Because of recent increases in gas rates, the amount you can deduct for business use of your car per mile will increase from 51 cents per mile, which it was from January 1, 2011 through June 30, to 55.5 cents per mile starting July 1, 2011 through the end of the year. This is why it is important to keep a daily mileage log on your driving for business use. This is a relatively simple habit to get into and it makes your paperwork at tax time so much easier.
How do I keep a mileage log?
For a mileage log, simply put a notebook in your vehicle. Keep columns for date, odometer reading to start the day and end the day of business driving. Keep a total mileage column also which you can use to add it all up at the end of the year. This also allows for when the IRS allows different amounts for different times of the year. It is nice for keeping track of the total mileage on the car which the IRS also wants to know.
What mileage counts?
The easiest way I can explain it is any mileage that you are driving for your business that is not reimbursed or driven in a company provided vehicle. However, remember that commuting is NOT deductible mileage. If you live in Canton and drive to Akron, that is commuting and not deductible. If you then drive from Akron to the Youngstown office every day and back, this mileage IS deductible. Another common example is someone who is a visiting nurse. A wise nurse will, if possible schedule her 2 nearest visits (if she doesn't report to an office first and at the end of the day) first and last for the day. This is because the drive from her home to the first location is considered commuting mileage while the driving to all of the stops during the day are business miles. Then when she makes her last visit and drives home, that mileage is commuting and not deductible.
What about insurance and repairs, can't I claim those?
Yes, in certain circumstances you can claim insurance and repairs INSTEAD of mileage. Most preparers and taxpayers that have done the math have generally found that it is easier to prove and they generally get more deduction by claiming mileage. Assuming even $4 per gallon, your per mile cost for gas is 16 cents. Taking this out of the equation, that leaves 39.5 cents per mile to cover insurance and repairs. For every 1,000 miles, this leaves $395 of deduction to compare against all of the other costs such as repairs, tires and insurance. Assuming $600 for insurance, repairs of $2,000 and $500 for a new set of tires EVERY year, this comes to $3,100 of what most people could claim. This would come to 7,800 miles to cover those expenses. While there are years that you may make out on that, you are not permitted to switch back and forth on the methods of deducting your vehicle. If your vehicle requires that much cost every year, you should think about a different vehicle.
By the way, mileage for business use is different than mileage for charity which is 14 cents a mile and mileage for medical treatment or moving which is going up to 23.5 cents per mile starting July 1st from 19 cents per mile.
Showing posts with label Timothy P. Singo. Show all posts
Showing posts with label Timothy P. Singo. Show all posts
Thursday, June 23, 2011
Saturday, January 15, 2011
Where did the rapid refunds go, long time passing…
Where did the rapid refunds go, long time passing…
H&R Block Press Release dated December 24, 2010:
H&R Block says HSBC Terminates RAL Funding Pact. As a result of a regulatory directive by the Office of the Comptroller of the Currency (“OCC”), HSBC has given notice to H&R Block that it is immediately terminating the parties’ long-term contract under which HSBC provided all of H&R Block’s refund anticipation loans (“RALs”) and some of its refund anticipation checks (“RACs”). As a result, HSBC will no longer provide RALs or RACs to H&R Block clients.
Yes, rapid refunds are becoming a thing of the past. The Christmas Eve massacre cut off one of the big three at the last moment. But this is simply the latest blow in a year long campaign by the Obama administration through various agencies and a host of state attorneys general.
The biggest single blow came this off-season when the IRS announced it would not be providing the debt code indicator with its acknowledgements. The debt wachacallit, what is that? In the past, rapid refunds are actually bank loans that a tax customer paying a tax preparer would receive within 24 hours of filing a return. The loan would then be repaid when the IRS direct deposits the refund to the bank in 8 to 15 days. The tax preparer would do the return, get it signed by the taxpayer, then send it electronically to the IRS with a code sent to the bank. The IRS would then do an initial electronic evaluation of the return and send an acknowledgement that the return was accepted. Part of this acknowledgement was the debt code indicator. What this told the bank was whether a claim (ie, child support, student loans, unpaid taxes, etc) was filed against the tax refund of the taxpayer. This was obviously important information to the bank since it told the bank if this taxpayer was actually getting their refund. If not, 95% of the taxpayers applying for these loans can’t pay it back out of their own income.
