a taxpayer can take to prepare for disaster is to photograph or videotape the contents of his or her home, especially items of higher value. The IRS has a disaster loss workbook, Publication 584, which can help taxpayers compile a room-by-room list of belongings.
A photographic record can help an individual prove the market value of items for insurance and casualty loss claims. Photos should be stored with a friend or family member who lives outside the area.
Update Emergency Plans
Emergency plans should be reviewed annually. Personal and business situations change over time as do preparedness needs. When employers hire new employees or when a company or organization changes functions, plans should be updated accordingly and employees should be informed of the changes.
Check on Fiduciary Bonds
Employers who use payroll service providers should ask the provider if it has a fiduciary bond in place. The bond could protect the employer in the event of default by the payroll service provider.
IRS Ready to Help
If disaster strikes, an affected taxpayer can call 1-866-562-5227 to speak with an IRS specialist trained to handle disaster-related issues.
Back copies of tax returns and all attachments, including Forms W-2, can be requested by filing Form 4506, Request for Copy of Tax Return. Likewise, transcripts can be ordered using Form 4506-T, Request for Transcript of Tax Return. Returns or transcripts can also be ordered by calling 1-800-829-1040.
There is no fee for a transcript or tax return copy for a taxpayer located in a federal disaster area qualifying for individual assistance. Taxpayers should put the assigned Disaster Designation in red ink at the top of the request form.
Tax Relief in Disaster Situations
Frequently Asked Questions for Disaster Victims
Publication 552, Recordkeeping for Individuals
Publication 583, Starting a Business and Keeping Records
Friday, June 19, 2009
Sales Tax Deduction for Vehicles
For 2009 only, individuals can deduct sales tax paid on the purchase of a new vehicle. The deduction is available for cars, trucks, motorcycles, motor homes and recreational vehicles. The vehicles must be purchased after February 16, 2009, and before January 1, 2010 to qualify for the deduction.
Claiming the Vehicle Sales Tax Deduction
People won't need to itemize to take this deduction. Instead, the deduction will be added to a person's standard deduction. Itemizers will take this deduction in addition to the deduction for state and local income taxes. If you elect to deduct sales taxes in lieu of state and local income taxes, then the taxes paid on the car will be included along with other sales taxes you paid.
Qualifying for the Vehicle Sales Tax DeductionThe vehicle must be new (not used). The vehicle must be an automobile, light truck, or motorcycle with a gross vehicle weight rating of not more than 8,500 pounds. Motor homes and recreation vehicles also qualify (no gross vehicle weight restrictions for motor vehicles are mentioned in the law).
Additionally, the vehicle must be purchase after February 16, 2009, and before January 1, 2010.
Limitations for the Vehicle Sales Tax Deduction
The vehicle sales tax deduction is limited to the tax paid on the first $49,500 of the vehicle's purchase price. When calculating the deduction, don't include the sales tax paid as part of the purchase price of the car. If the purchase price is over $49,500, then you'll need to prorate the sales tax.
The sales tax deduction is available without further limitation for individuals with modified adjusted gross income of $125,000 or less ($250,000 for married couples filing jointly). The deduction is phased out for individuals with modified adjusted gross income of $125,000 to $135,000 ($250,000 to $260,000 for joint filers). To prorate your deduction based on this income phaseout, take the excess of your modified adjusted gross income over the threshold amount, divide by $10,000, and subtract that from the total sales tax paid on your vehicle.
What about States with No Sales Taxes?
The states of Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon do not impose a sales tax. Taxpayers living in these states can deduct fees, excise taxes, and other taxes that are assessed on the purchase of a vehicle. "The fees or taxes that qualify must be assessed on the purchase of the vehicle and must be based on the vehicle’s sales price or as a per unit fee," according to the Internal Revenue Service.
Here are a couple of tips to consider:
Consider purchasing rather than leasing. Purchases of new automobiles counts for the deduction, but leases do not qualify.
Don't let the sales person talk you into a higher purchase price because you can write off the sales tax. People who qualify for this deduction will likely be in the 28% tax bracket or lower. For people in the 28% bracket, their taxes will be reduced by $280 for every $1,000 spent on sales tax.
Claiming the Vehicle Sales Tax Deduction
People won't need to itemize to take this deduction. Instead, the deduction will be added to a person's standard deduction. Itemizers will take this deduction in addition to the deduction for state and local income taxes. If you elect to deduct sales taxes in lieu of state and local income taxes, then the taxes paid on the car will be included along with other sales taxes you paid.
