Seven Tax Tips for Disabled Taxpayers

Taxpayers with disabilities may qualify for a number of IRS tax credits and benefits. Parents of children with disabilities may also qualify. Listed below are seven tax credits and other benefits that are available if you or someone else listed on your federal tax return is disabled.

1. Standard Deduction Taxpayers who are legally blind may be entitled to a higher standard deduction on their tax return.
2. Gross Income Certain disability-related payments, Veterans Administration disability benefits, and Supplemental Security Income are excluded from gross income.
3. Impairment-Related Work Expenses Employees, who have a physical or mental disability limiting their employment, may be able to claim business expenses in connection with their workplace. The expenses must be necessary for the taxpayer to work.
4. Credit for the Elderly or Disabled This credit is generally available to certain taxpayers who are 65 and older as well as to certain disabled taxpayers who are younger than 65 and are retired on permanent and total disability.
5. Medical Expenses If you itemize your deductions using Form 1040 Schedule A, you may be able to deduct medical expenses. See IRS Publication 502, Medical and Dental Expenses.
6. Earned Income Tax Credit EITC is available to disabled taxpayers as well as to the parents of a child with a disability. If you retired on disability, taxable benefits you receive under your employer’s disability retirement plan are considered earned income until you reach minimum retirement age. The EITC is a tax credit that not only reduces a taxpayer’s tax liability but may also result in a refund. Many working individuals with a disability who have no qualifying children, but are older than 25 and younger than 65 do -- in fact -- qualify for EITC. Additionally, if the taxpayer’s child is disabled, the age limitation for the EITC is waived. The EITC has no effect on certain public benefits. Any refund you receive because of the EITC will not be considered income when determining whether you are eligible for benefit programs such as Supplemental Security Income and Medicaid.
7. Child or Dependent Care Credit Taxpayers who pay someone to come to their home and care for their dependent or spouse may be entitled to claim this credit. There is no age limit if the taxpayer’s spouse or dependent is unable to care for themselves.

Feb. 28 is Last Day for Special Tax Option for Haiti Relief Donations

WASHINGTON — Taxpayers wishing to claim their Haiti relief donations on the tax return they are filling out this season must make those donations by the end of this month, according to the Internal Revenue Service.

Individuals and corporations have until midnight on Sunday, Feb. 28, to make cash contributions to charities providing earthquake relief in Haiti. These contributions can be claimed on either a 2009 or 2010 return, but not both. Contributions made after that date but before the end of the year can only be claimed on a 2010 return.

Contributions made by text message, check, credit card or debit card qualify for this special option. Donations charged to a credit card before the end of February count for 2009. This is true even if the credit card bill isn’t paid until after Feb. 28. Also, checks count for 2009 as long as they are mailed by the end of this month and clear your financial institution shortly thereafter.

I would suggest that you be sure that the organization you donate to is a legitimate non-profit organization that will apply the monies to the Haiti relief.

Sincerely,

Deborah Sherwood, EA

10 Facts About Capital Gains and Losses

Have you heard of capital gains and losses? If not, you may want to read up on them because they might have an impact on your tax return.

1. Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.
2. When you sell a capital asset, the difference between the amount you sell it for and your basis – which is usually what you paid for it – is a capital gain or a capital loss.
3. You must report all capital gains.
4. You may deduct capital losses only on investment property, not on property held for personal use.
5. Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.
6. If you have long-term gains in excess of your long-term losses, you have a net capital gain to the extent your net long-term capital gain is more than your net short-term capital loss, if any.
7. The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income. For 2009, the maximum capital gains rate for most people is 15%. For lower-income individuals, the rate may be 0% on some or all of the net capital gain. Special types of net capital gain can be taxed at 25% or 28%.
8. If your capital losses exceed your capital gains, the excess can be deducted on your tax return and used to reduce other income, such as wages, up to an annual limit of $3,000, or $1,500 if you are married filing separately.
9. If your total net capital loss is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you incurred it in that next year.
10. Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13of Form 1040.
11. 2010 is the LAST year of the Capital Gains tax break, unless Congress extends it. After 2010, the tax on capital asset profits will be the same as your regular tax bracket (of course the sale of capital assets usually throws you into a higher tax bracket). Because of this, if you are considering selling a capital asset that you expect to make a profit on, you may want to consider selling it during 2010.

Please call the office for further information.

Thanks So Much, Deborah Sherwood, EA

Four Steps to Follow If You Are Missing a W-2

Getting ready to file your tax return? Make sure you have all your documents before you start. You should receive a Form W-2, Wage and Tax Statement from each of your employers. Employers have until February 1, 2010 to send you a 2009 Form W-2 earnings statement.

Every year we have clients struggling to receive their W2s. With all the businesses going out of business during these tough economic times, that will likely be a bigger problem this year.

If you do not receive a W2 and it is AFTER February 12th, we can help you! Come in and see us. Below are some instructions from IRS regarding missing W2s.

If you haven’t received your W-2, follow these four steps:

1. Contact your employer If you have not received your W-2, contact your employer to inquire if and when the W-2 was mailed. If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address. After contacting the employer, allow a reasonable amount of time for them to resend or to issue the W-2.

2. Contact the IRS If you do not receive your W-2 by February 16th, contact the IRS for assistance at 800-829-1040. When you call, you must provide your name, address, city and state, including zip code, Social Security number, phone number and have the following information:

• Employer’s name, address, city and state, including zip code and phone number
• Dates of employment
• An estimate of the wages you earned, the federal income tax withheld, and when you worked for that employer during 2009. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.

3. File your return You still must file your tax return or request an extension to file by April 15, even if you do not receive your Form W-2. If you have not received your Form W-2 by Febuary 12th, and have completed steps 1 and 2, bring the last paystub to us and we can use Form 4852, Substitute for Form W-2, Wage and Tax Statement. There may be a delay in any refund due while the information is verified.

4. File a Form 1040X On occasion, you may receive your missing W-2 after you filed your return using Form 4852, and the information may be different from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.

Good luck! Deborah Sherwood, EA

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.