Tuesday, September 30, 2008

Tax Incentives For Small Business Owners

Small Business Tax Fairness and Simplification Act of 2007 - Amends the Internal Revenue Code to:
(1) allow self-employed individuals to participate in cafeteria pension plans;
(2) allow long-term care insurance under cafeteria plans and flexible spending arrangements;
(3) allow accelerated amortization of certain intangible assets (e.g., good will) acquired from a small business;
(4) increase the tax exclusion of gain from the sale of certain small business stock;
(5) provide a $2,500 standard tax deduction for home business expenses;
(6) permit certain small businesses to elect a taxable year ending in a month from April to November;
(7) increase the allowable number of S corporation shareholders; and
(8) exempt certain small businesses from withholding of tax requirements for payments made by government entities.

If you need help preparing your business tax returns, call a tax professional that will ensure you receive all the appropriate tax credits on your returns.

Tax Hints For 2008

The Tax Hints (Publication 4437) for Fiscal Year 2008 features a new approach to this online newsletter for tax professionals. Beginning with this edition Tax Hints (Pub 4437) will be updated periodically, year-round, its title becoming simply Tax Hints.
If new developments occur after the latest edition has been posted that are of significance to the tax professional community, a revised edition may be posted before the next regularly scheduled monthly update. The date of the current revision will always be on the front page, and previous editions will be archived.
Tax Hints provides most information through HTML links to irs.gov websites and other electronic information sources, so you always have access to the most up to date information, gathered, as always, in one convenient downloadable document.
Your Tax Hints editor and staff request that all tax professionals let us know if there is a data item or information source you routinely use that you are not finding in this newsletter so we can try to include our audience needs. Likewise, all business units should consider what information our tax professionals need to know about your division or unit and forward that information, including the appropriate hotlink on irs.gov, to the Tax Hints staff.

Fees To Set Up Installment Agreements

The IRS charges a user fee to set up your installment agreement. The user fee for new installment agreements entered into after January 1, 2007 is $105 and $52 for agreements where payments are deducted directly from your bank account. Taxpayers with income at or below established levels, based on the Department of Health and Human Services poverty guidelines, can apply and be qualified to pay a reduced user fee of $43 for establishing new agreements including agreements where payments are deducted directly from your bank account. Information about requesting the reduced user fee will be included in installment agreement acceptance letter sent to individuals.
There is also a user fee of $45 effective January 1, 2007 regardless of income level for reinstating defaulted agreements or restructuring existing agreements. If you already have an approved installment agreement from a previous tax debt and your financial situation has changed, we may be able to modify or restructure your installment agreement to include additional amounts owed into one agreement.

Monday, September 29, 2008

John McCain and his propsed tax cuts

New Tax Cuts:
Increase the dependent exemption by two-thirds (phased in by 2016)
Convert Research and Development credit to 10 percent of wages incurred for Research and Development, make permanent

Capitol Gains:
Make permanent current rates on capital gains and dividends, (0 and 15 percent)

Alternative Minimum Tax:
Make permanent current rates on capital gains and dividends, (0 and 15 percent)

Estate Tax:
Make permanent estate tax with $5 million exemption and 15 percent rate

Create optional alternative tax with two rates and larger standard deduction and personal exemption

Revenue Raisers and Tax Havens:
Repeal domestic production activities deduction
Eliminate oil and gas loopholes
Unspecified corporate base broadeners

Replace exclusion from income for employer sponsored health insurance with refundable credit of $2,500 for individuals and $5,000 for families who purchase qualifying health insurance

Ban internet and cell phone taxes

Hope and Lifetime Learning Credits for 2008

Beginning in 2008, the following changes apply to the Hope and lifetime learning (education) credits:

Income limits for credit reduction increased. For 2008, the amount of your Hope or lifetime learning credit is phased out (gradually reduced) if your modified adjusted gross income (MAGI) is between $48,000 and $58,000 ($96,000 and $116,000 if you file a joint return). You cannot claim an education credit if your MAGI is $58,000 or more ($116,000 or more if you file a joint return).

Hope credit. Beginning in 2008, the amount of the Hope credit (per eligible student) is the sum of:
100% of the first $1,200 of qualified education expenses you paid for the eligible student, and
50% of the next $1,200 of qualified education expenses you paid for that student.
The maximum amount of Hope credit you can claim in 2008 is $1,800 per student

The IRS Will Address Technical Terminations of Certain Publicly Traded Partnerships

The Internal Revenue Service announced today that it plans to issue guidance regarding technical terminations of a publicly traded partnership (PTP) resulting in multiple short tax years within one calendar year.

Technical terminations of PTPs resulting in multiple short tax years within a calendar year can cause considerable problems for taxpayers. This issue is being worked through the Industry Issue Resolution (IIR) program, and taxpayers who follow the resulting guidance can avoid time consuming audits.

The issue that the IIR program is considering arises when more than 50 percent of a PTP's capital and profits interest are sold or exchanged within a 12-month period, thereby resulting in a technical termination of the partnership under section 708(b) of the Internal Revenue Code. For the calendar year in which it occurs, a technical termination results in the PTP having two short tax years. Consequently, the PTP is required to file a Form 1065, “U.S. Partnership Return of Income,” for each short tax year. This requirement can cause tax problems for the partnership.