The stated reason for this is that many of the providers in the industry would charge outrageous rates with APRs (annualized percentage rate) of 100-300%. I took severe issue with a local paper that printed this as gospel when “covering” the IRS funded “free clinics”. They really did a softball on them, accepted everything they said about the “bad, predator” professional tax return preparer. For my own business, I used Chase Bank. Chase capped its loans to an APR of 33%. Not bad considering a short loan period balloons the APR and many credit cards are in the 20-25% range. Also, since they were on Chase Bank checks, my clients could cash the checks for free instead of paying the real loan sharks, the payday advance places.
Ironically, I never made a lot off of the Rapid Refunds. Yes, truth be told my “take” was usually about 15-20 bucks. Considering my average return fee is about $100, not really a big deal. I only offered them because a threshold question is, “Do you offer Rapid Refunds?” A no answer and you get hung up on. But like it or not, they are a thing of the past. I will move on to other clients and survive. Darn, and I was just looking at that one house up in the Akron area built by that basketball player who moved to South Beach, what’s his name?
Another article regarding another Rapid Refund or Refund Anticipation Loan provider:
http://banktalk.org/2011/02/16/river-city-bank-drops-ral-program/
H&R Block Press Release dated December 24, 2010:
H&R Block says HSBC Terminates RAL Funding Pact. As a result of a regulatory directive by the Office of the Comptroller of the Currency (“OCC”), HSBC has given notice to H&R Block that it is immediately terminating the parties’ long-term contract under which HSBC provided all of H&R Block’s refund anticipation loans (“RALs”) and some of its refund anticipation checks (“RACs”). As a result, HSBC will no longer provide RALs or RACs to H&R Block clients.
Yes, rapid refunds are becoming a thing of the past. The Christmas Eve massacre cut off one of the big three at the last moment. But this is simply the latest blow in a year long campaign by the Obama administration through various agencies and a host of state attorneys general.
The biggest single blow came this off-season when the IRS announced it would not be providing the debt code indicator with its acknowledgements. The debt wachacallit, what is that? In the past, rapid refunds are actually bank loans that a tax customer paying a tax preparer would receive within 24 hours of filing a return. The loan would then be repaid when the IRS direct deposits the refund to the bank in 8 to 15 days. The tax preparer would do the return, get it signed by the taxpayer, then send it electronically to the IRS with a code sent to the bank. The IRS would then do an initial electronic evaluation of the return and send an acknowledgement that the return was accepted. Part of this acknowledgement was the debt code indicator. What this told the bank was whether a claim (ie, child support, student loans, unpaid taxes, etc) was filed against the tax refund of the taxpayer. This was obviously important information to the bank since it told the bank if this taxpayer was actually getting their refund. If not, 95% of the taxpayers applying for these loans can’t pay it back out of their own income.
The stated reason for this is that many of the providers in the industry would charge outrageous rates with APRs (annualized percentage rate) of 100-300%. I took severe issue with a local paper that printed this as gospel when “covering” the IRS funded “free clinics”. They really did a softball on them, accepted everything they said about the “bad, predator” professional tax return preparer. For my own business, I used Chase Bank. Chase capped its loans to an APR of 33%. Not bad considering a short loan period balloons the APR and many credit cards are in the 20-25% range. Also, since they were on Chase Bank checks, my clients could cash the checks for free instead of paying the real loan sharks, the payday advance places.
Ironically, I never made a lot off of the Rapid Refunds. Yes, truth be told my “take” was usually about 15-20 bucks. Considering my average return fee is about $100, not really a big deal. I only offered them because a threshold question is, “Do you offer Rapid Refunds?” A no answer and you get hung up on. But like it or not, they are a thing of the past. I will move on to other clients and survive. Darn, and I was just looking at that one house up in the Akron area built by that basketball player who moved to South Beach, what’s his name?
