Claiming the First-Time Homebuyer Tax Credit on your 2009 tax return might mean a larger refund but it can seem complex. Are you confused about the documentation requirements? The IRS recognizes that the settlement documents can vary from location to location, so here are five tips to clarify the documentation requirements.
Settlement Statement: Purchasers of conventional homes must attach a copy of Form HUD-1 or other properly executed Settlement Statement.
Properly Executed Settle Statement: Generally, a properly executed settlement statement shows all parties' names and signatures, property address, sales price and date of purchase. However, settlement documents, including the Form HUD-1, can vary from one location to another and may not include the signatures of both the buyer and seller. In areas where signatures are not required on the settlement document, the IRS encourages buyers to sign the settlement statement when they file their tax return -- even in cases where the settlement form does not include a signature line.
Retail Sales Contract: Purchasers of mobile homes who are unable to get a settlement statement must attach a copy of the executed retail sales contract showing all parties' names and signatures, property address, purchase price and date of purchase.
Certificate of Occupancy: For a newly constructed home, where a settlement statement is not available, attach a copy of the certificate of occupancy showing the owner’s name, property address and date of the certificate.
Long-Time Residents: If you are a long-time resident claiming the credit, the IRS recommends that you also attach documentation covering the five-consecutive-year period such as Form 1098, Mortgage Interest Statement or substitute mortgage interest statements, property tax records or homeowner’s insurance records.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Sunday, February 28, 2010
Tax Tips: Converting to a Roth IRA - a smart idea in 2010?
Never before has there been such hubbub over the benefit of converting your traditional IRA account to that other tax-friendly alternative known as the Roth IRA.
Unless you haven't heard, there has been a certain magic associated with Roth retirement accounts since they allow money that has been set aside for retirement to grow tax free. Better yet, when the money is pulled out it is still tax free - whether you take it out during retirement or your kids do so as your beneficiaries.
In recent months, the Roth conversion strategy has grown in popularity among financial advisers who hasten to remind you that, starting in 2010, new planning opportunities are available, including an open-door policy that allows everyone to make the switch.
That's right - even big-time earners are now qualified to convert to the tax-friendly Roth.
The Roth IRA (and its lifetime insulation from taxes) is particularly attractive if you expect that you will be paying higher taxes in the future during retirement. Moreover, there are many who are convinced that, in view of the way our economy is headed, tax rates can only be headed upward.
The downside? As you probably know, a Roth conversion requires that you ante up the taxes up front on the amount being converted.
Traditional vs. Roth
Experts have long argued that under the bird-in-hand theory it is a waste of time and money to try and beat the economic advantages of the traditional IRA. Why not get your tax write-off now when it really matters, they query, rather than later?
Under this argument, you may be wondering why anyone would bother to make a Roth conversion and pay a tax bill up front - only to gain a (hard-to-define) tax benefit at some unknown time in the future.
Under this prevailing mind set, most retirement planners have been reluctant to dip into their non-IRA holdings to pay any taxes whatsoever, especially during these troubling times.
What's so special about 2010? In addition to the newly relaxed rules for eligibility, there are several other reasons why you might want to check to see if you could turn out a winner by making the Roth conversion - notwithstanding the so-called bird-in-hand logic.
Most important, during 2010 you may have the opportunity to gain:
A low market value planning opportunity. Many IRA owners who have been ravaged by the market meltdown of 2008 will find it especially advantageous to convert this year. For them, there will be a relatively small tax cost on the depressed value of their investments at today's favorable tax rates.
And (if qualifications are met) any future rebounds in the market will be unscathed by taxes, regardless of how much the government will increase the tax rates later.
An option to postpone the payment of the tax on the conversion. For 2010 only, you can decide if you wish to report the income from the conversion this year. If you prefer, you can report half the 2010 income on your 2011 return and the other half on your 2012 return at the tax rates in those years - clearly an important advantage for many.
Ideal candidates for a Roth conversion in 2010: The best candidates are individuals who expect that their tax bracket will be the same - or, perhaps, will increase - during retirement years. Particular attention is directed to those who expect an especially down year (income-wise) during 2010.
However, it also includes all those young individuals who have high income potential. There are also great planning opportunities for the wealthy and those who seek to reduce estate settlement costs. But above all, a Roth conversion should only be considered by those with adequate cash reserves on hand to pay the tax bill up front without having to draw out of their retirement account.
Crunch the numbers first: Regardless of your goals, you need to be clear as to what your up-front tax cost will be if you are considering a conversion in 2010. Even the experts can't rely on a rule-of-thumb calculation under the current tax rules.
You (or your tax professional) should run the figures through a tax software program - or make the calculation applying the existing variables in the tax law.
Planning tip: If you are on the fence with your decision, you might want to consider an (inexpensive) compromise since it's not an all-or-nothing proposition. You are allowed to convert any portion of the balance of your traditional IRA, so try a cherry-picking strategy.
Convert only those that took a nosedive with the economic downturn but have a good expectation of recovery. The tax cost could be minimal this year, but the potential tax savings down the road could be a bonanza for you, or your heirs.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Unless you haven't heard, there has been a certain magic associated with Roth retirement accounts since they allow money that has been set aside for retirement to grow tax free. Better yet, when the money is pulled out it is still tax free - whether you take it out during retirement or your kids do so as your beneficiaries.
In recent months, the Roth conversion strategy has grown in popularity among financial advisers who hasten to remind you that, starting in 2010, new planning opportunities are available, including an open-door policy that allows everyone to make the switch.
That's right - even big-time earners are now qualified to convert to the tax-friendly Roth.
The Roth IRA (and its lifetime insulation from taxes) is particularly attractive if you expect that you will be paying higher taxes in the future during retirement. Moreover, there are many who are convinced that, in view of the way our economy is headed, tax rates can only be headed upward.
The downside? As you probably know, a Roth conversion requires that you ante up the taxes up front on the amount being converted.
Traditional vs. Roth
Experts have long argued that under the bird-in-hand theory it is a waste of time and money to try and beat the economic advantages of the traditional IRA. Why not get your tax write-off now when it really matters, they query, rather than later?
Under this argument, you may be wondering why anyone would bother to make a Roth conversion and pay a tax bill up front - only to gain a (hard-to-define) tax benefit at some unknown time in the future.
Under this prevailing mind set, most retirement planners have been reluctant to dip into their non-IRA holdings to pay any taxes whatsoever, especially during these troubling times.
What's so special about 2010? In addition to the newly relaxed rules for eligibility, there are several other reasons why you might want to check to see if you could turn out a winner by making the Roth conversion - notwithstanding the so-called bird-in-hand logic.
Most important, during 2010 you may have the opportunity to gain:
A low market value planning opportunity. Many IRA owners who have been ravaged by the market meltdown of 2008 will find it especially advantageous to convert this year. For them, there will be a relatively small tax cost on the depressed value of their investments at today's favorable tax rates.
And (if qualifications are met) any future rebounds in the market will be unscathed by taxes, regardless of how much the government will increase the tax rates later.
An option to postpone the payment of the tax on the conversion. For 2010 only, you can decide if you wish to report the income from the conversion this year. If you prefer, you can report half the 2010 income on your 2011 return and the other half on your 2012 return at the tax rates in those years - clearly an important advantage for many.
Ideal candidates for a Roth conversion in 2010: The best candidates are individuals who expect that their tax bracket will be the same - or, perhaps, will increase - during retirement years. Particular attention is directed to those who expect an especially down year (income-wise) during 2010.
However, it also includes all those young individuals who have high income potential. There are also great planning opportunities for the wealthy and those who seek to reduce estate settlement costs. But above all, a Roth conversion should only be considered by those with adequate cash reserves on hand to pay the tax bill up front without having to draw out of their retirement account.
Crunch the numbers first: Regardless of your goals, you need to be clear as to what your up-front tax cost will be if you are considering a conversion in 2010. Even the experts can't rely on a rule-of-thumb calculation under the current tax rules.
You (or your tax professional) should run the figures through a tax software program - or make the calculation applying the existing variables in the tax law.
Planning tip: If you are on the fence with your decision, you might want to consider an (inexpensive) compromise since it's not an all-or-nothing proposition. You are allowed to convert any portion of the balance of your traditional IRA, so try a cherry-picking strategy.
Convert only those that took a nosedive with the economic downturn but have a good expectation of recovery. The tax cost could be minimal this year, but the potential tax savings down the road could be a bonanza for you, or your heirs.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Rules have changed for car buyers' federal tax breaks
"What kind of tax break can I get on that?" may not be the first thing you ask about the hot-pink hybrid that catches your eye at the auto dealership. But it is worth asking.
While going green doesn't add up to all the green it once did, there are still tax incentives available — including some that are slated to phase out by summer.
And if you are doing your tax return for 2009, don't forget about sales-tax credits for new car purchases during the year. If you bought two cars, you can get two credits, said Mark Luscombe, CCH principal tax analyst.
If you bought last year or have been walking around the dealership thinking it's now time for a new set of wheels, it's good to know some rules:
Going green
You've likely heard about generous tax breaks for buying hybrid cars and trucks. But if your plans include a 2010 Toyota Prius, you won't be able to get a credit.
This month, the Internal Revenue Service rolled out its latest list of tax credits for 2010-model-year hybrid vehicles. No Toyota or Honda models are on it because those companies already sold all the vehicles they were allowed under the Alternative Motor Vehicle Credit.
The 2010 credit list includes hybrid models from BMW, Cadillac, Chevrolet, Ford, GMC, Mercury, Mercedes-Benz and Nissan.
But consumers who are shopping for a Ford hybrid need to buy soon. A phaseout of credits on the company's hybrids started in April 2009. Now the final steps are in place — 25 percent of the full credit for Ford or Mercury hybrids bought between Oct. 1, 2009, and March 31 of this year. If you're looking at a 2010 Fusion Hybrid, the current $850 credit will be gone by the end of March.
The hybrid tax credit is complex. The dollar amount can change based on fuel economy and weight of the model, as well as how many such vehicles the manufacturer has already sold.
The first 60,000 hybrids or lean-technology vehicles sold per manufacturer — on a clock that began ticking in 2006 — qualify for the full credit.
General Motors still isn't anywhere near the cap, so the full credit is allowed on GM vehicles.
A 2010 GMC Sierra Hybrid, for example, would qualify for a $2,200 tax credit. A 2010 Chevy Malibu Hybrid would qualify for a $1,550 credit. A 2010 Cadillac Escalade Hybrid would qualify for a $2,200 credit.
The hybrid tax credit does not come automatically.
You must claim it on your federal return.
If you bought a qualifying hybrid in 2009, you will want to file a Form 8910 (Alternative Motor Vehicle Credit) with your 2009 federal income-tax return. The credit is then listed on Line 53 of the 1040 for 2009 among other credits. Luscombe noted it's not one of those items with its own line on the return.
New-car purchase
Almost all 2009 new-car purchases get you a tax deduction.
To qualify, the new vehicle must have been bought — not leased — from Feb. 17, 2009, through Dec. 31, 2009.
The American Recovery and Reinvestment Act of 2009 allows taxpayers to deduct state and local sales and excise taxes paid on up to $49,500 of the purchase price of new cars, light trucks, motor homes and motorcycles.
The deduction is reduced for joint filers with modified adjusted gross incomes between $250,000 and $260,000 and for other taxpayers with modified adjusted gross incomes between $125,000 and $135,000. Taxpayers with higher incomes do not qualify.
But the special deduction is available even for taxpayers who do not itemize deductions.
If you itemize, Luscombe noted, you report that sales tax on Schedule A. If you do not itemize, you report the sales tax for new-car purchases on Schedule L.
Electric vehicles
The American Recovery and Reinvestment Act of 2009 modified and increased an earlier tax credit for electric vehicles.
The base amount remains $2,500, with an additional amount of $417 for each kilowatt hour of "traction battery capacity in excess of 4 kilowatt hours." The maximum is capped at $7,500 for a light-duty vehicle.
Under the rules, taxpayers may claim the full amount of the credit up to the end of the first calendar quarter in which the manufacturer records its 200,000th sale of a plug-in, electric-drive vehicle. Then the credit starts to go down each quarter.
For some taxpayers, it will be good news that the credit is allowed against the alternative minimum tax.
A tax credit is also available for plug-in electric drive conversion kits.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
While going green doesn't add up to all the green it once did, there are still tax incentives available — including some that are slated to phase out by summer.
And if you are doing your tax return for 2009, don't forget about sales-tax credits for new car purchases during the year. If you bought two cars, you can get two credits, said Mark Luscombe, CCH principal tax analyst.
If you bought last year or have been walking around the dealership thinking it's now time for a new set of wheels, it's good to know some rules:
Going green
You've likely heard about generous tax breaks for buying hybrid cars and trucks. But if your plans include a 2010 Toyota Prius, you won't be able to get a credit.