The IIR Program provides guidance to help clarify complex tax issues. This program can provide a greater level of certainty for taxpayers, which is important in today's business environment.

Since its inception in 2000, the IIR program has resulted in resolution of many different tax issues cumulatively affecting thousands of taxpayers in many different lines of business. For each issue selected, a multi-functional team gathers and analyzes the relevant facts and recommends guidance.

At any time, business associations and taxpayers may submit business tax issues that they believe could be resolved through the IIR program. IIR project selection criteria and submission procedures are outlined in Revenue Procedure 2003-36, which is available on the IRS Web site at http://www.irs.gov/. The IRS reviews submissions at least semi-annually, with the next review to be on submissions received by Aug. 31, 2008. Attached is detailed information regarding the issues the IRS considered during its latest review of IIR submissions.

Thursday, September 25, 2008

Stimulus Payments For Veterans,Social Security,Railroad Retirement

For people who have no tax liability and who have no requirement to file a tax return because their income is too low or nontaxable there is a stimulus payment of up to $300 ($600 for married couples) plus the $300 payment for each qualifying child. However, people in this situation must have at least $3,000 in qualifying income from earned income, nontaxable combat pay as well as certain benefits from Social Security, Veterans Affairs and Railroad Retirement.

Qualifying income from Social Security includes retirement, disability and survivor benefits. Supplemental Security Income is not a qualifying income.
Qualifying income from Veterans Affairs includes disability compensation, disability pension and survivor benefits. Qualifying Railroad Retirement Board benefits include the social security equivalent portion of Tier I benefits.

Also, those who are dependents or eligible to be dependents on another’s tax return are not eligible. People must have a valid Social Security Number unless their spouse is a member of the military.

Extension To File Return-Don't Let The Stimulus Pass You By

The Oct. 15 deadline to file a 2007 income tax return and to receive an economic stimulus payment this year is fast approaching.This is the deadline for the estimated 4.3 million retirees and disabled veterans who may be eligible to receive a stimulus payment but who normally don’t file a tax return. It’s also the deadline for the approximately 10 million people who earlier this year received extensions to file their 2007 income tax return.“Don’t let the economic stimulus payment pass you by,” said IRS Commissioner Doug Shulman. “If you want the payment this year, you should file by Oct. 15. We recognize that there may be older Americans and disabled veterans who still have not filed for their stimulus payment. If you know of a friend, neighbor or family members who may be in that situation, please give them a hand if they need it.

”The IRS has accounted for nearly 80 percent of the Social Security and Veterans Affairs beneficiaries initially identified as potentially eligible.The IRS has yet to hear from an estimated 4.2 million people who receive certain Social Security benefits and 178,000 who receive certain Veterans Affairs benefits. The agency twice has sent to this group letters that enclosed a Form 1040A, a sample tax form and instructions for sending the tax return to the IRS. If these instructions have been misplaced, the fastest way to obtain a Package 1040A-3 is to go to IRS.gov or to local IRS offices. There are more than 400 local offices nationwide where people can get assistance in preparing the return as well. A return also can be prepared and submitted for free through Free File which is available at IRS.gov.People must file a tax return in order to receive an economic stimulus payment even if they normally are not required to file a return.

For eligible individuals, the Economic Stimulus Act of 2008 provided for stimulus payments of up to $600 ($1,200 for married couples) or the amount of the taxpayer’s 2007 net income tax liability, whichever is less. There also is a $300 payment for each qualifying child.There is an income phase-out, starting at adjusted gross income amounts of $75,000 for single taxpayers and $150,000 for married taxpayers.

Tuesday, September 23, 2008

First Time Home Buyers and Types of Loans

First-Time Home Buyer5.3 Pensions/Annuities/Retirement Plans :

Types of Plans-

Can I withdraw funds penalty free from my 401(k) plan to purchase my first home?
If you are under the age of 59 1/2, you cannot withdraw funds from your 401(k) plan to purchase your first home without being subject to a 10 percent additional tax on early distributions from qualified retirement plans. However, depending on the rules for your 401(k) plan, you may be able to borrow money from your 401(k) plan to purchase your first home. Your plan administrator should have written information about your particular plan that explains when you can borrow funds from your 401(k) plan as well as other plan rules. Publication 560 and Publication 575 and Tax Topic 424 and Tax Topic 558 are available for further guidance.

Detention Facility Expenses: Are they Considered an Allowable Expense

I recently had a client to disclose the fact that their son was just placded in a detention facility. Allthough they have tax liability for a number of years, the IRS takes in consideration a number expenses in which they have a standard to figure out allowable expenses and income. The parents of this individual have questioned whether or not the IRS will allow their monthly expense for his NMED account be factored in as an "admissable" expense. This NMED account are considered dry goods he needs for the duration of his sentence. This is a mandatory expense !

The answer to this question is yes, only if it is deemed as a necessary living expense. If the products are for other than personal products such as cigarettes it will not be admissable.

