Do I have to File a Tax Return?

You must file a tax return if your income is above a certain level. The amount varies depending on filing status, age and the type of income you receive.

HOWEVER, Even if you don’t have to file, here are eight reasons why you may want to file:

1. Federal Income Tax Withheld If you are not required to file, you should file to get money back if Federal Income Tax was withheld from your pay, you made estimated tax payments, or had a prior year overpayment applied to this year's tax.
2. Making Work Pay Credit You may be able to take this credit if you have earned income from work (a W2). The maximum credit for a married couple filing a joint return is $800 and $400 for other taxpayers.
3. Government Retiree Credit You may be eligible for this credit if you received a government pension or annuity payment in 2009. However, the amount of this credit reduces any making work pay credit you receive.
4. Earned Income Tax Credit You may qualify for EITC if you worked, but did not earn a lot of money. EITC is a refundable tax credit; which means you could qualify for a tax refund.
5. Additional Child Tax Credit This credit may be available to you if you have at least one qualifying child and you did not get the full amount of the Child Tax Credit.
6. Refundable American Opportunity Credit This education tax credit is available for 2009 and 2010. The maximum credit per student is $2,500 and the first four years of postsecondary education qualify.
7. First-Time Homebuyer Credit The credit is a maximum of $8,000 or $4,000 if your filing status is married filing separately. The credit applies to homes bought anytime in 2009 and on or before April 30, 2010. However, you have until on or before June 30, 2010, if you entered into a written binding contract before May 1, 2010. If you bought a home after November 6, 2009, you may be able to qualify and claim the credit even if you already owned a home. In this case, the maximum credit for long-time residents is $6,500, or $3,250 if your filing status is married filing separately.
8. Health Coverage Tax Credit Certain individuals, who are receiving Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance, or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a Health Coverage Tax Credit worth 80 percent of monthly health insurance premiums when you file your 2009 tax return

Hopefully this will give you an idea that you may be able to receive a refund, EVEN if you are not required to file a tax return.

Sincerely,

Deborah Sherwood, EA

IT IS TAX TIME!!

Where did the year go??? I cannot believe it is already January and we are amid the rush of tax season!

Over the past few months I have tried to keep you informed with the many new tax law changes. Hopefully it has helped.

Just a note to say, WE ARE EXCITED about the new season and how we can help you get a bigger refund.

Mail, fax, email or bring your 2009 tax information into the office! We are prepared and ready to go.

Remember, we have many choices for receiving your refund. And don't forget about the FREE TShirt you will receive for any tax preparation over $100!

We hope to SEE YOU SOON!!

Sincerely, Deborah Sherwood, EA

Employer Provided Cell Phone Proposals

Employer Provided Cell Phone Proposals

I sent this out as an email to Business Clients a few months ago. This is just a reminder.

The personal use portion of an employer-provided cell phone is a taxable fringe benefit to employees and belongs on their W-2s accordingly.

In Notice 2009-46 IRS has proposed three (really four) methods to simplify the tax treatment of an employee’s personal use of employer-provided cell phones.

These are proposals, not yet effective, however, if used you will be more likely to be given the deduction in an audit.

Here are the proposals IRS has put forth for comments:

1) Minimal Personal Use Method #1 – The entire amount of an employer provided cell phone would be deemed to be for business use if the employee can account to his or her employer with sufficient records to establish that the employee maintains and uses a personal (nonemployer-provided cell phone for personal purposes during the employee’s work hours.

2) Minimal Personal Use Method #2 – The entire amount would be deemed to be for business use if the employee uses the phone for no more than a specified amount or type of “minimal” personal use. This could be based on number of minutes or for certain personal purposes.

3) Safe Harbor Substantiation Method – A flat 75% of the phone’s use would be considered to be business and the remaining 25% would be considered personal and treated as employee compensation.

4) Statistical Sampling Method –An employer could use statistical sampling to measure an employee’s personal use and multiply the personal use percentage by each employee’s usage to determine the compensation (personal use portion).

This Notice does not change or address the deduction computation for self-employed individuals nor nonreimbursed employees. Substantiation was somewhat addressed in INFO 2007-0030.These proposals could simplify some employer methods. Or this news could cause some employers more work if they aren’t already including the personal use of company-provided cell phones in the employees’ wages.

Thanks so much to Dave Mellem, EA for this article.

Ten Tax Topics for Taxpayers with Tots and Teens

Got Kids? They may have an impact on your tax situation. Listed below
are the top 10 things the IRS wants you to consider if you have children.

