WASHINGTON — The Internal Revenue Service today reminds individual taxpayers who are considering buying a new car that they have until Dec. 31 to take advantage of a tax break that may not be around in 2010.
Thursday, December 17, 2009
Tuesday, December 8, 2009
State of Arizona Credit for School Donation
I came across some excellent questions and answers on the AZ. School Tax Credit and thought I would list them below.
Remember, this is an excellent dollar for dollar credit against any Arizona Tax Liablity you have. If the credit exceeds your tax liability, it will carry forward for 5 years.
What school tax credits are available to individuals?
An individual may claim a credit for making
contributions or paying fees to a public school for
support of extra curricular activities or character
education programs. An individual may also claim a
credit for making a donation to a qualified school tuition
organization for scholarships to private schools.
Who may claim the individual school tax credits?
The individual school tax credits are available only to
individuals. Partnerships and S corporations cannot pass
these credits through to their partners or shareholders.
These credits are also not available to trusts, estates,
regular corporations, or S corporations.
Can a taxpayer claim both credits in the same
taxable year?
Yes.
Must a taxpayer have a child in school in order to
claim one or both of these credits?
No.
Is a charter school considered to be a public school
or a private school?
A charter school is defined in ARS §15-101 as a public
school. Therefore, a charter school is eligible for the credit
for contributions made or fees paid to a public school to
support extracurricular activities or character education.
What do I have to do to qualify for this credit?
To qualify for the credit you must make cash contributions
or pay fees to a public school for support of extra
curricular activities or for character education programs.
Will I qualify for the credit if I pay fees for my own
child to participate in an extra curricular activity or
character education program?
Yes, fees that you pay for your own child to participate
in an extra curricular activity or character education
program qualify for the credit.
Do contributions I make to the school qualify for
the credit?
Yes, if the contributions are in support of extra
curricular activities or a character education program.
What is the maximum dollar amount of the credit?
The credit is equal to the amount contributed or the
amount of fees paid. However, for single taxpayers or
heads of household, the credit cannot exceed $200. For
married taxpayers that file a joint return, the credit
cannot exceed $400. If married taxpayers file separate
returns, each spouse may claim 1/2 of the credit that
would have been allowed on a joint return.
What public schools and grades are eligible for
the credit?
Public schools and charter schools that provide
instruction in grades kindergarten through 12 are
eligible for the credit. Nongovernmental schools, preschools,
community colleges, and universities do not
qualify for the credit.
What is the maximum dollar amount of the credit for Private School Tuition?
The credit is equal to the amount contributed. However,
for single taxpayers or heads of household, the credit
cannot exceed $500. For married taxpayers that file a joint
return, the credit cannot exceed $1,000. If married
taxpayers file separate returns, each spouse may claim
only 1/2 of the credit that would have been allowed on the
joint return.
What is a school tuition organization?
A school tuition organization is one that is tax exempt
under Section 501(c)(3) of the Internal Revenue Code,
allocates at least 90 percent of its annual revenue to
scholarships or grants, and makes its scholarships/grants
available to students of more than one qualified school.
Remember, a Private school must be Qualified by the state, be sure to check if your donation will be accepted for the credit.
For a List of Qualified School Organizations in Az. click on link below.
www.azdor.gov/LinkClick.aspx?fileticket=HZtBZXHPWRA%3d&tabid=114
Remember, this is an excellent dollar for dollar credit against any Arizona Tax Liablity you have. If the credit exceeds your tax liability, it will carry forward for 5 years.
What school tax credits are available to individuals?
An individual may claim a credit for making
contributions or paying fees to a public school for
support of extra curricular activities or character
education programs. An individual may also claim a
credit for making a donation to a qualified school tuition
organization for scholarships to private schools.
Who may claim the individual school tax credits?
The individual school tax credits are available only to
individuals. Partnerships and S corporations cannot pass
these credits through to their partners or shareholders.
These credits are also not available to trusts, estates,
regular corporations, or S corporations.
Can a taxpayer claim both credits in the same
taxable year?
Yes.
Must a taxpayer have a child in school in order to
claim one or both of these credits?
No.
Is a charter school considered to be a public school
or a private school?
A charter school is defined in ARS §15-101 as a public
school. Therefore, a charter school is eligible for the credit
for contributions made or fees paid to a public school to
support extracurricular activities or character education.
What do I have to do to qualify for this credit?
To qualify for the credit you must make cash contributions
or pay fees to a public school for support of extra
curricular activities or for character education programs.
Will I qualify for the credit if I pay fees for my own
child to participate in an extra curricular activity or
character education program?
Yes, fees that you pay for your own child to participate
in an extra curricular activity or character education
program qualify for the credit.
Do contributions I make to the school qualify for
the credit?
Yes, if the contributions are in support of extra
curricular activities or a character education program.
What is the maximum dollar amount of the credit?
The credit is equal to the amount contributed or the
amount of fees paid. However, for single taxpayers or
heads of household, the credit cannot exceed $200. For
married taxpayers that file a joint return, the credit
cannot exceed $400. If married taxpayers file separate
returns, each spouse may claim 1/2 of the credit that
would have been allowed on a joint return.
What public schools and grades are eligible for
the credit?
Public schools and charter schools that provide
instruction in grades kindergarten through 12 are
eligible for the credit. Nongovernmental schools, preschools,
community colleges, and universities do not
qualify for the credit.
What is the maximum dollar amount of the credit for Private School Tuition?
The credit is equal to the amount contributed. However,
for single taxpayers or heads of household, the credit
cannot exceed $500. For married taxpayers that file a joint
return, the credit cannot exceed $1,000. If married
taxpayers file separate returns, each spouse may claim
only 1/2 of the credit that would have been allowed on the
joint return.
What is a school tuition organization?
A school tuition organization is one that is tax exempt
under Section 501(c)(3) of the Internal Revenue Code,
allocates at least 90 percent of its annual revenue to
scholarships or grants, and makes its scholarships/grants
available to students of more than one qualified school.
Remember, a Private school must be Qualified by the state, be sure to check if your donation will be accepted for the credit.