Qualifying Dependents; Older Than 19

Today,I was asked the question of whether or not a 32 year old son living at home with his parents woud be considered a depedent if they did not work or contribute to any of the household expenses? The answer is yes if the following applies:

A dependent is a person other than the taxpayer or spouse who entitles the taxpayer
to claim a dependency exemption.
Each dependency exemption decreases income subject to tax by the exemption
amount. The exemption amount changes each year.

• For 2007, the exemption amount was $3,400.
A taxpayer cannot claim a dependency exemption for a person who can be claimed
as a dependent on another tax return.
The term "dependent" means a "qualifying child" or a "qualifying relative."

A. To claim a dependency exemption for a qualifying child, all of the qualifying child
dependency tests must be met:

• Dependent Taxpayer Test
• Joint Return Test
• Citizenship Test
• Relationship Test
• Age Test
• Residency Test
• Support Test

*They would need to make less than $3400 a year, and live at home for at least a year for his parents to claim him as a dependent.

The following are considered a "Qualifying Dependent"

Taxpayers will meet this test for the following relatives if the relatives meet
the requirements of the relationship test:
• child
• parent
• brother/sister
• stepparent
• stepchild
• stepbrother/stepsister
• half brother/half sister
• grandparent
• grandchild
• son-in-law/daughter-in-law
• mother-in-law/father-in-law
• brother-in-law/sister-in-law
If related by blood, relatives also include
• uncle/aunt and
• niece/nephew.

Monday, September 22, 2008

Louisiana Hurricane Ike Victims;& Disaster Relief

Louisiana taxpayers who were adversely affected by Hurricane Ike qualify for tax relief from the Internal Revenue Service, including the postponement of tax filing and payment deadlines until Jan. 5, 2009.
On Saturday, Sept. 13, the federal government declared the following: Louisiana parishes a presidential disaster area qualifying for individual assistance: Acadia, Beauregard, Calcasieu, Cameron, Iberia , Jefferson, Jefferson Davis, Lafourche, Plaquemines, Sabine, St. Mary, Terrebonne, Vermilion and Vernon..
"We are giving taxpayers in these hard-hit areas until early next year to file their returns and make payments," IRS Commissioner Doug Shulman said. "All Americans have concerns for those affected by this devastating hurricane, and our hope is that this extra time will allow people to stay focused on the rebuilding and clean-up effort."
Specifically, the relief postpones until Jan. 5, 2009, certain deadlines for taxpayers who reside or have a business in the disaster area. The postponement applies to return filing, tax payment and certain other time-sensitive acts due on or after Sept. 11, 2008, and before Jan. 5, 2009 –– including individual estimated tax returns and corporate tax returns that were due Sept. 15, and extended individual returns due Oct. 15.
In addition, the IRS will waive the failure to deposit penalties for employment and excise deposits due on or after Sept. 11 and before Sept. 26, 2008, as long as the deposits are made on or before Sept. 26. This includes failure to deposit penalties on employment and excise tax deposits that were waived under previous relief for Hurricane Gustav

Texas Vistims of IKE

Texas taxpayers who were adversely affected by Hurricane Ike qualify for tax relief from the Internal Revenue Service, including the postponement of tax filing and payment deadlines until Jan. 5, 2009.
Following the hurricane’s landfall on Saturday, Sept. 13, the federal government declared the following Texas counties a presidential disaster area qualifying for individual assistance: Angelina, Austin, Brazoria, Chambers, Cherokee, Fort Bend, Galveston, Grimes, Hardin, Harris, Houston, Jasper, Jefferson, Liberty, Madison, Matagorda, Montgomery, Nacogdoches, Newton, Orange, Polk, Sabine, San Augustine, San Jacinto, Trinity, Tyler, Walker, Waller and Washington.
"We are giving taxpayers in these hard-hit areas until early next year to file their returns and make payments," IRS Commissioner Doug Shulman said. "All Americans have concerns for those affected by this devastating hurricane, and our hope is that this extra time will allow people to stay focused on the rebuilding and clean-up effort."
Specifically, the relief postpones until Jan. 5, 2009, certain deadlines for taxpayers who reside or have a business in the disaster area. The postponement applies to return filing, tax payment and certain other time-sensitive acts due on or after Sept. 7, 2008, and before Jan. 5, 2009 –– including individual estimated tax returns and corporate tax returns that were due Sept. 15, and extended individual returns due Oct. 15.
In addition, the IRS will waive the failure to deposit penalties for employment and excise deposits due on or after Sept. 7 and before Sept. 22, 2008, as long as the deposits are made on or before Sept. 22.

First Time Home Buyers Continued

Who cannot take the credit?

A. If any of the following describe you, you cannot take the credit, even if you buy a main home:
Your income exceeds the phase-out range. This means joint filers with MAGI of $170,000 and above and other taxpayers with MAGI of $95,000 and above.

You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.
You stop using your home as your main home.
You sell your home before the end of the year.
You are a nonresident alien.
You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year.
Your home financing comes from tax-exempt mortgage revenue bonds.
You owned another main home at any time during the three years prior to the date of purchase. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another main home at any time from July 2, 2005, through July 1, 2008.

