Archive for December, 2009

28
Dec
09

The Most-Overlooked Tax Deductions

  • State Sales Taxes
  • Reinvested Dividends
  • Out-of-Pocket Charitable
  • Student-Loan Interest Paid by Mom and Dad
  • Moving Expenses for a New Job
  • Military Reservists’ Travel Expenses
  • Child-Care Credit
  • Estate Tax on Income In Respect of a Decedent
  • State Tax Paid Last Spring
  • Refinancing Points
  • Property-Tax Deduction for Non-Itemizers
  • Casualty-Loss Deduction for Non-Itemizers
  • College Credit for Junior and Senior Years
  • Making Work Pay Credit
  • Sales-Tax Deduction for New Vehicles
  • Credit for Energy-Saving Home Improvements

1. State sales taxes. Although all taxpayers have a shot at this write-off, it makes sense primarily for those who live in states that do not impose an income tax. You must choose between deducting state and local income taxes or state and local sales taxes. For most citizens of income-tax states, the income tax is a bigger burden than the sales tax, so the income-tax deduction is a better deal.

The IRS has tables that show how much residents of various states can deduct. But the tables aren’t the last word. If you purchased a vehicle, boat or airplane, you get to add the state sales tax you paid to the amount shown in the IRS tables for your state, to the extent that the sales-tax rate you paid doesn’t exceed the state’s general sales-tax rate. (Download IRS tables in .pdf format here).

The same goes for any homebuilding materials you purchased. These items are easy to overlook, but they could make the sales-tax deduction a better deal even if you live in a state with an income tax. The IRS even has a calculator on its Web site to help you figure the deduction.

2. Reinvested dividends. This isn’t really a deduction, but it is a subtraction that can save you a bundle. And this is the break that former IRS commissioner Fred Goldberg told Kiplinger’s a lot of taxpayers miss.

If, like most investors, your mutual fund dividends are automatically used to buy extra shares, remember that each reinvestment increases your tax basis in the fund. That, in turn, reduces the taxable capital gain (or increases the tax-saving loss) when you redeem shares.

3. Out-of-pocket charitable contributions. For example, ingredients for casseroles you prepare for a nonprofit organization’s soup kitchen and stamps you buy for your school’s fundraising mailing count as a charitable contribution. If you drove your car for charity in 2009, remember to deduct 14 cents per mile.

4. Student-loan interest paid by Mom and Dad. Generally, you can only deduct mortgage or student-loan interest if you are legally required to repay the debt. But if parents pay back a child’s student loans, the IRS treats the money as if it was given to the child, who then paid the debt. So, a child who’s not claimed as a dependent can qualify to deduct up to $2,500 of student-loan interest paid by Mom and Dad. And he or she doesn’t have to itemize…

5. Moving expenses to take your first job. Here’s an interesting dichotomy: Job-hunting expenses incurred while looking for your first job are not deductible. But moving expenses to get to it are. And you get this write-off even if you don’t itemize. If you moved more than 50 miles, you can deduct the cost of getting yourself and your household goods to the new area …

6. Military reservists’ travel expenses. Members of the National Guard or military reserve may tap a deduction for travel expenses to drills or meetings. To qualify, you must travel more than 100 miles from home and be away from home overnight. …

7. Child-care credit. ….Although only $5,000 in expenses can be paid through a tax-favored reimbursement account, up to $6,000 (for the care of two or more children) can qualify for the credit. So, if you run the maximum through a plan at work but spend even more for work-related child care, you can claim the credit on as much as $1,000 of additional expenses. …

8. Estate tax on income in respect of a decedent. This sounds complicated, but it can save you a lot of money if you inherited an IRA from someone whose estate was big enough to be subject to the federal estate tax.