Another article regarding another Rapid Refund or Refund Anticipation Loan provider:
http://banktalk.org/2011/02/16/river-city-bank-drops-ral-program/
Monday, July 6, 2009
Did you really file your tax returns?
I was recently confronted with a frightening scenario. I did not prepare the original return but the client came to me because they couldn't find the original preparer. It was a letter from the state that she did not file her return. The preparer had taken a position that the state does not like to see. In essence, the state said she owed $15,000 on this return. The return was from 2002 and wisdom says that they can't go back past 3 years. Well, at the state it is four years. Now I immediately sent a letter stating that she had filed and a copy of the return. The state simply stated they had no record of it. A quick check of the state statute showed that the STATE'S definition of filed is that they received it. We can have her attest to the fact that she mailed it but this does not even touch (if you think about it) on whether the state actually did receive it.
This is a real problem that you should consider. How do you prove that the state or the federal government actually received it. This is extremely important because you can never close out the liability unless you did file it, and as I discovered, you can prove it. That means that 10 years later, when you and everyone involved has destroyed their records, the government can simply claim they didn't receive your return and claims all kinds of things that may or may not be accurate, leaving you with the bill.
There are two real ways of dealing with this. One way is to send each return by certified mail and keep the green card you receive back. Expensive but it would have saved this poor lady $15,000. Another easier way is to electronically file. That way there is a record of the filing and more important that the taxing agency actually RECEIVED the return.
This is a real problem that you should consider. How do you prove that the state or the federal government actually received it. This is extremely important because you can never close out the liability unless you did file it, and as I discovered, you can prove it. That means that 10 years later, when you and everyone involved has destroyed their records, the government can simply claim they didn't receive your return and claims all kinds of things that may or may not be accurate, leaving you with the bill.
There are two real ways of dealing with this. One way is to send each return by certified mail and keep the green card you receive back. Expensive but it would have saved this poor lady $15,000. Another easier way is to electronically file. That way there is a record of the filing and more important that the taxing agency actually RECEIVED the return.
Friday, June 12, 2009
Now is the time to buy your first home
If you are a first time buyer who bought your home this year, you can get 10% of the purchase price up to $8,000 as a credit. You can either amend this last year's return (8-12 weeks) or claim it on next year's taxes. The important thing to know hear is the definition of first time homebuyer may still include you even if you have owned a home before. Essentially, if you haven't owned a home (trailerhome, houseboat, cottage, house. Basically anything you live in and own) in the past 3 years, you are considered a first-time homebuyer and you qualify for this. You must then also live in the home for three years.
Considering the pricing and inventory in the market, now is the time to start looking. Also, you need to complete the sale by November 30, not the end of the year. This is a one-time deal that any apartment dweller should not pass up. One caveat, PAY ATTENTION to your documents at the closing. Don't be afraid to question the terms of the mortgage as to what you were promised. They will try to rush you to sign the mountain of documents but READ the mortgage. As with any deal, if you sit down to sign, you must be willing to get up and walk away if necessary. That is another reason to start the hunt now rather than wait until the deadline is hovering.
First-Time Homebuyer Credit:
For home purchases made after December 31, 2008, the new law raises the first-time homebuyer tax credit to $8,000 (from $7,500) and extends that credit to November 30, 2009. Any required repayments to IRS are eliminated after 36 months in the home. Phase-outs begin for individuals with AGI greater than $75,000 ($150,000 for MFJ) for the year of purchase. (Phase-outs apply for both 2008 and 2009.) A taxpayer who bought a home on or after April 9, 2008, and before January 1, 2009, will not qualify for the new homebuyer credit; the purchase will continue to be governed by the original 2008 first-time homebuyer credit.
Considering the pricing and inventory in the market, now is the time to start looking. Also, you need to complete the sale by November 30, not the end of the year. This is a one-time deal that any apartment dweller should not pass up. One caveat, PAY ATTENTION to your documents at the closing. Don't be afraid to question the terms of the mortgage as to what you were promised. They will try to rush you to sign the mountain of documents but READ the mortgage. As with any deal, if you sit down to sign, you must be willing to get up and walk away if necessary. That is another reason to start the hunt now rather than wait until the deadline is hovering.