Dependents In most cases, a child can be claimed as a dependent in the year
they were born. IRS Pub 501

Child Tax Credit You may be able to take this credit on your tax return for
each of your children under age 17. If you do not benefit from the full
amount of the Child Tax Credit, you may be eligible for the Additional
Child Tax Credit. The Additional Child Tax Credit is a refundable credit
and may give you a refund even if you do not owe any tax. PUB 972
Child and Dependent Care Credit You may be able to claim the credit if
you pay someone to care for your child under age 13 so that you can work,
look for work OR attend school. We will need the Name, Address, and
Social Security or EIN Number for the Care Giver. PUB 503
Earned Income Credit- The EITC is a benefit for certain people who work
and have earned income from wages, self-employment or farming.
EITC reduces the amount of tax you owe and may also give you a refund.
EITC has once again been increased this year. PUB 596
Adoption Credit You may be able to take a tax credit for qualifying
expenses paid to adopt an eligible child. FORM 8839
Children with Earned Income If your child has income earned from
working they may be required to file a tax return. PUB 501
Children with Investment Income Under certain circumstances a
child’s investment income may be taxed at the parent’s tax rate.
PUB 929
Coverdell Education Savings Account This savings account is used
to pay qualified educational expenses at an eligible educational
institution. Contributions are not deductible, however, qualified
distributions generally are tax-free. PUB 970
Higher Education Credits- Education tax credits can help offset the costs
of education. The American Opportunity and the Lifetime Learning Credit
are education credits that reduce your federal income tax dollar-for-dollar,
unlike a deduction, which reduces your taxable income. . PUB 970
Student Loan Interest -You may be able to deduct interest you pay on a
qualified student loan. The deduction is claimed as an adjustment to income
so you do not need to itemize your deductions. PUB 970

For Questions on the above topics, or any others, give us a call!
800-374-7430

We CARE About You, and We Appreciate YOUR Business!

Important Information About First Time Home Buyer Credit

The Worker, Homeownership and Business Assistance Act of 2009 was signed into law November 6, 2009.

If you are in the market for a new home, you may still be able to claim the First-Time Homebuyer Credit.

This new law extends and expands the first-time homebuyer credit allowed by previous legislation.

Here are key points the IRS wants you to know about the expanded credit and the qualifications you must meet in order to qualify for it.

1. You must buy – or enter into a binding contract to buy a principal residence – on
or before April 30, 2010.
2. If you enter into a binding contract by April 30, 2010 you must close on the home on or before
June 30, 2010.
3. For qualifying purchases in 2010, you will have the option of claiming the credit on either your
2009 or 2010 return.
4. A long-time resident of the same home can now qualify for a reduced credit. You
can qualify for the credit if you’ve lived in the same principal residence for any five-
consecutive year period during the eight-year period that ended on the date the new
home is purchased and the settlement date is after November 6, 2009.
5. The maximum credit for long-time residents is $6,500. However, married individuals filing
separately are limited to $3,250. The maximum credit for first-time homeowners is
$8,000 (up to $4,000 for married filing separately).
6. People with higher incomes can now qualify for the credit. The new law raises the income
limits for homes purchased after November 6, 2009. The full credit is available to
taxpayers with modified adjusted gross incomes up to $125,000, or $225,000 for joint
filers.
7. The IRS will issue a revised Form 5405 to claim this credit on 2009 tax returns. The revised
form must be used for homes purchased after November 6, 2009 – whether the credit is
claimed for 2008 or for 2009 – and for all home purchases that are claimed on 2009
returns.
8. Homebuyers who claim the credit on their 2009 tax return will not be able to file
electronically but instead will need to file a paper return. For homes purchased in 2009
there is an option to take the credit on an original or amended 2008 tax return.
9. The new law includes documentation requirements. See revised Form 5405 for details.
10. No credit is available if the purchase price of the home exceeds $800,000.
11. The purchaser must be at least 18 years old on the date of purchase. For a married couple,
only one spouse must meet this age requirement.
12. A dependent is not eligible to claim the credit.

IRS encourages all eligible homebuyers to take advantage of the First-Time Homebuyer Credit but at the same time cautions taxpayers to avoid schemes that help ineligible people file false claims for the credit.

Tax Credits Increased for Low and Moderate Income Workers

Tax Credits Increased for Low and Moderate Income Workers

More workers and working families are eligible for the Earned Income Tax Credit. In particular, expanded benefits are now available for those with three or more qualifying children and married couples.

The EITC helps taxpayers whose incomes are below certain income thresholds, which in 2009 rise to:
$48,279 for families with three or more qualifying children
$45,295 for those with two or more children
$40,463 for people with one child
$18,440 for those with no children

One in six taxpayers can claim the EITC, which, unlike most tax breaks, is refundable, meaning that individuals can get it even if they owe no tax and even if no tax is withheld from their paychecks.

In addition, the earned income formula for the additional child tax credit is revised for tax years 2009 and 2010. As a result, more low and moderate income families qualify for the full $1,000 child tax credit.

American Opportunity Credit Helps Pay for First Four Years of College

American Opportunity Credit Helps Pay for First Four Years of College

More parents and students can use a federal education credit to offset part of the cost of college under the new American Opportunity Credit. THIS CREDIT IS NOW EXTENDED FOR THE FIRST FOUR YEARS of college!!
This credit modifies the existing Hope credit for tax years 2009 and 2010, making it available to a broader range of taxpayers.