9. State tax paid last spring.

10. Refinancing points. When you buy a house, you get to deduct in one fell swoop the points paid to get your mortgage. When you refinance a mortgage, though, you have to deduct the points over the life of the loan. …

11. Jury pay turned over to your employer.

12. Property-tax deduction for nonitemizers. This break, new in 2008, also works in 2009, … this new rule lets homeowners who don’t itemize boost their standard-deduction amount — by up to $500 if they’re single and up to $1,000 if they’re married and file a joint return — to account for property taxes paid during 2009. You’ll need to include extra paperwork — a Schedule L — with your 2009 tax return to get this break.

13. Casualty-loss deduction for nonitemizers. For 2009, taxpayers who claim the standard deduction can add casualty losses to their standard-deduction amounts — if the loss occurred in a presidentially designated disaster area. …

14. Hope credit for college juniors and seniors. Parents of college kids know the $2,000 Hope credit is just for the first two years of college; after that, the lower Lifetime Learning credit applies. But wait! That’s not how it works for 2009. Instead, the credit has been renamed, increased and expanded. It’s now called the American Opportunity Credit, and it will rebate up to $2,500 for each qualifying student for the first four years of college. The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above those levels. The income limits are higher than last year’s. (More on the American Opportunity Credit here.)

15. Making Work Pay credit. You’ve probably been enjoying the fruits of this credit via reduced payroll tax withholding since spring 2009. But to lock in your savings–by reducing your tax bill by $400 if you’re single or $800 if you’re married and file a joint return–you’ll need to actually claim the credit on your 2009 tax return—and you’ll use brand-new Schedule M to do so. The credit is equal to 6.2% of your earned income, capped at $400 or $800. For single filers, it starts phasing out at $75,000 of adjusted gross income and dries up at $95,000. The phase-out zone for couples is $150,000 to $190,000.

16. Sales-tax deduction for new vehicles. If you bought a new car, truck, motorcycle or motor home after February 16, 2009, and before the end of the year, you can deduct the sales tax paid — up to a maximum purchase price of $49,500 per vehicle — either as an itemized deduction or, if you claim the standard deduction, as a supercharged standard deduction. The benefit begins phasing out for married couples with adjusted gross income over $250,000 and singles with AGI over $125,000, and it is completely gone for single filers with AGI of $135,000 or more and joint filers with AGI of at least $260,000. Nonitemizers need to file a Schedule L with their return to get the benefit; itemizers who elect to deduct state income taxes will claim the car sales tax as a separate itemized deduction.

17. Credit for energy-saving home improvements. The tax credit equal to 10% of the cost of energy-saving home improvements is increased to 30% for 2009 and 2010, up to a maximum of $1,500 in the two-year period. The credit applies to biomass fuel stoves, qualifying skylights, windows and outside doors, and high-efficiency furnaces, water heaters and central air conditioners. The dollar limit on a particular type of improvement, such as the $200 cap on the credit for windows, has been repealed, so don’t limit yourself to the old rules. Finally, there’s also no dollar limit on the credit for qualified residential alternative energy equipment, such as solar hot water heaters, geothermal heat pumps and wind turbines. Your credit can be 30% of the total cost of such systems.

18. Break on the sale of demutualized stock.…..That’s stock that a life insurance policyholder receives when the insurer switches from being a mutual company owned by policyholders to a stock company owned by stockholders. …

19. Home-buyer credit. We put this last on the list because it’s hard to imagine any taxpayer missing this big a tax break. But the rules changed late in the year, so snafus are certain. For most of the year, only first-time home buyers qualified for this credit. A “first-time buyer” is defined as someone who didn’t own a home in the three years leading up to the purchase of a new home. But big changes apply to homes purchased after November 6, 2009. First, in addition to the $8,000 credit for first-time home buyers, there’s a $6,500 credit for longtime homeowners, those who continuously owned a home for at least five of the eight years leading up to the purchase of a new home. The new law also increases how much buyers may earn and still claim the credit. For deals closed before November 7, the right to the first-time buyer credit gradually disappears as adjusted gross income rises between $75,000 and $95,000 on single returns and between $150,000 and $170,000 for married couples who file jointly. For purchases after November 6, the phase-out zones–for both the $8,000 credit and the $6,500 credit — are $125,000 to $145,000 for singles and $225,000 to $245,000 for married couples. More questions? See FAQs on the Home Buyer Tax Credits.