First-Time Homebuyer Credit:
For home purchases made after December 31, 2008, the new law raises the first-time homebuyer tax credit to $8,000 (from $7,500) and extends that credit to November 30, 2009. Any required repayments to IRS are eliminated after 36 months in the home. Phase-outs begin for individuals with AGI greater than $75,000 ($150,000 for MFJ) for the year of purchase. (Phase-outs apply for both 2008 and 2009.) A taxpayer who bought a home on or after April 9, 2008, and before January 1, 2009, will not qualify for the new homebuyer credit; the purchase will continue to be governed by the original 2008 first-time homebuyer credit.
Thursday, June 11, 2009
What is in it for the Car Buyer
I am going to be highlighting separate parts of the new tax breaks and who can use them. I recently got a call from a car salesman. Every car salesman needs to know this credit. The complete synopsis is at the end of this post. If you have any questions, please feel free to post a comment and I will respond as soon as I can.
Bottom line, if you are looking to head to one of these dealerships that is closing and closing its inventory, keep your receipt. IF you are buying a new car, you can deduct the sales tax. Unlike a lot of tax breaks, this is above the line. OK, so what does "above-the-line" mean and why is that good. Above the line simply refers to being above the line for "Adjusted Grose Income" which means you don't have to itemize to take it. As a tax payer, you have the choice to either add up all of your deductions (ie, itemize) or take the standard deduction (last year it was 5,250 for a person or 10,500 for a married couple). So if you get a $2,000 deduction that brings your total "itemized deductions" to $4,500, you obviously are better off with the standard and that $2,000 deduction is really worthless to you. By taking it above-the-line, you essentially deduct it before you get to the itemized or standard comparison. In other words, everyone actually gets it that isn't rich (Adjusted Gross Income too high, see below).
Temporary Tax Deduction on Car PurchasesPurchasers of new vehicles will get an above-the-line deduction for the state sales taxes, local sales taxes, and excise taxes paid. To qualify, a vehicle must be newly purchased for first use by the taxpayer and must (1) be a passenger vehicle, light truck, or motorcycle with a gross weight of no more than 8,500 pounds, or (2) be a motor home.Deductible taxes cannot exceed the portion attributable to the first $49,500 of the price paid for any single vehicle.Phase-outs start for individuals with AGI greater than $125,000 ($250,000 for MFJ).
Bottom line, if you are looking to head to one of these dealerships that is closing and closing its inventory, keep your receipt. IF you are buying a new car, you can deduct the sales tax. Unlike a lot of tax breaks, this is above the line. OK, so what does "above-the-line" mean and why is that good. Above the line simply refers to being above the line for "Adjusted Grose Income" which means you don't have to itemize to take it. As a tax payer, you have the choice to either add up all of your deductions (ie, itemize) or take the standard deduction (last year it was 5,250 for a person or 10,500 for a married couple). So if you get a $2,000 deduction that brings your total "itemized deductions" to $4,500, you obviously are better off with the standard and that $2,000 deduction is really worthless to you. By taking it above-the-line, you essentially deduct it before you get to the itemized or standard comparison. In other words, everyone actually gets it that isn't rich (Adjusted Gross Income too high, see below).
Temporary Tax Deduction on Car PurchasesPurchasers of new vehicles will get an above-the-line deduction for the state sales taxes, local sales taxes, and excise taxes paid. To qualify, a vehicle must be newly purchased for first use by the taxpayer and must (1) be a passenger vehicle, light truck, or motorcycle with a gross weight of no more than 8,500 pounds, or (2) be a motor home.Deductible taxes cannot exceed the portion attributable to the first $49,500 of the price paid for any single vehicle.Phase-outs start for individuals with AGI greater than $125,000 ($250,000 for MFJ).
Saturday, February 21, 2009
Some details of Obama's Stimulus Package
Incentives for Individuals
Tax breaks and credit enhancements for individuals include a refundable “making work pay” credit, an increased First-Time-Homebuyer credit, enhanced earned income and child tax credits, a deduction for taxes paid on new vehicles, and an improved education credit. Also included in the Recovery Act is a one-year AMT patch.