This month, the Internal Revenue Service rolled out its latest list of tax credits for 2010-model-year hybrid vehicles. No Toyota or Honda models are on it because those companies already sold all the vehicles they were allowed under the Alternative Motor Vehicle Credit.
The 2010 credit list includes hybrid models from BMW, Cadillac, Chevrolet, Ford, GMC, Mercury, Mercedes-Benz and Nissan.
But consumers who are shopping for a Ford hybrid need to buy soon. A phaseout of credits on the company's hybrids started in April 2009. Now the final steps are in place — 25 percent of the full credit for Ford or Mercury hybrids bought between Oct. 1, 2009, and March 31 of this year. If you're looking at a 2010 Fusion Hybrid, the current $850 credit will be gone by the end of March.
The hybrid tax credit is complex. The dollar amount can change based on fuel economy and weight of the model, as well as how many such vehicles the manufacturer has already sold.
The first 60,000 hybrids or lean-technology vehicles sold per manufacturer — on a clock that began ticking in 2006 — qualify for the full credit.
General Motors still isn't anywhere near the cap, so the full credit is allowed on GM vehicles.
A 2010 GMC Sierra Hybrid, for example, would qualify for a $2,200 tax credit. A 2010 Chevy Malibu Hybrid would qualify for a $1,550 credit. A 2010 Cadillac Escalade Hybrid would qualify for a $2,200 credit.
The hybrid tax credit does not come automatically.
You must claim it on your federal return.
If you bought a qualifying hybrid in 2009, you will want to file a Form 8910 (Alternative Motor Vehicle Credit) with your 2009 federal income-tax return. The credit is then listed on Line 53 of the 1040 for 2009 among other credits. Luscombe noted it's not one of those items with its own line on the return.
New-car purchase
Almost all 2009 new-car purchases get you a tax deduction.
To qualify, the new vehicle must have been bought — not leased — from Feb. 17, 2009, through Dec. 31, 2009.
The American Recovery and Reinvestment Act of 2009 allows taxpayers to deduct state and local sales and excise taxes paid on up to $49,500 of the purchase price of new cars, light trucks, motor homes and motorcycles.
The deduction is reduced for joint filers with modified adjusted gross incomes between $250,000 and $260,000 and for other taxpayers with modified adjusted gross incomes between $125,000 and $135,000. Taxpayers with higher incomes do not qualify.
But the special deduction is available even for taxpayers who do not itemize deductions.
If you itemize, Luscombe noted, you report that sales tax on Schedule A. If you do not itemize, you report the sales tax for new-car purchases on Schedule L.
Electric vehicles
The American Recovery and Reinvestment Act of 2009 modified and increased an earlier tax credit for electric vehicles.
The base amount remains $2,500, with an additional amount of $417 for each kilowatt hour of "traction battery capacity in excess of 4 kilowatt hours." The maximum is capped at $7,500 for a light-duty vehicle.
Under the rules, taxpayers may claim the full amount of the credit up to the end of the first calendar quarter in which the manufacturer records its 200,000th sale of a plug-in, electric-drive vehicle. Then the credit starts to go down each quarter.
For some taxpayers, it will be good news that the credit is allowed against the alternative minimum tax.
A tax credit is also available for plug-in electric drive conversion kits.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Are Lower Small Business Taxes Worth a Move?
Many states will offer lower small business taxes to entice economic development. This is an entirely legal maneuver, and it has been used to sway major companies and industries to develop in new areas. If you are considering a move to save on your small business taxes, think about what the move means in terms of finances as well as personal lifestyle.
Geographic Considerations
Most cities or states that offer tax discounts to entice business lack other mechanisms to draw in business. There may be a lack of natural resources or business infrastructure. A place like New York City, by contrast, does not have to entice financial firms because it is home to Wall Street and can offer other incentives.
Actual Savings
The cost of moving a business to another state can be extremely high. You should price out this option in order to determine when you will break even based on the savings. You should also consider whether you will owe more to your employees in the new area as a result of minimum wage, have to pay more for raw materials due to the remote location of the new office and other factors that may add to your expense.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Geographic Considerations
Most cities or states that offer tax discounts to entice business lack other mechanisms to draw in business. There may be a lack of natural resources or business infrastructure. A place like New York City, by contrast, does not have to entice financial firms because it is home to Wall Street and can offer other incentives.
Actual Savings
The cost of moving a business to another state can be extremely high. You should price out this option in order to determine when you will break even based on the savings. You should also consider whether you will owe more to your employees in the new area as a result of minimum wage, have to pay more for raw materials due to the remote location of the new office and other factors that may add to your expense.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
How Taxes Affect Your Home Business
There is a common adage that says the only two things that are certain in life are death and taxes. While death is definitely not certain when it comes to a home business, taxes assuredly are. If you are going to operate a home business, there are some things you need to know about taxes or you may find yourself in a world of trouble.
I can not think of one person I know who likes paying taxes, doing taxes or talking about taxes; but the fact of the matter is taxes are an inevitable part of life and if you start a home business, they are probably going to be an even bigger part of your life than they were before.
When you work for someone else, your taxes are taken out of your paycheck and then at the end of the year, you simply file your tax return and you either pay money to the IRS or you get money back. Paying home business taxes gets to be quite more complicated than that. While income taxes are the main concern of those employed by others, home business owners need to worry about use taxes, sales taxes, employment taxes, income taxes and a number of other taxes that may apply to their business.
The first thing you need to take care of in terms of home business taxes is the process of getting an EIN number. A business’ EIN number is much like a social security number for your business. It is the number that is used when reporting taxes to the IRS. Once you have your EIN number and your home business starts generating income, you are going to have to start making estimated tax payments to the IRS.
Unlike the annual tax returns you filed when you were employed by someone else, home business owners have to pay taxes on a quarterly basis. For example, you are going to have to pay taxes on the money you make from January through March in April and for the money you make in April through May, you have to pay taxes on in June. The IRS provides home business tax payers with the Electronic Federal Tax Payment System in order to make paying your quarterly taxes more convenient.
If your home business has employees, you are also going to have to take care of your employees’ income taxes. When you have employees, you are required to withhold their income tax from their paychecks and you must pay that income tax to the IRS. If you have less than one-thousand dollars in income tax liability each year, you can do this annually. However, if your employees’ income tax liability is going to total up to more than one-thousand dollars a year, you are going to need to pay the IRS either monthly or semi-weekly.
Remember, this only applies to you if your home business has actual employees. Independent contractors are not considered employees and taxes do not have to be withheld from payments made to independent contractors.
Home business owners also have to pay self employment taxes. Self employment taxes are taxes self employed people pay to Social Security and Medicare. This tax allows you to receive Social Security and Medicare benefits when you retire.
If you are not sure how to manage your home business taxes, you should hire a small business accountant to consult with you on the best way to approach your tax requirements. Hiring an accountant who is willing to teach you how to do your own home business taxes can be much more cost effective than hiring an accountant who insists on doing all of your taxes for you without any explanation of what is being done.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
I can not think of one person I know who likes paying taxes, doing taxes or talking about taxes; but the fact of the matter is taxes are an inevitable part of life and if you start a home business, they are probably going to be an even bigger part of your life than they were before.
When you work for someone else, your taxes are taken out of your paycheck and then at the end of the year, you simply file your tax return and you either pay money to the IRS or you get money back. Paying home business taxes gets to be quite more complicated than that. While income taxes are the main concern of those employed by others, home business owners need to worry about use taxes, sales taxes, employment taxes, income taxes and a number of other taxes that may apply to their business.
The first thing you need to take care of in terms of home business taxes is the process of getting an EIN number. A business’ EIN number is much like a social security number for your business. It is the number that is used when reporting taxes to the IRS. Once you have your EIN number and your home business starts generating income, you are going to have to start making estimated tax payments to the IRS.
Unlike the annual tax returns you filed when you were employed by someone else, home business owners have to pay taxes on a quarterly basis. For example, you are going to have to pay taxes on the money you make from January through March in April and for the money you make in April through May, you have to pay taxes on in June. The IRS provides home business tax payers with the Electronic Federal Tax Payment System in order to make paying your quarterly taxes more convenient.
If your home business has employees, you are also going to have to take care of your employees’ income taxes. When you have employees, you are required to withhold their income tax from their paychecks and you must pay that income tax to the IRS. If you have less than one-thousand dollars in income tax liability each year, you can do this annually. However, if your employees’ income tax liability is going to total up to more than one-thousand dollars a year, you are going to need to pay the IRS either monthly or semi-weekly.
Remember, this only applies to you if your home business has actual employees. Independent contractors are not considered employees and taxes do not have to be withheld from payments made to independent contractors.
Home business owners also have to pay self employment taxes. Self employment taxes are taxes self employed people pay to Social Security and Medicare. This tax allows you to receive Social Security and Medicare benefits when you retire.
If you are not sure how to manage your home business taxes, you should hire a small business accountant to consult with you on the best way to approach your tax requirements. Hiring an accountant who is willing to teach you how to do your own home business taxes can be much more cost effective than hiring an accountant who insists on doing all of your taxes for you without any explanation of what is being done.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Food Taxes vs Food Subsidies
In principle, taxing unhealthy food and subsidizing healthy food ought to have similar impacts on consumer behavior. But as we know, actual human decision-making often varies from what that kind of theoretically-correct indifference. Tyler Cowen points to some evidence that taxes would have more impact:
The results, just published in Psychological Science, a journal of the Association for Psychological Science, show that taxes were more effective in reducing calories purchased over subsides. Specifically, taxing unhealthy foods reduced overall calories purchased, while cutting the proportion of fat and carbohydrates and upping the proportion of protein in a typical week’s groceries.
By contrast, subsidizing the prices of healthy food actually increased overall calories purchased without changing the nutritional value at all. It appears that mothers took the money they saved on subsidized fruits and vegetables and treated the family to less healthy alternatives, such as chips and soda pop. Taxes had basically the opposite effect, shifting spending from less healthy to healthier choices.
When you think about it in a broader context, taxes look even more favorable. If you tax unhealthy food, you’ll wind up with a bunch of revenue that you can spend on subsidized preschool or fixing potholes or lower general sales taxes. By contrast, if you subsidize healthy food, you’ll wind up needing to make your preschool subsidies less generous or take longer to fix potholes or raise general sales taxes. If there’s some very compelling reason to think that subsidies will be more efficacious at promoting public health than taxes, then of course you have to consider it seriously. But insofar as the evidence implies the reverse, there’s a very strong case for taxing unhealthy foods. Of course as a first step in an ideal world we’d reduce our spending on agricultural programs that subsidize production/consumption of unhealthy foods, a crazy policy initiative supported by nobody except all the relevant members of congress.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
The results, just published in Psychological Science, a journal of the Association for Psychological Science, show that taxes were more effective in reducing calories purchased over subsides. Specifically, taxing unhealthy foods reduced overall calories purchased, while cutting the proportion of fat and carbohydrates and upping the proportion of protein in a typical week’s groceries.
By contrast, subsidizing the prices of healthy food actually increased overall calories purchased without changing the nutritional value at all. It appears that mothers took the money they saved on subsidized fruits and vegetables and treated the family to less healthy alternatives, such as chips and soda pop. Taxes had basically the opposite effect, shifting spending from less healthy to healthier choices.
When you think about it in a broader context, taxes look even more favorable. If you tax unhealthy food, you’ll wind up with a bunch of revenue that you can spend on subsidized preschool or fixing potholes or lower general sales taxes. By contrast, if you subsidize healthy food, you’ll wind up needing to make your preschool subsidies less generous or take longer to fix potholes or raise general sales taxes. If there’s some very compelling reason to think that subsidies will be more efficacious at promoting public health than taxes, then of course you have to consider it seriously. But insofar as the evidence implies the reverse, there’s a very strong case for taxing unhealthy foods. Of course as a first step in an ideal world we’d reduce our spending on agricultural programs that subsidize production/consumption of unhealthy foods, a crazy policy initiative supported by nobody except all the relevant members of congress.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Ways to Save on Taxes
Federal tax law can seem like a really complicated issue. But, it’s important to every single one of us, since we all pay federal taxes each year. Each year, thousands of tax filers miss deductions to which they were entitled simply because they failed to know the federal income tax law. Though you may find it complex, it pays to understand federal tax laws, since doing so can help you save money when it comes time to file those taxes this year. There are many ways to save on your tax bill, but you must understand the federal income tax laws as they apply to you. Here are some of the allowable deductions allowed under federal income tax law. Here are a few method s to save from federal tax law.
Saving for Retirement – We all know we need to save for retirement, but not everyone is aware that saving for retirement is also a great way to save on taxes right now. Federal income tax law does, however, have limitations on the amount you can contribute tax free each year.
Adopting a Child – According to federal tax law, you qualify for a tax credit in the year that you incur qualifying expenses related to adopting a child. This however is not deductions but credits. Try reading more and it’s important to research the details of how this credit works.