Q. How and when is the credit repaid?

A. The first-time homebuyer credit is similar to a 15-year interest-free loan. Normally, it is repaid in 15 equal annual installments beginning with the second tax year after the year the credit is claimed. The repayment amount is included as an additional tax on the taxpayer’s income tax return for that year. For example, if you properly claim a $7,500 first-time homebuyer credit on your 2008 return, you will begin paying it back on your 2010 tax return. Normally, $500 will be due each year from 2010 to 2024.
You may need to adjust your withholding or make quarterly estimated tax payments to ensure you are not under-withheld.

Tax Credit For First Time Homebuyers

First-time homebuyers should begin planning now to take advantage of a new tax credit included in the recently enacted Housing and Economic Recovery Act of 2008.
Available for a limited time only, the credit:

Applies to home purchases after April 8, 2008, and before July 1, 2009.
Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.
However, the credit operates much like an interest-free loan, because it must be repaid over a 15-year period. So, for example, an eligible taxpayer who buys a home today and properly claims the maximum available credit of $7,500 on his or her 2008 federal income tax return must begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on his or her 2010 return.
Eligible taxpayers will claim the credit on new IRS Form 5405. This form, along with further instructions on claiming the first-time homebuyer credit, will be included in 2008 tax forms and instructions and be available later this year on IRS.gov, the IRS Web site.
If you bought a home recently, or are considering buying one, the following questions and answers may help you determine whether you qualify for the credit.
Q. Which home purchases qualify for the first-time homebuyer credit?
A. Only the purchase of a main home located in the United States qualifies and only for a limited time. Vacation homes and rental property are not eligible. You must buy the home after April 8, 2008, and before July 1, 2009. For a home that you construct, the purchase date is the first date you occupy the home.
Taxpayers who owned a main home at any time during the three years prior to the date of purchase are not eligible for the credit. This means that first-time homebuyers and those who have not owned a home in the three years prior to a purchase can qualify for the credit.
If you make an eligible purchase in 2008, you claim the first-time homebuyer credit on your 2008 tax return. For an eligible purchase in 2009, you can choose to claim the credit on either your 2008 (or amended 2008 return) or 2009 return.
Q. How much is the credit?
A. The credit is 10 percent of the purchase price of the home, with a maximum available credit of $7,500 for either a single taxpayer or a married couple filing jointly. The limit is $3,750 for a married person filing a separate return. In most cases, the full credit will be available for homes costing $75,000 or more. Whatever the size of the credit a taxpayer receives, the credit must be repaid over a 15-year period.

Wednesday, September 17, 2008

Qualifying Depenendents:Divorced/Separated Parents

Did you know that a qualifying child will be treated of his or her noncustodial parent if all the following apply:

1. The parents:
a. Are divorced or legally separated under a decree of divorce or separate maintenance,
b. Are separated under a written separation agreement, or
c. Lived apart at all times during the last 6 months of the year

2. The child received over half of his or her support for the year from the parents.
3. The child is in the custody of one or both parents for more than half the year.
4. A decree of divorce or separate maintenance or written separation agreement applies to 2006 provides that the noncustodial parent can claim the child as a dependent (and, in case of a pre-1985 agreement , the noncustodial parent provides at least $600 for the support of the child during the year ) or the custodial parent signs a written declaration that he or she wilol not claim the child as a dependent for the year.

Part 2 Of How To Not Delay Your Stimulus Check

Review your tax liability — Some people who have either small amounts of tax liability or no tax liability are getting smaller stimulus payments than they expected or none at all. Generally, the law provided for a maximum stimulus payment of $600 ($1,200 for married couples) or an amount equal to a taxpayer’s tax liability, whichever was less. Tax liability is the net amount of federal income taxes paid after deductions and credits. If people had no tax liability but had at least $3,000 of “qualifying income” from specific sources, they would be eligible for $300 ($600 for married couples). There also is a $300 payment for each qualifying child.

Amended return — Generally, people cannot file an amended return solely to get an economic stimulus payment unless they are a retiree, veteran or have other “qualifying income.” While amended returns will be processed to correct the income, deductions and income tax as appropriate, the economic stimulus payment amount will not be adjusted based on an amended return. If people do not receive a payment this year, they can claim it when they file their tax return in 2009.

Use most current address — People must use their most current address in order to receive a timely payment. People who change addresses after filing should complete Form 8822 and a change of address card with the U.S. Postal Service. If the postal service is unable to deliver the payment, it is returned to the IRS. People must file a 2007 tax return by Oct. 15 in order to receive the economic stimulus payment this year, even if they normally do not have a filing requirement because their income is too low or not taxable. The IRS already has issued 90 percent of the economic stimulus payments but will continue to issue payments through December.

Tuesday, September 16, 2008

Do You Have A Qualifying Child on Your Taxes?

There are five tests that must be met for a child to be your qualifying child. The five tests are:

* Relationship
* Age
* Residency
* Support
* Special test for qualifying child of more than one person

Relationship Test-
* Your son, daughter,stepchild, eligible foster child, or a descendant of any of them
* Your brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them.

An Adopted Child--An adopted child is always treated as your own child. The term "adopted child" includes a child who was lawfully placed with you for legal adoption.

Eliglible Foster Child--An eligible foster child is an individual who is placed with you by an authorized placement agency or by judgement, decree, or other of any court of competent jurisdiction.