Making Work Pay
The Making Work Pay Credit is a refundable income tax credit for tax years beginning in 2009 and 2010. The credit is the lesser of (1) 6.2% of the individual’s earned income, or (2) $400 ($800 for MFJ). This credit is available, in full, to workers with a modified AGI of $75,000 ($150,000 for MFJ) or less. Above that amount, the credit will be phased out at a rate of 2%.
Note: The credit does not apply to any individual whose tax return does not include a Social Security Number.
An employee can take the credit through reduced wage withholdings or in a lump sum when filing his or her annual income tax return. An employer’s share of FICA (or its 6.2% equivalent) would remain unchanged.
The credit applies to self-employment earnings to the extent that they’re considered in computing taxable income.
Economic Recovery Payment
Under the Recovery Act, certain fixed-income individuals (such as disabled veterans, railroad retirees, Social Security recipients, and certain government workers) will receive a one-time recovery payment of $250 in 2009. For individuals who receive both this payment and the Making Work Pay Credit, the Making Work Pay credit will be reduced by the $250 payment.
First-Time Homebuyer Credit
For home purchases made after December 31, 2008, the new law raises the first-time homebuyer tax credit to $8,000 (from $7,500) and extends that credit to November 30, 2009. Any required repayments to IRS are eliminated after 36 months in the home. Phase-outs begin for individuals with AGI greater than $75,000 ($150,000 for MFJ) for the year of purchase. (Phase-outs apply for both 2008 and 2009.) A taxpayer who bought a home on or after April 9, 2008, and before January 1, 2009, will not qualify for the new homebuyer credit; the purchase will continue to be governed by the original 2008 first-time homebuyer credit.
Temporary Tax Deduction on Car Purchases
Purchasers of new vehicles will get an above-the-line deduction for the state sales taxes, local sales taxes, and excise taxes paid. To qualify, a vehicle must be newly purchased for first use by the taxpayer and must (1) be a passenger vehicle, light truck, or motorcycle with a gross weight of no more than 8,500 pounds, or (2) be a motor home.
Deductible taxes cannot exceed the portion attributable to the first $49,500 of the price paid for any single vehicle.
Phase-outs start for individuals with AGI greater than $125,000 ($250,000 for MFJ).
American Opportunity Tax Credit (Hope Credit)
The Hope Credit, which is being renamed to the American Opportunity Tax Credit, has been enhanced in the following ways under the new law:
• Amount increased to a maximum of $2,500 (from $1,800) per eligible student per year
• Modified rate of 100% of the first $2,000; 25% of the next $2,000, with a maximum $2,500 per year allowed on $4,000 in qualifying payments
• Forty percent of the credit will be refundable for 2009 and 2010
• Credit will now apply for all four years of college
• Qualifying expenses will now include course materials
• Phase-out level increased to $80,000 AGI ($160,000 for MFJ)
Qualified Tuition Programs (“529 Plans”)
For 2009 and 2010, a beneficiary of a qualified tuition program can use distributions to pay for computers and computer technology (including internet). Distributions will be tax-free. Previously, these expenses were not tax-free and were included in the beneficiary’s income and subject to penalty.
Earned Income Tax Credit
For 2009 and 2010, EITC percentage will be increased to 45% of the first $12,750 of earned income for taxpayers who have three or more qualifying children.( Prior to the new law, the credit percentage was 40% of the first $12,750 for taxpayers with two or more qualifying children.) In addition, the EITC phase-out range has been adjusted upward by $1,880 to eliminate any marriage penalty for joint filers.
Child Tax Credit
For 2009 and 2010, the refundable part of the child tax credit will be increased. The income threshold will now be set at $3,000.
Unemployment Compensation
Generally, a taxpayer’s gross income must include all unemployment compensation benefits received. Under the new law, in 2009 only, up to $2,400 of unemployment compensation will be excluded from gross income for federal income tax purposes.