Income guidelines are expanded and required course materials are added (including Books!).to the list of qualified expenses. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.

In many cases, the American Opportunity Credit offers greater tax savings than existing education tax breaks. Here are some of its key features:

Tuition, related fees and required course materials, such as books, generally qualify. In the past, books usually were not eligible for education-related credits and deductions.

The credit is equal to 100 percent of the first $2,000 spent and 25 percent of the next $2,000. That means the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualified expenses for an eligible student.

The full credit is available for taxpayers whose modified adjusted gross income (MAGI) is $80,000 or less ($160,000 or less for filers of a joint return). The credit is reduced or eliminated for taxpayers with incomes above these levels. These income limits are higher than under the existing Hope and lifetime learning credits.

Forty percent of the American opportunity credit is refundable. (This is new!). This means that even people who owe no tax can get an annual payment of the credit of up to $1,000 for each eligible student. Existing education-related credits and deductions do not provide a benefit to people who owe no tax. The refundable portion of the credit is not available to any student whose investment income is taxed, or may be taxed, at the parent’s rate, commonly referred to as the kiddie tax.

Though most taxpayers who pay for post-secondary education qualify for the American Opportunity Credit, some do not. The limitations include a married person filing a separate return, regardless of income, joint filers whose MAGI is $180,000 or more and, finally, single taxpayers, heads of household and some widows and widowers whose MAGI is $90,000 or more.

There are some post-secondary education expenses that do not qualify for the American Opportunity Credit. They include expenses paid for a student who, as of the beginning of the tax year, has already completed the first four years of college. That’s because the credit is only allowed for the first four years of a post-secondary education.

Students with more than four years of post-secondary education still qualify for the lifetime learning credit and the tuition and fees deduction.

Non-business Energy Property Credit:

Non-business Energy Property Credit:

This credit equals 30 percent of what a homeowner spends on eligible energy-saving improvements, up to a maximum tax credit of $1,500 for the combined 2009 and 2010 tax years.

This means that a homeowner can get the maximum credit by spending at least $5,000 on qualifying improvements.

Homeowners must make the improvements to an existing principal residence; this tax credit is not available for new construction. Due to limits based on tax liability, other credits claimed by a particular taxpayer and other factors, actual tax savings will vary.

The cost of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass all qualify, along with labor costs for installing these items.

In addition, the cost of energy-efficient windows and skylights, energy-efficient doors, qualifying insulation and certain roofs are also eligible for the credit, though the cost of installing these items does not count.

Residential Energy Efficient Property Credit:

Residential Energy Efficient Property Credit:

Homeowners going green should also check out a second tax credit designed to spur investment in alternative energy equipment.

The residential energy efficient property credit, equals 30 percent of what a homeowner spends on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property.

Qualifying property purchased for new construction or an existing home is eligible for the credit. Generally, labor costs are included when calculating this credit. Also, no cap exists on the amount of credit available except in the case of fuel cell property.

Not all energy-efficient improvements qualify for these tax credits. For that reason, homeowners should check the manufacturer’s tax credit certification statement before purchasing or installing any of these improvements. The certification statement can usually be found on the manufacturer’s Web site or the product packaging.

Normally, a homeowner can rely on this certification. The IRS cautions that the manufacturer’s certification is different from the Department of Energy’s Energy Star label, and not all Energy Star labeled products qualify for the tax credits.

New Vehicle Purchase Incentive

New Vehicle Purchase Incentive

New car buyers can deduct the state or local sales or excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles.

There is no limit on the number of vehicles that may be purchased, and eligible taxpayers may claim the deduction for taxes paid on multiple purchases.

However, the deduction is limited to the tax on up to $49,500 of the purchase price of each qualifying new vehicle.

Qualifying new vehicles must be purchased, not leased, after Feb. 16, 2009, and before Jan. 1, 2010.

Taxpayers who buy a new vehicle may deduct state or local fees or taxes that are similar to a sales tax whether or not their state imposes a sales tax.

To qualify, the fees or taxes 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.

The amount of the deduction is reduced 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.

This deduction is available regardless of whether a taxpayer itemizes deductions on Schedule A. .

Buy a US Savings Bond with Direct Deposit of your Refund

In an effort to help individuals build their savings and retirement funds, a new direct deposit option in 2010 allows taxpayers to use their tax refunds to purchase U.S. Series I Savings Bonds.

Direct deposit, the electronic transfer of tax refunds into financial accounts, is the fastest, safest way to receive a tax refund.

Taxpayers who use IRS e-file with direct deposit can get their refunds in as few as 10 days.

A direct deposit avoids the possibility of a refund check being lost, stolen or returned to the IRS as undeliverable.Using Direct Deposit A taxpayer who wants to have his entire refund deposited into one account –– a checking, savings or retirement account –– simply needs to include his financial institution account number and nine-digit routing number on his tax return.But the taxpayer may also split his refund into as many as three financial accounts.

