Top Ten Tips for Taxpayers Deducting Casualty and Theft Losses

Taxpayers who find themselves the victim of a natural disaster or theft this summer should know the rules for deducting their casualty losses next year when they file their federal tax return. Generally, you may deduct losses to your home, household items and vehicles on your federal income tax return.

Here are ten things the IRS wants you to know about deducting casualty or theft losses.

You may not deduct casualty and theft losses covered by insurance unless you file a timely claim for reimbursement. You must reduce your loss by the amount of the reimbursement.

A casualty does not include normal wear and tear or progressive deterioration from age or termite damage.

The damage must be caused by a sudden, unexpected or unusual event like a car accident, fire, earthquake, flood or vandalism.

If your property is not completely destroyed or if it is personal-use property, the amount of your casualty or theft loss is the lesser of the adjusted basis of your property, or the decrease in fair market value of your property as a result of the casualty or theft, reduced by any insurance or other reimbursement you receive or expect to receive.

If business or income-producing property, such as rental property, is completely destroyed, the amount of your loss is your adjusted basis in the property minus any salvage value, and minus any insurance or other reimbursement you receive or expect to receive.

To claim a casualty or theft loss, you must complete Form 4684, Casualties and Thefts, and attach it to your return. Generally, you may claim casualty or theft loss of personal use property only if you itemize deductions on Form 1040, Schedule A. However, you can deduct a 2008 or 2009 net disaster loss from a federally-declared disaster even if you do not itemize your deductions.

If the property was held by you for personal use, you must further reduce your loss by $100. This $100 reduction for losses of personal-use property applies to each casualty or theft event that occurred during the year other than 2009. For 2009, individuals must reduce their casualty and theft losses for personal-use property by $500 instead of $100. This $500 reduction for losses of personal-use property applies to each casualty or theft event.

The total of all your casualty and theft losses of personal-use property usually must be further reduced by 10 percent of your adjusted gross income. The 10 percent AGI limitation does not apply to net disaster losses resulting from federally declared disasters in 2008 and 2009.

In figuring your loss, do not consider the loss of future profits or income due to the casualty.

Casualty losses are normally deductible only in the year the casualty occurred. But if you have a deductible loss from a federally declared disaster you can choose to deduct that loss on your tax return for the previous year. If you have already filed your return for the preceding year, you can claim the loss on the previous year tax return by filing an amended return.

For more information about casualty and theft losses and the special rules for net disaster losses see Publication 547, Casualties, Disasters and Thefts available on the IRS.gov Web site or by calling 800-TAX-FORM (800-829-3676).

Links:
Tax Relief in Disaster Situations
Publication 547, Casualties, Disasters and Thefts
Form 4684, Casualties and Thefts

Lucky Seven...Gambling Winnings and Losses Tax Tips

You may know when to hold ‘em and when to fold ‘em but do you know how and when to report ‘em? Whether you are playing cards or the slots, it is important to know the rules about reporting gambling winnings and losses.

Here are seven things the IRS wants you to know about reporting what Lady Luck has sent your way.

All gambling winnings are fully taxable.

Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse races, poker tournaments and casinos. It includes cash winnings and also the fair market value of prizes such as cars and trips.

A payer is required to issue you a Form W-2G if you receive certain gambling winnings or if you have any gambling winnings subject to federal income tax withholding.

Even if a W-2G is not issued, all gambling winnings must be reported as taxable income.

Therefore, you may be required to pay an estimated tax on the gambling winnings. For more information on paying estimated taxes, refer to IRS Publication 505, Tax Withholding and Estimated Tax.

You must report your gambling winnings on Form 1040, line 21.

If you itemize your deductions on Form 1040, Schedule A, you can deduct gambling losses you had during the year, but only up to the amount of your winnings. Your losses are not subject to the 2 percent of AGI Limitation.

It is important to keep an accurate diary or similar record of your gambling winnings and losses. To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses.

For more information, refer to IRS Publications 525, Taxable and Nontaxable Income, and 529, Miscellaneous Deductions. Additional information can also be found in IRS Instructions for Forms W-2G and 5754, Certain Gambling Winnings & Statement by Person(s) Receiving Gambling Winnings. These publications are available at IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).