Age Test- To meet this test, a child must be:
* Under age 19 at the end of the year
* A fill-time student under age 24 at the end of the year, or
* Permanently and totally disabled at any time during the year, regardless of age.

Residency Test--To meet this test, your child must have lived with you for more than half the year. There are exceptions for temporary abscences, children who were born or died during the year, kidnapped children, and children of divorced or separated parents.

Temporary Abscences--Your child is considered to have lived with you during periods of time when one of you, or both of you, or both, are temporarily absent due to special circumstances such as:
* Illness
* Education
* Business
* Vacation
* Military Service

Death Of A Child-
A child who was born or died during the year is treated as having lived with you all year if your home was the child's home the entire time he or she was alive during the year. The same is true if the child lived with you all year except for any required hospital stay following birth.

Monday, September 15, 2008

When Should You Make Estimated Tax Payments

Who Should Be Paying Estimated Payments?

1) People who are self-employed.

2) People whose non-wage income is increasing (or expected to increase)

3) People who've done well on the stock market or with their other investments.

4) People who've gotten a healthy inheritance (or other windfall), with assets that produce

Anyone else ....well, if you are receiving wages, you can easily talk to your tax pro about manipulating your payroll tax withholding so you never have to make estimated payments.

When Should You Be Making Those Payments:

1 Qtr. is due by April 16 (When the 15th is on the weekend or a Federal Holiday)

2 Qtr. is fue by June 16

3 Qtr. is due by September 15

4 Qtr. is due by january ou can 15

If you have questions concerning preparing your business tax returns, contact a professional licensed tax preparer that you can TRUST !!

How To Find The Status Of Your Stimuilus Refund?

For people who filed a 2007 tax return eight to 12 weeks ago but who have not received a payment, the quickest and easiest way to track the status of the payment is to go to “Where’s My Economic Stimulus Payment?” on IRS.gov. The online tool will report when the payment has been issued. People will need their Social Security number, their filing status and the number of exemptions claimed on their tax return to use this tool. This online tool also can report other issues, such as ineligibility because income was too high or the returning of an undeliverable payment to the IRS.

People who do not file a tax return by Oct. 15 can still obtain their economic stimulus payments when they file their 2008 tax return. If they wait until next year to file, their payments will be based on their 2008 income and personal situations rather than on 2007 information.

How To Not Delay Your Stimulus Check

People who are awaiting an economic stimulus payment or who have yet to file can avoid common errors that may delay their payment. They also can use the IRS Web site to answer most common questions. The Internal Revenue Service, which is still issuing economic stimulus payments, has been studying trends and common issues in filing errors and questions posed by people calling its customer service telephone lines. The most common question posed to the IRS is from people wondering when they will receive their stimulus payment. The question can be answered easily by going to IRS.gov and using the “Where’s My Economic Stimulus Payment?” Web tool. Here’s how to avoid common mistakes:

File only one tax return — People should file only one 2007 tax return. It takes the IRS up to 12 weeks to process paper returns and issue the stimulus payments. However, some people are filing more than one tax return in an effort to receive a stimulus payment, which could further delay their stimulus payment. The IRS is concerned there will be more multiple filings as the Oct. 15 deadline approaches for filing a return in 2008.

List qualifying income — Some people are listing their monthly income instead of annual income. People must list their annual amount of qualifying income to be eligible for the minimum payment of $300 ($600 married filing jointly). The qualifying income required by law is at least $3,000 in benefits from Social Security, Veterans Affairs and Railroad Retirement, earned income and/or combat pay.

IRS Settlement With Arnold &Porter LLP

The Internal Revenue Service today announced that it has reached a settlement with Arnold & Porter LLP, which has paid a civil tax shelter promoter penalty. The settlement relates to the Firm’s failure in 2000, 2001 and 2002 to comply with tax shelter registration requirements and its participation in the organization of the following listed transactions that were sold to high net worth individuals and corporations: Partnership Option Portfolio Securities (POPS), Personal Investment Corporation (PICO), and Family Office Customized Partnerships (FOCUS).

The Firm cooperated with the Internal Revenue Service’s examination. The Firm has put into place a comprehensive compliance program designed to assure ongoing adherence to all tax shelter disclosure and list maintenance requirements of the Internal Revenue Code, and related laws. Arnold & Porter has consented to issuance of this News Release in accordance.

IRS Gives Hurricane IKE Taxpayers A Break

Taxpayers and tax preparers affected in coming days by Hurricane Ike will have an extra seven days to file corporate tax returns and third-quarter estimated taxes otherwise due on Monday, Sept. 15, 2008, the Internal Revenue Service announced today.
Hurricane Ike is expected to make landfall on the Gulf Coast of Texas, not far from Houston, by early Saturday morning.

Because the storm is falling within one business day of the Sept. 15 due dates, taxpayers directly impacted by the storm will have until midnight Sept. 22 to meet their tax filing obligations without incurring late filing and payment penalties.

The IRS is likely to further postpone that deadline and make further tax relief available following damage assessments by the Federal Emergency Management Agency.
Affected taxpayers can mark paper tax returns with the words “Hurricane Ike.” Taxpayers who e-file their returns can use their software’s “disaster” feature, if available.

