Taxes Observed

Standard Deduction vs Itemized Deductions: 5 Tips to Help You Decide

noreply@blogger.com (Phil) — Wed, 19 Mar 2014 14:00:00 +0000

When you file your tax return, you usually have a choice whether to itemize deductions or take the standard deduction. Before you choose, it’s a good idea to figure your deductions using both methods. Then choose the one that allows you to pay the lower amount of tax. The one that results in the higher deduction amount often gives you the most benefit. Here are tips to help you choose.

1.Figure your itemized deductions. Add up deductible expenses you paid during the year. These may include expenses such as:

Home mortgage interest
State and local income taxes or sales taxes (but not both)
Real estate and personal property taxes
Gifts to charities
Casualty or theft losses
Unreimbursed medical expenses
Unreimbursed employee business expenses

2.Special rules and limits apply. Visit IRS.gov and refer to Publication 17, Your Federal Income Tax for more details.

3.Know your standard deduction. If you don’t itemize, your basic standard deduction for 2013 depends on your filing status:

Single $6,100
Married Filing Jointly $12,200
Head of Household $8,950
Married Filing Separately $6,100
Qualifying Widow(er) $12,200

Your standard deduction is higher if you’re 65 or older or blind. If someone can claim you as a dependent, that can limit the amount of your deduction. Check the exceptions. Some people don’t qualify for the standard deduction and therefore should itemize. This includes married couples who file separate returns and one spouse itemizes.

4.File the right forms. To itemize your deductions, use Form 1040 and Schedule A, Itemized Deductions. You can take the standard deduction on Forms 1040, 1040A or 1040EZ.

5.File Electronically. You may be eligible for free, brand-name software to prepare and e-file your tax return if your adjusted gross income is less than 58,000. IRS Free File will do the work for you. Free File software will help you determine if you should itemize and file the right tax forms. It will do the math and e-file your return – all for free. Otherwise, you may file electronically with commercial software such as TurboTax or H&R Block, or through a paid preparer.

Simplified Option for Claiming Home Office Deduction Now Available

noreply@blogger.com (Phil) — Sun, 16 Mar 2014 23:46:00 +0000

In tax year 2011, the most recent year for which figures are available, some 3.3 million taxpayers claimed deductions for business use of a home (commonly referred to as the home office deduction) totaling nearly $10 billion.

The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and record keeping burden on small businesses by an estimated 1.6 million hours annually. The new option is available starting with the 2013 return taxpayers are filing now. Normally, home-based businesses are required to fill out a 43-line form (Form 8829) and (instructions)often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions. Instead, taxpayers claiming the optional deduction need only complete a short worksheet in the tax instructions and enter the result on their return. Self-employed individuals claim the home office deduction on Schedule C Line 30, farmers claim it on Schedule F Line 32 and eligible employees claim it on Schedule A Line 21.

Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method. Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees, are still fully deductible.

Long-standing restrictions on the home office deduction, such as the requirement that a home office be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option. Further details on the home office deduction and the new option can be found in Publication 587.

Health Care Tax Credit For Small Business.

noreply@blogger.com (Phil) — Mon, 20 May 2013 01:33:00 +0000

The Affordable Care Act or more commonly known as ObamaCare was enacted on March 23, 2010. It contains some tax provisions that are in effect and more that will be implemented during the next several years.

As part of the Health Care Reform Act's effort to assist small businesses in providing health care coverage, a health care tax credit was created based on health insurance premiums paid for employees. For tax years 2010 through 2013, the maximum credit is 35 percent for small business employers and 25 percent for small tax-exempt employers such as charities. In general, on Jan. 1, 2014, the rate will increase to 50 percent and 35 percent, respectively.

To be eligible, you must cover at least 50 percent of the cost of single (not family) health care coverage for each of your employees. You must also have fewer than 25 full-time equivalent employees (FTEs). Those employees must have average wages of less than $50,000 a year. Basically, two half-time workers count as one full-timer. Here is an example, 20 half-time employees are equivalent to 10 full-time workers. That makes the number of FTEs 10 not 20. Thus a small business can have as many as 25 full timers or 50 half timer to be eligble for the credit. In addition, those employees must have average wages of less than $50,000 a year. Say you pay total wages of $200,000 and have 10 FTEs. To figure average wages you divide $200,000 by 10 – the number of FTEs – and the result is your average wage. The average wage would be $20,000.