Get a mortgage – Owning your own home is one of the biggest tax savings opportunities. The interest you pay on your mortgage is tax deductible, and in the first few years of a mortgage, most of your house payments go to interest, so you can save a bundle.
Paying for Education – According to federal tax law, the tuition that you pay for your college expenses or for the college expenses of your dependent qualify for a tax deduction. There are two types of education deductions; once called the Hope credit and one called the Lifetime Learning credit.
Go green – According to federal income tax law, many of your energy efficient purchases come with tax deductions. When you purchase home products, like replacement windows or a hot water heater, be sure they come with the government’s energy star rating. Items with the energy star rating are subject to tax deductions of about 10% of the purchase price in most cases.
Contribute to Charity – Charitable donations are tax deductible. And the federal income tax laws regarding charitable donations don’t just apply to cash donations, either. When you donate items like clothing and household items to charities that accept them, you can donate the value of the items donated.
Losing your job – According to federal tax law, if you lose your job, any monies you receive as part of a severance package or any unemployment you collect is taxable. However, many expenses that you’ll incur in looking for a new job are tax deductible.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Saving for Retirement – We all know we need to save for retirement, but not everyone is aware that saving for retirement is also a great way to save on taxes right now. Federal income tax law does, however, have limitations on the amount you can contribute tax free each year.
Adopting a Child – According to federal tax law, you qualify for a tax credit in the year that you incur qualifying expenses related to adopting a child. This however is not deductions but credits. Try reading more and it’s important to research the details of how this credit works.
Get a mortgage – Owning your own home is one of the biggest tax savings opportunities. The interest you pay on your mortgage is tax deductible, and in the first few years of a mortgage, most of your house payments go to interest, so you can save a bundle.
Paying for Education – According to federal tax law, the tuition that you pay for your college expenses or for the college expenses of your dependent qualify for a tax deduction. There are two types of education deductions; once called the Hope credit and one called the Lifetime Learning credit.
Go green – According to federal income tax law, many of your energy efficient purchases come with tax deductions. When you purchase home products, like replacement windows or a hot water heater, be sure they come with the government’s energy star rating. Items with the energy star rating are subject to tax deductions of about 10% of the purchase price in most cases.
Contribute to Charity – Charitable donations are tax deductible. And the federal income tax laws regarding charitable donations don’t just apply to cash donations, either. When you donate items like clothing and household items to charities that accept them, you can donate the value of the items donated.
Losing your job – According to federal tax law, if you lose your job, any monies you receive as part of a severance package or any unemployment you collect is taxable. However, many expenses that you’ll incur in looking for a new job are tax deductible.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
IRS Rev Ruling 2010-9
Information for those of you who will be receiving a refund so you can understand how the Internal Revenue Service computes any interest earned in addtion to your refund.
Section 6621 of the Internal Revenue Code establishes the rates for interest on tax overpayments and tax underpayments. Under section 6621(a) (1), the overpayment rate is the sum of the federal short-term rate plus 3 percentage points (2 percentage points in the case of a corporation), except the rate for the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the sum of the federal short-term rate plus 0.5 of a percentage point. Under section 6621(a) (2), the underpayment rate is the sum of the federal short-term rate plus 3 percentage points.
Section 6621(c) provides that for purposes of interest payable under section 6601 on any large corporate underpayment, the underpayment rate under section 6621(a)(2) is determined by substituting "5 percentage points" for "3 percentage points."
See section 6621(c) and section 301.6621-3 of the Regulations on Procedure and Administration for the definition of a large corporate underpayment and for the rules for determining the applicable date. Section 6621(c) and section 301.6621-3 are generally effective for periods after December 31, 1990.
Section 6621(b) (1) provides that the Secretary will determine the federal short-term rate for the first month in each calendar quarter. Section 6621(b) (2) (A) provides that the federal short-term rate determined under section 6621(b) (1) for any month applies during the first calendar quarter beginning after that month. Section 6621(b) (2) (B) provides that in determining the addition to tax under section 6654 for failure to pay estimated tax for any taxable year, the federal short-term rate that applies during the third month following the taxable year also applies during the first 15 days of the fourth month following the taxable year.
Section 6621(b) (3) provides that the federal short-term rate for any month is the federal short-term rate determined during that month by the Secretary in accordance with section 1274(d), rounded to the nearest full percent (or, if a multiple of 1/2 of 1 percent, the rate is increased to the next highest full percent).
Notice 88-59, 1988-1 C.B. 546, announced that, in determining the quarterly interest rates to be used for overpayments and underpayments of tax under section 6621, the Internal Revenue Service will use the federal short-term rate based on daily compounding because that rate is most consistent with section 6621 which, pursuant to section 6622, is subject to daily compounding.
The federal short-term rate determined in accordance with section 1274(d) during January 2010 is the rate published in Revenue Ruling 2010-6, 2010-6 IRB 387 to take effect beginning February 1, 2010. The federal short-term rate, rounded to the nearest full percent, based on daily compounding determined during the month of January 2010 is 1 percent. Accordingly, an overpayment rate of 4 percent (3 percent in the case of a corporation) and an underpayment rate of 4 percent are established for the calendar quarter beginning April 1, 2010. The overpayment rate for the portion of a corporate overpayment exceeding $10,000 for the calendar quarter beginning April 1, 2010, is 1.5 percent. The underpayment rate for large corporate underpayments for the calendar quarter beginning April 1, 2010, is 6 percent. These rates apply to amounts bearing interest during that calendar quarter.
Under section 6621(b)(2)(B), the rate for determining the addition to tax for failure to pay estimated tax for the first15 days in April 2010 is the 4 percent rate that applied to underpayments of tax during the first calendar quarter in 2010.
Interest factors for daily compound interest for annual rates of 1.5 percent, 3 percent, 4 percent, and 6 percent are published in Tables 8, 11, 13, and 17 of Rev. Proc. 95-17, 1995-1 C.B. 556, 562, 565, 567, and 571.
Annual interest rates to be compounded daily pursuant to section 6622 that apply for prior periods are set forth in the tables accompanying this revenue ruling.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Section 6621 of the Internal Revenue Code establishes the rates for interest on tax overpayments and tax underpayments. Under section 6621(a) (1), the overpayment rate is the sum of the federal short-term rate plus 3 percentage points (2 percentage points in the case of a corporation), except the rate for the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the sum of the federal short-term rate plus 0.5 of a percentage point. Under section 6621(a) (2), the underpayment rate is the sum of the federal short-term rate plus 3 percentage points.
Section 6621(c) provides that for purposes of interest payable under section 6601 on any large corporate underpayment, the underpayment rate under section 6621(a)(2) is determined by substituting "5 percentage points" for "3 percentage points."
See section 6621(c) and section 301.6621-3 of the Regulations on Procedure and Administration for the definition of a large corporate underpayment and for the rules for determining the applicable date. Section 6621(c) and section 301.6621-3 are generally effective for periods after December 31, 1990.
Section 6621(b) (1) provides that the Secretary will determine the federal short-term rate for the first month in each calendar quarter. Section 6621(b) (2) (A) provides that the federal short-term rate determined under section 6621(b) (1) for any month applies during the first calendar quarter beginning after that month. Section 6621(b) (2) (B) provides that in determining the addition to tax under section 6654 for failure to pay estimated tax for any taxable year, the federal short-term rate that applies during the third month following the taxable year also applies during the first 15 days of the fourth month following the taxable year.
Section 6621(b) (3) provides that the federal short-term rate for any month is the federal short-term rate determined during that month by the Secretary in accordance with section 1274(d), rounded to the nearest full percent (or, if a multiple of 1/2 of 1 percent, the rate is increased to the next highest full percent).
Notice 88-59, 1988-1 C.B. 546, announced that, in determining the quarterly interest rates to be used for overpayments and underpayments of tax under section 6621, the Internal Revenue Service will use the federal short-term rate based on daily compounding because that rate is most consistent with section 6621 which, pursuant to section 6622, is subject to daily compounding.
The federal short-term rate determined in accordance with section 1274(d) during January 2010 is the rate published in Revenue Ruling 2010-6, 2010-6 IRB 387 to take effect beginning February 1, 2010. The federal short-term rate, rounded to the nearest full percent, based on daily compounding determined during the month of January 2010 is 1 percent. Accordingly, an overpayment rate of 4 percent (3 percent in the case of a corporation) and an underpayment rate of 4 percent are established for the calendar quarter beginning April 1, 2010. The overpayment rate for the portion of a corporate overpayment exceeding $10,000 for the calendar quarter beginning April 1, 2010, is 1.5 percent. The underpayment rate for large corporate underpayments for the calendar quarter beginning April 1, 2010, is 6 percent. These rates apply to amounts bearing interest during that calendar quarter.
Under section 6621(b)(2)(B), the rate for determining the addition to tax for failure to pay estimated tax for the first15 days in April 2010 is the 4 percent rate that applied to underpayments of tax during the first calendar quarter in 2010.
Interest factors for daily compound interest for annual rates of 1.5 percent, 3 percent, 4 percent, and 6 percent are published in Tables 8, 11, 13, and 17 of Rev. Proc. 95-17, 1995-1 C.B. 556, 562, 565, 567, and 571.
Annual interest rates to be compounded daily pursuant to section 6622 that apply for prior periods are set forth in the tables accompanying this revenue ruling.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Thursday, February 25, 2010
Do you cheat on your taxes?
If so, you're not alone. More Americans are fudging their taxes and an increasing number of people are scared of being audited, a survey from the IRS Oversight Board shows. With the state of the country many more Americans are cheating on their taxes just to try and make ends meet.
Thirteen percent of those surveyed said cheating is acceptable, according to an annual poll conducted for the Internal Revenue Service Oversight Board. That's up 4% from 2008. Four percent of Americans said they cheat on their taxes "as much as possible," up 1% from the year before.
As tax season approaches this year, even more people may resort to cheating.
"I think the temptation will be greater this year, given the overall economic environment," said Bob Kerr, senior director of government relations at the National Association of Enrolled Agents.
But it's still impressive that more than 80% of those surveyed said they don't think it's ever acceptable to cheat.
How people find way to cheat: As the government offers more refundable credits to taxpayers, such as the Making Work Pay Tax Credit, people may be tempted to try to claim more money than they deserve.
"We're getting more refundable credits," said Mark Luscombe, a tax analyst at CCH. "Historically, when you're able to get a check from the government in your hands right away, this has brought more cheaters out of the woodwork."
Besides common cheating tactics such as inflating the value of charitable donations and claiming personal expenses as business expenses if you're self-employed, Luscombe said a number of "cheaters" are simply those people who can't decipher the complicated tax code.
"People can't figure it out so they just put down a number that seems pretty good to them," he said. "The laws get more and more complicated each year and people just have less time to figure out the right way to do it so they might try to cut some corners."
More Americans are scared of getting audited: When asked if the fear of an audit plays a role in whether or not a taxpayer reports his or her taxes "honestly," 77% of Americans said yes, according to the poll.
That shouldn't be a surprise given the higher likelihood that you will be selected for a review. Last year, the number of audits rose to the highest level in a decade, and even more audits are expected this year as the Obama Administration pours money into tax enforcement.
A hotline was created to prevent cheaters from slipping past the IRS. Anyone with information about suspected tax fraud is encouraged to report it to the agency's tip line at 1-800-829-0433.
"There's still only about a 1% chance on average that you will be audited," said Luscombe. "But the audit rate has headed back up in the last couple years so your chances are certainly going up."
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Thirteen percent of those surveyed said cheating is acceptable, according to an annual poll conducted for the Internal Revenue Service Oversight Board. That's up 4% from 2008. Four percent of Americans said they cheat on their taxes "as much as possible," up 1% from the year before.
As tax season approaches this year, even more people may resort to cheating.
"I think the temptation will be greater this year, given the overall economic environment," said Bob Kerr, senior director of government relations at the National Association of Enrolled Agents.
But it's still impressive that more than 80% of those surveyed said they don't think it's ever acceptable to cheat.
How people find way to cheat: As the government offers more refundable credits to taxpayers, such as the Making Work Pay Tax Credit, people may be tempted to try to claim more money than they deserve.
"We're getting more refundable credits," said Mark Luscombe, a tax analyst at CCH. "Historically, when you're able to get a check from the government in your hands right away, this has brought more cheaters out of the woodwork."
Besides common cheating tactics such as inflating the value of charitable donations and claiming personal expenses as business expenses if you're self-employed, Luscombe said a number of "cheaters" are simply those people who can't decipher the complicated tax code.
"People can't figure it out so they just put down a number that seems pretty good to them," he said. "The laws get more and more complicated each year and people just have less time to figure out the right way to do it so they might try to cut some corners."
More Americans are scared of getting audited: When asked if the fear of an audit plays a role in whether or not a taxpayer reports his or her taxes "honestly," 77% of Americans said yes, according to the poll.