For example, he might designate that part of the refund be deposited into a savings account, part into a checking account and part into a retirement fund. Other examples of financial accounts eligible to receive deposits include health savings accounts and Coverdell education savings accounts.

And this year, for the first time, taxpayers may also use the split-refund option to purchase Treasury I Bonds.

Splitting a RefundForm 8888, Direct Deposit of Refund to More Than One Account, is used to split a tax refund into two or three financial accounts. The form provides instructions for direct deposit into two or three accounts.The taxpayer selects the accounts and the amount of the direct deposit he wants to designate for each account.

The taxpayer should check with his financial institution to get the correct routing and account numbers and ensure the direct deposit will be accepted. The routing number on a deposit slip should not be used if it differs from the routing numbers on a corresponding check.

Buying Savings BondsThis year, a taxpayer for the first time can request a portion of his refund be used to buy up to $5,000 in low-risk, liquid Treasury I Bonds, which earn interest and protect owners against inflation.The resulting bonds will be issued in the taxpayer’s name. If the refund is a joint refund, the bonds will be issued in the names of both taxpayers. No beneficiary may be selected. The taxpayer need not have a TreasuryDirect account to purchase I Bonds using this option.Using Form 8888, the taxpayer enters 043736881 as the routing number and checks the “savings” box. He must use the letters “BONDS” as the account number.An I Bond request must be a multiple of $50.

The taxpayer also needs to designate an account to which he wants the IRS to deposit the balance of his refund. For example, if his refund is $280, the taxpayer can request that $250 be used to purchase I Bonds and that the remaining $30 be deposited into a checking, savings or investment account.

In cases where a refund is an exact multiple of $50 but less than $5,000, the taxpayer may direct that all of the refund be applied to I Bond purchases by filling out the direct deposit information on his tax return and simply not using Form 8888.

The savings bonds will be mailed to the taxpayer.

Bonds will not be purchased in situations where the taxpayer makes an error figuring his refund, or if the bond request is not a multiple of $50 or the refund is offset for any reason. In these cases, the requested purchase will be cancelled and the entire refund mailed to the taxpayer in the form of a check.

Once the IRS has processed a tax return and placed an order for I Bonds, the taxpayer can inquire about the status of his bond purchase by calling the Treasury Retail Securities Site at 1-800-245-2804.Information about Individual Retirement ArrangementsRefunds may be deposited directly into previously established traditional IRAs, Roth IRAs and SEP-IRAs. (They may not be deposited into SIMPLE IRAs.)

The taxpayer should check with his financial institution to confirm that it accepts direct deposits as well as inform the trustee of the tax year to which the IRA should be contributed. For example, if a taxpayer intends for a direct deposit to be designated as a 2009 IRA contribution but fails to inform the trustee, the deposit might be designated as a 2010 contribution. The direct deposit contribution to an IRA must be made prior to April 15 in order to apply to the 2009 tax year

Making Work Pay Credit

Making Work Pay Credit

Most eligible taxpayers qualify for the maximum making work pay credit of $800 for a married couple filing a joint return or $400 for other taxpayers.

The credit equals 6.2 percent of earned income up to the maximum amount. Thus, any eligible couple whose earned income is $12,903 or more qualifies for the $800 maximum credit.

Other taxpayers qualify for the $400 maximum if their earned income is $6,451 or more.

For most workers, the credit is based on the taxable wages reported to them on Forms W-2.

Self-employed individuals figure the credit using the net profit or loss they receive from a business or farm.

Additional calculations are necessary for some taxpayers, including those who have net business losses, wages from work performed while a prison inmate or foreign earned income.

Some taxpayers are not eligible for the making work pay credit, including:
Joint filers whose modified adjusted gross income (MAGI) is $190,000 or more.
Other taxpayers whose MAGI is $95,000 or more.
Anyone who can be claimed as a dependent on someone else’s return.
A taxpayer who doesn’t have a valid social security number.
Joint filers, if neither spouse has a valid Social Security number.
Nonresident aliens.

Other taxpayers qualify for the credit but must reduce the amount of the credit they claim, including:
Joint filers whose MAGI is more than $150,000 but less than $190,000.
Other taxpayers whose MAGI is more than $75,000 but less than $95,000.
Taxpayers who received an economic recovery payment. This special $250 payment was made during 2009 to recipients of Social Security benefits, supplemental security income (SSI), railroad retirement benefits or veterans disability compensation or pension benefits.

Taxpayers who claim the government retiree credit.

Though all eligible taxpayers must file Schedule M to claim the making work pay credit, most workers got the benefit of this credit through larger paychecks, reflecting reduced federal income tax withholding during 2009.