For a List of Qualified School Organizations in Az. click on link below.
www.azdor.gov/LinkClick.aspx?fileticket=HZtBZXHPWRA%3d&tabid=114
YEAR END CHARITABLE DONATION UPDATES
Since it is year end, and the Christmas Season, many people have two priorities at the top of their list.
1. Maximizing their deductions AND
2. Bringing joy to others and helping our fellow man.
Charitable Contributions are a way to do both at once.
If you can itemize, one of the best deductions left is Charitable Contributions.
I am going to do two or three posts about Charitable Contributions. The first is a relatively new opportunity and may not last long. That is the:
Special Charitable Contributions for Certain IRA Owners
This provision, currently scheduled to expire at the end of 2009, offers older owners of individual retirement accounts (IRAs) a different way to give to charity. An IRA owner, age 70½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charity.
This option, created in 2006, is available for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.
To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity. Amounts so transferred are not taxable and no deduction is available for the transfer.
Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.
Amounts transferred to a charity from an IRA are counted in determining whether the owner has met the IRA’s required minimum distribution. Of course the Required Minimum distribution has been deferred for tax year 2009, but this is an excellent time to get the money out of those IRA's TAX FREE.
Many retirees do not necessarily need their IRA money at this time and do not want to take the distribution out of their IRA, because it then becomes taxable, and even worse, it makes more of their Social Security taxable.
This is a perfect avenue to take the money out TAX FREE. You do not get to deduct the donation, HOWEVER, you don't have to pay tax on the distribution, and it doesn't increase your taxable income. That in itself will probably outweigh the tax deduction that you forego.
This provision was actually supposed to end December of 2008 and Congress extended it for one more year. Whether they will extend it again or not will remain to be seen.
Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats transferred amounts as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions.
Sincerely, Deborah Sherwood, EA
1. Maximizing their deductions AND
2. Bringing joy to others and helping our fellow man.
Charitable Contributions are a way to do both at once.
If you can itemize, one of the best deductions left is Charitable Contributions.
I am going to do two or three posts about Charitable Contributions. The first is a relatively new opportunity and may not last long. That is the:
Special Charitable Contributions for Certain IRA Owners
This provision, currently scheduled to expire at the end of 2009, offers older owners of individual retirement accounts (IRAs) a different way to give to charity. An IRA owner, age 70½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charity.
This option, created in 2006, is available for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.
To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity. Amounts so transferred are not taxable and no deduction is available for the transfer.
Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.
Amounts transferred to a charity from an IRA are counted in determining whether the owner has met the IRA’s required minimum distribution. Of course the Required Minimum distribution has been deferred for tax year 2009, but this is an excellent time to get the money out of those IRA's TAX FREE.
Many retirees do not necessarily need their IRA money at this time and do not want to take the distribution out of their IRA, because it then becomes taxable, and even worse, it makes more of their Social Security taxable.
This is a perfect avenue to take the money out TAX FREE. You do not get to deduct the donation, HOWEVER, you don't have to pay tax on the distribution, and it doesn't increase your taxable income. That in itself will probably outweigh the tax deduction that you forego.
This provision was actually supposed to end December of 2008 and Congress extended it for one more year. Whether they will extend it again or not will remain to be seen.
Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats transferred amounts as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions.
Sincerely, Deborah Sherwood, EA
Guidelines for Monetary Donations
To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.
Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.
Reminders
To help taxpayers plan their holiday-season and year-end giving, the IRS offers the following additional reminders:
Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2009 count for 2009. This is true even if the credit card bill isn’t paid until 2010. Also, checks count for 2009 as long as they are mailed in 2009 and clear, shortly thereafter.
Check that the organization is qualified. Only donations to qualified organizations are tax-deductible. IRS Publication 78, available online and at many public libraries, lists most organizations that are qualified to receive deductible contributions. The searchable online version can be found at IRS.gov under Search for Charities. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in Publication 78.
For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction, including anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2009 Form 1040 Schedule A, available now on IRS.gov, to determine whether itemizing is better than claiming the standard deduction.
The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.
If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.
Charitable Donations can lift your Christmas spirtis, by helping our fellow men and you get the added benefit of a possibly a larger refund this year.
Sincerely, Deborah Sherwood, EA
Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.
Reminders
To help taxpayers plan their holiday-season and year-end giving, the IRS offers the following additional reminders:
Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2009 count for 2009. This is true even if the credit card bill isn’t paid until 2010. Also, checks count for 2009 as long as they are mailed in 2009 and clear, shortly thereafter.
Check that the organization is qualified. Only donations to qualified organizations are tax-deductible. IRS Publication 78, available online and at many public libraries, lists most organizations that are qualified to receive deductible contributions. The searchable online version can be found at IRS.gov under Search for Charities. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in Publication 78.
For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction, including anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2009 Form 1040 Schedule A, available now on IRS.gov, to determine whether itemizing is better than claiming the standard deduction.
The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.
If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.
Charitable Donations can lift your Christmas spirtis, by helping our fellow men and you get the added benefit of a possibly a larger refund this year.
Sincerely, Deborah Sherwood, EA
Rules for Donating Clothing and Household Items
To be deductible, clothing and household items donated to charity generally must be in good used condition or better.
A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances and linens.
A receipt from the Charitable Organization is A MUST, so don't just drop off the "goods" and expect to take the donation.
IRS is even getting more strict on HOW you must document these items. The following rules apply to charitable donation receipts:
1. The name of the Charitable Organizaion must be listed on the Receipt
2. The date and location of the contribution
3. A description of (but not necessarily a value for) the property "in detail
reasonably sufficient under the circumstances". The charity must write this description in
Also on any receipt with a donation value of $250 or more, the Charity need to include the statement "no goods or services were rendered in return for the donation"
Taking pictures of the goods before giving them away, is also very helpful.
This may seem like a lot of useless work, however, the Charitable Contribution is one of the few really good deductions we have left, and it is well worth the effort.
Charities are notorious for not giving receipts. It is easy for people just to dump the bags at the drop off, but I think we need to make those charities conduct business in the proper manner to help all involved.