Qualifying for the Vehicle Sales Tax DeductionThe vehicle must be new (not used). The vehicle must be an automobile, light truck, or motorcycle with a gross vehicle weight rating of not more than 8,500 pounds. Motor homes and recreation vehicles also qualify (no gross vehicle weight restrictions for motor vehicles are mentioned in the law).
Additionally, the vehicle must be purchase after February 16, 2009, and before January 1, 2010.
Limitations for the Vehicle Sales Tax Deduction
The vehicle sales tax deduction is limited to the tax paid on the first $49,500 of the vehicle's purchase price. When calculating the deduction, don't include the sales tax paid as part of the purchase price of the car. If the purchase price is over $49,500, then you'll need to prorate the sales tax.
The sales tax deduction is available without further limitation for individuals with modified adjusted gross income of $125,000 or less ($250,000 for married couples filing jointly). The deduction is phased out for individuals with modified adjusted gross income of $125,000 to $135,000 ($250,000 to $260,000 for joint filers). To prorate your deduction based on this income phaseout, take the excess of your modified adjusted gross income over the threshold amount, divide by $10,000, and subtract that from the total sales tax paid on your vehicle.
What about States with No Sales Taxes?
The states of Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon do not impose a sales tax. Taxpayers living in these states can deduct fees, excise taxes, and other taxes that are assessed on the purchase of a vehicle. "The fees or taxes that qualify must be assessed on the purchase of the vehicle and must be based on the vehicle’s sales price or as a per unit fee," according to the Internal Revenue Service.
Here are a couple of tips to consider:
Consider purchasing rather than leasing. Purchases of new automobiles counts for the deduction, but leases do not qualify.
Don't let the sales person talk you into a higher purchase price because you can write off the sales tax. People who qualify for this deduction will likely be in the 28% tax bracket or lower. For people in the 28% bracket, their taxes will be reduced by $280 for every $1,000 spent on sales tax.
Tax Advice Websites
Looking for some Tax Advice websites that will provide you with a wealth of information? William Perez, About.com writer has compiled a great list of websites that can answer about any question you may have. My personal favorite is TaxMama, Eva Rosenberg.
TaxGuru
Kerry Kerstetter manages to blog every single cartoon related to taxes. He answers complex tax questions, and provides valuable advice on setting up Quickbooks, and getting the most out of a tax professional. Kerstetter specializes in small business tax issues (such as S Corporations, C Corporations, and LLCs), as well as real estate investing and 1031 exchanges.
Docuticker - Taxation Reports
Docuticker collates reports from various government agencies, think tanks, and non-governmental organizations. They have an entire category of their site devoted to reports concerning tax policy and tax administration practices. The site is edited and compiled by librarians Gary Price and Shirl Kennedy.
TaxProf Blog
Tax Professor Paul Caron covers every single piece of tax news imaginable. Professor Caron discusses all aspects of tax law: teaching tax law in schools, reporting on court cases, discusses legislation, and commenting on guidance from the IRS. TaxProf Blog is required reading.
Mauled Again
Tax professor James Edward Maule comments on tax laws and the legal education. According to Professor Maule, he provides "more than occasional commentary on tax law, legal education, the First Amendment," and various topics of personal interest.
Don't Mess With Taxes
Journalist Kay Bell always finds a way to make taxes interesting and relevant to everyday life. Kay Bell is a featured writer on Bankrate.com.
Latest News from the IRS
Find the latest news and information from the Internal Revenue Service.
Start Making Sense
Tax professor Daniel Shaviro provides commentary on tax policy and the federal budget. According to Shaviro, his blog provides "unfair but balanced commentary on tax and budget policy, contemporary U.S. politics and culture, and whatever else happens to come up."
Tax Foundation
The Tax Foundation is a nonpartisan think tank provides analysis of tax policies at the federal and state level. The Tax Foundation promotes tax policies that are simple and promote economic growth. The Foundation is most known for its "Tax Freedom Day" statistics. Their blog provides commentary on tax policies.
Tax Lawyer's Blog
Tax attorney and certified public accountant Peter Pappas writes about issues dealing with tax controversies, dealing with the IRS, and handling tax problems.