Government Retiree Credit This credit is designed to provide a benefit equivalent to the economic recovery payment to those government retirees who did not qualify for these payments. Retired federal, state or local government employees who receive pensions in 2009, based on work not covered by Social Security, are eligible to claim this credit. The credit is $250. For joint filers the credit is $500 if both spouses are retired government employees who receive pensions based on work not covered by Social Security. The credit cannot be claimed by an individual if he or she received an economic recovery payment during 2009.

Online Scams that Impersonate the IRS

Online Scams that Impersonate the IRS


WASHINGTON — Consumers should protect themselves against online identity theft and other scams that increase during and linger after the filing season. Such scams may appropriate the name, logo or other appurtenances of the IRS or U.S. Department of the Treasury to mislead taxpayers into believing that the scam is legitimate. Scams involving the impersonation of the IRS usually take the form of e-mails, tweets or other online messages to consumers. Scammers may also use phones and faxes to reach intended victims. Some scammers set up phony Web sites.

The IRS and E-mail

Generally, the IRS does not send unsolicited e-mails to taxpayers. Further, the IRS does not discuss tax account information with taxpayers via e-mail or use e-mail to solicit sensitive financial and personal information from taxpayers. The IRS does not request financial account security information, such as PIN numbers, from taxpayers.

Object of Scams
Most scams impersonating the IRS are identity theft schemes. In this type of scam, the scammer poses as a legitimate institution to trick consumers into revealing personal and financial information — such as passwords and Social Security, PIN, bank account and credit card numbers — that can be used to gain access to and steal their bank, credit card or other financial accounts. Attempted identity theft scams that take place via e-mail are known as phishing. Other scams may try to persuade a victim to advance sums of money in the hope of realizing a larger gain. These are known as advance fee scams.

Who Is Targeted
Anyone with a computer, phone or fax machine could receive a scam message or unknowingly visit a phony or misleading Web site. Individuals, businesses, educators, charities and others have been targeted by e-mails that claim to come from the IRS or Treasury Department. Scam e-mails are generally sent out in bulk, based on e-mail addresses (urls), similar to spam.

How an Identity Theft Scam Works
Most of the scams that impersonate the IRS are identity theft scams. Typically, a consumer will receive an e-mail that claims to come from the IRS or Treasury Department. The message will contain an enticing or intimidating subject line, such as tax refund, inherited funds or IRS notice. Usually, the message will state that the recipient needs to provide the IRS with information to obtain the refund or avoid some penalty. The message will instruct the consumer to open an attachment or click on a link in the e-mail. This may lead to an official-looking form to be filled out online or send the taxpayer to a seemingly genuine but bogus IRS Web site. The look-alike site will then contain a phony but genuine-looking online form or interactive application that requires the personal and financial information the scammer can use to commit identity theft.
Alternatively, the clicked link may secretly download malware to the consumer’s computer. Malware is malicious code that can take over the computer’s hard drive, giving the scammer remote access to the computer, or it could look for passwords and other information and send them to the scammer.

Phony Web or Commercial Sites
In many IRS-impersonation scams, the scammer sends the consumer to a phony Web site that mimics the appearance of the genuine IRS Web site, IRS.gov. This allows the scammer to steer victims to phony interactive forms or applications that appear genuine but require the targeted victim to enter personal and financial information that will be used to commit identity theft.
The official Web site for the Internal Revenue Service is IRS.gov, and all IRS.gov Web page addresses begin with http://www.irs.gov/.
In addition to Web sites established by scammers, there are commercial Internet sites that often resemble the authentic IRS site or contain some form of the IRS name in the address but end with a .com, .net, .org or other designation instead of .gov. These sites have no connection to the IRS. Consumers may unknowingly visit these sites when searching the Internet to retrieve tax forms, publications and other information from the IRS.

Frequent or Recent Scams
There are a number of scams that impersonate the IRS. Some of them appear with great frequency, particularly during and right after filing season, and recur annually. Others are new.
Refund Scam — This is the most frequent IRS-impersonation scam seen by the IRS. In this phishing scam, a bogus e-mail claiming to come from the IRS tells the consumer that he or she is eligible to receive a tax refund for a specified amount. It may use the phrase “last annual calculations of your fiscal activity.” To claim the tax refund, the consumer must open an attachment or click on a link contained in the e-mail to access and complete a claim form. The form requires the entry of personal and financial information. Several variations on the refund scam have claimed to come from the Exempt Organizations area of the IRS or the name and signature of a genuine or made-up IRS executive. In reality, taxpayers do not complete a special form to obtain their federal tax refund — refunds are triggered by the tax return they submitted to the IRS.

Lottery winnings or cash consignment — These advance fee scam e-mails claim to come from the Treasury Department to notify recipients that they’ll receive millions of dollars in recovered funds or lottery winnings or cash consignment if they provide certain personal information, including phone numbers, via return e-mail. The e-mail may be just the first step in a multi-step scheme, in which the victim is later contacted by telephone or further e-mail and instructed to deposit taxes on the funds or winnings before they can receive any of it. Alternatively, they may be sent a phony check of the funds or winnings and told to deposit it but pay 10 percent in taxes or fees. Thinking that the check must have cleared the bank and is genuine, some people comply. However, the scammers, not the Treasury Department, will get the taxes or fees. In reality, the Treasury Department does not become involved in notification of inheritances or lottery or other winnings.