Also, the amount the credit you receive works on a sliding scale. The smaller the business or charity, the bigger the credit. So if you have more than 10 FTEs or if the average wage is more than $25,000, the amount of the credit you receive will be less.

Small businesses cannot take a tax credit for insurance premiums paid for owners of the business. For small businesses structured as a C-corporation, no tax credit is available for employees who own 5% or more of the corporation. For S-corporations, no tax credit is available for employees who own 2% or more of the S-corporation. Source: Internal Revenue Code, section 45R, paragraph (e)(1).

Partners, members of LLC treated as a partnership, owners of a single-member LLC, S-corporation shareholders owning 2% or more of an S-corporation, and sole proprietors are all treated as self-employed persons for health insurance purposes, and are eligible for the self-employed health insurance deduction instead of the tax credit.

Small businesses should review their accounting systems to make sure they are keeping track of employer-paid and employee-paid health insurance premiums. This will become vitally important as employers will need to report the value of health insurance benefits on employees' W-2 Forms. Additionally, business owners will want to review how they structure their health benefits. For example, owners may want to revise what percentage of health insurance premiums they want to pay so as to be eligible for the tax credit.

2009 Tax Deductions That You Should Not Overlook

noreply@blogger.com (Phil) — Fri, 02 Apr 2010 07:35:00 +0000

With 13 days to go before April 15th here is a list of tax deductions many people either miss or forget.

Charitable Contributions: If you itemize your deductions and gave money to a church, a charitable organization such as the Red Cross, or a nonprofit organization such as the Boys and Girls Club of America then you are entitled to deduct your contribution. You must make sure you get a written receipt for your deduction just in case you get audited. If you donated your old clothes, furniture, books, etc to your local Goodwill, Big Brother or Salvation Army, you are entitled to deduct the value of your contribution. In addition, if you donated money to support disaster relief in Haiti after January 11, 2010 and before March 1, 2010 these contributions also qualify to be deducted on your 2009 return. So, if you didn't have the cash to contribute in 2009, I hope you charged it.

Points: If you were able to refinance your home in these tough economic times, any points you paid to refinance your home can be deducted on a monthly basis over the life of the new loan. All unamortized points on an old refinancing are deducted in the year of a new refinancing.

Health Insurance Premiums: Any health insurance premiums you pay, including some long-term-care premiums based on your age, are potentially deductible. But you have to add these to your medical expense pot. Medical expenses have to exceed 7.5% of your adjusted gross income (AGI) before they give you any tax benefit. If you're self-employed and not covered by any other employer-paid plan, though, you can deduct 100% your health insurance premiums (to the extent of your net income) "above the line." Above the line means the expense is an adjustment to your adjusted gross income.

Educator Expenses: If you're a kindergarten through grade 12 teacher, teachers aide, instructor or principal, you can get an above-the-line deduction for as much as $250 for materials you bought in 2009. That includes books, supplies and even computer equipment.

College Education Expenses: In this category you will have a choice of taking either an adjustment to income or a tax credit. A tax credit will reduce your taxes payable on a dollar for dollar scale while the adjustment to income can either reduce or increase your gross income. If your adjusted income is less than $65,000 for single taxpayers or less than $130,000 for married filing jointly taxpayers you can deduct up to $4,000 on your adjusted gross income. If you qualify, you can take either the Lifetime Earning Credit which is worth $2,000 or the American Opportunity Credit which is worth $2,500. Since you have choice between the tax credit and the adjustment to income, you will have to choose which one offers the greater tax benefit.

Health Care Reform Taxes

noreply@blogger.com (Phil) — Tue, 30 Mar 2010 03:10:00 +0000

Individual responsibility: Starting in 2014 everyone will be required to maintain health insurance. If you go without insurance, you will be subject to a tax of $695 per year.

Employer responsibility: Large companies will be required to provide health insurance as a benefit to its employees. Companies that do not provide this benefit will be imposed a tax of $2,000 a year per employee.

High cost plan excise tax: Starting in 2018, high cost health insurance plans will be subject to a tax. Plans for single persons that cost in excess of $10,200 and family plans that cost in excess of $27,500 are in this sections cross hairs. The excise tax rate on incremental costs will be 40 percent.