Transit Benefits Parity
Transit passes, van pooling, qualified parking, and other qualified transportation fringe benefits are not typically included employee income up to a certain dollar amount. Under the new law, this dollar amount will be increased to $230 per month (up from $120) for transit passes and van pooling. This increased exclusion goes into effect in March 2009. It will continue through 2010 with adjustments made for inflation.
AMT Patch
The new law provides for an alternative minimum tax (AMT) patch for 2009. The following table shows the differences in exemption from 2008 to 2009.
MT Patch Exemption Amounts
2008 2009
Joint filers and surviving spouses 69,950 70,950 (up $1,000)
Singles and heads of households 46,200 46,700 (up $500)
Residential Energy Property Credit
Under the Recovery Act, the Residential Energy Property Credit allows a credit for eligible property placed in service after December 31, 2008, and before January 1, 2011, with the following modifications to the credit that was allowed in years prior to 2008:
• Increase of residential energy property tax credit to 30% (from 10%)
• Increase of maximum cap to $1,500 aggregate amount for 2009 and 2010 installations
• Elimination of the $500 lifetime cap
Eligible property includes insulation materials, exterior windows and doors, central air conditioners,
natural gas, propane or oil water heaters and furnaces, hot water boilers, electric heat-pump water heaters, certain metal roofs and stoves, and advanced main air-circulating fans.
Residential Energy-Efficient Property Credit
Modifications to the Residential Energy-Efficient Property Credit include removal of individual dollar caps under credit regulations for solar hot water property, geothermal heat pumps, and wind energy property. In addition, a $500 credit cap is placed on all qualified fuel cell property expenditures.
Tax breaks and credit enhancements for individuals include a refundable “making work pay” credit, an increased First-Time-Homebuyer credit, enhanced earned income and child tax credits, a deduction for taxes paid on new vehicles, and an improved education credit. Also included in the Recovery Act is a one-year AMT patch.
Making Work Pay
The Making Work Pay Credit is a refundable income tax credit for tax years beginning in 2009 and 2010. The credit is the lesser of (1) 6.2% of the individual’s earned income, or (2) $400 ($800 for MFJ). This credit is available, in full, to workers with a modified AGI of $75,000 ($150,000 for MFJ) or less. Above that amount, the credit will be phased out at a rate of 2%.
Note: The credit does not apply to any individual whose tax return does not include a Social Security Number.
An employee can take the credit through reduced wage withholdings or in a lump sum when filing his or her annual income tax return. An employer’s share of FICA (or its 6.2% equivalent) would remain unchanged.
The credit applies to self-employment earnings to the extent that they’re considered in computing taxable income.
Economic Recovery Payment
Under the Recovery Act, certain fixed-income individuals (such as disabled veterans, railroad retirees, Social Security recipients, and certain government workers) will receive a one-time recovery payment of $250 in 2009. For individuals who receive both this payment and the Making Work Pay Credit, the Making Work Pay credit will be reduced by the $250 payment.
First-Time Homebuyer Credit
For home purchases made after December 31, 2008, the new law raises the first-time homebuyer tax credit to $8,000 (from $7,500) and extends that credit to November 30, 2009. Any required repayments to IRS are eliminated after 36 months in the home. Phase-outs begin for individuals with AGI greater than $75,000 ($150,000 for MFJ) for the year of purchase. (Phase-outs apply for both 2008 and 2009.) A taxpayer who bought a home on or after April 9, 2008, and before January 1, 2009, will not qualify for the new homebuyer credit; the purchase will continue to be governed by the original 2008 first-time homebuyer credit.
Temporary Tax Deduction on Car Purchases
Purchasers of new vehicles will get an above-the-line deduction for the state sales taxes, local sales taxes, and excise taxes paid. To qualify, a vehicle must be newly purchased for first use by the taxpayer and must (1) be a passenger vehicle, light truck, or motorcycle with a gross weight of no more than 8,500 pounds, or (2) be a motor home.
Deductible taxes cannot exceed the portion attributable to the first $49,500 of the price paid for any single vehicle.
Phase-outs start for individuals with AGI greater than $125,000 ($250,000 for MFJ).