Beneficial Owner Form — This fax-based phishing scam, which generally targets foreign nationals, recurs periodically. It’s based on a genuine IRS form, the W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. The scammer, though, invents his or her own number and name for the form. The scammer modifies the form to request passport numbers, information that is often used for account security purposes (such as mother’s maiden name) and similar detailed personal and financial information, and states that the recipient may have to pay additional tax if he or she fails to immediately fax back the completed form. In reality, the real W-8BEN is completed by banks, not individuals.

Other Known Scams
The contents of other IRS-impersonation scams vary but may claim that the recipient will be paid for participating in an online survey or is under investigation or audit. Some scam e-mails have referenced Recovery-related tax provisions, such as Making Work Pay, or solicited for charitable donations to victims of natural disasters. Taxpayers should beware of an e-mail scam that references underreported income and the recipient’s “tax statement,” since clicking on a link or opening an attachment is known to download malware onto the recipient’s computer.

How to Spot a Scam
Many e-mail scams are fairly sophisticated and hard to detect. However, there are signs to watch for, such as an e-mail that:
Requests detailed or an unusual amount of personal and/or financial information, such as name, SSN, bank or credit card account numbers or security-related information, such as mother’s maiden name, either in the e-mail itself or on another site to which a link in the e-mail sends the recipient.
Dangles bait to get the recipient to respond to the e-mail, such as mentioning a tax refund or offering to pay the recipient to participate in an IRS survey.
Threatens a consequence for not responding to the e-mail, such as additional taxes or blocking access to the recipient’s funds.
Gets the Internal Revenue Service or other federal agency names wrong.
Uses incorrect grammar or odd phrasing (many of the e-mail scams originate overseas and are written by non-native English speakers).
Uses a really long address in any link contained in the e-mail message or one that does not start with the actual IRS Web site address (http://www.irs.gov). The actual link’s address, or url, is revealed by moving the mouse over the link included in the text of the e-mail.

What to Do
Taxpayers who receive a suspicious e-mail claiming to come from the IRS should take the following steps:
Avoid opening any attachments to the e-mail, in case they contain malicious code that will infect your computer.
Avoid clicking on any links, for the same reason. Alternatively, the links may connect to a phony IRS Web site that appears authentic and then prompts for personal identifiers, bank or credit card account numbers or PINs.
Visit the IRS Web site, www.irs.gov, to use the “Where’s My Refund?” interactive tool to determine if they are really getting a refund, rather than responding to the e-mail message.
Forward the suspicious e-mail or url address to the IRS mailbox phishing@irs.gov, then delete the e-mail from their inbox.
Consumers who believe they are or may be victims of identity theft or other scams may visit the U.S. Federal Trade Commission’s Web site for identity theft, www.OnGuardOnline.gov, for guidance in what to do. The IRS is one of the sponsors of this site.

More information on IRS-impersonation scams, identity theft and suspicious e-mail is available on IRS.gov

Report of Foreign Bank and Financial Accounts (FBAR)

Report of Foreign Bank and Financial Accounts (FBAR)

Due to all the hidden offshore bank accounts that IRS found this year, this has become a really hot item. If you have a foreign bank account, no matter how small, PLEASE show it on your tax return. It is not illegal to have a foreign bank account, it is only illegal not to claim the income from it, or going into it.

If you own or have authority over a foreign financial account, including a bank account, brokerage account, mutual fund or other type of financial account, you may be required to report the account yearly to the Department of the Treasury. Under the Bank Secrecy Act, each United States person must file a Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), if

The person has a financial interest in, or signature authority (or other authority that is comparable to signature authority) over one or more accounts in a foreign country, and
The aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.

A United States person is not prohibited from owning foreign accounts but civil and criminal penalties may apply for failures to properly file FBARs when required. The information reported on an FBAR may be used for governmental purposes, including law enforcement and tax compliance purposes.

Eight Facts About Filing Status

Everyone who files a federal tax return must determine which filing status applies to them. It’s important you choose your correct filing status as it determines your standard deduction, the amount of tax you owe and ultimately, any refund owed to you.

Here are eight facts about the five filing status options the IRS wants you to know in order to choose the correct filing status for your situation.
1. Your marital status on the last day of the year determines your marital status for the entire year.
2. If more than one filing status applies to you, choose the one that gives you the lowest tax obligation.
3. Single filing status generally applies to anyone who is unmarried, divorced or legally separated according to state law.
4. A married couple may file a joint return together. The couple’s filing status would be Married Filing Jointly.
5. If your spouse died during the year and you did not remarry during 2009, you may still file a joint return with that spouse for the year of death, provided the joint return election is not revoked by a personal representative for the deceased spouse.
6. A married couple may elect to file their returns separately. Each person’s filing status would generally be Married Filing Separately.
7. Head of Household generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.You may be able to choose Qualifying Widow(er) with Dependent Child as your filing status if your spouse died during 2007 or 2008, you have a dependent child and you meet certain other conditions.