Medicare tax: Medicare tax will now be assessed on investment income for families making in excess of $250,000 and for singles making over $200,000. Investment income includes interest, dividends, capital gains, rental income and royalties. In the past, Medicare taxes had been assessed on wages only. Earn one dollar of investment income while you are over the threshold limits and you will incur this tax. This tax will commence January 1, 2013.

Medicare tax: In addition to the expansion of Medicare tax on investment income as noted in Section 1402 above, the Medicare tax rate has also increased. This tax increases by a third, from 2.9 percent to 3.8 percent.

Brand name pharmaceuticals: Starting in 2011, the pharmaceutical industry will be subject to a $2.5 billion annual excise tax. The annual excise tax increases in subsequent years, rising to $4.2 billion in 2018. The tax is assessed based on a companies market share and is non-deductible for federal tax purposes

Medical Devices: A 2.3 percent excise tax on the sale of medical devices goes into effect on Jan. 1, 2013. That tax, which excludes items sold at retail to consumers, would raise $20 billion through 2019.

Tanning Tax: A 10 percent excise tax on indoor tanning services goes into effect in July 2010.

Tax Benefits Aid Employers Who Hire and Retain Unemployed Workers

noreply@blogger.com (Phil) — Mon, 22 Mar 2010 07:50:00 +0000

Two new tax benefits are now available to employers hiring workers who were previously unemployed or working part time. These provisions are part of the Hiring Incentives to Restore Employment (HIRE) Act.

Employers who hire unemployed workers this year (after Feb. 3, 2010 and before Jan. 1, 2011) may qualify for a 6.2-percent payroll tax incentive, in effect exempting them from their share of Social Security taxes on wages paid to these workers after March 18, 2010. This reduced tax withholding will have no effect on the employee’s future Social Security benefits, and employers would still need to withhold the employee’s 6.2-percent share of Social Security taxes, as well as income taxes. The employer and employee’s shares of Medicare taxes would also still apply to these wages.

In addition, for each worker retained for at least a year, businesses may claim an additional general business tax credit, up to $1,000 per worker, when they file their 2011 income tax returns.

“These tax breaks offer a much-needed boost to employers willing to expand their payrolls, and businesses and nonprofits should keep these benefits in mind as they plan for the year ahead,” said IRS Commissioner Doug Shulman.

The two tax benefits are especially helpful to employers who are adding positions to their payrolls. New hires filling existing positions also qualify but only if the workers they are replacing left voluntarily or for cause. Family members and other relatives do not qualify.
In addition, the new law requires that the employer get a statement from each eligible new hire certifying that he or she was unemployed during the 60 days before beginning work or, alternatively, worked fewer than a total of 40 hours for someone else during the 60-day period. The IRS is currently developing a form employees can use to make the required statement.

Businesses, agricultural employers, tax-exempt organizations and public colleges and universities all qualify to claim the payroll tax benefit for eligible newly-hired employees. Household employers cannot claim this new tax benefit.

Employers claim the payroll tax benefit on the federal employment tax return they file, usually quarterly, with the IRS. Eligible employers will be able to claim the new tax incentive on their revised employment tax form for the second quarter of 2010.

House Approves Health Care Bill

noreply@blogger.com (Phil) — Mon, 22 Mar 2010 03:43:00 +0000

The House voted 219-212 in favor of health legislation backed by President Obama. The 219-212 House vote, coming after a tumultuous day of protests and rancorous debate, paves the way for Obama to sign the major portion of his 10-year, $940 billion plan early this week. The vote assured that about 32 million Americans will gain health insurance coverage and millions more will win protections against losing theirs. The legislation will raise taxes, largely on the wealthy, and reduce future Medicare spending by about $500 billion.

"This legislation will lead to healthier lives," House Speaker Nancy Pelosi of California said in the final floor speech before the vote. "This is an American proposal that honors the traditions of our country."

How To Choose A Tax Preparer

noreply@blogger.com (Phil) — Tue, 09 Feb 2010 03:44:00 +0000

Most tax return preparers are professional, honest and provide excellent service to their clients. However, unscrupulous tax return preparers do exist and can cause considerable financial and legal problems for their clients. Therefore, it’s important to find a qualified tax professional. Here are 8 rules for seperating the honest tax preparer from the dishonest tax preparer.