That shouldn't be a surprise given the higher likelihood that you will be selected for a review. Last year, the number of audits rose to the highest level in a decade, and even more audits are expected this year as the Obama Administration pours money into tax enforcement.
A hotline was created to prevent cheaters from slipping past the IRS. Anyone with information about suspected tax fraud is encouraged to report it to the agency's tip line at 1-800-829-0433.
"There's still only about a 1% chance on average that you will be audited," said Luscombe. "But the audit rate has headed back up in the last couple years so your chances are certainly going up."
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Freelance Income Reporting Tax Tips for Writers
Tax time is never fun. Freelancers, such as writers, often are stumped on how to handle their income reporting for the year and worry about the amount owed to the government for unpaid personal income taxes. There are many things a writer can do to ensure they can avoid a potential audit from the IRS as well.
Writing as a Business
Treating writing like a business is the best way to ensure that a tax dilemma does not occur. This includes keeping accurate records on all income and recording it in a place that is easily accessible come tax time. Make sure to record earnings as well as expenses since many expenditures can be tax deductible if they are qualified. This includes writing supplies, equipment and other purchases necessary for the writing business. Subscriptions and even home office space may be tax deductible, so keep a file of every single expense.
For tracking income, make sure to at least include the source, a description of the service or piece, the form of payment issued as well as the amount. This form of payment can be a copy of the payment.
Staying organized as a writer and treating writing like a business will help make tax time much easier on you, lower the amount of taxes to pay as well as decrease the chance of an audit.
What Tax Forms to Fill Out as a Writer
Freelance writers who have made any income the previous year will need to fill out a long 1040 as well as a Schedule C and a Schedule SE (self-employment tax) to report profit and loss. Keep in mind that if planning to deduct a lot of expenses, additional forms will need to be filled out as well. You should consult a tax expert if you are unsure of how to prepare you tax forms.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Writing as a Business
Treating writing like a business is the best way to ensure that a tax dilemma does not occur. This includes keeping accurate records on all income and recording it in a place that is easily accessible come tax time. Make sure to record earnings as well as expenses since many expenditures can be tax deductible if they are qualified. This includes writing supplies, equipment and other purchases necessary for the writing business. Subscriptions and even home office space may be tax deductible, so keep a file of every single expense.
For tracking income, make sure to at least include the source, a description of the service or piece, the form of payment issued as well as the amount. This form of payment can be a copy of the payment.
Staying organized as a writer and treating writing like a business will help make tax time much easier on you, lower the amount of taxes to pay as well as decrease the chance of an audit.
What Tax Forms to Fill Out as a Writer
Freelance writers who have made any income the previous year will need to fill out a long 1040 as well as a Schedule C and a Schedule SE (self-employment tax) to report profit and loss. Keep in mind that if planning to deduct a lot of expenses, additional forms will need to be filled out as well. You should consult a tax expert if you are unsure of how to prepare you tax forms.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Thursday, February 18, 2010
Gambling Winnings Are Always Taxable Income for Your Return
Any and all gambling winnings are fully taxable and must be reported on your tax return. Here are the top seven facts the Internal Revenue Service wants you to know about gambling winnings.
Gambling income includes winnings from lotteries, raffles, horse and dog races and casinos, as well as the fair market value of prizes such as cars, houses, trips or other noncash prizes. This is not the entire list of gambling income but it is a good start for your review.
Depending on the type and amount of your winnings, the payer might provide you with a Form W-2G and may have withheld federal income taxes from the payment. Usually if the value is over one thousand dollars they will provide a W-2G.
The full amount of your gambling winnings for the year must be reported on line 21 of IRS Form 1040; you may not use Form 1040A or 1040EZ. This rule applies regardless of the amount and regardless of whether you receive a Form W-2G or any other reporting form. All W2-G’s are submitted to the government so make sure you account for them on your tax return.
If you itemize deductions, you can deduct your gambling losses for the year on line 28 of Schedule A, Form 1040. You cannot deduct gambling losses that are more than your winnings. 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.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Gambling income includes winnings from lotteries, raffles, horse and dog races and casinos, as well as the fair market value of prizes such as cars, houses, trips or other noncash prizes. This is not the entire list of gambling income but it is a good start for your review.
Depending on the type and amount of your winnings, the payer might provide you with a Form W-2G and may have withheld federal income taxes from the payment. Usually if the value is over one thousand dollars they will provide a W-2G.
The full amount of your gambling winnings for the year must be reported on line 21 of IRS Form 1040; you may not use Form 1040A or 1040EZ. This rule applies regardless of the amount and regardless of whether you receive a Form W-2G or any other reporting form. All W2-G’s are submitted to the government so make sure you account for them on your tax return.
If you itemize deductions, you can deduct your gambling losses for the year on line 28 of Schedule A, Form 1040. You cannot deduct gambling losses that are more than your winnings. 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.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Tuesday, February 16, 2010
Seven Facts about Social Security Benefits
If you received Social Security benefits in 2009, you need to know whether or not these benefits are taxable. Here are seven facts the Internal Revenue Service wants you to know about Social Security benefits so you can determine whether or not they are taxable to you.
1. How much – if any – of your Social Security benefits are taxable depends on your total income and marital status.
2. Generally, if Social Security benefits were your only income for 2009, your benefits are not taxable and you probably do not need to file a federal income tax return.
3. 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.
4. Your taxable benefits and modified adjusted gross income are figured on a worksheet in the Form 1040A or Form 1040 Instruction booklet.
5. You can do the following quick computation to determine whether some of your benefits may be taxable:
First, add one-half of the total Social Security benefits 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. If the total is more than your base amount, some of your benefits may be taxable.
6. 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.
7. For additional information on the taxability of Social Security benefits, see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Publication 915 is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
1. How much – if any – of your Social Security benefits are taxable depends on your total income and marital status.
2. Generally, if Social Security benefits were your only income for 2009, your benefits are not taxable and you probably do not need to file a federal income tax return.
3. 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.
4. Your taxable benefits and modified adjusted gross income are figured on a worksheet in the Form 1040A or Form 1040 Instruction booklet.
5. You can do the following quick computation to determine whether some of your benefits may be taxable:
First, add one-half of the total Social Security benefits 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. If the total is more than your base amount, some of your benefits may be taxable.
6. 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.
7. For additional information on the taxability of Social Security benefits, see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Publication 915 is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Attestation Review of the Internal Revenue Service's
ATTESTATION REVIEW OF THE INTERNAL REVENUE SERVICE’S FISCAL YEAR 2009 ANNUAL ACCOUNTING OF DRUG CONTROL FUNDS AND RELATED PERFORMANCE
Highlights of Report Number: 2010-10-022 to the Internal Revenue Service Chief Financial Officer and Chief, Criminal Investigation Division.
IMPACT ON TAXPAYERS
The Internal Revenue Service (IRS) reported that it expended $60.6 million on Office of National Drug Control Policy (ONDCP)-related activities and participated in 462 ONDCP-related cases that resulted in convictions in Fiscal Year (FY) 2009. Based on our review, nothing came to our attention that caused us to believe that the assertions in the Detailed Accounting Submission and Performance Summary Report (the Report) are not presented in all material respects in accordance with ONDCP-established criteria. Complete and reliable financial and performance information is critical to the IRS’ ability to accurately report on the results of its operations to both internal and external stakeholders, including taxpayers.
WHY TIGTA DID THE AUDIT
This review was conducted as required by the ONDCP and the ONDCP Circular: Drug Control Accounting, dated May 1, 2007. The National Drug Control Program agencies are required to submit to the Director of the ONDCP, not later than February 1 of each year, a detailed accounting of all funds expended (the ONDCP Circular requires amounts obligated) during the previous fiscal year. Agencies also need to identify and document performance measure(s) that justify the results associated with these expenditures.
The Chief Financial Officer, or another accountable senior level executive, of each agency for which a Detailed Accounting Submission is required, shall provide a Performance Summary Report to the Director of the ONDCP. Further, the Circular requires that each report be provided to the agency’s Inspector General for the purpose of expressing a conclusion about the reliability of each assertion made in the report prior to its submission.
WHAT TIGTA FOUND
Based on our review, nothing came to our attention that caused us to believe that the assertions in the Report are not presented in all material respects in accordance with ONDCP-established criteria. The IRS reported that it expended $60.6 million on ONDCP-related activities and completed 652 ONDCP-related investigations in FY 2009. For FY 2009, the IRS also reported it participated in 462 ONDCP-related cases that resulted in convictions.
In addition, based on a recommendation in our FY 2008 attestation report, the IRS informed us that it adjusted its year-end performance information for FY 2009 to include only cases that occurred in FY 2009. Our review of the IRS’ Performance Summary Report for FY 2009 did not identify any cases reported that did not occur in FY 2009.
WHAT TIGTA RECOMMENDED
TIGTA made no recommendations as a result of the work performed during this review. IRS management agreed with the facts and conclusions presented in this report.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Highlights of Report Number: 2010-10-022 to the Internal Revenue Service Chief Financial Officer and Chief, Criminal Investigation Division.
IMPACT ON TAXPAYERS
The Internal Revenue Service (IRS) reported that it expended $60.6 million on Office of National Drug Control Policy (ONDCP)-related activities and participated in 462 ONDCP-related cases that resulted in convictions in Fiscal Year (FY) 2009. Based on our review, nothing came to our attention that caused us to believe that the assertions in the Detailed Accounting Submission and Performance Summary Report (the Report) are not presented in all material respects in accordance with ONDCP-established criteria. Complete and reliable financial and performance information is critical to the IRS’ ability to accurately report on the results of its operations to both internal and external stakeholders, including taxpayers.
WHY TIGTA DID THE AUDIT
This review was conducted as required by the ONDCP and the ONDCP Circular: Drug Control Accounting, dated May 1, 2007. The National Drug Control Program agencies are required to submit to the Director of the ONDCP, not later than February 1 of each year, a detailed accounting of all funds expended (the ONDCP Circular requires amounts obligated) during the previous fiscal year. Agencies also need to identify and document performance measure(s) that justify the results associated with these expenditures.
The Chief Financial Officer, or another accountable senior level executive, of each agency for which a Detailed Accounting Submission is required, shall provide a Performance Summary Report to the Director of the ONDCP. Further, the Circular requires that each report be provided to the agency’s Inspector General for the purpose of expressing a conclusion about the reliability of each assertion made in the report prior to its submission.
WHAT TIGTA FOUND
Based on our review, nothing came to our attention that caused us to believe that the assertions in the Report are not presented in all material respects in accordance with ONDCP-established criteria. The IRS reported that it expended $60.6 million on ONDCP-related activities and completed 652 ONDCP-related investigations in FY 2009. For FY 2009, the IRS also reported it participated in 462 ONDCP-related cases that resulted in convictions.
In addition, based on a recommendation in our FY 2008 attestation report, the IRS informed us that it adjusted its year-end performance information for FY 2009 to include only cases that occurred in FY 2009. Our review of the IRS’ Performance Summary Report for FY 2009 did not identify any cases reported that did not occur in FY 2009.
WHAT TIGTA RECOMMENDED
TIGTA made no recommendations as a result of the work performed during this review. IRS management agreed with the facts and conclusions presented in this report.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Sunday, February 14, 2010
Tips for Small Business 2009 Income Tax
This is the time of year when most small business owners focus on preparing their income tax. Some of the rules have changed since filing last and there are certain things you might want to consider before approaching your tax preparer.
It is expected that many businesses did not fare as well in 2009 as they have in previous years. As a result, many business owners may be approaching tax season with some fear and apprehension regarding their tax preparer fees and any taxes due.
One way to reign in your professional tax fee expense is to get a guaranteed price up front from your CPA. In progressive, forward thinking CPA firms where an emphasis is placed on providing total quality service and on the value of the services to the client, billable hours are not used. Rather, Fixed Price Agreements (FPA) is used.
As a client, you do not buy hours from your CPA. Thus, your CPA should not sell time. A more cost effective approach is for you and your CPA to sit down and decide together what services you value, and how much you should pay for these services. During the meeting, you should also discuss payment terms and any relevant mutual commitments. Then an FPA can be prepared that states what you agreed to in the meeting. With the creation of an FPA between you and your CPA, you have one less cash flow item to worry about for tax season.
Another way to keep your tax preparation fees in check is to have your financial information in good order. Make sure that all of your accounts are reconciled before turning the records over to your CPA and double check your entries in the general ledger. Make sure that new assets weren’t inadvertently included in office supplies and that there are no personal expenses included in your business books.
If your CPA is using a paperless system, see what you can do to work with it. Send them as much documentation through their customer portal as possible and scan your own documents ahead of time.
A new piece of legislation passed unanimously by the Senate in January now allows taxpayers to deduct charitable contributions to aid victims of the devastating earthquake in Haiti. The law allows U.S. taxpayers to make charitable contributions to Haiti relief programs before March 1, 2010, and claim those contributions on their 2009 income tax return. The legislation also includes a provision allowing those who text-messaged a donation the ability to use a phone bill as proof of their donation. Since the records for such donations will not be in your 2009 records, be sure to pull this information from your 2010 accounting.