5 Filing Fact for Recently Married or Divorced Taxpayers

Five Filing Facts for Recently Married or Divorced Taxpayers


If you were married or divorced recently, there are a couple of things you’ll want to do to ensure the name on your tax return matches the name registered with the Social Security Administration.
Here are five facts from the IRS for recently married or divorced taxpayers. Following these steps will help avoid problems when you file your tax return.
1. If you took your spouse’s last name or if both spouses hyphenate their last names, you may run into complications if you don’t notify the SSA. When newlyweds file a tax return using their new last names, IRS computers can’t match the new name with their Social Security Number.
2. If you were recently divorced and changed back to your previous last name, you’ll also need to notify the SSA of this name change.
3. Informing the SSA of a name change is a snap; you’ll just need to file a Form SS-5, Application for a Social Security Card at your local SSA office.
4. Form SS-5 is available on SSA’s Web site at www.socialsecurity.gov, by calling 800-772-1213 or at local offices. It usually takes about two weeks to have the change verified.
5. If you adopted your spouse’s children after getting married, you’ll want to make sure the children have an SSN. Taxpayers must provide an SSN for each dependent claimed on a tax return. For adopted children without SSNs, the parents can apply for an Adoption Taxpayer Identification Number – or ATIN – by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions with the IRS. The ATIN is a temporary number used in place of an SSN on the tax return. The W-7A is available on IRS.gov, or by calling 800-TAX-FORM (800-829-3676).

State tax Relief for Military Spouses

Relief for Military Spouses

The Military Spouses Residency Relief Act, signed into law on November 11, 2009, provides relief to military spouses by allowing them to file in their domicile state rather than the state of military assignment provided presence (or absence) in that state is due to the service member’s compliance with military orders. Under the Act any income earned by the spouse in a state of domicile is not treated as income earned in that state if that spouse is not treated as a resident of that state. The new rules are effective for any state or local income tax return filed for any tax year beginning in 2009.

Five Important Facts about Dependents and Exemptions

Five Important Facts about Dependents and Exemptions

When we prepare to file your tax return, there are two things that will factor into your tax situation: dependents and exemptions.

Here are five important facts the IRS wants you to know about dependents and exemptions before you file your 2009 tax return.
If someone else claims you as a dependent, you may still be required to file your own tax return. Whether or not you must file a return depends on several factors, including the amount of your unearned, earned or gross income, your marital status, any special taxes you owe and, any advance Earned Income Tax Credit payments you received.
Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,650 on your 2009 tax return. Exemption amounts are reduced for taxpayers whose adjusted gross income is above certain levels, depending on your filing status.
If you are a dependent, you may not claim an exemption. If someone else – such as your parent – claims you as a dependent, you may not claim your personal exemption on your own tax return.
Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.
Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children. See IRS Publication 501, Exemptions, Standard Deduction, and Filing Information for additional tests to determine who can be claimed as a dependent.
Hopefully this gives you a few tips on Dependents and Exemptions

I'm dreaming of a BIG return, how about you?

Deborah Sherwood, EA

IRS announce licensing of Tax Preparers

The IRS has released their recommendations for registering paid preparers. I have taken pertinant portions of their news release and it is shown in black. My comments are shown in red.

IRS has been working on deciding how to license tax preparers for the past several years and finally has passed it.

The IRS will require all individuals who are required to sign a federal income tax return as a paid preparer to register and obtain a preparer identification number (PTIN). Many individuals receive pay for completing tax returns, but do not sign them. This is illegal, IRS has always required paid tax preparers to sign the tax return. YOU will be pleased to know that ALL of our preparers have been registered with IRS and have had a PTIN for many years.

Competency testing will be required for all paid preparers who are not enrolled agents, CPAs, or attorneys. You will be pleased to know that I tested and passed the Enrolled Agent test in 1996 and have been certified as an Enrolled Agent since that date.

There will be no grandfathering of any kind based on years of experience.

In addition, the IRS will require 15 hours of annual continuing professional education consisting of three hours of federal tax updates, two hours of ethics, and ten hours of general federal taxation. EACH of my Tax Professional Preparers and I complete at least 72 hours of upgrade education training EVERY year!

The IRS plans to implement the registration requirements in 2011. These regulations do not affect the 2010 filing season. This is a great benefit to the American taxpayer. There are many unscrupulous preparers out there right now that do not keep up with tax law and prepare many fraudulent returns. We have gained quite a few new clients over the years, who got into trouble with preparers in the Valley, who took many illegal deductions. Sad to say, these clients learned the hard way, when they received an audit, and many of them ended up owing IRS and the State of Az. sizable amounts.