TaxMama's TaxQuips
Eva Rosenberg, the Internet's "Tax Mama," hosts a daily podcast answering tax questions. Rosenberg's answers are informative and often humorous, and sometimes she shares tax secrets that only very experienced tax professionals know about.
Gina's Tax Articles
Gina L. Gwozdz, CPA, provides valuable tax tips for individuals and small businesses. Gina owns and operates her own tax advisory business out of Bullard, Texas (about 2 hours east of Dallas). She believes in helping "her clients minimize their tax liability within the constraints of the law."
Tax Time
About.com's guide to making tax time a little less frustrating.
TaxGuru
Kerry Kerstetter manages to blog every single cartoon related to taxes. He answers complex tax questions, and provides valuable advice on setting up Quickbooks, and getting the most out of a tax professional. Kerstetter specializes in small business tax issues (such as S Corporations, C Corporations, and LLCs), as well as real estate investing and 1031 exchanges.
Docuticker - Taxation Reports
Docuticker collates reports from various government agencies, think tanks, and non-governmental organizations. They have an entire category of their site devoted to reports concerning tax policy and tax administration practices. The site is edited and compiled by librarians Gary Price and Shirl Kennedy.
TaxProf Blog
Tax Professor Paul Caron covers every single piece of tax news imaginable. Professor Caron discusses all aspects of tax law: teaching tax law in schools, reporting on court cases, discusses legislation, and commenting on guidance from the IRS. TaxProf Blog is required reading.
Mauled Again
Tax professor James Edward Maule comments on tax laws and the legal education. According to Professor Maule, he provides "more than occasional commentary on tax law, legal education, the First Amendment," and various topics of personal interest.
Don't Mess With Taxes
Journalist Kay Bell always finds a way to make taxes interesting and relevant to everyday life. Kay Bell is a featured writer on Bankrate.com.
Latest News from the IRS
Find the latest news and information from the Internal Revenue Service.
Start Making Sense
Tax professor Daniel Shaviro provides commentary on tax policy and the federal budget. According to Shaviro, his blog provides "unfair but balanced commentary on tax and budget policy, contemporary U.S. politics and culture, and whatever else happens to come up."
Tax Foundation
The Tax Foundation is a nonpartisan think tank provides analysis of tax policies at the federal and state level. The Tax Foundation promotes tax policies that are simple and promote economic growth. The Foundation is most known for its "Tax Freedom Day" statistics. Their blog provides commentary on tax policies.
Tax Lawyer's Blog
Tax attorney and certified public accountant Peter Pappas writes about issues dealing with tax controversies, dealing with the IRS, and handling tax problems.
TaxMama's TaxQuips
Eva Rosenberg, the Internet's "Tax Mama," hosts a daily podcast answering tax questions. Rosenberg's answers are informative and often humorous, and sometimes she shares tax secrets that only very experienced tax professionals know about.
Gina's Tax Articles
Gina L. Gwozdz, CPA, provides valuable tax tips for individuals and small businesses. Gina owns and operates her own tax advisory business out of Bullard, Texas (about 2 hours east of Dallas). She believes in helping "her clients minimize their tax liability within the constraints of the law."
Tax Time
About.com's guide to making tax time a little less frustrating.
IRS Search Engine
Have you ever tried to search for information on the IRS website, it can be a major pain. Well here is a link to a search engine that might just help with your frustration
http://irswizard.net/QuickSearch.aspx
Next time you want to "bone-up" on your tax knowledge, give it a try.
http://irswizard.net/QuickSearch.aspx
Next time you want to "bone-up" on your tax knowledge, give it a try.
Friday, June 12, 2009
2009 Health Savings Account Limits
As we are in the month of June already, it is important to take a moment and review your Health Savings Account to ensure the maximum benefit is being obtained. In 2009, the limits on health savings accounts were increased.
The 2009 levels are as follows:
New Annual Contribution Levels for HSAs: For 2009, the maximum annual HSA contribution will rise to $3,000 for individual coverage (up from $2,850 in 2008) and $5,950 for family coverage (up from $5,800 in 2008).
Catch up contributions for individuals who are 55 or older is increased by statute to $1,000 for 2009 and all years going forward.
Individuals who are eligible on the first day of the last month of the taxable year (December for most taxpayers) are allowed the full annual contribution (plus catch up contribution, if 55 or older by year end), regardless of the number of months the individual was eligible in the year.