Make sure your CPA is aware of the following:
• Did you restructure your debt this year?
• Did you sell your home this year
• Was your home foreclosed on during the year?
• Did you buy a home this year?
• Do you have any new dependents this year?
• Do you have children over 18 who are no longer dependents?
• Did you have any higher education expenses for you or your dependents?
• Did you make any qualified energy improvements?
• Did you purchase a qualifying energy vehicle?
There are also new rules regarding the use of Net Operating Losses (NOL). If you have an NOL for 2009, you will need to discuss which strategy is best for your personal situation. You will need to make the decision to carry back the loss to prior years and request a tax refund or elect to forgo the carry back and carry the loss forward to offset higher income that you expect in the future at higher tax rates than in previous years.
Several other pieces of tax legislation were passed in 2009, however, many of the provisions effect tax years beginning in 2010 and beyond. This makes tax planning a crucial step for 2010.
When meeting with your CPA in 2010, be sure to ask about the following:
• Converting your traditional IRA accounts to ROTH IRA accounts
• Changing from a traditional medical insurance plan to a high deductible plan combined with a Health Savings Account
• Does your estate plan and related insurance need to be updated?
• How can you make energy efficient improvements and save taxes at the same time?
• Should you consider purchasing a qualifying energy vehicle?
• Do you qualify for first time home buyer credits for homes purchased before May 1, 2010?
Many CPAs send out regular newsletters regarding changes in tax laws. With many new laws on the way, you will want to make sure that you read those newsletters and be aware of issues that relate to your situation.
Finally, with so many shortages in federal and state government agencies you will see stepped up enforcement activities among IRS and state auditors. Make sure that you are in compliance with regard to compensation plans, benefit plans, qualified plans, accountable plans, use taxes, record keeping and the like.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
It is expected that many businesses did not fare as well in 2009 as they have in previous years. As a result, many business owners may be approaching tax season with some fear and apprehension regarding their tax preparer fees and any taxes due.
One way to reign in your professional tax fee expense is to get a guaranteed price up front from your CPA. In progressive, forward thinking CPA firms where an emphasis is placed on providing total quality service and on the value of the services to the client, billable hours are not used. Rather, Fixed Price Agreements (FPA) is used.
As a client, you do not buy hours from your CPA. Thus, your CPA should not sell time. A more cost effective approach is for you and your CPA to sit down and decide together what services you value, and how much you should pay for these services. During the meeting, you should also discuss payment terms and any relevant mutual commitments. Then an FPA can be prepared that states what you agreed to in the meeting. With the creation of an FPA between you and your CPA, you have one less cash flow item to worry about for tax season.
Another way to keep your tax preparation fees in check is to have your financial information in good order. Make sure that all of your accounts are reconciled before turning the records over to your CPA and double check your entries in the general ledger. Make sure that new assets weren’t inadvertently included in office supplies and that there are no personal expenses included in your business books.
If your CPA is using a paperless system, see what you can do to work with it. Send them as much documentation through their customer portal as possible and scan your own documents ahead of time.
A new piece of legislation passed unanimously by the Senate in January now allows taxpayers to deduct charitable contributions to aid victims of the devastating earthquake in Haiti. The law allows U.S. taxpayers to make charitable contributions to Haiti relief programs before March 1, 2010, and claim those contributions on their 2009 income tax return. The legislation also includes a provision allowing those who text-messaged a donation the ability to use a phone bill as proof of their donation. Since the records for such donations will not be in your 2009 records, be sure to pull this information from your 2010 accounting.
Make sure your CPA is aware of the following:
• Did you restructure your debt this year?
• Did you sell your home this year
• Was your home foreclosed on during the year?
• Did you buy a home this year?
• Do you have any new dependents this year?
• Do you have children over 18 who are no longer dependents?
• Did you have any higher education expenses for you or your dependents?
• Did you make any qualified energy improvements?
• Did you purchase a qualifying energy vehicle?
There are also new rules regarding the use of Net Operating Losses (NOL). If you have an NOL for 2009, you will need to discuss which strategy is best for your personal situation. You will need to make the decision to carry back the loss to prior years and request a tax refund or elect to forgo the carry back and carry the loss forward to offset higher income that you expect in the future at higher tax rates than in previous years.
Several other pieces of tax legislation were passed in 2009, however, many of the provisions effect tax years beginning in 2010 and beyond. This makes tax planning a crucial step for 2010.
When meeting with your CPA in 2010, be sure to ask about the following:
• Converting your traditional IRA accounts to ROTH IRA accounts
• Changing from a traditional medical insurance plan to a high deductible plan combined with a Health Savings Account
• Does your estate plan and related insurance need to be updated?
• How can you make energy efficient improvements and save taxes at the same time?
• Should you consider purchasing a qualifying energy vehicle?
• Do you qualify for first time home buyer credits for homes purchased before May 1, 2010?
Many CPAs send out regular newsletters regarding changes in tax laws. With many new laws on the way, you will want to make sure that you read those newsletters and be aware of issues that relate to your situation.
Finally, with so many shortages in federal and state government agencies you will see stepped up enforcement activities among IRS and state auditors. Make sure that you are in compliance with regard to compensation plans, benefit plans, qualified plans, accountable plans, use taxes, record keeping and the like.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Taxes…with Love
First comes love, then comes marriage, then comes…taxes?
Between the dismal economy and just business as usual, the year 2009 was filled with major life changes for many people. Now, as Valentine’s Day passes, many more can expect another major life change in the near future–marriage. An estimated 2 million Americans get married each year, and approximately 10% of those marriage proposals happen on Valentine’s Day.
Valentine’s Day also happens to fall during tax season–and it’s important to know that most of life’s big milestones, such as having a baby or buying a home, come with lots implications. Here are some timely tax tips to plan for these life-altering events which may have occurred in 2009:
Married in 2009
Americans are waiting longer to get married. The median age for a man and woman’s first marriage was 27.6 and 25.9 years, respectively, in 2008. However, in 1960, men typically got married at age 22.8 while women were 20.3. There are plenty of social implications for delaying marriage, but waiting longer to tie the knot means that you may be more established in your financial life, too. And that can make filing your taxes more complicated. Yet while all married couples can file their taxes together or separately, most save thousands of dollars by filing jointly. That’s because filing separately disqualifies you for some of the most significant tax credits and deductions which include:
• The Earned Income Credit
The Earned Income Credit is responsible for more than $49 billion in tax credits, so you don’t want to miss out. Congress originally approved the tax credit legislation in 1975 as a way to offset Social Security taxes and to provide an incentive for workers. For 2009, you’ll need an AGI (adjusted gross income) of $70,950 or less if married filing jointly to qualify.
• Child and Dependent Care deductions
The typical American family with two young children spends an average of $14,000 a year on child care, which is almost a quarter of its annual income, according to the U.S. Census bureau. The good news is that some of those childcare costs are tax-deductible; the bad news is that figuring out if you qualify can be extremely tricky.
• American Opportunity and Lifetime Learning credits
For 2009, there are several tax credits available to help you offset the costs of higher education by reducing the amount of your income tax, depending on your income. The Lifetime Learning Credit can be used for qualified education expenses for you, your spouse or your offspring while the American Opportunity Credit can be claimed for tuition and certain fees you pay for higher education in 2009 and 2010. For the tax year, you may be able to claim a Lifetime Learning Credit of up to $2,000 (and the credit is $4,000 if you are a student in a Midwestern disaster area). The American Opportunity Credit is worth up to $2,500 for qualified tuition and expenses.
• Student loan interest deduction
The interest you pay on your student loans may also be tax-deductible. For 2009, the tax deduction is phased out if your filing status is married filing jointly and your modified adjusted gross income is between $120,000 and $150,000. Keep in mind that you aren’t eligible for this deduction if your modified AGI is $150,000 or more.
New Baby in 2009
If your baby was born prior to 12/31/2009 you can claim them on your taxes for 2009. If your bundle of joy lives with you and does not provide more than half of his or her own support, you can claim that kid as your dependent. Additionally, there are other credits your child may qualify for:
• Child Tax Credit
This credit, which can be as much as $1,000 per eligible child, is in addition to the regular $3,500 exemption claimed for each dependent.
• Earned Income Credit
The Earned Income Credit is pretty hefty. You get a credit of $5,657 with three or more qualifying children; $5,028 with two qualifying children; and $3,043 with one qualifying child.
New Home Purchased in 2009
If you’re the primary borrower on your home loan and you make the loan payments, you qualify for a mortgage interest deduction. All you need to take the deduction is your mortgage statements. Other key deductions include property taxes, private mortgage insurance payments, purchase points, home improvements for medical reasons and mortgage interest on a second home.
If this is your first home you are in luck, too. Thanks the stimulus plan, the maximum credit amount is $8,000 for a first-time homebuyer –– which is a buyer who has not owned a primary residence during the three years up to the date of purchase. There’s also a long-time resident credit of up to $6,500 to others who do not qualify. Keep in mind those buyers must have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new home as a primary residence.
Remember that you can’t e-file if you take this credit. You need to paper file and provide documentation.
Changed Jobs in 2009
Getting a raise, starting a new job, or retiring from an old one can also have a dramatic impact on your taxes. Here are few final tax-saving tips:
• Keep receipts for job hunting and work-related moving expenses. They are deductible!
• When you rollover your 401(k), have it directly deposited into your new account.
• If you’ll owe taxes on your Social Security benefits, request voluntary withholding to minimize the tax bite.
• To find out if your tax will rate will change with a new salary, compare your last year’s tax bracket to this year’s. Your tax bracket is the rate at which your last dollar of income is taxed. It’s higher than your actual tax rate. But it will give you a good idea of how much of your income will go to Uncle Sam.
As you spend Valentine’s Day with your significant other, make sure you raise a glass of champagne to celebrate love and its many tax benefits!
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Between the dismal economy and just business as usual, the year 2009 was filled with major life changes for many people. Now, as Valentine’s Day passes, many more can expect another major life change in the near future–marriage. An estimated 2 million Americans get married each year, and approximately 10% of those marriage proposals happen on Valentine’s Day.
Valentine’s Day also happens to fall during tax season–and it’s important to know that most of life’s big milestones, such as having a baby or buying a home, come with lots implications. Here are some timely tax tips to plan for these life-altering events which may have occurred in 2009:
Married in 2009
Americans are waiting longer to get married. The median age for a man and woman’s first marriage was 27.6 and 25.9 years, respectively, in 2008. However, in 1960, men typically got married at age 22.8 while women were 20.3. There are plenty of social implications for delaying marriage, but waiting longer to tie the knot means that you may be more established in your financial life, too. And that can make filing your taxes more complicated. Yet while all married couples can file their taxes together or separately, most save thousands of dollars by filing jointly. That’s because filing separately disqualifies you for some of the most significant tax credits and deductions which include:
• The Earned Income Credit
The Earned Income Credit is responsible for more than $49 billion in tax credits, so you don’t want to miss out. Congress originally approved the tax credit legislation in 1975 as a way to offset Social Security taxes and to provide an incentive for workers. For 2009, you’ll need an AGI (adjusted gross income) of $70,950 or less if married filing jointly to qualify.
• Child and Dependent Care deductions
The typical American family with two young children spends an average of $14,000 a year on child care, which is almost a quarter of its annual income, according to the U.S. Census bureau. The good news is that some of those childcare costs are tax-deductible; the bad news is that figuring out if you qualify can be extremely tricky.
• American Opportunity and Lifetime Learning credits
For 2009, there are several tax credits available to help you offset the costs of higher education by reducing the amount of your income tax, depending on your income. The Lifetime Learning Credit can be used for qualified education expenses for you, your spouse or your offspring while the American Opportunity Credit can be claimed for tuition and certain fees you pay for higher education in 2009 and 2010. For the tax year, you may be able to claim a Lifetime Learning Credit of up to $2,000 (and the credit is $4,000 if you are a student in a Midwestern disaster area). The American Opportunity Credit is worth up to $2,500 for qualified tuition and expenses.
• Student loan interest deduction
The interest you pay on your student loans may also be tax-deductible. For 2009, the tax deduction is phased out if your filing status is married filing jointly and your modified adjusted gross income is between $120,000 and $150,000. Keep in mind that you aren’t eligible for this deduction if your modified AGI is $150,000 or more.
New Baby in 2009
If your baby was born prior to 12/31/2009 you can claim them on your taxes for 2009. If your bundle of joy lives with you and does not provide more than half of his or her own support, you can claim that kid as your dependent. Additionally, there are other credits your child may qualify for:
• Child Tax Credit
This credit, which can be as much as $1,000 per eligible child, is in addition to the regular $3,500 exemption claimed for each dependent.