Wednesday, September 10, 2008

No IRS Prefferential Treatment for the Hollywood Stars !

Last night while watching 20/20, I learned a great deal about just how unfair our society can be towards the rich and famous. It appears that the more attractive and more affluent you are in society, the more perks you get in life. Hollywood stars are constantly being offerred free dinners, drinks, apparel, and electronics. You name it they receive it, and for free. Why is it that they can afford to buy it with the fortunes they already have but continue to get these perks? Those less fortunate are unable to purchase these lavished gifts; why shouldn't they be due these acts of kindness because of their lesser fortune?

The one change that businesses and other designers will see is the tax they will incure on "swag" gifts issued to those Hollywood stars on the star studded runways of award ceremonies. As a civilian, it is incomprehensable that one person's presence alone can be doused with lavish gifts such as diamonds, watches, ipods, versace dresses..... However, business owners will soon feel the wrath of the government and be shown that they too should be taxed on gifts like everyone else. This is one area where your name and prestige make no difference.

Tuesday, September 9, 2008

Filing As Married Filing Jointly

If both you and your spouse are employed and expect to file a joint return, figure your withholdings allowances using your combined income, adjustments, deductions, exemptions and credits. Use only one of worksheets. You can divide your total allowances any way, but you cannot claim an allowance that your spouse also claims.

If you and your spouse expect to file separate returns, figure your allowances using separate worksheets based on your own individual income, adjustments, deductions, exemptions and credits. Keep in mind that if you keep good accurate records, then you do't have to use the W-4 worksheet.

It is also good to keep in mind that when preparing your tax returns to claim your spouse as an exemption. A spouse is never considered a dependent, but an exemption yes! You can take one exemption for yourself unless you can be claimed as a dependent by another taxpayer. If another taxpayer is entitled to claim you as a dependent, you cannot take an exemption for yourself even if the other taxpayer does not actually claim you as a dependent.

Monday, September 8, 2008

Members Of The Army and the IRS

If you are a member of the armed services on actuve duty and you move because of a permanent change of station, you do not have to meet the distance and time discussed earlier. You can deduct your unreimbursed moving expenses. A permanent change would include:

• A move from your home to your first post of active duty
• A move from one post of duty to another and
• A move from your last post of duty to your home or to a nearer point in the United States. The move must occur within 1 year of ending your active duty or within the period allowed under the Joint Travel Regulation.


If the member of the Armed Services dies, is imprisoned or deserted, a permanent change of the station for the spouse or dependant includes a move to:

• The place of enlistment
• The members, spouse 's or , dependant's home of record, or
• A nearer point in the United States

If the military moves you and your spouse and dependents to or from separate locations, the moves are treated as a single move to your new main job location.

Liens—Will The IRS Take My House?

Well, it depends! If you owe less than $5000, then no. The IRS can't sieze any real property used by you to satisfy a tax liability. However if you have larger liability, especially when you're a business, then you not only have a Revenue Officer but you do have an applied lien. The IRS can't seize any property if the court appointed judge does sign a written approval over the property. If this happens then the IRS can seize the property to protect the its interest until the debt is paid in full.

If you are planning on selling your home, you will need to get a lien subordination in order to do so. Whatever profits are set to be made will first have to be rectified with the lenders and then the IRS. You will then have penalties and interest attached to the additional liability if the tax liability has not been satisfied.

Sunday, September 7, 2008

Social Security Income: Regular & Disability Benefits

I retired last year, and started receiving social security payments. Do I have to pay taxes on my social security benefits?

The amount of income tax, if any, that you must pay on the social security benefits you receive depends on the total amount of your income and benefits for the taxable year. If you are married and file a joint return, you must combine your incomes and your social security and equivalent tier 1 railroad retirement benefits when figuring the taxable portion of the benefits.
The taxable amount of the benefits is figured on a worksheet in the Form 1040 Instructions or Form 1040A Instructions book, or in Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Refer to Publication 915, for base amounts and additional information regarding taxability and reporting requirements. Or, Tax Topic 423, Social Security and Equivalent Railroad Retirement Benefits, includes additional information regarding taxability and reporting requirements.

6.3 Social Security Income: Survivors' Benefits
Are social security survivor benefits for children considered
taxable income?

The person who has the legal right to receive the benefits must determine whether the benefits are taxable. For example, if you and your child receive benefits, but the check for your child is made out in your name, you must use only your part of the benefits to see whether any benefits are taxable to you. The amount of income tax that your child must pay on that part of the benefits that belong to your child depends on the total amount of income and benefits for the taxable year. Refer to Publication 915 and Tax Topic 423, Social Security and Equivalent Railroad Retirement Benefits.

Grant Of Relief for Gustov Taxpayers

Grant of Relief
Under section 7508A, the IRS gives affected taxpayers until Jan. 5, 2009 to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns) or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after Sept. 1, 2008 and on or before Jan. 5, 2009.

The IRS also gives affected taxpayers until Jan. 5, 2009 to perform other time-sensitive actions that are due to be performed on or after Sept. 1, 2008 and on or before Jan. 5, 2009. This relief also includes the filing of Form 5500 series returns in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098 or 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise deposits due on or after Sept. 1, 2008 and on or before Sept. 16, 2008 provided the taxpayer made these deposits by Sept. 16, 2008.