For individuals who are no longer eligible individuals on that date, both the HSA contribution and catch up contribution apply pro rata based on the number of months of the year a taxpayer is an eligible individual.
New Amounts for Out-of-Pocket Spending on HSA-Compatible HDHPs:
For 2009, the maximum annual out-of-pocket amounts for HDHP self-coverage increase to $5,800 and the maximum annual out-of-pocket amount for HDHP family coverage is twice that, $11,600.
Minimum Deductible Amounts for HSA-Compatible HDHPs:
For 2009, the minimum deductible for HDHPs increases to $1,150 for self-only coverage and $2,300 for family coverage. The current minimum deductibles are $1,100 for single coverage and $2,200 for family coverage.
Publication 969 - Health Savings Accounts
The 2009 levels are as follows:
New Annual Contribution Levels for HSAs: For 2009, the maximum annual HSA contribution will rise to $3,000 for individual coverage (up from $2,850 in 2008) and $5,950 for family coverage (up from $5,800 in 2008).
Catch up contributions for individuals who are 55 or older is increased by statute to $1,000 for 2009 and all years going forward.
Individuals who are eligible on the first day of the last month of the taxable year (December for most taxpayers) are allowed the full annual contribution (plus catch up contribution, if 55 or older by year end), regardless of the number of months the individual was eligible in the year.
For individuals who are no longer eligible individuals on that date, both the HSA contribution and catch up contribution apply pro rata based on the number of months of the year a taxpayer is an eligible individual.
New Amounts for Out-of-Pocket Spending on HSA-Compatible HDHPs:
For 2009, the maximum annual out-of-pocket amounts for HDHP self-coverage increase to $5,800 and the maximum annual out-of-pocket amount for HDHP family coverage is twice that, $11,600.
Minimum Deductible Amounts for HSA-Compatible HDHPs:
For 2009, the minimum deductible for HDHPs increases to $1,150 for self-only coverage and $2,300 for family coverage. The current minimum deductibles are $1,100 for single coverage and $2,200 for family coverage.
Publication 969 - Health Savings Accounts
Are Your Social Security Benefits Taxable?
How much, if any, of your Social Security benefits are taxable depend on your total income and marital status. Generally, if Social Security benefits were your only income, your benefits are not taxable and you probably do not need to file a federal income tax return.
If you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status. Your taxable benefits and modified adjusted gross income are figured in a worksheet in the Form 1040A or Form 1040 Instruction Booklet.
Before you go to the instruction book, do the following quick computation to determine whether some of your benefits may be taxable:
First, add one-half of the total Social Security you received to all your other income, including any tax exempt interest and other exclusions from income.
Then, compare this total to the base amount for your filing status.
The 2009 base amounts are:
$32,000 for married couples filing jointly
$25,000 for single, head of household, qualifying widow/widower with a dependent child or married individuals filing separately who did not live with their spouses at any time during the year
$0 for married persons filing separately who lived together during the year
According to the Social Security Administration, less than one-third of all current beneficiaries pay taxes on their benefits.
Call us for additional information on the taxability of Social Security benefits, or see IRS Publication 915, Social Security Benefits.
If you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status. Your taxable benefits and modified adjusted gross income are figured in a worksheet in the Form 1040A or Form 1040 Instruction Booklet.
Before you go to the instruction book, do the following quick computation to determine whether some of your benefits may be taxable:
First, add one-half of the total Social Security you received to all your other income, including any tax exempt interest and other exclusions from income.
Then, compare this total to the base amount for your filing status.
The 2009 base amounts are:
$32,000 for married couples filing jointly
$25,000 for single, head of household, qualifying widow/widower with a dependent child or married individuals filing separately who did not live with their spouses at any time during the year
$0 for married persons filing separately who lived together during the year
According to the Social Security Administration, less than one-third of all current beneficiaries pay taxes on their benefits.
Call us for additional information on the taxability of Social Security benefits, or see IRS Publication 915, Social Security Benefits.
Summer Travel Tax Deductions
As the summer travel season is almost upon us, a portion of your summer travel may be tax-deductible. If your travel is primarily for business or for career-related education, then a portion of the trip may be tax-deductible. As long as most of your travel days are for business purposes, you can deduct the cost of travel (airfare, trains, car), hotel, parking, taxi service, meals, etc. - Travel expenses.
As defined by the IRS, travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job. An ordinary expense is one that is common and accepted in your field of trade, business, or profession. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be required to be considered necessary.