• Earned Income Credit
The Earned Income Credit is pretty hefty. You get a credit of $5,657 with three or more qualifying children; $5,028 with two qualifying children; and $3,043 with one qualifying child.
New Home Purchased in 2009
If you’re the primary borrower on your home loan and you make the loan payments, you qualify for a mortgage interest deduction. All you need to take the deduction is your mortgage statements. Other key deductions include property taxes, private mortgage insurance payments, purchase points, home improvements for medical reasons and mortgage interest on a second home.
If this is your first home you are in luck, too. Thanks the stimulus plan, the maximum credit amount is $8,000 for a first-time homebuyer –– which is a buyer who has not owned a primary residence during the three years up to the date of purchase. There’s also a long-time resident credit of up to $6,500 to others who do not qualify. Keep in mind those buyers must have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new home as a primary residence.
Remember that you can’t e-file if you take this credit. You need to paper file and provide documentation.
Changed Jobs in 2009
Getting a raise, starting a new job, or retiring from an old one can also have a dramatic impact on your taxes. Here are few final tax-saving tips:
• Keep receipts for job hunting and work-related moving expenses. They are deductible!
• When you rollover your 401(k), have it directly deposited into your new account.
• If you’ll owe taxes on your Social Security benefits, request voluntary withholding to minimize the tax bite.
• To find out if your tax will rate will change with a new salary, compare your last year’s tax bracket to this year’s. Your tax bracket is the rate at which your last dollar of income is taxed. It’s higher than your actual tax rate. But it will give you a good idea of how much of your income will go to Uncle Sam.
As you spend Valentine’s Day with your significant other, make sure you raise a glass of champagne to celebrate love and its many tax benefits!
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Marriage and Divorce Does Mean Tax Changes
Since Valentine's Day is now passed what better time to talk about how falling in or out of love can also change a taxpayer's relationship with the IRS. By knowing what the tax rules are, taxpayers can be prepared when filing their tax returns. Being prepared helps ensure you can get the maximum possible tax benefits and, at the same time, avoid being hit with unexpected tax bills because of their new situations.
If someone is coming into your life or exiting, the impact on taxes can be tremendous."
Major life changes can lead to re-learning what the appropriate tax filing status is and what "new" deductions or other tax benefits are available. Marriage, divorce and legal separation are some of the biggest reasons people have for altering how they file their taxes.
We recommend the following items to consider when preparing to file taxes:
Filing status
Married couples have the option to file as "married filing jointly" or "married filing separately." In most cases, married taxpayers file a joint return because of the added tax benefits, which includes eligibility for certain credits. However, filing separately can sometimes lower a tax bill. Couples should consult a tax professional to determine which status best meets their situation.
Whether couples file jointly or separately for calendar year 2009, they are advised to consider the possible implications of the addition of the Making Work Pay tax credit. Because the benefit of this credit was advanced through reduced withholding over the year, it could have resulted in not enough money being taken out of each paycheck to cover taxes based on a dual income household and/or multiple jobs for either spouse. If this is the case, they could see a reduction in their refund or even owe money to the government. If a couple is affected by this tax credit, then they should review their withholdings for calendar year 2010 to ensure that sufficient funds will be withheld to meet future tax obligations.
To file as head of household, taxpayers must meet these three conditions as of Dec. 31, of the previous year:
-- Divorced (or met specific qualifications to be considered unmarried)
-- Paid more than half the cost of keeping up their home
-- Had a qualifying dependent living in their home more than half of the
Year.
Divorced taxpayers who do not qualify to use the Head of Household status will generally file as single. Taxpayers who are not divorced must continue to use one of the filing statuses for married couples.
Name, address change
Even when name changes result from marriage or divorce, it is important to remember to request a new Social Security card with the new name. If the name on the tax return and what the Social Security Administration has on file don't match, the IRS may delay processing the return, which means a refund could take weeks longer to arrive.
Inform the IRS of current mailing address to get refunds and correspondence without delay.
Alimony
Alimony is taxable and deductible; the payer may claim the payments as a deduction, while the recipient must claim alimony as taxable income. If the alimony payments decrease significantly in the first three years, the payer may have to include some of the previously deducted alimony in income and the recipient would be able deduct some of the previously paid alimony. Be sure to review the recapture rules in IRS Publication 504, Divorced or Separated Individuals.
Children
In most cases, the custodial parent will claim the children as their dependents. However, non-custodial parents can claim children as their dependents with the written consent of the custodial parent. The written consent must be attached to the tax return on which the children are claimed. If the custodial parent releases the exemptions, the noncustodial parent would also claim the child tax credit for children who are under 17. The custodial parent, if eligible, would claim the earned income credit, the child care credit and file as head of household.
Child support
Child support is not deductible by the payer and it is not taxed to the recipient.
To see how life changes can change tax status and what documents are needed for specific tax situations, insert information in the tax preparation checklist.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
If someone is coming into your life or exiting, the impact on taxes can be tremendous."
Major life changes can lead to re-learning what the appropriate tax filing status is and what "new" deductions or other tax benefits are available. Marriage, divorce and legal separation are some of the biggest reasons people have for altering how they file their taxes.
We recommend the following items to consider when preparing to file taxes:
Filing status
Married couples have the option to file as "married filing jointly" or "married filing separately." In most cases, married taxpayers file a joint return because of the added tax benefits, which includes eligibility for certain credits. However, filing separately can sometimes lower a tax bill. Couples should consult a tax professional to determine which status best meets their situation.
Whether couples file jointly or separately for calendar year 2009, they are advised to consider the possible implications of the addition of the Making Work Pay tax credit. Because the benefit of this credit was advanced through reduced withholding over the year, it could have resulted in not enough money being taken out of each paycheck to cover taxes based on a dual income household and/or multiple jobs for either spouse. If this is the case, they could see a reduction in their refund or even owe money to the government. If a couple is affected by this tax credit, then they should review their withholdings for calendar year 2010 to ensure that sufficient funds will be withheld to meet future tax obligations.
To file as head of household, taxpayers must meet these three conditions as of Dec. 31, of the previous year:
-- Divorced (or met specific qualifications to be considered unmarried)
-- Paid more than half the cost of keeping up their home
-- Had a qualifying dependent living in their home more than half of the
Year.
Divorced taxpayers who do not qualify to use the Head of Household status will generally file as single. Taxpayers who are not divorced must continue to use one of the filing statuses for married couples.
Name, address change
Even when name changes result from marriage or divorce, it is important to remember to request a new Social Security card with the new name. If the name on the tax return and what the Social Security Administration has on file don't match, the IRS may delay processing the return, which means a refund could take weeks longer to arrive.
Inform the IRS of current mailing address to get refunds and correspondence without delay.
Alimony
Alimony is taxable and deductible; the payer may claim the payments as a deduction, while the recipient must claim alimony as taxable income. If the alimony payments decrease significantly in the first three years, the payer may have to include some of the previously deducted alimony in income and the recipient would be able deduct some of the previously paid alimony. Be sure to review the recapture rules in IRS Publication 504, Divorced or Separated Individuals.
Children
In most cases, the custodial parent will claim the children as their dependents. However, non-custodial parents can claim children as their dependents with the written consent of the custodial parent. The written consent must be attached to the tax return on which the children are claimed. If the custodial parent releases the exemptions, the noncustodial parent would also claim the child tax credit for children who are under 17. The custodial parent, if eligible, would claim the earned income credit, the child care credit and file as head of household.
Child support
Child support is not deductible by the payer and it is not taxed to the recipient.
To see how life changes can change tax status and what documents are needed for specific tax situations, insert information in the tax preparation checklist.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Friday, February 12, 2010
Five Ways to Offset Education Costs
College can be very expensive. To help students and their parents, the IRS offers the following five ways to offset education costs.
The American Opportunity Credit This credit can help parents and students pay part of the cost of the first four years of college. The American Recovery and Reinvestment Act modifies the existing Hope Credit for tax years 2009 and 2010, making it available to a broader range of taxpayers.
Eligible taxpayers may qualify for the maximum annual credit of $2,500 per student. Generally, 40 percent of the credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes.
The Hope Credit The credit can help students and parents pay part of the cost of the first two years of college. This credit generally applies to 2008 and earlier tax years. However, for tax year 2009 a special expanded Hope Credit of up to $3,600 may be claimed for a student attending college in a Midwestern disaster area as long as you do not claim an American Opportunity Tax Credit for any other student in 2009.
The Lifetime Learning Credit This credit can help pay for undergraduate, graduate and professional degree courses – including courses to improve job skills – regardless of the number of years in the program. Eligible taxpayers may qualify for up to $2,000 – $4,000 if a student in a Midwestern disaster area – per tax return.
Enhanced benefits for 529 college savings plans Certain computer technology purchases are now added to the list of college expenses that can be paid for by a qualified tuition program, commonly referred to as a 529 plan.
For 2009 and 2010, the law expands the definition of qualified higher education expenses to include expenses for computer technology and equipment or Internet access and related services.
Tuition and fees deduction Students and their parents may be able to deduct qualified college tuition and related expenses of up to $4,000. This deduction is an adjustment to income, which means the deduction will reduce the amount of your income subject to tax. The Tuition and Fees Deduction may be beneficial to you if you do not qualify for the American opportunity, Hope, or lifetime learning credits.
You cannot claim the American Opportunity and the Hope and Lifetime Learning Credits for the same student in the same year. You also cannot claim any of the credits if you claim a tuition and fees deduction for the same student in the same year. To qualify for an education credit, you must pay post-secondary tuition and certain related expenses for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. Students who are claimed as a dependent cannot claim the credit.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
The American Opportunity Credit This credit can help parents and students pay part of the cost of the first four years of college. The American Recovery and Reinvestment Act modifies the existing Hope Credit for tax years 2009 and 2010, making it available to a broader range of taxpayers.
Eligible taxpayers may qualify for the maximum annual credit of $2,500 per student. Generally, 40 percent of the credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes.
The Hope Credit The credit can help students and parents pay part of the cost of the first two years of college. This credit generally applies to 2008 and earlier tax years. However, for tax year 2009 a special expanded Hope Credit of up to $3,600 may be claimed for a student attending college in a Midwestern disaster area as long as you do not claim an American Opportunity Tax Credit for any other student in 2009.
The Lifetime Learning Credit This credit can help pay for undergraduate, graduate and professional degree courses – including courses to improve job skills – regardless of the number of years in the program. Eligible taxpayers may qualify for up to $2,000 – $4,000 if a student in a Midwestern disaster area – per tax return.
Enhanced benefits for 529 college savings plans Certain computer technology purchases are now added to the list of college expenses that can be paid for by a qualified tuition program, commonly referred to as a 529 plan.
For 2009 and 2010, the law expands the definition of qualified higher education expenses to include expenses for computer technology and equipment or Internet access and related services.
Tuition and fees deduction Students and their parents may be able to deduct qualified college tuition and related expenses of up to $4,000. This deduction is an adjustment to income, which means the deduction will reduce the amount of your income subject to tax. The Tuition and Fees Deduction may be beneficial to you if you do not qualify for the American opportunity, Hope, or lifetime learning credits.
You cannot claim the American Opportunity and the Hope and Lifetime Learning Credits for the same student in the same year. You also cannot claim any of the credits if you claim a tuition and fees deduction for the same student in the same year. To qualify for an education credit, you must pay post-secondary tuition and certain related expenses for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. Students who are claimed as a dependent cannot claim the credit.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Tuesday, February 9, 2010
Eight Facts about the New Vehicle Sales and Excise Tax Deduction
If you bought a new vehicle in 2009, you may be entitled to a special tax deduction for the sales and excise taxes on your purchase.
Here are eight important facts the Internal Revenue Service wants you to know about this deduction:
State and local sales and excise taxes paid on up to $49,500 of the purchase price of each qualifying vehicle are deductible.
Qualified motor vehicles generally include new cars, light trucks, motor homes and motorcycles.
To qualify for the deduction, the new cars, light trucks and motorcycles must weigh 8,500 pounds or less. New motor homes are not subject to the weight limit.
Purchases must occur after Feb. 16, 2009, and before Jan. 1, 2010.
Purchases made in states without a sales tax — such as Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon — may also qualify for the deduction. Taxpayers in these states may be entitled to deduct other qualifying fees or taxes imposed by the state or local government. 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.
This deduction can be taken regardless of whether the buyers itemize their deductions or choose the standard deduction. Taxpayers who do not itemize will add this additional amount to the standard deduction on their 2009 tax return.
The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.
Taxpayers who do not itemize must complete Schedule L, Standard Deduction for Certain Filers to claim the deduction.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Here are eight important facts the Internal Revenue Service wants you to know about this deduction:
State and local sales and excise taxes paid on up to $49,500 of the purchase price of each qualifying vehicle are deductible.
Qualified motor vehicles generally include new cars, light trucks, motor homes and motorcycles.
To qualify for the deduction, the new cars, light trucks and motorcycles must weigh 8,500 pounds or less. New motor homes are not subject to the weight limit.
