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.

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, or better yet CALL OUR OFFICE!!!

Top Ten Facts about Taking Early Distributions from Retirement Plans

Some taxpayers may have needed to take an early distribution from their retirement plan last year. The IRS wants individuals who took an early distribution to know that there can be a tax impact to tapping your retirement fund. Here are ten facts about early distributions.

1. Payments you receive from your Individual Retirement Arrangement before you reach age 59 ½ are generally considered early or premature distributions.
2. Early distributions are usually subject to an additional 10 percent tax.
3. Early distributions must also be reported to the IRS.
4. Distributions you rollover to another IRA or qualified retirement plan are not subject to the additional 10 percent tax. You must complete the rollover within 60 days after the day you received the distribution.
5. The amount you roll over is generally taxed when the new plan makes a distribution to you or your beneficiary.
6. If you made nondeductible contributions to an IRA and later take early distributions from your IRA, the portion of the distribution attributable to those nondeductible contributions is not taxed.
7. If you received an early distribution from a Roth IRA, the distribution attributable to your prior contributions is not taxed.
8. If you received a distribution from any other qualified retirement plan, generally the entire distribution is taxable unless you made after-tax employee contributions to the plan.
9. There are several exceptions to the additional 10 percent early distribution tax, such as when the distributions are used for the purchase of a first home, for certain medical or educational expenses, or if you are disabled.
10. For more information about early distributions from retirement plans, the additional 10 percent tax and all the exceptions see IRS Publication 575, or better yet call our office!!

Seven Facts to Help You Understand the Alternative Minimum Tax

The Alternative Minimum Tax attempts to ensure that anyone who benefits from certain tax advantages pays at least a minimum amount of tax.

Here are seven facts the Internal Revenue Service wants you to know about the AMT and changes to this special tax for 2009.

1. Tax laws provide tax benefits for certain kinds of income and allow special deductions and credits for certain expenses. These benefits can drastically reduce some taxpayers’ tax obligations. Congress created the AMT in 1969, targeting taxpayers who could claim so many deductions they owed little or no income tax.

2. Because the AMT is not indexed for inflation, a growing number of middle-income taxpayers are discovering they are subject to the AMT.

3. You may have to pay the AMT if your taxable income for regular tax purposes plus any adjustments and preference items that apply to you are more than the AMT exemption amount.

4. The AMT exemption amounts are set by law for each filing status.

5. For tax year 2009, Congress raised the AMT exemption amounts to the following levels:

• $70,950 for a married couple filing a joint return and qualifying widows and widowers;
• $46,700 for singles and heads of household;
• $35,475 for a married person filing separately.

6. The minimum AMT exemption amount for a child whose unearned income is taxed at the parents' tax rate has increased to $6,700 for 2009.

7. If you claim a regular tax deduction on your 2009 tax return for any state or local sales or excise tax on the purchase of a new motor vehicle, that tax is also allowed as a deduction for the AMT.

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.

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.

Gambling Winnings Are Always Taxable Income

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.

1. Gambling income includes – but is not limited to – 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.
2. 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.
3. 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.
4. If you itemize deductions, you can deduct your gambling losses for the year on line 28 of Schedule A, Form 1040.
5. You cannot deduct gambling losses that are more than your winnings.
6. It is important to keep an accurate diary or similar record of your gambling winnings and losses.
7. 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.

Arizona Appliance Rebates

The State of Arizona will implement a mail-in rebate program to help residents replace older, inefficient appliances with ENERGY STAR^® qualified appliances. The program is tentatively scheduled to begin in March 2010 and will last until funds are depleted.

Eligible products include

• Clothes washers
• Dishwashers
• Gas condensing water heaters
• Gas storage water heaters
• Gas tankless water heaters
• Electric heat pump water heaters

Rebates vary based on the appliances' efficiency levels. Rebate claims must be made within 14 days of purchase. Arizona encourages residents to recycle the old appliances.

Contact: Arizona Department of Commerce Energy Office

Total Funding: $6,237,000

Additional information and a listing of the states with current rebate programs are available on the ENERGY STAR^{® website energystar.gov/index.cfm?fuseaction=rebate.appliance_rebate&state}

Five Important Facts About Your Unemployment Benefits

Taxpayers who received unemployment benefits in 2009 are entitled to a special tax break when they file their 2009 federal tax returns. This tax break is part of the American Recovery and Reinvestment Act of 2009.

Here are five important facts the Internal Revenue Service wants you to know about your unemployment benefits.

1. Unemployment compensation generally includes any amounts received under the unemployment compensation laws of the United States or of a specific state. It includes state unemployment insurance benefits, railroad unemployment compensation benefits and benefits paid to you by a state or the District of Columbia from the Federal Unemployment Trust Fund. It does not include worker's compensation.
2. Normally, unemployment benefits are taxable; however, under the Recovery Act, every person who receives unemployment benefits during 2009 is eligible to exclude the first $2,400 of these benefits when they file their federal tax return.
3. For a married couple, if each spouse received unemployment compensation then each is eligible to exclude the first $2,400 of benefits.
4. You should receive a Form 1099-G, Certain Government Payments, which shows the total unemployment compensation paid to you in 2009 in box 1.
5. Please bring that Form 1099-G into the office or fax it to us when we complete your return.

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