Casualty Losses
Affected taxpayers in a presidentially declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements but they must first subtract $100 for each casualty event and then subtract 10 percent of their adjusted gross income from their total casualty losses for the year. For details on figuring a casualty loss deduction, see IRS Publication 547, Casualties, Disasters and Thefts.

Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “Louisiana/Hurricane Gustav” at the top of the form so that the IRS can expedite the processing of the refund.

Free Return Copies and Transcripts
The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Wednesday, September 3, 2008

Tax Brackets

The brackets for both 2007 and 2008 have been adjusted for inflation, and that's probably good news for you.

Income-tax rates are unchanged for 2007, but as happens every year, the Internal Revenue Service has adjusted tax brackets to account for inflation. Expanding the brackets means that a touch more of your income will be taxed at lower rates than might have been the case last year.

That will mean savings for you.

The IRS is required by law to adjust the dollar amounts for a variety of tax provisions each year to keep pace with inflation. The adjustments of tax brackets, standard deductions, personal exemptions, earned-income credits and other things affect about three dozen areas of tax rules.

The IRS publishes the next year's tax rates in the fall.

So 2008 tax brackets, as well as amounts for standard deductions, personal exemptions and other tax areas, are already published. You can get more information on 2008 tax law changes here.

Taxable Income and Tax
Not over $16,050 10% of the taxable income

Over $16,050 but
$1,605 plus 15% of
not over $65,100 the excess over $16,050

Over $65,100 but $8,962.50 plus 25% of
not over $131,450 the excess over $65,100

Over $131,450 but $25,550 plus 28% of
not over $200,300 the excess over $131,450

Tips On Preparing Taxes

Absolute Allowable Deductions-There are certain deductions that are allowed regardless of whether you itemize. Such deductions include IRA and qualified pension contributions, student loan interest, moving expenses, alimony, medical savings account deductions and, for the self employed, the health insurance deduction and deduction for half the self employment taxes paid. These are known as "above the line" deductions. The infamous "line" is your adjusted gross income -- line 37 on Form 1040.

Which is bigger -- your standard deduction or the sum of your itemized deductions? We're now "below the line." The chart to the left of line 39 on your 1040 form for 2007 lists your standard deduction. Compare this amount to your total allowable itemized deductions. That's the sum of your allowed medical expenses, taxes, interest, charitable contributions, casualty and theft losses, and miscellaneous itemized expenses. Always do it both ways . . . and, subject to the alternative minimum tax (and don't even try to get into that), always take the higher amount.

Get Filing Compliant-
None of this matters if you don't actually get your return to the IRS. Even if you owe money, there's interest and penalty for not filing, in addition to interest and penalty for not paying. You've done the hard work, now get it off your desk! Or file for an extension

Get Organized When Filing Tax Returns

For those of us who are not quite as organized as others, we may not a little tax preparation throughout the year so that we don't spend time searching,belaboring the filing our returns. Here are a few tips that should help you be more proactive when it comes time to prepare your returns.

Get serious. Unless you're focused, you're going to see that receipt six times rather than the once you need. This is all mental now. Schedule a time to get to work and commit to that time. Then . . .
Get started. Remember that commitment to get to work? Keep it! This step requires action. Get your pencil and take the blank forms out of the envelope where you've been hiding them, praying that the tax fairies would make them go away

Get organized. Something has to go on those returns. Get your W-2s together to report wages, your 1099s to report interest and dividends, your 1099Bs for reporting stock and bond sales, and your 1098s for deducting your interest and taxes. The Internal Revenue Service and your accountant both want final numbers. It makes it easier for them and less painful financially for you. Bring either one a shopping bag full of receipts and you're going to feel the pain . . . especially in your wallet.

Get help. You might remove a splinter from your own finger, but you wouldn't perform major heart surgery on yourself. A trip to a tax professional should at least tell you what you're missing. Don't hesitate to ask for help; it's deductible! But call for an appointment now! The later your accountant does your return, the more tired that tax preparer will be. You want your return done when she's at her best.

Tuesday, September 2, 2008

How To Pay Zero Tax To The IRS

Sell Of Your House:

Under a tax law enacted in 1997, if your house was your principal residence for two of the last five years, you can exclude as much as $250,000 in gain ($500,000 on a joint return) when you sell it.
You don't have to reinvest the money, and you can claim the exclusion every two years. (If you've got $500,000 in gain every two years, I want to meet your real estate agent and go shopping!)
If you don't meet the two-year rule, you can get a partial exclusion based on the time of use and ownership. Assume you sold after only one year and had a $50,000 profit.
Your exclusion is half the $250,000, not half the $50,000 profit. In this case, you'd pay zero tax on the sale.

Tax Returns and Myths Surrounding Them

Myth 3. I'm over age 55, so I can sell my house tax-free. Wrong again, graybeard! You're thinking old law.
It used to be that if you were older than 55, you could exclude as much as $125,000 in gains from taxes, but only once. Now the rules are even better.
Under current law, age no longer matters. If the property sold was your principal residence for at least two out of the last five years, then you can exclude from tax as much as $250,000 in gain (and $500,000 on a joint return).
Your age is irrelevant, and you can take the gain exclusion every two years if you qualify.