Check the person’s qualifications Ask if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.
Check on the preparer’s history Check to see if the preparer has any questionable history with the Better Business Bureau, check for any disciplinary actions and licensure status through the state boards of accountancy for certified public accountants; the state bar associations for attorneys; and the Office of Professional Responsibility for enrolled agents.
Find out about their service fees Avoid preparers that base their fee on a percentage of the amount of your refund or those who claim they can obtain larger refunds than other preparers.
Make sure the tax preparer is accessible Make sure you will be able to contact the tax preparer after the return has been filed, even after April 15, in case questions arise.
Provide all records and receipts needed to prepare your return Most reputable preparers will request to see your records and receipts and will ask you multiple questions to determine your total income and your qualifications for expenses, deductions and other items.
Never sign a blank return Avoid tax preparers that ask you to sign a blank tax form.
Review the entire return before signing it Before you sign your tax return, review it and ask questions. Make sure you understand everything and are comfortable with the accuracy of the return before you sign it.
Make sure the preparer signs the form A paid preparer must sign the return as required by law. Although the preparer signs the return, you are responsible for the accuracy of every item on your return. The preparer must also give you a copy of the return.

2009 Profesional Tax Software Choices Part 1

noreply@blogger.com (Phil) — Fri, 05 Feb 2010 08:12:00 +0000

"'In this world nothing can be said to be certain, except death and taxes." – quote by Benjamin Franklin in a letter to Jean-Baptiste Leroy in 1789, (re-printed in The Works of Benjamin Franklin, 1817)

Here we are again with another tax season and asking ourselves the following questions about our tax software? Are we using the “right” package for our needs? Are we getting the most value from our investment in Tax Preparation Software? What would it take for me to consider changing from my current tax software? Would I recommend my tax software to other tax professionals? Do I know what are my alternatives? What do I like about my tax software? What do I dislike about my tax software?

Drake Software offers an all-inclusive package regularly, $1,395 (currently web-listed as $1,295) with early season discount prices as low as $995. The package includes all individual and business federal tax returns - 1040, 1040NR, 1041, 1065, 1120, 1120H, 1120S, 706,709, 990, and 990PF - as well as all state returns. It also includes their tax planner, write-up, client status manager, document manager, bank software, electronic filing, technical support, network version, preparer Web site, and paperless office capabilities. They also offer a client write-up package that includes everything except their client write-up package. The pay-per-return option allows you to prepare up to 15 federal and state returns for $285, and additional returns cost $19 each.
The price is small, but the power of the package is impressive. Screens and helps are available in Spanish, for your Spanish speaking preparers or clients, but printed tax forms are all in English. Auto entry features include a Zip Code database that automatically fills in the city and state after you enter the zip code, and an EIN database that retains and fills in provider's information when the EIN is entered.

Drake Software's client base is an even mix between one to two man shops, to CPA firms, to large multi-sites. If the firm's hardware meets the Drake Software minimum requirements there is no limitation on the amount of users and returns it can support.

The Intuit ProLine Lacerte is for mid-sized and larger practices, as well as smaller firms with more complex client needs. The program offers preparation and electronic filing for all major tax entity types, along with all states and municipal entities. The system is offered modularly, with practices selecting the entity types and state support they require. Pricing for the Federal individual package is $2,699 and $429 per state, with add-on available for unlimited electronic filing ($995), networking ($570 for the first 4, $280 for each additional 4), tax analyzer ($465 of which 25% is the annual maintenance fee which is all you pay in future years), tax planner ($665 of which 25% is the annual maintenance fee which is all you pay in future years) and other productivity tools including applications for trial balance, document management, and tax research. The Intuit ProLine Lacerte system is also offered in a pay-per-use format, for lower-volume firms with a $395 license fee, $36 for federal and 1 state and a $4 electronic filing fee. Once the Pay-per-Return fee is paid separate business, trust, estate, and gift taxes may also be purchased.

Lacerte integrates with QuickBooks, Intuit's Document Management System, Tax Planner, EasyACCT, and BNA Tax Planner, Forms Library, Tax Research, Tax Analyzer, Trial Balance Utility, Lacerte e-Organizer.