Purchases must occur after Feb. 16, 2009, and before Jan. 1, 2010.
Purchases made in states without a sales tax — such as Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon — may also qualify for the deduction. Taxpayers in these states may be entitled to deduct other qualifying fees or taxes imposed by the state or local government. 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.
This deduction can be taken regardless of whether the buyers itemize their deductions or choose the standard deduction. Taxpayers who do not itemize will add this additional amount to the standard deduction on their 2009 tax return.
The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.
Taxpayers who do not itemize must complete Schedule L, Standard Deduction for Certain Filers to claim the deduction.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Seven Important Facts about Claiming the First-Time Homebuyer Credit
If you purchased a home in 2009 or early 2010, you may be eligible to claim the First-Time Homebuyer Credit, whether you are a first-time homebuyer or a long-time resident purchasing a new home.
Here are seven things the IRS wants you to know about claiming the credit:
You must buy – or enter into a binding contract to buy – a principal residence located in the United States on or before April 30, 2010. If you enter into a binding contract by April 30, 2010, you must close on the home on or before June 30, 2010.
To be considered a first-time homebuyer, you and your spouse – if you are married – must not have jointly or separately owned another principal residence during the three years prior to the date of purchase.
To be considered a long-time resident homebuyer you and your spouse – if you are married – must have lived in the same principal residence for any consecutive five-year period during the eight-year period that ended on the date the new home is purchased. Additionally, your settlement date must be after November 6, 2009.
The maximum credit for a first-time homebuyer is $8,000. The maximum credit for a long-time resident homebuyer is $6,500.
You must file a paper return and attach Form 5405, First-Time Homebuyer Credit and Repayment of the Credit with additional documents to verify the purchase. Therefore, if you claim the credit you will not be able to file electronically.
New homebuyers must attach a copy of a properly executed settlement statement used to complete such purchase. Buyers of a newly constructed home, where a settlement statement is not available, must attach a copy of the dated certificate of occupancy. Mobile home purchasers who are unable to get a settlement statement must attach a copy of the retail sales contract.
If you are a long-time resident claiming the credit, the IRS recommends that you also attach any documentation covering the five-consecutive-year period, including Form 1098, Mortgage Interest Statement or substitute mortgage interest statements, property tax records or homeowner’s insurance records.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Here are seven things the IRS wants you to know about claiming the credit:
You must buy – or enter into a binding contract to buy – a principal residence located in the United States on or before April 30, 2010. If you enter into a binding contract by April 30, 2010, you must close on the home on or before June 30, 2010.
To be considered a first-time homebuyer, you and your spouse – if you are married – must not have jointly or separately owned another principal residence during the three years prior to the date of purchase.
To be considered a long-time resident homebuyer you and your spouse – if you are married – must have lived in the same principal residence for any consecutive five-year period during the eight-year period that ended on the date the new home is purchased. Additionally, your settlement date must be after November 6, 2009.
The maximum credit for a first-time homebuyer is $8,000. The maximum credit for a long-time resident homebuyer is $6,500.
You must file a paper return and attach Form 5405, First-Time Homebuyer Credit and Repayment of the Credit with additional documents to verify the purchase. Therefore, if you claim the credit you will not be able to file electronically.
New homebuyers must attach a copy of a properly executed settlement statement used to complete such purchase. Buyers of a newly constructed home, where a settlement statement is not available, must attach a copy of the dated certificate of occupancy. Mobile home purchasers who are unable to get a settlement statement must attach a copy of the retail sales contract.
If you are a long-time resident claiming the credit, the IRS recommends that you also attach any documentation covering the five-consecutive-year period, including Form 1098, Mortgage Interest Statement or substitute mortgage interest statements, property tax records or homeowner’s insurance records.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Sunday, February 7, 2010
New Mexico House OKs tax hikes to balance budget
Upper-income New Mexicans could pay a surtax to help balance the state's budget and others will pay higher sales taxes on goods and services under measures approved Friday by the House.
The proposals were part of a tax package providing $400 million next year to shore up state finances. If enacted, the measures would become the largest tax increase package in more than 20 years.
House Speaker Ben Lujan, a Santa Fe Democrat, said tax increases were necessary to prevent damaging cutbacks in public schools and government services, such as health care for the needy.
"We don't take pride or joy in increasing taxes," Lujan said.
However, Republicans said the budget should be cut more before taxes are increased. State spending has increased by 35 percent since 2003, even after budget cuts during the past two years.
"We can't tax our way to prosperity," said Rep. Donald Bratton, R-Hobbs.
Spending from the state's main budget account has been trimmed by $700 million during the past two years as the economy and state revenues slumped, according to Lujan. However, part of those cuts has been offset by using federal economic stimulus money to pay for state programs, mainly education and health care. As we all know the education systems across the state have cut their programs, sporting schedules and the teachers’ salaries are some of the lowest in the country.
Approved by the House were measures to:
-- Increase the gross receipts tax by a half cent starting in July -- from 5 percent to 5.5 percent -- and phase out the higher rate in 2014. The proposal would generate $238 million next year. The bill passed 34-32.
-- Impose 1.5 percent surtax on upper-income New Mexicans for three years. Married couples would pay the surtax on taxable income of more than $200,000 if they file joint returns. Single taxpayers would pay the surtax on income of more than $133,000. The surtax would provide $67 million next year. The bill passed 36-32.
-- Improve income tax compliance by out-of-state residents. The measure will expand tax withholding requirements on partnerships and certain small corporations. Lawmakers expect to collect nearly $16 million next year. Supporters of the bill contend the measure was not a tax increase. The measure was approved 42-25.
Also under consideration is a measure to generate $90 million by eliminating an income tax deduction for some taxpayers.
Besides tax bills, the House was to debate a budget blueprint that allocates more than $5.6 billion for public education and general government programs in the 2011 fiscal year, which starts in July. The budget factors in new revenues from tax increases and would trim spending by 1.4 percent.
According to the Legislative Council Service, one of the largest tax packages in New Mexico history came in 1986 when income, gross receipts and other taxes were raised by $150 million -- representing nearly 11 percent of the state budget then.
How many of our state legislators have voted themselves a pay increase when the majority of our citizens live on half of what they make as a salary? I think they should cut their pay increases for one year and apply it to part of the state’s budget crisis then they would be one step closer in dealing with living in our economy now.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
The proposals were part of a tax package providing $400 million next year to shore up state finances. If enacted, the measures would become the largest tax increase package in more than 20 years.
House Speaker Ben Lujan, a Santa Fe Democrat, said tax increases were necessary to prevent damaging cutbacks in public schools and government services, such as health care for the needy.
"We don't take pride or joy in increasing taxes," Lujan said.
However, Republicans said the budget should be cut more before taxes are increased. State spending has increased by 35 percent since 2003, even after budget cuts during the past two years.
"We can't tax our way to prosperity," said Rep. Donald Bratton, R-Hobbs.
Spending from the state's main budget account has been trimmed by $700 million during the past two years as the economy and state revenues slumped, according to Lujan. However, part of those cuts has been offset by using federal economic stimulus money to pay for state programs, mainly education and health care. As we all know the education systems across the state have cut their programs, sporting schedules and the teachers’ salaries are some of the lowest in the country.
Approved by the House were measures to:
-- Increase the gross receipts tax by a half cent starting in July -- from 5 percent to 5.5 percent -- and phase out the higher rate in 2014. The proposal would generate $238 million next year. The bill passed 34-32.
-- Impose 1.5 percent surtax on upper-income New Mexicans for three years. Married couples would pay the surtax on taxable income of more than $200,000 if they file joint returns. Single taxpayers would pay the surtax on income of more than $133,000. The surtax would provide $67 million next year. The bill passed 36-32.
-- Improve income tax compliance by out-of-state residents. The measure will expand tax withholding requirements on partnerships and certain small corporations. Lawmakers expect to collect nearly $16 million next year. Supporters of the bill contend the measure was not a tax increase. The measure was approved 42-25.
Also under consideration is a measure to generate $90 million by eliminating an income tax deduction for some taxpayers.
Besides tax bills, the House was to debate a budget blueprint that allocates more than $5.6 billion for public education and general government programs in the 2011 fiscal year, which starts in July. The budget factors in new revenues from tax increases and would trim spending by 1.4 percent.
According to the Legislative Council Service, one of the largest tax packages in New Mexico history came in 1986 when income, gross receipts and other taxes were raised by $150 million -- representing nearly 11 percent of the state budget then.
How many of our state legislators have voted themselves a pay increase when the majority of our citizens live on half of what they make as a salary? I think they should cut their pay increases for one year and apply it to part of the state’s budget crisis then they would be one step closer in dealing with living in our economy now.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Friday, February 5, 2010
Is this Income Taxable?
While most income you receive is generally considered taxable, there are some situations when certain types of income are partially taxed or not taxed at all.
To ensure taxpayers are familiar with the difference between taxable and non-taxable income, the Internal Revenue Service offers these common examples of items that are not included in your income:
Adoption Expense Reimbursements for qualifying expenses
Child support payments
Gifts, bequests and inheritances
Workers' compensation benefits
Meals and Lodging for the convenience of your employer
Compensatory Damages awarded for physical injury or physical sickness
Welfare Benefits
Cash Rebates from a dealer or manufacturer
Some income may be taxable under certain circumstances, but not taxable in other situations. Examples of items that may or may not be included in your income are:
Life Insurance If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds, which were paid to you because of the insured person’s death, are not taxable unless the policy was turned over to you for a price.
Scholarship or Fellowship Grant If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify.
Non-cash Income Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is taxable and must be included as income on Form 1040 of both parties.
All other items—including income such as wages, salaries and tips—must be included in your income unless law specifically excludes it.
These examples are not all-inclusive. For more information, please contact me. As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
To ensure taxpayers are familiar with the difference between taxable and non-taxable income, the Internal Revenue Service offers these common examples of items that are not included in your income:
Adoption Expense Reimbursements for qualifying expenses
Child support payments
Gifts, bequests and inheritances
Workers' compensation benefits
Meals and Lodging for the convenience of your employer
Compensatory Damages awarded for physical injury or physical sickness
Welfare Benefits
Cash Rebates from a dealer or manufacturer
Some income may be taxable under certain circumstances, but not taxable in other situations. Examples of items that may or may not be included in your income are:
Life Insurance If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds, which were paid to you because of the insured person’s death, are not taxable unless the policy was turned over to you for a price.
Scholarship or Fellowship Grant If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify.
Non-cash Income Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is taxable and must be included as income on Form 1040 of both parties.
All other items—including income such as wages, salaries and tips—must be included in your income unless law specifically excludes it.
These examples are not all-inclusive. For more information, please contact me. As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Thursday, February 4, 2010
Top Tax Deductions for 2009 - Car Expenses
Money Back For Business Use of Automobile Means Bigger Refund
As tax time approaches, it is critical to understand which tax deductions are allowable for each particular individual taxpayer. If a vehicle is used for business, the cost to operate that vehicle is deductible. The standard mileage rate for the cost of operating a vehicle for business purposes as indicated by the IRS in 2009 is fifty-five cents per mile.
For most Americans, vehicle expenses comprise a large part of the monthly and yearly expenses. If prepared properly, the tax savings for vehicle business use can be quite substantial. If a vehicle is used for business purposes, some or all of those expenses may be deducted from the taxes owed for 2009. For qualified deductible vehicle expenses, use a Schedule A for the Form 1040, or use Schedule C if self-employed.
2009 Tax Deduction for Business Use of Auto
If it is necessary to use a personal automobile in order to conduct business, then there may justification for a deduction on 2009 taxes. The entire cost of a vehicle's operation is deductible if the vehicle is used only for business purposes. If a vehicle is used for both business and personal use, only the amount of operation for business use is deductible. There are specific details and limits to this, so it is best to check with a CPA, tax professional, or the IRS website.
Standard Mileage Rate Method
For 2009, the standard mileage rate is fifty-five cents per mile. This standard mileage method is the easiest to calculate and works by multiplying the actual business miles on a vehicle in 2009 by fifty-five cents per mile. This method works best for a car, which is owned and not leased. If this method is used for a leased vehicle, it must be used for the entire lease period. A certain amount of vehicle mileage is not deductible if using a car for hire or using five or more cars at the same time, such as in a fleet of vehicles. There are other restrictions as well so it is best to consult a tax professional to help determine if this is the appropriate method for your situation.
To quote the IRS, To use the standard mileage rate, you must own or lease the car; the car must not be used to transport persons or property for compensation or hire, for example as a taxi; you must not operate five or more cars at the same time, as in a fleet operation; you must not have claimed a depreciation deduction using the Modified Accelerated Cost Recovery System (MACRS) on the car in an earlier year (including any additional first-year depreciation or "bonus depreciation" or any method other than straight-line for its estimated useful life; you must not have claimed a Section 179 deduction or the special depreciation allowance on the car; and you must not have claimed actual expenses after 1997 for a car you leased. You cannot use the standard mileage rate if you are a rural mail carrier who received a "qualified reimbursement".