Myth 4: I'm Married So I Have To File Married File Jointly

For example, if one spouse has substantial medical or miscellaneous deductions, those deductions are subject to the 7.5% and 2% floors respectively. That is, only medical expenses over 7.5% of adjusted gross income and miscellaneous deductions over 2% of adjusted gross income are deductible. If I had $10,000 in income and my spouse had $90,000 in income, the first $7,500 in medical expenses and the first $2,000 in miscellaneous expenses aren't allowed.
But if I filed as "Married Filing Separately," the disallowance would only apply to the first $750 in medical expenses and the first $200 in miscellaneous itemized expenses. The potential availability of $8,550 ($7,500 plus $2,000, less the sum of $750 and $200) in additional deductions could offset the bracket and other limitations of filing separately.

Where does NC Rank in Property Tax

Just as the housing boom has worn thin, property taxes are catching up with the one-third rise in the median value of all homes since 2000.
Property taxes -- the principal source of revenue for cities, counties and school districts -- are calculated by multiplying the nominal property-tax rate by the assessment ratio (the percentage of the value of the property that is taxed) by the value of the property. A USA Today analysis in 2006 said property taxes now consume a greater share of income (3.4%) than at any time since 1992.
Facing rebellious homeowners, at least 10 states cut property taxes in 2006, often counting on additional income and sales taxes to make up the difference.

I found that North Carolina Ranks as followed in calculating property taxes:

Median Tax-$966


Median Value-$127,600

Tax As % of Home Value-0.76


Median Owner Income-



Tax as % Of Income-1.91 %

The figures above are for property taxes paid by households on owner-occupied housing. As a result, they exclude property taxes paid by businesses, renters and others.

State Tax vs.No State Tax

I found an article on MSN by Scott McCredie speaking on state taxes: There are several states that do not pay state tax such as Alaska,South Dakota,Texas,Washington and Wyoming. It would be nice to live in a state that did not assess income . New Hamphsire and Tennessee don't have to pay income tax on just dividends and interest.

We pay Uncle Sam the same no matter where we live, but property, gasoline, tobacco, sales and state income taxes are all over the map.
The differences can be extreme. An Alaskan keeps 7 cents more of every dollar than a Vermonter, once cities and the state have grabbed their shares.
Factor in federal taxes and the gap grows even wider. Those who earn more money generally pay a greater percentage of it in federal taxes, so states with a greater percentage of highly paid workers end up paying more.
The state in which residents pay the most in combined state, local and federal taxes, per capita, is Connecticut (38.3%), followed by New York (37.1%), New Jersey (35.6%) and Nevada (35.2%). Oklahoma residents pay the least (27.8%), followed by those in Alabama (28.0%) and Alaska (28.1%).
We're all paying more, though. The U.S. average for state and local taxes in 2007 was 11%, up from 10.8% in 2006. The average combined state, local and federal tab for 2007 was 32.7%, up from 32.3% in 2006 and 30.7% in 1980.

Are Students Considered a Deduction?

Every U.S. citizen or resident must file a U.S. income tax return if certain income levels are reached. There is no exemption from tax for full-time students. Factors that determine whether you have an income tax filing requirement include:
The amount of your income (earned and unearned),
Whether you are able to be claimed as a dependent,
Your filing status, and
Your age. If your income is below the filing requirement for your age, filing status, and dependency status, you will not owe income tax on the income and will not have to file a tax return. You may choose to file if you have income tax withholding that you would like refunded to you.

You may have given your employer a Form W-4 (PDF), Employee's Withholding Allowance Certificate, claiming exemption from withholding. To claim exemption from withholding, you generally would have to have had no tax liability the previous year and expect none in the current year. An exemption certificate is good for the calendar year.

Taxpayer Victims Of Hurricane Gustov

In light of the recent hurricane Gustov that just came through LA, their should be continued releif from the IRS due to the devastation. Certain personal belongings and real property are considered under the safe harbor methods for individuals.

The IRS issued guidance today to assist Hurricane Katrina, Rita and Wilma victims claiming casualty and theft losses on their individual income tax returns.The guidance, outlined in Revenue Procedure 2006-32, provides information on several safe harbor methods that individual taxpayers may use in determining their casualty and theft loss deductions under section 165 of the Internal Revenue Code. The safe harbor methods apply to personal-use residential real property and certain personal belongings damaged or destroyed as a result of Hurricanes Katrina, Rita or Wilma.The revenue procedure provides three safe harbor methods that individuals may use to determine the decrease in fair market value of personal-use residential real property. The revenue procedure also provides a fourth safe harbor method that individuals may use to determine the fair market value of certain personal belongings immediately before Hurricanes Katrina, Rita or Wilma.These safe harbor methods provide individuals, who may have lost their records or otherwise are unable to determine proper values, with optional ways to determine the decrease in fair market value of personal use residential real property and the pre-hurricane value of certain personal belongings. However, individuals may use the methods of determining these values described in Publication 547, Casualties, Disasters, and