The Intuit ProSeries is offered as a complete package or as a pay-per-return option, ProSeries Professional is easily adaptable to fit your office needs. Directed toward the small to medium sized accounting firm that might also provide other accounting services, Intuit allow you to buy as much (or as little) tax power as you need. One license of ProSeries tax software covers everyone in one company and location (multiple installations, networking is an add-on), via Webprice $1299, regularly $1399. This package includes unlimited individual returns for federal and state, and no license fee for Pay-Per-Return for business return. The PowerTax Library, priced at $4449, includes: the federal individual (100+ forms and schedules); state individual (45 States and Local forms); federal business forms 1120, 1120s, 1065, 1041, and 990; state business forms 1120, 1120s, 1065, 1041, and 990; Gift and Estate forms 709 and 706; and ProSeries add-on solutions Client Organizer and Fixed Asset Manager. Add-on packages include Network Solutions for $475, ProSeries DMS (Document Management System) for $450, Client Organizer for $229, Fixed Asset Manager for $229. The Pay-Per-Return option fee is $225, plus $20 for each federal and $15 for each state return processed

ATX Max is a highly inclusive program that sells for $1,110 and includes all the tax forms and specialty forms needed for a small to medium accounting practice. This package includes 1040 and related forms plus all state and local individual income tax forms, electronic filing where supported, 1041, 1120 1120S, 1065, 706, 709, 990, 5500, registrations and elections and more. Training and online CCH U.S. Master Tax Guide and CCH 1040 Express Answers are included with the ATX Max package.
One thing that really sets the ATX packages apart is their over 10,000 federal, state, and local forms, including the hard-to-find local tax forms. With ATX, tax practitioners no longer have to find and fill out by hand less common local tax forms, they are already included in the tax package. CCH Small Firm Services knows that not all small tax firms are looking for the same solution. They have packages that start as low at $410 that include all of the federal 1040 forms and supporting schedules, up to 3 states, $200 unlimited electronic filing, or individually priced e-filing for $3 federal and $2 per state state, and free training. They also offer a small firm turnkey solution of their Total Tax & Accounting Office package for $2295 which includes everything from the ATX Max package plus ATX Fixed Asset Manager, ATX Trial Balance, ATX Document Manager, ATX Client Write-Up with Payroll, and CCH Express Answers for all of the included tax returns.

TaxWise offers different groupings of their tax software so that they are price accessible to the various sized firms that are looking for the services their product offers. TaxWise is targeted for the accounting firm that is looking to grow and wants to position itself in an efficient manner with a complete business solution that is fully integrated and streamlined.
The ProFiling Package is $1084 for all federal individual and state and local forms, $1 Per federal and $.50 per state for electronic filing. The Power package at $2395 includes 1120, 1120s, 1065, 1041, 706, 709, 990 and 5500as well as unlimited e-filing, and free networking within the same office. They also offer an Executive package that includes all 1040 forms, 1120, 1120S, and 1065, 3 states each for individual and business returns, and $2 federal, $1 state electronic filing for $1335. The Complete Tax and Accounting package includes their complete line of individual, corporate, partnership, business, and specialty forms and schedules, all states and electronic filing, trial balance, fixed asset, document manager, and research software for $3265. TaxWise includes as much power as you could need, depending on the package you purchase. Free orientation sessions, customer support, and the online CCH U.S. Master Tax Guide (included in the Executive, Power, and Complete packages) make this a complete solution for a growing professional accounting firm.

Tax Tips On The HomeBuyer Tax Credit

noreply@blogger.com (Phil) — Wed, 03 Feb 2010 08:13:00 +0000

Here are the 9 things you should know about the expanded credit and the qualifications you must meet in order to qualify for it.

You must buy – or enter into a binding contract to buy a principal residence – on or before April 30, 2010.

If you enter into a binding contract by April 30, 2010 you must close on the home on or before June 30, 2010.

For qualifying purchases in 2010, you will have the option of claiming the credit on either your 2009 or 2010 return.

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.

The maximum credit for long-time residents is $6,500. However, married individuals filing separately are limited to $3,250.

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.

No credit is available if the purchase price of the home exceeds $800,000.

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.