Below is a link to Salvation Army, open it up then click on "Donation Value Guide". This is a great tool for valuing the items you donate.
www.satruck.org
Also, for Charitable Planning use this link: http://www.pgdc.com/host/planned-giving-design-center-llc/overview
On our website www.sherwoodqualitytax.com, if you will click on the "Links" tab at the bottom of the page, there is a whole page of unique links to find helpful information.
Sincerely, Deborah Sherwood, EA
A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances and linens.
A receipt from the Charitable Organization is A MUST, so don't just drop off the "goods" and expect to take the donation.
IRS is even getting more strict on HOW you must document these items. The following rules apply to charitable donation receipts:
1. The name of the Charitable Organizaion must be listed on the Receipt
2. The date and location of the contribution
3. A description of (but not necessarily a value for) the property "in detail
reasonably sufficient under the circumstances". The charity must write this description in
Also on any receipt with a donation value of $250 or more, the Charity need to include the statement "no goods or services were rendered in return for the donation"
Taking pictures of the goods before giving them away, is also very helpful.
This may seem like a lot of useless work, however, the Charitable Contribution is one of the few really good deductions we have left, and it is well worth the effort.
Charities are notorious for not giving receipts. It is easy for people just to dump the bags at the drop off, but I think we need to make those charities conduct business in the proper manner to help all involved.
Below is a link to Salvation Army, open it up then click on "Donation Value Guide". This is a great tool for valuing the items you donate.
www.satruck.org
Also, for Charitable Planning use this link: http://www.pgdc.com/host/planned-giving-design-center-llc/overview
On our website www.sherwoodqualitytax.com, if you will click on the "Links" tab at the bottom of the page, there is a whole page of unique links to find helpful information.
Sincerely, Deborah Sherwood, EA
Monday, December 7, 2009
Audits for Employer Issues Coming SOON!!!
IRS has formed a special division, JUST FOR EMPLOYMENT ISSUES. They have been training their staff in this specialty and NOW:
* * NRP Employment Tax Audits to Begin in February 2010 * *
In February 2010, the IRS will begin its first Employment Tax National Research Project (ET NRP). Business practices regarding employment tax issues may have changed significantly over the last 25 years since the last IRS employment tax study in the 1980s.
Examinations comprising the study will be conducted to collect data that will allow the IRS to understand the compliance characteristics of employment tax filers. The results will allow the IRS to gauge more accurately the extent to which businesses properly comply with employment tax law and related reporting requirements.
When completed, this information will help the IRS select and audit future employment tax returns with the greatest compliance risk.
There are two main goals:
• To secure statistically valid information for computing the Employment Tax Gap (ie. find out how bad the abuse is and catch those employers paying CASH wages and/or claiming employees as independent contractors), and
• To determine compliance characteristics so IRS can focus on the most noncompliant employment tax areas. (in other words find out where the majority of Employers are breaking the rules and zero in on those areas for more widespread audits).
The IRS will randomly select 2,000 taxpayers each year for the next three years. The examinations will be comprehensive in scope.
Records pertaining to employment tax returns and issues will be subject to review during these examinations. Employers should have all of their records available to expedite these examinations.
My suggestion, if you are not claiming full or part time employees as wage earners instead of subcontract labor, you may want to clean up your act!
Remember, IRS and the States are BROKE, they are looking for money from ANY source they can find, and this issue has been abused for so long, they are going to push it to the max!
If you have concerns in this area, and would like more information on whether your worker is an employee or an independent contractor, give us a call!! OR better yet, send me an email debbie.sherwoodquality@yahoo.com.
Sincerely, Deborah Sherwood, EA
* * NRP Employment Tax Audits to Begin in February 2010 * *
In February 2010, the IRS will begin its first Employment Tax National Research Project (ET NRP). Business practices regarding employment tax issues may have changed significantly over the last 25 years since the last IRS employment tax study in the 1980s.
Examinations comprising the study will be conducted to collect data that will allow the IRS to understand the compliance characteristics of employment tax filers. The results will allow the IRS to gauge more accurately the extent to which businesses properly comply with employment tax law and related reporting requirements.
When completed, this information will help the IRS select and audit future employment tax returns with the greatest compliance risk.
There are two main goals:
• To secure statistically valid information for computing the Employment Tax Gap (ie. find out how bad the abuse is and catch those employers paying CASH wages and/or claiming employees as independent contractors), and
• To determine compliance characteristics so IRS can focus on the most noncompliant employment tax areas. (in other words find out where the majority of Employers are breaking the rules and zero in on those areas for more widespread audits).
The IRS will randomly select 2,000 taxpayers each year for the next three years. The examinations will be comprehensive in scope.
Records pertaining to employment tax returns and issues will be subject to review during these examinations. Employers should have all of their records available to expedite these examinations.
My suggestion, if you are not claiming full or part time employees as wage earners instead of subcontract labor, you may want to clean up your act!
Remember, IRS and the States are BROKE, they are looking for money from ANY source they can find, and this issue has been abused for so long, they are going to push it to the max!
If you have concerns in this area, and would like more information on whether your worker is an employee or an independent contractor, give us a call!! OR better yet, send me an email debbie.sherwoodquality@yahoo.com.
Sincerely, Deborah Sherwood, EA
Friday, December 4, 2009
Standard Mileage Rate CHANGES for 2010
Instead of using the business portion of the actual expenses of operating a vehicle, the IRS permits taxpayers to use a standard mileage rate. (But don't forget...you STILL have to keep track of the different KIND of mileages...business, charitable, medical, personal etc.
IRS has issued new standard mileage rates effective for travel on or after January 1, 2010.
Business mileage rate is 50 cents per mile (down from the 55 cents per mile for 2009); 23 cents per mile is the depreciation component (up from 21 cents per mile for 2009).
Charitable rate is 14 cents per mile and is set by Congress therefore does not change until Congress makes such a change.
Medical and moving rate is 16.5 (down from the 24 cents per mile for 2009).