The key factor is that your trip must be primarily for business. Days of leisure can be added to a trip and still be considered primarily for business. The more days and time per day spent on business will help substantiate the trip. There are no set rules on the days and time needed.
Keep all of your documentation on the business purposes, including confirmations of appointments, emails, phone records, registration to conferences, etc. The days to travel to and from a business trip are considered part of the trip. This includes the weekend if it is impractical to come home between weekday business meetings. Planning ahead can make this happen.
Traveling With Your Spouse
If a spouse goes with you on a business trip or to a business convention, his or her travel expenses can only be deducted if your spouse is
Your employee,
Has a bona fide business purpose for the travel, and
Would otherwise be allowed to deduct the travel expenses.
To be an employee, your spouse must be on the payroll and payroll taxes must be paid. If your spouse is not an employee and travels with you on vacation, you can still deduct the cost of your room at the single occupancy per day rate, rather than half of the rate. Meals could also be deductible, if you are paying for lunch or dinner for a customer or business associate and that person's spouse, the full cost of the meals might qualify under the 50% meal deduction.
With travel outside of the United States, the transportation for business trips of one week or less, may be deducted. However, only a portion of transportation costs for longer trips are deductible.
What Expenses are Deductible?
Here's what you can deduct when you travel away from home for business.
Transportation Expenses
You can deduct Transportation Expenses when you travel by airplane, train, bus, or car between your home and your business destination. If you were provided with a ticket or you are riding free as a result of a frequent traveler or similar program, your cost is zero. If you travel by ship, additional rules and limits apply.
Taxi, Commuter Bus, Subway, and Airport Limousine Fares
You can deduct the fares for these and other types of transportation that take you between:1. The airport or station and your hotel, and2. The hotel and the work location of your customers or clients, your business meeting place, or your temporary work location.
Baggage and Shipping Expenses
You can deduct the cost of sending baggage and sample or display material between your regular and temporary work locations.
Car Expenses
You can deduct the cost of operating and maintaining your car when traveling away from home on business. You can deduct actual expenses or the standard mileage rate, as well as business-related tolls and parking. If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses.
Lodging and Meals
You can deduct your lodging and meals if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. Meals include amounts spent for food, beverages, taxes, and related tips. Additional rules and limits may apply.
Cleaning Clothes
You can deduct the dry cleaning and laundry expenses you incur while away on business.
Telephone Expense
All business calls while on your business trip are deductible. This includes business communication by fax machine, or other communication devices.
Tips
You may deduct the tips you pay for any expense listed above.
Other Expenses
You can deduct other similar ordinary and necessary expenses related to your business travel. These expenses might include transportation to or from a business meal, public stenographer's fees, computer rental fees, or Internet access fees.
Deducting Travel Expenses
Publication 463
As defined by the IRS, travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job. An ordinary expense is one that is common and accepted in your field of trade, business, or profession. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be required to be considered necessary.
The key factor is that your trip must be primarily for business. Days of leisure can be added to a trip and still be considered primarily for business. The more days and time per day spent on business will help substantiate the trip. There are no set rules on the days and time needed.
Keep all of your documentation on the business purposes, including confirmations of appointments, emails, phone records, registration to conferences, etc. The days to travel to and from a business trip are considered part of the trip. This includes the weekend if it is impractical to come home between weekday business meetings. Planning ahead can make this happen.
Traveling With Your Spouse
If a spouse goes with you on a business trip or to a business convention, his or her travel expenses can only be deducted if your spouse is
Your employee,
Has a bona fide business purpose for the travel, and
Would otherwise be allowed to deduct the travel expenses.
To be an employee, your spouse must be on the payroll and payroll taxes must be paid. If your spouse is not an employee and travels with you on vacation, you can still deduct the cost of your room at the single occupancy per day rate, rather than half of the rate. Meals could also be deductible, if you are paying for lunch or dinner for a customer or business associate and that person's spouse, the full cost of the meals might qualify under the 50% meal deduction.
With travel outside of the United States, the transportation for business trips of one week or less, may be deducted. However, only a portion of transportation costs for longer trips are deductible.
What Expenses are Deductible?
Here's what you can deduct when you travel away from home for business.
Transportation Expenses
You can deduct Transportation Expenses when you travel by airplane, train, bus, or car between your home and your business destination. If you were provided with a ticket or you are riding free as a result of a frequent traveler or similar program, your cost is zero. If you travel by ship, additional rules and limits apply.