23
Dec
09

Keep IRS auditors away: Earn less than $200,000

Earn less than $200,000 and IRS auditors will stay away 99 percent of the time

Magnifying glass over U.S. tax form (Getty Images)

WASHINGTON (AP) — Want to keep IRS auditors away? Keep your earnings under $200,000 and they won’t bother you 99 percent of the time.

IRS enforcement numbers, released Tuesday, show that returns under that amount have a 1 percent chance of getting audited.

Returns showing income of $200,000 and above have a nearly 3 percent audit chance. The percentage jumps to more than 6 percent for returns showing earnings of $1 million or more.

The percentages apply to both individual and joint returns.

The number of audits jumped 11 percent from 2008 to 2009 for returns with earnings of $200,000 or more, but rose 30 percent for returns showing earnings of $1 million or more. For those under $200,000 the number of audits remained steady.

The IRS conducted 1.4 million audits of individual returns in the financial year ended Sept. 30, with more than 1 million conducted through correspondence with the taxpayer. The others were conducted through face-to-face meetings with IRS auditors.

The IRS does not do random audits, but does conduct “research audits” that will test compliance in business tax categories. In 2010, the target will be payroll taxes, according to Steve Miller, deputy commissioner for enforcement.

What happens if you’re audited while unemployed? The IRS may give you a break.

“While our assessments were up, the ability to pay went down drastically” due to the economy, Miller said. “We have a series of tools. We can have them pay partially, over time. If the money is not collectible, it’s treated as non-collectible. It’s going to depend on each case.

“We have to ensure there’s a balance between our responsibility to collect taxes with economic realities. We give people more time and determine how fast they can pay and whether they can pay.”

The total revenue collected from IRS enforcement actions, $48.9 billion in 2009, is a drop from $56.4 billion in 2008 and $59.2 billion in 2007.

Miller said the higher numbers in 2007 and 2008 reflect collections from settlements of several major tax shelter cases and other enforcement actions.

In 2007, for example, the IRS resolved disputed tax issues with drug maker Merck & Co., Inc. and its subsidiaries. Merck has agreed to pay approximately $2.3 billion in federal tax, net interest and penalties to resolve issues that had been in dispute for tax years 1993-2001.

The resolution was one of the largest achieved in recent years by the IRS and a taxpayer through the examination process.

The IRS has stepped up its examination of tax-exempt organizations, checking the books of more than 10,000 groups in 2009 compared to 7,800 the previous year.

The number of business tax returns examined was down slightly in 2009 from the previous year.

19
Dec
09

Senate Dems reach 60 vote threshold on health bill

.Sen. Ben Nelson, D-Neb., is seen in the snow outside the U.S. ...……….”This bill is a legislative train wreck of historic proportions,” Senate Republican leader Mitch McConnell of Kentucky said. He said it includes cuts to Medicare, home health care and hospices as well as “massive tax increases” at a time of double-digit unemployment.

………Nelson disclosed his decision as Majority Leader Harry Reid, D-Nev., unveiled a final series of changes designed to solidify support. Among them was an increase in the Medicare payroll tax of 0.9 percent on income over $200,000 a year for individuals and $250,000 for couples. The bill earlier raised those taxes by 0.5 percent.

……………. more

11
Dec
09

House votes to extend $31B in expiring tax breaks

Undervalued Penny Stocks >> Bright spot for your PIGGY BANK

WASHINGTON — The House has passed a bill extending $31 billion in popular tax breaks, including an income tax deduction………

“We’re in a recession and for the obvious reasons you don’t raise taxes in a recession,” said Rep. Dave Camp of Michigan, the top Republican on the tax-writing House Ways and Means Committee. “What we want to try to do is stimulate investment, not tax it.”or sales and property taxes.   MORE




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