From the downward drop of the mileage rates, you would think that IRS is planning on the gas prices and the vehicle prices to drop. THAT would be great!!!!....but don't hold your breath!
We hope you have a wonderful Christmas!
Tax season is coming soon, can't wait to visit with you!!
IRS has issued new standard mileage rates effective for travel on or after January 1, 2010.
Business mileage rate is 50 cents per mile (down from the 55 cents per mile for 2009); 23 cents per mile is the depreciation component (up from 21 cents per mile for 2009).
Charitable rate is 14 cents per mile and is set by Congress therefore does not change until Congress makes such a change.
Medical and moving rate is 16.5 (down from the 24 cents per mile for 2009).
From the downward drop of the mileage rates, you would think that IRS is planning on the gas prices and the vehicle prices to drop. THAT would be great!!!!....but don't hold your breath!
We hope you have a wonderful Christmas!
Tax season is coming soon, can't wait to visit with you!!
Saturday, November 28, 2009
Year End Heads Up for BUSINESS CLIENTS
2009 continued the Congressional history of innumerable tax changes and many open ends remaining at the end of the year. You can be assured that we are monitoring Congressional action regularly and will utilize the latest changes as we prepare your return.
Problem Areas
The IRS continues this year to address actual physical inventory on hand at December 31. Please make sure to physically count your inventory, retain the records, and provide us with the accurate total cost of inventory on hand at December 31, 2009. Do not include consignments you are holding from other people in this number. In the event of an audit you must be able to provide copies of physical count sheets, so this year we are placing an increased emphasis upon obtaining correct year end physical inventory amounts.
We also want to remind you to make sure that your corporate minutes are maintained on an annual basis-we are not allowed to maintain these forms for you, they should be maintained by the officers of the corporation. Of course only S and C corporations are required to maintain minutes, LLC’s generally have no such requirement. If you have an LLC that is taxed as an S or C corporation, I suggest that you have minutes anyway, just for safety.
Sales tax audits continue to increase. In general you must pay sales or use tax on any item you purchase that is not re-sold including office supplies, equipment, online and out of state purchases. You need to charge sales tax on any items you sell (not always labor if separately stated on the invoice) except for those customers for whom you have a valid exemption certificate on file. Make sure that you file sales tax returns in all states in which you have an office, store, salespeople or other presence.
The write-off for equipment and building purchases continues to be a major tax-savings event for 2009. Please provide us with invoice copies of any assets you purchased that cost more than $500 on 2009.
The mileage rate for cars used in a business is 55 cents per mile for the entire year of 2009, so if we are writing off a portion of your business vehicle, please provide us with total mileage for the year, and with business mileage. You should be keeping track of this mileage with a log book, calendar or similar system.
With ever-increasing costs for health care, businesses need to closely examine their options. HSA insurance/savings plans, employee leasing and similar areas that we may be able to use to significantly reduce your health care fringe benefit costs. Additionally, we are finding that many employers are reaping tremendous savings from HRA’s which are an inexpensive way (about $250 per year) to save a minimum of $1,000 annually. Please contact us to establish an HRA.
Several new tax credits are available for energy improvements to your business, hiring of disadvantaged groups, old building rehabilitation (built before 1936), starting a first time company pension plan, and more. If one of these unusual situations affect your business, please tell us!
Tax Return 10-Point Information Needed
As usual we also need the following information to prepare your tax return for this year (Check off as completed) This information will need to go to your bookkeeper first, to be input in the bookkeeping:
__ Copies of any new bank loans obtained during the year,
__ Copies of any federal or state tax correspondence received during the
Year if not already provided,
__ Copies of any equipment purchase invoices over $500,
__ Loan payoffs, by loan number, of all business loans at December 31,
__ Copies of your year-end bank reconciliation(s),
__12/31/09 Year End Balances of:
Accounts Receivable $___________,
Cost of Inventory on Hand $_____________,
Unpaid Sales tax at December 31 $_____________,
Unpaid wages earned thru 12/31 $__________,
Accounts payable to suppliers/utilities at 12/31 $ ___________
If we do not prepare your W-2s and payroll returns we need this payroll information:
Unpaid 941 Deposit at December 31 $__________,
Unpaid Federal unemployment deposit (940) at December 31 $ ___________,
Unpaid state unemployment deposit at December 31 $ __________,
Unpaid state withholding deposits at December 31 $____________________,
__ The enclosed engagement letter needs to be signed and returned,
__ Year end summary of business activity-USB flash drive back up
(Quickbooks back-up, trial balance, etc. unless we maintain),
__ Sales breakdown by state and city if applicable (Call us to determine),
__ Information on any changes in ownership, stock holding, locations or
number of stores.
We once again thank you for your patronage and loyalty. If you have any questions regarding this letter or other tax compliance or planning issues please contact us at the office.
Sincerely, Deborah Sherwood, EA
Problem Areas
The IRS continues this year to address actual physical inventory on hand at December 31. Please make sure to physically count your inventory, retain the records, and provide us with the accurate total cost of inventory on hand at December 31, 2009. Do not include consignments you are holding from other people in this number. In the event of an audit you must be able to provide copies of physical count sheets, so this year we are placing an increased emphasis upon obtaining correct year end physical inventory amounts.
We also want to remind you to make sure that your corporate minutes are maintained on an annual basis-we are not allowed to maintain these forms for you, they should be maintained by the officers of the corporation. Of course only S and C corporations are required to maintain minutes, LLC’s generally have no such requirement. If you have an LLC that is taxed as an S or C corporation, I suggest that you have minutes anyway, just for safety.
Sales tax audits continue to increase. In general you must pay sales or use tax on any item you purchase that is not re-sold including office supplies, equipment, online and out of state purchases. You need to charge sales tax on any items you sell (not always labor if separately stated on the invoice) except for those customers for whom you have a valid exemption certificate on file. Make sure that you file sales tax returns in all states in which you have an office, store, salespeople or other presence.
The write-off for equipment and building purchases continues to be a major tax-savings event for 2009. Please provide us with invoice copies of any assets you purchased that cost more than $500 on 2009.