I just thought you would be interested to know that Sherwood's Quality Tax and Accounting has always put the education of our preparers at the top of our priorities. A large portion of our budget goes to training and a large portion of our preparer's off season time goes into studying and attending upgrade education seminars.

WE CARE ABOUT YOU, and strive to give you the VERY BEST tax preparation and planning possible.

Sincerely, Deborah Sherwood, EA

The full text of the report is available here - http://www.irs.gov/pub/irs-utl/54419l09.pdf

Mortgage Forgiveness Debt Relief Act

Some GOOD NEWS if you have had the unfortunate situtation of having a SHORT SALE or MORTGAGE FORECLOSURE.

Although the Mortgage Forgiveness Debt Relief Act of 2007, was instituted in Dec. 2007, IT IS GOOD THRU 2012!

During our office seminar this week, we reviewed this Relief Act and thought you might be interested.

The following is taken directly from the IRS website:

Homeowners whose mortgage debt was partly or entirely forgiven during 2007 may be able to claim special tax relief ...
Normally, debt forgiveness results in taxable income. But under the Mortgage Forgiveness Debt Relief Act of 2007, taxpayers may exclude debt forgiven on their principal residence if the balance of their loan was $2 million or less. The limit is $1 million for a married person filing a separate return. Details are on Form 982 and its instructions, available now on this Web site.
“The new law contains important provisions for struggling homeowners,” said Acting IRS Commissioner Linda Stiff. “We urge people with mortgage problems to take full advantage of the valuable tax relief available.”

The law applies to debt forgiven in 2007, 2008 or 2009 (this has since been extended until 2012). Debt reduced through mortgage restructuring, as well as mortgage debt forgiven (including Short Sales) in connection with a foreclosure, may qualify for this relief.

The debt must have been used to buy, build or substantially improve the taxpayer's principal residence and must have been secured by that residence. Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing.

Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the new tax-relief provision. In some cases, however, other kinds of tax relief, based on insolvency, for example, may be available. ( Call us for details)

Borrowers whose debt is reduced or eliminated may receive a year-end statement (Form 1099-C) from their lender. For debt cancelled in 2007, the lender was required to provide this form to the borrower by Jan. 31, 2008. By law, this form must show the amount of debt forgiven and the fair market value of any property given up through foreclosure.

The IRS urges borrowers to check the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. Borrowers should pay particular attention to the amount of debt forgiven (Box 2) and the value listed for their home ( Box 7).

If you or anyone you know are in a position to need this Relief Act, please call us at 800-374-7430 or email your preparer.
Debbie debbie.sherwoodquality@yahoo.com
Shawna shawna.sherwoodquality@yahoo.com
Rashelle rashelle.sherwoodquality@yahoo.com
Tracy tracy.sherwoodquality@yahoo.com
Shurell shurell.sherwoodquality@yahoo.com


Happy New Year!!! Deborah Sherwood, EA

Is your Cash for Clunkers savings taxable?

I just found this at www.goodfinancialcents.com and thought you might be interested to know:

Tax Consequences of the Cash For Clunkers Program

Worried about the tax consequences? For any new government program, I would also be skeptical on the motives. While I’m sure there are other motives, getting tax revenue directly from the vouchers is not one of them. The vouchers are not treated as taxable income. Think of the voucher value as taking the place of your trade-in value. However, if the trade-in vehicle has a greater market value than the voucher value, then it may not be to your financial benefit to utilize the voucher program unless the after-tax benefits are greater. As usual, consult a tax professional to make sure what you choose is best for your situation.
The Tax-free Feature of the Vouchers
If you do take advantage of the tax-free feature of the vouchers, you will be subject to the following tax consequences:
Personal-Use Vehicle
Generally, there are no tax consequences related to selling or trading in your used vehicle since rarely is one sold for more than its original cost to the owner. Losses from the sale of personal-use property are not tax-deductible. That’s that a little bit different from a the sell of devalued stock.
Business Vehicles
Since the voucher is not treated as income, a business that utilizes the voucher program is treated as if it traded in the old vehicle and received zero for it. Its basis in the new vehicle would be the amount paid net of the voucher and any other rebates.
For a business, trading in a qualifying vehicle with a low or zero depreciated basis definitely beats selling it for an amount equal to or less than the voucher’s value. In fact, it may even pay to forego a higher sales price and instead trade in the old vehicle to receive a tax-free voucher.
Example
A business paying tax at a rate of 40% sells a truck for $5,000, it would have $3,000 left after paying a $2,000 tax. If the business trades in the old truck and qualifies for a tax-free $4,500 voucher under the new program, it would be $1,500 ahead.
State Tax Rules Cash For Clunkers
Although there is no federal tax due on the voucher received, there is a possibility of a state sales tax on the Cash for Clunkers program. It all depends on what state you reside. Be sure to consult with a local tax advisor to see what tax implications you may have.
*Note: Cash for Clunkers is officially over. If you still have a clunker and not sure what to do consider donating your car to charity, instead.