American Opportunity Tax Credit (Hope Credit)
The Hope Credit, which is being renamed to the American Opportunity Tax Credit, has been enhanced in the following ways under the new law:
• Amount increased to a maximum of $2,500 (from $1,800) per eligible student per year
• Modified rate of 100% of the first $2,000; 25% of the next $2,000, with a maximum $2,500 per year allowed on $4,000 in qualifying payments
• Forty percent of the credit will be refundable for 2009 and 2010
• Credit will now apply for all four years of college
• Qualifying expenses will now include course materials
• Phase-out level increased to $80,000 AGI ($160,000 for MFJ)
Qualified Tuition Programs (“529 Plans”)
For 2009 and 2010, a beneficiary of a qualified tuition program can use distributions to pay for computers and computer technology (including internet). Distributions will be tax-free. Previously, these expenses were not tax-free and were included in the beneficiary’s income and subject to penalty.
Earned Income Tax Credit
For 2009 and 2010, EITC percentage will be increased to 45% of the first $12,750 of earned income for taxpayers who have three or more qualifying children.( Prior to the new law, the credit percentage was 40% of the first $12,750 for taxpayers with two or more qualifying children.) In addition, the EITC phase-out range has been adjusted upward by $1,880 to eliminate any marriage penalty for joint filers.
Child Tax Credit
For 2009 and 2010, the refundable part of the child tax credit will be increased. The income threshold will now be set at $3,000.
Unemployment Compensation
Generally, a taxpayer’s gross income must include all unemployment compensation benefits received. Under the new law, in 2009 only, up to $2,400 of unemployment compensation will be excluded from gross income for federal income tax purposes.
Transit Benefits Parity
Transit passes, van pooling, qualified parking, and other qualified transportation fringe benefits are not typically included employee income up to a certain dollar amount. Under the new law, this dollar amount will be increased to $230 per month (up from $120) for transit passes and van pooling. This increased exclusion goes into effect in March 2009. It will continue through 2010 with adjustments made for inflation.
AMT Patch
The new law provides for an alternative minimum tax (AMT) patch for 2009. The following table shows the differences in exemption from 2008 to 2009.
MT Patch Exemption Amounts
2008 2009
Joint filers and surviving spouses 69,950 70,950 (up $1,000)
Singles and heads of households 46,200 46,700 (up $500)
Residential Energy Property Credit
Under the Recovery Act, the Residential Energy Property Credit allows a credit for eligible property placed in service after December 31, 2008, and before January 1, 2011, with the following modifications to the credit that was allowed in years prior to 2008:
• Increase of residential energy property tax credit to 30% (from 10%)
• Increase of maximum cap to $1,500 aggregate amount for 2009 and 2010 installations
• Elimination of the $500 lifetime cap
Eligible property includes insulation materials, exterior windows and doors, central air conditioners,
natural gas, propane or oil water heaters and furnaces, hot water boilers, electric heat-pump water heaters, certain metal roofs and stoves, and advanced main air-circulating fans.
Residential Energy-Efficient Property Credit
Modifications to the Residential Energy-Efficient Property Credit include removal of individual dollar caps under credit regulations for solar hot water property, geothermal heat pumps, and wind energy property. In addition, a $500 credit cap is placed on all qualified fuel cell property expenditures.
Monday, January 12, 2009
"Death Tax" May Cause Deaths
I read an artical in the Wall Street Journal about a subject that won't affect most of you. The estate tax is a tax on wealth at the time of death. It only affects millionares.
http://online.wsj.com/article/SB123172020818472279.html
What this writer did not touch upon is a little talked about effect of the Bush Tax Cuts. Say Grandpa has $150 million. Next year, the estate tax aka the death tax, will be entirely repealed. As part of the early Bush tax cuts, it has been gradually cut back with a complete repeal in 2010 BUT then the law expires and the estate tax returns to its prior sting. This would result in a 55% tax on wealth over $1 million. So if Grandpa dies in 2010 with $150 million, no tax is levied and the heirs inherit all of his money. If Grandpa dies on January 15, 2011, the heirs lose $81.95 million. Crime shows and journalists will get a lot of juicy tales to report on as wealthy people die in December 2010. Ironically, if Obama does nothing, it will actually result in a higher tax on the rich. Yes, Obama is proposing a tax cut for the rich.