The mileage rate for cars used in a business is 55 cents per mile for the entire year of 2009, so if we are writing off a portion of your business vehicle, please provide us with total mileage for the year, and with business mileage. You should be keeping track of this mileage with a log book, calendar or similar system.
With ever-increasing costs for health care, businesses need to closely examine their options. HSA insurance/savings plans, employee leasing and similar areas that we may be able to use to significantly reduce your health care fringe benefit costs. Additionally, we are finding that many employers are reaping tremendous savings from HRA’s which are an inexpensive way (about $250 per year) to save a minimum of $1,000 annually. Please contact us to establish an HRA.
Several new tax credits are available for energy improvements to your business, hiring of disadvantaged groups, old building rehabilitation (built before 1936), starting a first time company pension plan, and more. If one of these unusual situations affect your business, please tell us!
Tax Return 10-Point Information Needed
As usual we also need the following information to prepare your tax return for this year (Check off as completed) This information will need to go to your bookkeeper first, to be input in the bookkeeping:
__ Copies of any new bank loans obtained during the year,
__ Copies of any federal or state tax correspondence received during the
Year if not already provided,
__ Copies of any equipment purchase invoices over $500,
__ Loan payoffs, by loan number, of all business loans at December 31,
__ Copies of your year-end bank reconciliation(s),
__12/31/09 Year End Balances of:
Accounts Receivable $___________,
Cost of Inventory on Hand $_____________,
Unpaid Sales tax at December 31 $_____________,
Unpaid wages earned thru 12/31 $__________,
Accounts payable to suppliers/utilities at 12/31 $ ___________
If we do not prepare your W-2s and payroll returns we need this payroll information:
Unpaid 941 Deposit at December 31 $__________,
Unpaid Federal unemployment deposit (940) at December 31 $ ___________,
Unpaid state unemployment deposit at December 31 $ __________,
Unpaid state withholding deposits at December 31 $____________________,
__ The enclosed engagement letter needs to be signed and returned,
__ Year end summary of business activity-USB flash drive back up
(Quickbooks back-up, trial balance, etc. unless we maintain),
__ Sales breakdown by state and city if applicable (Call us to determine),
__ Information on any changes in ownership, stock holding, locations or
number of stores.
We once again thank you for your patronage and loyalty. If you have any questions regarding this letter or other tax compliance or planning issues please contact us at the office.
Sincerely, Deborah Sherwood, EA
A little YEAR END heads up for INDIVIDUALS!!
We are surprised how quickly the year has passed! On the income tax scene Congress continues to work on last minute income tax bills as of the date of this letter, but you can be assured we stay abreast of all the latest changes as they occur! With the economic issues this year you can be sure that we will work more diligently than ever to keep your tax bill at the lowest legal amount.
Cash for Clunkers
Good news-if you traded in that old junk vehicle under the cash for clunkers bill you do not have to pay tax on the credit you received! No, we don’t even need to know about it unless you use your car for business, and even then you don’t pay tax on the credit.
Homebuyer Credit
If you (and spouse if married) bought a home in 2009 please bring the HUD home closing statement with your income tax information. Congress has made a number of changes to these rules in the last few weeks, so please provide the new home information any time you purchased a new home this year, even if it is not your first home. For more on this credit, see previous posted blogs.
New Cars or Trucks
Several special new tax deductions and credits are available this year if you bought a brand new car, light truck, motorcycle or RV during the year. If you bought a new vehicle please bring us a copy of the invoice so that you get this special credit or deduction
Mortgage Interest
Recent IRS scrutiny of home mortgage interest deductions now require us to carefully track re-financings and the use of loan proceeds. Please provide us with any new home loan information, closing statements from any re-financings, and a summary of what any additional loan proceeds were used for.
Charity
A scary IRS court case in 2008 reminds us of the rules on charitable contributions. ALL deductions of any amount must have a receipt. Any individual contribution over $250 must also have an acknowledgement letter from the charity, and the letter must be dated by the date we file your return. The letter should show the date and amount of any individual contribution over $250, and should also state that no goods or services were received in return for the contribution.
Property Tax
There is a special property tax deduction available in 2009 for property tax paid on your personal residence. Even though we have not needed this amount in previous years for some people, everyone should provide us with this amount this year, if you paid any property tax in 2009.
Foreign Accounts
If you have read any news in the last year you know that the IRS is looking closely for offshore accounts. If you have an account with over $10,000 in a foreign country, or a foreign business ownership (not through a mutual fund) please let us know as some special rules will apply to you.
Mileage Deductions
Deductible mileage rates changed during the year. Please provide us with the number of medical miles you drove during the year for this deduction. This includes trips to the doctor, dentist, pharmacy, dialysis, etc. Also separate the charitable miles that you drove this year, while holding a position within the Non Profit Organization. Organizations such as church groups, little league, Sheriff's Posse, etc.
Education Credits
A major revision of college credits by President Obama has provided us with the new “American Opportunity Credit”, a special credit for undergraduate college students. If you have children in college or near to college, please discuss some options with us to assure that you receive the best benefit for these costs.
Roth IRA Conversions
You will be hearing from lots of “experts” this year that you need to convert your retirement accounts to Roth IRAs. While there are a number of advantages to conversions, there are an equal number of disadvantages that carry some major tax consequences. Please do not convert your accounts in 2010 without coming in to see us for an appointment to discuss both the positives and negatives.
Gift Changes
Effective 1/1/2009 the amount you may give to one person in one year without any return filing requirements has been increased to $13,000.
Energy Credits
The residential energy credit has been reinstated starting in January of 2009. If you added or are considering adding storm windows, doors, insulation or a furnace, the Federal credit is 30% of the cost of the product, plus installation fees for furnaces, up to a maximum of $1,500 for your home. There are also tremendous credits available for solar power, geothermal and wind energy that you should discuss with us if you are considering these changes. There is still a special tax credit for some new hybrid cars bought in 2009, so please bring that information to us as well.
Worthless Stocks and Bonds
If you own stocks or bonds that became worthless this year (Such as General Motors), please be sure to provide us with the cost and purchase dates so that we can take any allowable deductions.