A dependent is not eligible to claim the credit

Small Business Jobs and Wages Tax Cut

noreply@blogger.com (Phil) — Mon, 01 Feb 2010 08:46:00 +0000

President Obama has proposed a new jobs creation program that is targeted at small businesses who are the engines of job creation. The program is designed to provide firms an incentive to move quickly on new hires by reducing payroll tax costs. The program provides:

A $5,000 tax credit for each net new job created in 2010. Employers would receive a tax credit of up to $5,000 against their payroll taxes for every net new employee they hire in 2010. The credit is designed to help jumpstart job growth by giving employers an incentive to add jobs or accelerate the hiring they would have done later in the future. Start-ups would be eligible for half the credit, which provides an incentive for entrepreneurship while avoiding gaming. The credit would be administered off an employer’s unemployment insurance wage base (equal to 72% of the unemployment insurance wage base increase, or $5,000 credit for each additional worker who earns at least $7,000).

An additional tax credit to reimburse payroll taxes on increases in inflation-adjusted payrolls. Businesses will receive a bonus 6.2 percent tax credit on aggregate wages in excess of inflation – reimbursing the employer for the Social Security payroll taxes they pay on those payroll increases. This provides firms with an incentive to increase wages or work hours for existing employees as well as hire new employees at a higher wage. This wage bonus would be calculated off the Social Security payroll tax base, so firms would not get credit for increasing wages for employees making more than the current taxable maximum of $106,800.

A cap at $500,000 per business to incentivize small business hiring. All firms with net employment increases will be eligible for these credits. But to ensure that small businesses receive the bulk of the incentive to hire, the maximum credit will be limited to $500,000 per business.

Anti-abuse provisions to ensure that employers do not game the system. Businesses that reduce employment or payrolls in 2010 would be ineligible for both the $5,000 credit and the wage bonus. The credit would also include anti-abuse provisions designed to deny or limit the credit to employers that seek to game the system by, for example, replacing full-time employees with part-time employees. This will include limiting the maximum jobs credit amount to 25% of the increase in a firm’s Social Security payroll wage base. In addition, rules would prevent businesses from renaming themselves or merging in order to claim the credit.

Quarterly payment option to accelerate payments to firms. Employers would have the option of receiving the tax credit on a quarterly estimated basis. This helps get money in the hands of employers earlier in the year, could help increase awareness of the credit and provides an early incentive to hire.

The proposal is estimated to cost $33 billion. The administration plans to pay for this program with savings from the Treasury Department’s Troubled Asset Relief Program, which the administration says has cost $200 billion less than had been projected. If every firm used the maximum credit to hire rather than for salary increases, it would reward six million new jobs.

Special Tax Relief for Donations Made To Haiti

noreply@blogger.com (Phil) — Fri, 29 Jan 2010 08:23:00 +0000

People who give to charities providing earthquake relief to Haiti can claim these donations on their 2009 tax returns, according to a new special relief provision issued by the Internal Revenue Service. This special tax relief provision for Haiti is modeled on a 2005 law that allowed taxpayers to deduct donations made in January 2005 on their 2004 returns in the wake of the Dec. 26, 2004, Indian Ocean tsunami.

Only taxpayers who itemize deductions on their 2009 return qualify for this special tax relief provision. All short-form filers and taxpayers who use the standard deduction are ineligible. . Only cash contributions made to these charities after Jan. 11, 2010, and before March 1, 2010, are eligible. This includes contributions made by:

text message,
check,
credit or debit card.

You can benefit from your donations, almost immediately, by filing your 2009 returns early, filing electronically, and choosing direct deposit. Refunds take as few as ten days and can be directly deposited into a savings, checking or brokerage account, or used to purchase Series I U.S. savings bonds.

You have the option of deducting these contributions on either your 2009 or your 2010 returns, but not both.

You should make sure your contributions go to qualified charities. Most organizations eligible to receive tax-deductible donations are listed in a searchable online database available on IRS.gov under Search for Charities. Some organizations, such as churches or governments, may be qualified even though they are not listed on IRS.gov. Donors can find out more about organizations helping Haitian earthquake victims from agencies such as USAID. Contributions to foreign organizations generally are not deductible.