Taxi, Commuter Bus, Subway, and Airport Limousine Fares
You can deduct the fares for these and other types of transportation that take you between:1. The airport or station and your hotel, and2. The hotel and the work location of your customers or clients, your business meeting place, or your temporary work location.
Baggage and Shipping Expenses
You can deduct the cost of sending baggage and sample or display material between your regular and temporary work locations.
Car Expenses
You can deduct the cost of operating and maintaining your car when traveling away from home on business. You can deduct actual expenses or the standard mileage rate, as well as business-related tolls and parking. If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses.
Lodging and Meals
You can deduct your lodging and meals if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. Meals include amounts spent for food, beverages, taxes, and related tips. Additional rules and limits may apply.
Cleaning Clothes
You can deduct the dry cleaning and laundry expenses you incur while away on business.
Telephone Expense
All business calls while on your business trip are deductible. This includes business communication by fax machine, or other communication devices.
Tips
You may deduct the tips you pay for any expense listed above.
Other Expenses
You can deduct other similar ordinary and necessary expenses related to your business travel. These expenses might include transportation to or from a business meal, public stenographer's fees, computer rental fees, or Internet access fees.
Deducting Travel Expenses
Publication 463
Thursday, June 4, 2009
2009 First-Time Homebuyers Credit Confusion
Now that we've reviewed the 2008 credit, let's take a look at the 2009 credit, it is by far the better of the two credits.
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.
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. If you purchased your home within the 2008 dates, you can amend your 2008 return to claim the 2009 credit but you will have to pay back $500 of the money since the home was purchased in 2008. The remaining $7,500 does not have to be paid back. The $500 payback amount will be applied to your 2009 tax return when you file in 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.
The amount of the credit begins to phase out for taxpayers whose adjusted gross income is more than $75,000, or $150,000 for joint filers.
For purposes of the credit, you are considered to be a first-time homebuyer if you, and your spouse if you are married, did not own any other main home during the three-year period ending on the date of purchase.
The IRS also alerted taxpayers that the new law does not affect people who purchased a home after April 8, 2008, and on or before Dec. 31, 2008. For these taxpayers who are claiming the credit on their 2008 tax returns, the maximum credit remains 10 percent of the purchase price, up to $7,500, or $3,750 for married individuals filing separately. In addition, the credit for these 2008 purchases must be repaid in 15 equal installments over 15 years, beginning with the 2010 tax year.
Basic information
Homes purchased in 2008
Homes purchased in 2009
Scenarios
Return to:
First-Time Homebuyer Credit
IRS Information Related to the American Recovery and Reinvestment Act of 2009
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.
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. If you purchased your home within the 2008 dates, you can amend your 2008 return to claim the 2009 credit but you will have to pay back $500 of the money since the home was purchased in 2008. The remaining $7,500 does not have to be paid back. The $500 payback amount will be applied to your 2009 tax return when you file in 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.
The amount of the credit begins to phase out for taxpayers whose adjusted gross income is more than $75,000, or $150,000 for joint filers.
For purposes of the credit, you are considered to be a first-time homebuyer if you, and your spouse if you are married, did not own any other main home during the three-year period ending on the date of purchase.
The IRS also alerted taxpayers that the new law does not affect people who purchased a home after April 8, 2008, and on or before Dec. 31, 2008. For these taxpayers who are claiming the credit on their 2008 tax returns, the maximum credit remains 10 percent of the purchase price, up to $7,500, or $3,750 for married individuals filing separately. In addition, the credit for these 2008 purchases must be repaid in 15 equal installments over 15 years, beginning with the 2010 tax year.
Basic information
Homes purchased in 2008
Homes purchased in 2009
Scenarios
Return to:
First-Time Homebuyer Credit
IRS Information Related to the American Recovery and Reinvestment Act of 2009
2008 New Home Purchase Confusion
Does the New Home Buyers credit confuse you? Well here are some quick tips that might help you understand the 2008 credit.
The 2008 credit is an "interest-free" loan in the amount of $7,500 which is paid back at $500 per year for 15 years. The downside of this credit is that if you do not get a refund in any one payback year, you will owe the $500 plus any tax due.
The 2009 credit is $8,000 of "free" tax money with no payback.