Future Income Tax Rates & Other
With record Federal deficits predicted for the next 10 years, it is a foregone conclusion that future tax rates will be substantially higher than today. If you are considering selling property or stock there is a good chance that 2009 will be the lowest capital gains rates any of us will ever see again, and the 2009 rates continue to be the lowest rates since before World War II. You might want to discuss some tax strategies with us if you are expecting a major asset sale in 2009 or 2010.
There are literally hundreds of other changes, extensions and deletions that we will consider this year while preparing your return. Because of these changes we are requesting everyone to try to have their tax information in to us at least two weeks earlier than normal, and no later than March 21, 2010. Please rest assured that we will utilize our best resources to once again provide you with timely, complete and accurate service while keeping your tax burden to the lowest legal amount. Thank you again for your continued support.
Sincerely, Deborah Sherwood
Cash for Clunkers
Good news-if you traded in that old junk vehicle under the cash for clunkers bill you do not have to pay tax on the credit you received! No, we don’t even need to know about it unless you use your car for business, and even then you don’t pay tax on the credit.
Homebuyer Credit
If you (and spouse if married) bought a home in 2009 please bring the HUD home closing statement with your income tax information. Congress has made a number of changes to these rules in the last few weeks, so please provide the new home information any time you purchased a new home this year, even if it is not your first home. For more on this credit, see previous posted blogs.
New Cars or Trucks
Several special new tax deductions and credits are available this year if you bought a brand new car, light truck, motorcycle or RV during the year. If you bought a new vehicle please bring us a copy of the invoice so that you get this special credit or deduction
Mortgage Interest
Recent IRS scrutiny of home mortgage interest deductions now require us to carefully track re-financings and the use of loan proceeds. Please provide us with any new home loan information, closing statements from any re-financings, and a summary of what any additional loan proceeds were used for.
Charity
A scary IRS court case in 2008 reminds us of the rules on charitable contributions. ALL deductions of any amount must have a receipt. Any individual contribution over $250 must also have an acknowledgement letter from the charity, and the letter must be dated by the date we file your return. The letter should show the date and amount of any individual contribution over $250, and should also state that no goods or services were received in return for the contribution.
Property Tax
There is a special property tax deduction available in 2009 for property tax paid on your personal residence. Even though we have not needed this amount in previous years for some people, everyone should provide us with this amount this year, if you paid any property tax in 2009.
Foreign Accounts
If you have read any news in the last year you know that the IRS is looking closely for offshore accounts. If you have an account with over $10,000 in a foreign country, or a foreign business ownership (not through a mutual fund) please let us know as some special rules will apply to you.
Mileage Deductions
Deductible mileage rates changed during the year. Please provide us with the number of medical miles you drove during the year for this deduction. This includes trips to the doctor, dentist, pharmacy, dialysis, etc. Also separate the charitable miles that you drove this year, while holding a position within the Non Profit Organization. Organizations such as church groups, little league, Sheriff's Posse, etc.
Education Credits
A major revision of college credits by President Obama has provided us with the new “American Opportunity Credit”, a special credit for undergraduate college students. If you have children in college or near to college, please discuss some options with us to assure that you receive the best benefit for these costs.
Roth IRA Conversions
You will be hearing from lots of “experts” this year that you need to convert your retirement accounts to Roth IRAs. While there are a number of advantages to conversions, there are an equal number of disadvantages that carry some major tax consequences. Please do not convert your accounts in 2010 without coming in to see us for an appointment to discuss both the positives and negatives.
Gift Changes
Effective 1/1/2009 the amount you may give to one person in one year without any return filing requirements has been increased to $13,000.
Energy Credits
The residential energy credit has been reinstated starting in January of 2009. If you added or are considering adding storm windows, doors, insulation or a furnace, the Federal credit is 30% of the cost of the product, plus installation fees for furnaces, up to a maximum of $1,500 for your home. There are also tremendous credits available for solar power, geothermal and wind energy that you should discuss with us if you are considering these changes. There is still a special tax credit for some new hybrid cars bought in 2009, so please bring that information to us as well.
Worthless Stocks and Bonds
If you own stocks or bonds that became worthless this year (Such as General Motors), please be sure to provide us with the cost and purchase dates so that we can take any allowable deductions.
Future Income Tax Rates & Other
With record Federal deficits predicted for the next 10 years, it is a foregone conclusion that future tax rates will be substantially higher than today. If you are considering selling property or stock there is a good chance that 2009 will be the lowest capital gains rates any of us will ever see again, and the 2009 rates continue to be the lowest rates since before World War II. You might want to discuss some tax strategies with us if you are expecting a major asset sale in 2009 or 2010.
There are literally hundreds of other changes, extensions and deletions that we will consider this year while preparing your return. Because of these changes we are requesting everyone to try to have their tax information in to us at least two weeks earlier than normal, and no later than March 21, 2010. Please rest assured that we will utilize our best resources to once again provide you with timely, complete and accurate service while keeping your tax burden to the lowest legal amount. Thank you again for your continued support.
Sincerely, Deborah Sherwood
Exclusions for the 10% Penalty on Pension Withdrawal
These are some exclusions for the 10% penalty when withdrawing funds from an IRA and 401 K distributions.
I have had quite a few people call me on this recently and thought I would post this great breakdown from Jennings Seminar.
It has some little known exclusions that may help you. PLEASE remember that not all exclusions apply to BOTH the IRA and the 401K, many exclusions are for one or the other.