Publication 525, Taxable and Nontaxable Income
Publication 505, Tax Withholding and Estimated Tax
Publication 529, Miscellaneous Deductions

Obama's Plan Could Hurt Senior Citizens

You know those $250 checks now being sent to Social Security recipients courtesy of President Obama's economic recovery package? Well, some seniors may have to pay some of it back to the government.

The problem, according to a Washington Times report, is that Social Security beneficiaries who are still working full time also qualify for Obama’s $400 Making Work Pay workplace tax cuts and, unless the tax laws are changed, they cannot qualify for both. The “surplus” will, have to be paid back to the government.

“Congressional and IRS officials say taxpayers cannot double-dip into both programs,” says the Times. “If you are getting extra Social Security money and benefit from a lower withholding in your paycheck, the two will have to be reconciled when you file your 2009 tax returns next year.”

If this comes as a surprise to you, you are far from alone. “I have seen no publicity to tell people drawing Social Security that they are not eligible for both the Social Security payment and the Making Work Pay tax credit,” Roberton Williams, senior fellow at the Tax Policy Center in the Urban Institute told the Washington Times. “The only people who know this are those who carefully read the stimulus bill," said Mr. Williams, adding, "It's only 600 pages long.”

Also See:

$250 Social Security, SSI Checks to be Sent During May 2009
Obama Tax Cuts
Economic Stimulus Package - How it Could Affect You

New Tax Relief for Individuals

Most of you have heard that under the Obama Administration's American Recovery and Reinvestment Act you will be receiving a "Making Work Pay" tax credit. But what does this actually mean to you? When can you expect to receive the money?

In 2009 and 2010, the "Making Work Pay" provision of the American Recovery and Reinvestment Act will provide a refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns.

Note: This tax credit is calculated at a rate of 6.2 percent of earned income and will phase out for taxpayers with modified adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly.

For people who receive a paycheck and are subject to withholding, the credit is typically handled by their employers through automated withholding changes. These changes needed to begin by April 1, 2009 and may result in an increase in take-home pay. The amount of the credit will be computed on the employee's 2009 income tax return filed in 2010. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return.

It is not necessary to submit a Form W-4 to get the automatic withholding change. However, an employee with multiple jobs or married couples whose combined incomes place them in a higher tax bracket may choose to submit a revised W-4 to ensure enough withholding is held to cover the tax for his or her combined income.

If you have questions about the Making Work Pay provision, these questions and answers might help.

Making Work Pay Questions and Answers: General Issues

Q. What is the Making Work Pay Credit?

A. In tax years 2009 and 2010, the Making Work Pay provision will provide a refundable tax credit of up to $400 for individuals and up to $800 for married taxpayers filing joint returns.

Q. How will taxpayers get this credit?

A. For people who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes to be made in early spring 2009. These changes may result in an increase in the amount of take-home pay. The amount of the credit will be reported on the 2009 income tax return. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return filed in 2010.

Q. How will the self-employed (those who do not receive Social Security, Veterans Affairs or Railroad Retirement Board income) claim this credit?

A. Self-employed taxpayers can claim the Making Work Pay credit on their 2009 return filed in 2010. Self-employed individuals should evaluate their expected income tax liability and determine whether they want to make any adjustments in their estimated tax payments.

Q. Can private pensioners (those who do not receive Social Security, Veterans Affairs or Railroad Retirement Board income) claim this credit?

A. Private pension recipients are not eligible for the Making Work Pay credit unless they have earned income. However, because the new withholding tables reduce the taxes withheld from all taxpayers, pension recipients may not have enough tax withheld from their pension benefits to cover their tax liability on those payments. The IRS recommends that pension recipients evaluate their expected tax liability for the year and consider whether they need to make estimated tax payments or adjust their withholding on Form W-4P, Withholding Certificate for Pension or Annuity Payments.

Q5. Are employees required to have a valid Social Security number (SSN) to be eligible for the Making Work Pay tax credit?

A. Yes, eligibility for this credit is conditioned upon providing a valid SSN.

Q6. If a taxpayer is eligible for more of a credit, how can it be claimed?

A. The modified tables take the anticipated credit into account through reduced withholding. However, the Making Work Pay credit will be reported on all filed 2009 income tax returns, along with the taxpayer’s withheld income tax. Taxpayers receiving less than the full amount of the anticipated credit through reduced withholding will still be entitled to the full credit on their return.

Making Work Pay Questions and Answers: Form W-4

Q1. Do I need to change my W-4?