Now there are stipulations on this credit that must be met in order to receive.
The 2008 Credit:
Applies to home purchases after April 8, 2008, and before July 1, 2009.
Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.
However, the credit operates much like an interest-free loan, because it must be repaid over a 15-year period. So, for example, an eligible taxpayer who buys a home today and properly claims the maximum available credit of $7,500 on his or her 2008 federal income tax return must begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on his or her 2010 return.
If any of the following describe you, you cannot take the credit, even if you buy a main home:
Your income exceeds the phase-out range. This means joint filers with MAGI of $170,000 and above and other taxpayers with MAGI of $95,000 and above.
You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.
You stop using your home as your main home.
You sell your home before the end of the year.
You are a nonresident alien.
You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year.
Your home financing comes from tax-exempt mortgage revenue bonds.
You owned another main home at any time during the three years prior to the date of purchase.
For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another main home at any time from July 2, 2005, through July 1, 2008.
However, some exceptions apply to the repayment rule. They include:
If you die, any remaining annual installments are not due. If you filed a joint return and then you die, your surviving spouse would be required to repay his or her half of the remaining repayment amount.
If you stop using the home as your main home, all remaining annual installments become due on the return for the year that happens. This includes situations where the main home becomes a vacation home or is converted to business or rental property. There are special rules for involuntary conversions. Taxpayers are urged to consult a professional to determine the tax consequences of an involuntary conversion.
If you sell your home, all remaining annual installments become due on the return for the year of sale. The repayment is limited to the amount of gain on the sale, if the home is sold to an unrelated taxpayer. If there is no gain or if there is a loss on the sale, the remaining annual installments may be reduced or even eliminated. Taxpayers are urged to consult a professional to determine the tax consequences of a sale.
If you transfer your home to your spouse, or, as part of a divorce settlement, to your former spouse, that person is responsible for making all subsequent installment payments.
Basic information
Homes purchased in 2008
Homes purchased in 2009
Scenarios
First-Time Homebuyer Credit
IRS Information Related to the American Recovery and Reinvestment Act of 2009
The 2008 credit is an "interest-free" loan in the amount of $7,500 which is paid back at $500 per year for 15 years. The downside of this credit is that if you do not get a refund in any one payback year, you will owe the $500 plus any tax due.
The 2009 credit is $8,000 of "free" tax money with no payback.
Now there are stipulations on this credit that must be met in order to receive.
The 2008 Credit:
Applies to home purchases after April 8, 2008, and before July 1, 2009.
Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.
However, the credit operates much like an interest-free loan, because it must be repaid over a 15-year period. So, for example, an eligible taxpayer who buys a home today and properly claims the maximum available credit of $7,500 on his or her 2008 federal income tax return must begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on his or her 2010 return.
If any of the following describe you, you cannot take the credit, even if you buy a main home:
Your income exceeds the phase-out range. This means joint filers with MAGI of $170,000 and above and other taxpayers with MAGI of $95,000 and above.
You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.
You stop using your home as your main home.
You sell your home before the end of the year.
You are a nonresident alien.
You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year.
Your home financing comes from tax-exempt mortgage revenue bonds.
You owned another main home at any time during the three years prior to the date of purchase.
For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another main home at any time from July 2, 2005, through July 1, 2008.
However, some exceptions apply to the repayment rule. They include:
If you die, any remaining annual installments are not due. If you filed a joint return and then you die, your surviving spouse would be required to repay his or her half of the remaining repayment amount.
If you stop using the home as your main home, all remaining annual installments become due on the return for the year that happens. This includes situations where the main home becomes a vacation home or is converted to business or rental property. There are special rules for involuntary conversions. Taxpayers are urged to consult a professional to determine the tax consequences of an involuntary conversion.
If you sell your home, all remaining annual installments become due on the return for the year of sale. The repayment is limited to the amount of gain on the sale, if the home is sold to an unrelated taxpayer. If there is no gain or if there is a loss on the sale, the remaining annual installments may be reduced or even eliminated. Taxpayers are urged to consult a professional to determine the tax consequences of a sale.
If you transfer your home to your spouse, or, as part of a divorce settlement, to your former spouse, that person is responsible for making all subsequent installment payments.
Basic information
Homes purchased in 2008
Homes purchased in 2009
Scenarios
First-Time Homebuyer Credit
IRS Information Related to the American Recovery and Reinvestment Act of 2009
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