Sincerely, Deborah Sherwood, EA
The Penalty Exceptions of IRC Section 72(t)
1Disability of the participant
Must meet the meaning described
2 Series of Substantially equal payments
Annual distributions based on approved calculation. For qualified plans taxpayer must
separate from service
3 Separation from service
Must be 55, does not apply to IRAs or self employed individuals
4Equal to or less than deductible medical expenses
Medical expenses must exceed 7.5% of AGI
5Unemployed health insurance
Applies only for IRAs
Payments received for at least 12 weeks
Limited to health insurance paid
6Higher education of taxpayer, spouse, kids or grandkids
Applies only to IRAs
7 1st time home purchase of taxpayer, spouse, child or grandchild
Applies only to IRAs
120 day time limit
$10,000 lifetime limit
8 Loan agreements
Qualified plans only
9Death
All beneficiaries qualify
10 Dividends to ESOP participants
Must meet dividend deduction rules for ESOP’s
11 Federal tax levy
Must be IRC Section 6631 levy
12 QDRO order
Divorce decree, does not apply to IRAs
13 Federal retirees with lump sum and reduced annuity
Must be 55
14 Rolled over within 60 days of distribution
IRS may waive the 60 day rule in the event of hardship
15 Correct excess contributions
Applies to 401ks and IRAs primarily
16 Conversion from traditional to Roth
Many traps still exist
17 Hurricane Katrina distributions
$100,000 lifetime limit
18 Public safety officers separated from service
Over age 49
19 Reservists called to active duty
Must be on active duty more than 179 days
I have had quite a few people call me on this recently and thought I would post this great breakdown from Jennings Seminar.
It has some little known exclusions that may help you. PLEASE remember that not all exclusions apply to BOTH the IRA and the 401K, many exclusions are for one or the other.
Sincerely, Deborah Sherwood, EA
The Penalty Exceptions of IRC Section 72(t)
1Disability of the participant
Must meet the meaning described
2 Series of Substantially equal payments
Annual distributions based on approved calculation. For qualified plans taxpayer must
separate from service
3 Separation from service
Must be 55, does not apply to IRAs or self employed individuals
4Equal to or less than deductible medical expenses
Medical expenses must exceed 7.5% of AGI
5Unemployed health insurance
Applies only for IRAs
Payments received for at least 12 weeks
Limited to health insurance paid
6Higher education of taxpayer, spouse, kids or grandkids
Applies only to IRAs
7 1st time home purchase of taxpayer, spouse, child or grandchild
Applies only to IRAs
120 day time limit
$10,000 lifetime limit
8 Loan agreements
Qualified plans only
9Death
All beneficiaries qualify
10 Dividends to ESOP participants
Must meet dividend deduction rules for ESOP’s
11 Federal tax levy
Must be IRC Section 6631 levy
12 QDRO order
Divorce decree, does not apply to IRAs
13 Federal retirees with lump sum and reduced annuity
Must be 55
14 Rolled over within 60 days of distribution
IRS may waive the 60 day rule in the event of hardship
15 Correct excess contributions
Applies to 401ks and IRAs primarily
16 Conversion from traditional to Roth
Many traps still exist
17 Hurricane Katrina distributions
$100,000 lifetime limit
18 Public safety officers separated from service
Over age 49
19 Reservists called to active duty
Must be on active duty more than 179 days
New Home Credit- more info
I just received this nice outline of the New Home Credit from Jennings Seminars, who is one of the many tax training seminars that we will attend in 2009.
It was so concisely put together, I thought you might enjoy it.
Sincerely, Deborah Sherwood, EA
New Home Credit
The IRS has recently issued several new pieces of guidance about the home credit.
Changes from the President's Bill of 11/6/2009:
1. Purchase date extended to having a binding contract in place by 4/30/2010, closing it by 6/30/2010.
2. The above dates are extended 1 year for members of the military.
3. Discontinued personal residence use of a home for which the credit was taken within 36 months of purchase requires repayment except in the event of a military move.
4. Yes, homes include trailers, RV's, boats and structures.
5. The new AGI phase-out limits ONLY apply to homes purchased after 11/6/2009.
6. All returns now require a copy of the settlement statement.
7. Homes purchased after 11/6/2009 require the new Form 5405-which has not yet been released as of 11/28/2009! This includes amended returns. See IRS IR-2009-108.
8. Homes purchased from in-laws after 11/6/2009 no longer qualify for the credit.
9. Homes purchased by minors and dependents after 11/6/2009 no longer qualify.
10. No provision has been made, or will be made, to forgive the $7,500 interest free loan credit available for 2008 purchases. And yes, it is fair! 99% of Americans would have loved to receive a $7,500 interest free 17 year loan, but they paid for their home without it.
11. Homes purchased after 11/6/2009 costing over $800,000 do not qualify for any credit.
12. A home owned and used continuously as a personal residence for 5 of the last 8 years also qualifies as a new home, with all applicable 1st home rules. However the credit is limited to $6,500.
13. It is theoretically possible to get the clunker credit, lean burn diesel credit, sales tax deduction and new home credit on a new RV!
New IRS Info sheet 2009-0135 also states that where a married couple both owned a home, divorced and one was forced to move out, neither qualifies for the 1st home credit even though one had lived in a different residence for over 3 years.
New IRS info sheet 2009-0167 states that where a duplex is purchased for rental as well as personal residence use, only the purchase price attributable to personal residence use qualifies for the credit.
It was so concisely put together, I thought you might enjoy it.
Sincerely, Deborah Sherwood, EA
New Home Credit
The IRS has recently issued several new pieces of guidance about the home credit.
Changes from the President's Bill of 11/6/2009:
1. Purchase date extended to having a binding contract in place by 4/30/2010, closing it by 6/30/2010.
2. The above dates are extended 1 year for members of the military.
3. Discontinued personal residence use of a home for which the credit was taken within 36 months of purchase requires repayment except in the event of a military move.
4. Yes, homes include trailers, RV's, boats and structures.
5. The new AGI phase-out limits ONLY apply to homes purchased after 11/6/2009.
6. All returns now require a copy of the settlement statement.
7. Homes purchased after 11/6/2009 require the new Form 5405-which has not yet been released as of 11/28/2009! This includes amended returns. See IRS IR-2009-108.
8. Homes purchased from in-laws after 11/6/2009 no longer qualify for the credit.
9. Homes purchased by minors and dependents after 11/6/2009 no longer qualify.
10. No provision has been made, or will be made, to forgive the $7,500 interest free loan credit available for 2008 purchases. And yes, it is fair! 99% of Americans would have loved to receive a $7,500 interest free 17 year loan, but they paid for their home without it.