A. Generally, for people who receive a paycheck, the credit will typically be handled by their employers through automated withholding changes. A Form W-4, Employee Withholding Allowance Certificate, will not need to be submitted for the automatic withholding change. An employee with multiple jobs or married couples whose combined income place them in a higher tax bracket may elect to submit a revised W-4 to ensure enough withholding is held to cover the tax for his/her combined income. IRS Publication 919, How Do I Adjust My Tax Withholding?, provides additional guidance for tax withholding.

Q2. Should employees who are nonresident aliens or who can be claimed as a dependent on someone else's return ask for additional withholding on line 6 of the Form W-4?

A. Because nonresident aliens and those who can be claimed as dependents on someone else’s income tax return are not eligible for the Making Work Pay Credit, the new withholding tables may cause them to be underwithheld. These taxpayers need to evaluate their expected tax liability for the year and determine if they need to either make appropriate estimated tax payments or adjust their withholding on Form W-4. However, Publication 15-T, New Wage Withholding and Advanced Earned Income Credit Payment Tables (for wages paid through December 2009), does include additional amounts to be added to the pay of nonresident aliens to figure their income tax withholding.

Q3. Will employers be required to determine if employees received the maximum credit and discontinue any further related withholding tax reductions?

A. Employers are not required to make determinations with regard to an employee’s eligibility for the Making Work Pay credit. Withholding should be made consistent with the employee's filed W-4 and the newly modified withholding tables.

http://www.astps.org/newsletter.shtml#1

Payment Options With The IRS

If you cannot pay the full amount of taxes you owe by the April deadline, you should still file your return by the deadline and pay as much as you can to avoid penalties and interest. There are also alternative payment options to consider:

Additional Time to Pay

Based on your circumstances, you may be granted a short additional time to pay your tax in full. The IRS is sometimes able to allow a brief additional amount of time to pay in order to facilitate tax debt repayment. A brief additional amount of time to pay can be requested through the Online Payment Agreement application at IRS.gov or by calling 800-829-1040. Taxpayers who request and are granted an additional 30 to 120 days to pay the tax in full generally will pay less in penalties and interest than if the debt were repaid through an installment agreement over a greater period of time.

Installment Agreement

You can apply for an IRS installment agreement using our Web-based OPA application on IRS.gov. This Web-based application allows taxpayers who owe $25,000 or less in combined tax, penalties and interest to self-qualify, apply for, and receive immediate notification of approval.

You can also request an installment agreement before your current tax liabilities are actually assessed by using OPA. The OPA option provides you with a simple and convenient way to establish an installment agreement and eliminates the need for personal interaction with IRS and reduces paper processing.

Pay by Credit Card or Debit Card

You can charge your taxes on your American Express, MasterCard, Visa or Discover credit cards. Additionally, you can pay by using your debit card. However, the debit card must be a Visa Consumer Debit Card, or a NYCE, Pulse or Star Debit Card. To pay by credit card or debit card, contact one of the service providers at its telephone number or Web site listed below and follow the instructions. There is no IRS fee for credit or debit card payments, but the processing companies charge a convenience fee or flat fee. If you are paying by credit card, the service providers charge a convenience fee based on the amount you are paying. If you are paying by debit card the service providers charge a flat fee of $3.95, do not add the convenience fee or flat fee to your tax payment.

Link2Gov Corporation:

To pay by debit or credit card: 888-PAY-1040 (888-729-1040), www.pay1040.com
Official Payments Corporation:

To pay by credit card: 800-2PAY-TAX (800-272-9829), www.officialpayments.com

To pay by debit card: 800-866-4PAY-TAX (866-472-9829), www.officialpayment.com/debit

For more information about filing and paying your taxes, visit the IRS Web site at IRS.gov and choose “1040 Central” or refer to the Form 1040 Instructions or IRS Publication 17, Your Federal Income Tax. You can download forms and publications at IRS.gov or request a free copy by calling toll free 800-TAX-FORM (800-829-3676).

Online Payment Agreement Application
Electronic Payment Options
www.officialpayments.com
www.pay1040.com
Form 9465, Installment Agreement Request (PDF 100K)
Installment payment process
Partial Pay Installment Agreements
What is an Offer in Compromise?
Publication 17, Your Federal Income Tax (PDF 2,072K)