http://online.wsj.com/article/SB123172020818472279.html
What this writer did not touch upon is a little talked about effect of the Bush Tax Cuts. Say Grandpa has $150 million. Next year, the estate tax aka the death tax, will be entirely repealed. As part of the early Bush tax cuts, it has been gradually cut back with a complete repeal in 2010 BUT then the law expires and the estate tax returns to its prior sting. This would result in a 55% tax on wealth over $1 million. So if Grandpa dies in 2010 with $150 million, no tax is levied and the heirs inherit all of his money. If Grandpa dies on January 15, 2011, the heirs lose $81.95 million. Crime shows and journalists will get a lot of juicy tales to report on as wealthy people die in December 2010. Ironically, if Obama does nothing, it will actually result in a higher tax on the rich. Yes, Obama is proposing a tax cut for the rich.
Monday, January 5, 2009
Obama's Tax Rebate and Last Year's Rebates
Another season starts and it is looking a lot like last year. There is a stimulus package in Congress as I write this. The best guess for the average person's benefit is a $500 per person tax rebate ($1,000 for a couple). That is a guess since the bill has to pass the House, then the Senate, both versions matched up and passed again when finally the new President will sign it. It is anybody's guess what the final version will actually look like. I am being more diligent in asking for email addresses so that I can keep my clients up to date on this. Likely, they will use the filed return to determine the rebate and send out additional checks but there is also a plan discussed to decrease withholding as a method to return the money.
Then there is the issue of last year's rebate. Back in 2001, when Bush first took office, there was a rebate issued. The following year, there was a line added to determine whether taxpayers had received their check. If you had not received it and you were entitled to it, it was added onto your refund or taken off of your tax bill if you owed. The stimulus checks of last year are the same as that. You need to remember or bring in the letter you received reporting the amount of your check/deposit when you have this year's taxes done so that we can figure out if you are owed additional money. The way the law reads, the IRS issued rebate checks in 2008 for 2008 INCOME based upon 2007 INCOME. Of course that made it an estimate. If you ended up with 2008 income that did not qualify you for the check but received one because your 2007 income did qualify you, you will not be penalized (because they wanted you to feel comfortable in spending the money immediately). If the reverse is true, that your 2008 income DID qualify you even though you did not get a check because your 2007 income did not, then you will be able to claim that money in addition to your normal refund. Confused? Don't worry, Fireside is here to sort it all out for you. I look forward to seeing you this year.
Then there is the issue of last year's rebate. Back in 2001, when Bush first took office, there was a rebate issued. The following year, there was a line added to determine whether taxpayers had received their check. If you had not received it and you were entitled to it, it was added onto your refund or taken off of your tax bill if you owed. The stimulus checks of last year are the same as that. You need to remember or bring in the letter you received reporting the amount of your check/deposit when you have this year's taxes done so that we can figure out if you are owed additional money. The way the law reads, the IRS issued rebate checks in 2008 for 2008 INCOME based upon 2007 INCOME. Of course that made it an estimate. If you ended up with 2008 income that did not qualify you for the check but received one because your 2007 income did qualify you, you will not be penalized (because they wanted you to feel comfortable in spending the money immediately). If the reverse is true, that your 2008 income DID qualify you even though you did not get a check because your 2007 income did not, then you will be able to claim that money in addition to your normal refund. Confused? Don't worry, Fireside is here to sort it all out for you. I look forward to seeing you this year.
Thursday, November 27, 2008
Fireside Tax Chat
I am creating this blog to keep my clients up to date on the latest tax matters. Considering what happened last year (AMT fix passed just after Christmas and the Stimulus Package passed after the tax filing season began) in the tax season combined with the economy and the election of Obama, expect changes at any time. I actually have sympathy for the IRS. Last year, they had to create a system to accept 30 million tax returns their system was designed to reject and issue over 100 million refunds they never planned for, after having to adjust their system to handle a significant tax law that saved millions from paying the AMT tax. I will do my best to keep my clients up to date and offer whatever service I can to help them react to the changes.
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