11. Homes purchased after 11/6/2009 costing over $800,000 do not qualify for any credit.
12. A home owned and used continuously as a personal residence for 5 of the last 8 years also qualifies as a new home, with all applicable 1st home rules. However the credit is limited to $6,500.
13. It is theoretically possible to get the clunker credit, lean burn diesel credit, sales tax deduction and new home credit on a new RV!
New IRS Info sheet 2009-0135 also states that where a married couple both owned a home, divorced and one was forced to move out, neither qualifies for the 1st home credit even though one had lived in a different residence for over 3 years.
New IRS info sheet 2009-0167 states that where a duplex is purchased for rental as well as personal residence use, only the purchase price attributable to personal residence use qualifies for the credit.
Friday, November 20, 2009
First Time Homebuyer Credit extension
President Obama signed the following into law this month:
First Time Homebuyer’s Credit. Again we have changes. The credit is extended to closings on or before April 30, 2010. This is extended to closings on or before June 30, 2010 IF the taxpayer has a binding contract on or before April 30, 2010. Taxpayers who have served at least 90 days on “qualified official extended duty service” between January 1, 2009 and April 30, 2010, have an extra year to make their purchase (extending their date to April 30, 2011).Again a taxpayer can elect to claim the credit for a qualifying 2010 purchase on the 2009 income tax return or wait until the 2010 return is filed.The credit is not available for purchases AFTER November 6, 2009, to a taxpayer:- Who is eligible to be claimed as a dependent,- Is not at least the age of 18 years of age on the purchase date (if the taxpayer’s spouse is at least age 18, the taxpayer is deemed to have met this test),- Who purchases the property from a family member of the taxpayer’s spouse, or- Who purchases a residence for more than $800,000.(Previously the denial for purchases from the family member was limited to the family member’s family and did not mention the spouse’s family.)Effective for purchases AFTER November 6, 2009, the modified AGI limitation starts at $125,000 ($225,000 for MFJ).Effective for purchases AFTER November 6, 2009, a “first time homebuyer” includes a “long-time resident” which is defined as an individual (and, if married, such individual’s spouse) who purchases a new principal residence if the individual has owned and used the same prior residence as such individual’s principal residence for any 5-consecutive period during the 8-year period ending on the date of the purchase of the new principal residence. The maximum dollar credit for this individual is $6,500 ($3,250 for MFS) instead of the $8,000.Effective for dispositions or cessations of use as a principal residence after December 31, 2008, the recapture does NOT exist if the taxpayer, or taxpayer’s spouse, received Government orders for qualified official extended duty service. For purposes of this paragraph and the extended eligible dates above, “qualified official extended duty service” means service on qualified official extended duty as 1) a member of the uniformed services, 2) a member of the Foreign Service of the United States, or 3) an employee of the intelligence community. All three of these are defined in Section 121(d)(9).Effective for taxable years ending after December 31, 2009, documentation MUST be sent with the tax return verifying the qualifying purchase. (IRS has been asking for documentation on many claims already filed if it appears the taxpayer may be ineligible.)
FUTA tax surcharge. This .2% surcharge has been around many years and is why our FUTA tax rate is 6.2% instead of 6.0%. This surcharge is now extended to run through June 30, 2011.
Failure to File Penalty. The Failure to File penalty for Partnerships and S Corporations is increased from $89 per month to $195 per month. This brings the penalty to $195 per month per partner/shareholder with a maximum of 12 months. This is effective for tax years beginning after December 31, 2009.
First Time Homebuyer’s Credit. Again we have changes. The credit is extended to closings on or before April 30, 2010. This is extended to closings on or before June 30, 2010 IF the taxpayer has a binding contract on or before April 30, 2010. Taxpayers who have served at least 90 days on “qualified official extended duty service” between January 1, 2009 and April 30, 2010, have an extra year to make their purchase (extending their date to April 30, 2011).Again a taxpayer can elect to claim the credit for a qualifying 2010 purchase on the 2009 income tax return or wait until the 2010 return is filed.The credit is not available for purchases AFTER November 6, 2009, to a taxpayer:- Who is eligible to be claimed as a dependent,- Is not at least the age of 18 years of age on the purchase date (if the taxpayer’s spouse is at least age 18, the taxpayer is deemed to have met this test),- Who purchases the property from a family member of the taxpayer’s spouse, or- Who purchases a residence for more than $800,000.(Previously the denial for purchases from the family member was limited to the family member’s family and did not mention the spouse’s family.)Effective for purchases AFTER November 6, 2009, the modified AGI limitation starts at $125,000 ($225,000 for MFJ).Effective for purchases AFTER November 6, 2009, a “first time homebuyer” includes a “long-time resident” which is defined as an individual (and, if married, such individual’s spouse) who purchases a new principal residence if the individual has owned and used the same prior residence as such individual’s principal residence for any 5-consecutive period during the 8-year period ending on the date of the purchase of the new principal residence. The maximum dollar credit for this individual is $6,500 ($3,250 for MFS) instead of the $8,000.Effective for dispositions or cessations of use as a principal residence after December 31, 2008, the recapture does NOT exist if the taxpayer, or taxpayer’s spouse, received Government orders for qualified official extended duty service. For purposes of this paragraph and the extended eligible dates above, “qualified official extended duty service” means service on qualified official extended duty as 1) a member of the uniformed services, 2) a member of the Foreign Service of the United States, or 3) an employee of the intelligence community. All three of these are defined in Section 121(d)(9).Effective for taxable years ending after December 31, 2009, documentation MUST be sent with the tax return verifying the qualifying purchase. (IRS has been asking for documentation on many claims already filed if it appears the taxpayer may be ineligible.)
FUTA tax surcharge. This .2% surcharge has been around many years and is why our FUTA tax rate is 6.2% instead of 6.0%. This surcharge is now extended to run through June 30, 2011.
Failure to File Penalty. The Failure to File penalty for Partnerships and S Corporations is increased from $89 per month to $195 per month. This brings the penalty to $195 per month per partner/shareholder with a maximum of 12 months. This is effective for tax years beginning after December 31, 2009.
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