Actual Expense Method
This method works by determining what portion of total vehicle expenses were used for business only. Start by dividing the amount of business miles on a vehicle driven in 2009 by the total miles driven during the same period. Take that amount and multiply it by the total amount of expenses to actually operate the vehicle in 2009. Include gas, tires, oil, repair costs, licenses, insurance, registration fees, and vehicle depreciation.
The toughest part of this method is figuring the actual depreciation of a vehicle. The IRS has a depreciation table that will help calculate vehicle depreciation. Although not all costs accrued over the life of the vehicle are recoverable in 2009, this method allows some recovery of the cost of a business vehicle spread out over a number of years, depending upon the length of time the vehicle is owned. There is a special Section 179 deduction that allows most or all of the expense of a vehicle to be deducted in the tax year it was purchased. For more information, see IRS Publication 946 or consult a tax professional.
Always Keep Adequate Records
Account book, diary, log or some sort of daily record-keeping journal is required as evidence of deductible vehicle expenses along with receipts, canceled checks, or bills. Exceptions when documentary evidence is not needed are expenses less than seventy-five dollars where a receipt is not readily available, such as a parking meter. If using the deduction for travel, entertainment, or transportation expenses, certain elements of that expense may require some sort of documented proof. See IRS publication 463 for more information.
It is probably best to figure the deduction using both methods and consult a tax professional or CPA to determine which method is best for a particular situation. This information is not intended to be a source of legal advice, and no information in this article should be considered, relied upon as legal, tax, or financial advice on any specific matter. Never act upon general information on legal, tax or financial matters without seeking legal counsel regarding a particular situation.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
As tax time approaches, it is critical to understand which tax deductions are allowable for each particular individual taxpayer. If a vehicle is used for business, the cost to operate that vehicle is deductible. The standard mileage rate for the cost of operating a vehicle for business purposes as indicated by the IRS in 2009 is fifty-five cents per mile.
For most Americans, vehicle expenses comprise a large part of the monthly and yearly expenses. If prepared properly, the tax savings for vehicle business use can be quite substantial. If a vehicle is used for business purposes, some or all of those expenses may be deducted from the taxes owed for 2009. For qualified deductible vehicle expenses, use a Schedule A for the Form 1040, or use Schedule C if self-employed.
2009 Tax Deduction for Business Use of Auto
If it is necessary to use a personal automobile in order to conduct business, then there may justification for a deduction on 2009 taxes. The entire cost of a vehicle's operation is deductible if the vehicle is used only for business purposes. If a vehicle is used for both business and personal use, only the amount of operation for business use is deductible. There are specific details and limits to this, so it is best to check with a CPA, tax professional, or the IRS website.
Standard Mileage Rate Method
For 2009, the standard mileage rate is fifty-five cents per mile. This standard mileage method is the easiest to calculate and works by multiplying the actual business miles on a vehicle in 2009 by fifty-five cents per mile. This method works best for a car, which is owned and not leased. If this method is used for a leased vehicle, it must be used for the entire lease period. A certain amount of vehicle mileage is not deductible if using a car for hire or using five or more cars at the same time, such as in a fleet of vehicles. There are other restrictions as well so it is best to consult a tax professional to help determine if this is the appropriate method for your situation.
To quote the IRS, To use the standard mileage rate, you must own or lease the car; the car must not be used to transport persons or property for compensation or hire, for example as a taxi; you must not operate five or more cars at the same time, as in a fleet operation; you must not have claimed a depreciation deduction using the Modified Accelerated Cost Recovery System (MACRS) on the car in an earlier year (including any additional first-year depreciation or "bonus depreciation" or any method other than straight-line for its estimated useful life; you must not have claimed a Section 179 deduction or the special depreciation allowance on the car; and you must not have claimed actual expenses after 1997 for a car you leased. You cannot use the standard mileage rate if you are a rural mail carrier who received a "qualified reimbursement".
Actual Expense Method
This method works by determining what portion of total vehicle expenses were used for business only. Start by dividing the amount of business miles on a vehicle driven in 2009 by the total miles driven during the same period. Take that amount and multiply it by the total amount of expenses to actually operate the vehicle in 2009. Include gas, tires, oil, repair costs, licenses, insurance, registration fees, and vehicle depreciation.
The toughest part of this method is figuring the actual depreciation of a vehicle. The IRS has a depreciation table that will help calculate vehicle depreciation. Although not all costs accrued over the life of the vehicle are recoverable in 2009, this method allows some recovery of the cost of a business vehicle spread out over a number of years, depending upon the length of time the vehicle is owned. There is a special Section 179 deduction that allows most or all of the expense of a vehicle to be deducted in the tax year it was purchased. For more information, see IRS Publication 946 or consult a tax professional.
Always Keep Adequate Records
Account book, diary, log or some sort of daily record-keeping journal is required as evidence of deductible vehicle expenses along with receipts, canceled checks, or bills. Exceptions when documentary evidence is not needed are expenses less than seventy-five dollars where a receipt is not readily available, such as a parking meter. If using the deduction for travel, entertainment, or transportation expenses, certain elements of that expense may require some sort of documented proof. See IRS publication 463 for more information.
It is probably best to figure the deduction using both methods and consult a tax professional or CPA to determine which method is best for a particular situation. This information is not intended to be a source of legal advice, and no information in this article should be considered, relied upon as legal, tax, or financial advice on any specific matter. Never act upon general information on legal, tax or financial matters without seeking legal counsel regarding a particular situation.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Seven Tax Tips for Disabled Taxpayers
Taxpayers with disabilities may qualify for a number of IRS tax credits and benefits. Parents of children with disabilities may also qualify. Listed below are seven tax credits and other benefits that are available if you or someone else listed on your federal tax return is disabled.
Standard Deduction Taxpayers who are legally blind may be entitled to a higher standard deduction on their tax return.
Gross Income Certain disability-related payments, Veterans Administration disability benefits, and Supplemental Security Income are excluded from gross income.
Impairment-Related Work Expenses Employees, who have a physical or mental disability limiting their employment, may be able to claim business expenses in connection with their workplace. The expenses must be necessary for the taxpayer to work.
Credit for the Elderly or Disabled This credit is generally available to certain taxpayers who are 65 and older as well as to certain disabled taxpayers who are younger than 65 and are retired on permanent and total disability.
Medical Expenses If you itemize your deductions using Form 1040 Schedule A, you may be able to deduct medical expenses. See IRS Publication 502, Medical and Dental Expenses.
Earned Income Tax Credit EITC is available to disabled taxpayers as well as to the parents of a child with a disability. If you retired on disability, taxable benefits you receive under your employer’s disability retirement plan are considered earned income until you reach minimum retirement age. The EITC is a tax credit that not only reduces a taxpayer’s tax liability but may also result in a refund. Many working individuals with a disability who have no qualifying children, but are older than 25 and younger than 65 do -- in fact -- qualify for EITC. Additionally, if the taxpayer’s child is disabled, the age limitation for the EITC is waived. The EITC has no effect on certain public benefits. Any refund you receive because of the EITC will not be considered income when determining whether you are eligible for benefit programs such as Supplemental Security Income and Medicaid.
Child or Dependent Care Credit Taxpayers who pay someone to come to their home and care for their dependent or spouse may be entitled to claim this credit. There is no age limit if the taxpayer’s spouse or dependent is unable to care for himself or herself.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Standard Deduction Taxpayers who are legally blind may be entitled to a higher standard deduction on their tax return.
Gross Income Certain disability-related payments, Veterans Administration disability benefits, and Supplemental Security Income are excluded from gross income.
Impairment-Related Work Expenses Employees, who have a physical or mental disability limiting their employment, may be able to claim business expenses in connection with their workplace. The expenses must be necessary for the taxpayer to work.
Credit for the Elderly or Disabled This credit is generally available to certain taxpayers who are 65 and older as well as to certain disabled taxpayers who are younger than 65 and are retired on permanent and total disability.
Medical Expenses If you itemize your deductions using Form 1040 Schedule A, you may be able to deduct medical expenses. See IRS Publication 502, Medical and Dental Expenses.
Earned Income Tax Credit EITC is available to disabled taxpayers as well as to the parents of a child with a disability. If you retired on disability, taxable benefits you receive under your employer’s disability retirement plan are considered earned income until you reach minimum retirement age. The EITC is a tax credit that not only reduces a taxpayer’s tax liability but may also result in a refund. Many working individuals with a disability who have no qualifying children, but are older than 25 and younger than 65 do -- in fact -- qualify for EITC. Additionally, if the taxpayer’s child is disabled, the age limitation for the EITC is waived. The EITC has no effect on certain public benefits. Any refund you receive because of the EITC will not be considered income when determining whether you are eligible for benefit programs such as Supplemental Security Income and Medicaid.
Child or Dependent Care Credit Taxpayers who pay someone to come to their home and care for their dependent or spouse may be entitled to claim this credit. There is no age limit if the taxpayer’s spouse or dependent is unable to care for himself or herself.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Tuesday, February 2, 2010
Be Sure to Know Whether You Qualify for the Earned Income Tax Credit
The Earned Income Tax Credit commonly referred to as EITC, can be a financial boost for working people adversely impacted by hard economic times. However, one in four eligible taxpayers could miss the credit because they do not check it out.
Here are the top 10 things the Internal Revenue Service wants you to know about this valuable credit, which has been making the lives of working people a little easier for 35 years.
Just because you did not qualify last year, does not mean you will not this year. As your financial, marital or parental situations change from year-to-year, you should review the EITC eligibility rules to determine whether you qualify.
If you qualify, it could be worth up to $5,657 this year. EITC not only reduces the federal tax you owe, but could result in a refund. The amount of your EITC is based on the amount of your earned income and whether or not there are qualifying children in your household. New EITC provisions mean more money for larger families.
If you qualify, you must file a federal income tax return and specifically claim the credit in order to get it – even if you are not otherwise required to file.
Your filing status cannot be Married Filing Separately.
You must have a valid Social Security Number. You, your spouse – if filing a joint return – and any qualifying child listed on Schedule EIC must have a valid SSN issued by the Social Security Administration.
You must have earned income. You have earned income if you work for someone who pays you wages, you are self-employed, you have income from farming, or – in some cases – you receive disability income.
Married couples and single people without kids may qualify. If you do not have qualifying children, you must also meet the age and residency requirements as well as dependency rules.
Special rules apply to members of the U.S. Armed Forces in combat zones. Members of the military can elect to include their nontaxable combat pay in earned income for the EITC. If you make this election, the combat pay remains nontaxable.
It is easy to determine whether you qualify. The EITC Assistant, an interactive tool available on IRS.gov, removes the guesswork from eligibility rules. Just answer a few simple questions to find out if you qualify and estimate the amount of your EITC.
Free help is available at volunteer assistance sites and IRS Taxpayer Assistance Centers to help you prepare and claim your EITC. If you are preparing your taxes electronically, the software program you use will figure the credit for you. If you qualify for the credit you may also be eligible for Free File.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
Here are the top 10 things the Internal Revenue Service wants you to know about this valuable credit, which has been making the lives of working people a little easier for 35 years.
Just because you did not qualify last year, does not mean you will not this year. As your financial, marital or parental situations change from year-to-year, you should review the EITC eligibility rules to determine whether you qualify.
If you qualify, it could be worth up to $5,657 this year. EITC not only reduces the federal tax you owe, but could result in a refund. The amount of your EITC is based on the amount of your earned income and whether or not there are qualifying children in your household. New EITC provisions mean more money for larger families.
If you qualify, you must file a federal income tax return and specifically claim the credit in order to get it – even if you are not otherwise required to file.
Your filing status cannot be Married Filing Separately.
You must have a valid Social Security Number. You, your spouse – if filing a joint return – and any qualifying child listed on Schedule EIC must have a valid SSN issued by the Social Security Administration.
You must have earned income. You have earned income if you work for someone who pays you wages, you are self-employed, you have income from farming, or – in some cases – you receive disability income.
Married couples and single people without kids may qualify. If you do not have qualifying children, you must also meet the age and residency requirements as well as dependency rules.
Special rules apply to members of the U.S. Armed Forces in combat zones. Members of the military can elect to include their nontaxable combat pay in earned income for the EITC. If you make this election, the combat pay remains nontaxable.
It is easy to determine whether you qualify. The EITC Assistant, an interactive tool available on IRS.gov, removes the guesswork from eligibility rules. Just answer a few simple questions to find out if you qualify and estimate the amount of your EITC.
Free help is available at volunteer assistance sites and IRS Taxpayer Assistance Centers to help you prepare and claim your EITC. If you are preparing your taxes electronically, the software program you use will figure the credit for you. If you qualify for the credit you may also be eligible for Free File.
As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.
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