Federal law requires that you keep a record of any deductible donations you make. For donations by text message, a telephone bill will meet the recordkeeping requirement if it shows the name of the donee organization, the date of the contribution and the amount of the contribution. For cash contributions made by other means, be sure to keep a bank record, such as a cancelled check, or a receipt from the charity showing the name of the charity and the date and amount of the contribution.

New HomeBuyer Credit Form and Doccumentation Requirements

noreply@blogger.com (Phil) — Wed, 27 Jan 2010 08:27:00 +0000

The Internal Revenue Service has released the new form, its instructions, and doccumentation requirements that eligible homebuyers must use in order to claim either the first-time homebuyer credit or the Repeat Homebuyer Tax Credit this tax season.

The new form and instructions follow major changes in November to the homebuyer credit by the Worker, Homeownership, and Business Assistance Act of 2009. The new law extended the homebuyer credit to a broader range of home purchasers and added new documentation requirements to deter fraud and ensure taxpayers properly claim the credit.

With the release of Form 5405 First-Time Homebuyer Credit and Repayment of the Credit, and the related instructions, eligible homebuyers can now start to file their 2009 tax returns. Taxpayers claiming the homebuyer credit must file a paper tax return because of the added documentation requirements.

Processing of 2009 tax returns claiming the homebuyer credit is not expected to begin until mid-February after it completes the updating and testing of systems to meet the law’s new requirements. The updates allow the IRS to put in place critical systemic checks to deter fraud related to the homebuyer credit. The IRS has identified 582 taxpayers who were under 18 years old and ineligible to buy a home claimed almost $4 million in credits with at least one 4-year-old receiving the credit.

Early taxpayers claiming the homebuyer credit can expect their refunds take an additional two to three weeks. Normally, it takes about four to eight weeks to get a refund claimed on a complete and accurate paper return where all required documents are attached.

In addition to filling out a Form 5405, all eligible homebuyers must include with their 2009 tax returns one of the following documents in order to receive the credit:

A copy of the settlement statement showing all parties' names and signatures, property address, sales price, and date of purchase. Normally, this is the properly executed Form HUD-1, Settlement Statement.
For mobile home purchasers who are unable to get a settlement statement, a copy of the executed retail sales contract showing all parties' names and signatures, property address, purchase price and date of purchase.
For a newly constructed home where a settlement statement is not available, a copy of the certificate of occupancy showing the owner’s name, property address and date of the certificate.

In addition, the new law allows a long-time resident of the same main home to claim the homebuyer credit if they purchase a new principal residence. To qualify, eligible taxpayers must show that they lived in their old homes for a five-consecutive-year period during the eight-year period ending on the purchase date of the new home. The IRS has stepped up compliance checks involving the homebuyer credit, and it encouraged homebuyers claiming this part of the credit to avoid refund delays by attaching documentation covering the five-consecutive-year period:

Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements,
Property tax records or
Homeowner’s insurance records.

The IRS also reminded homebuyers that the new documentation requirements mean that taxpayers claiming the credit cannot file electronically and must file paper returns. You may still use off-the-shelf tax software or you can still use IRS Free File to prepare your returns, but the returns must be printed out and sent to the IRS, along with all required documentation.

Keeping Organized Records

noreply@blogger.com (Phil) — Mon, 25 Jan 2010 15:48:00 +0000

Whether you are an individual taxpayer or a business owner, you can avoid headaches at tax time with good records because they will help you remember transactions you made during the year.
Here are a few things you should know about recordkeeping.
Keeping well-organized records also ensures you can answer questions if your return is selected for examination or prepare a response if you are billed for additional tax. In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, you should keep any and all documents that may have an impact on your federal tax return.
Individual taxpayers should usually keep the following records supporting items on their tax returns for at least three years:

Bills
Credit card and other receipts
Invoices
Mileage logs
Canceled, imaged or substitute checks or any other proof of payment
Any other records to support deductions or credits you claim on your return

You should normally keep records relating to property until at least three years after you sell or otherwise dispose of the property. Examples include:

A home purchase or improvement
Stocks and other investments
Individual Retirement Arrangement transactions

Tax Tips For The Tax Season

noreply@blogger.com (Phil) — Sat, 09 Jan 2010 02:15:00 +0000

Well the new year is here and normally that means start paying down on all that debt we incurred on Christmas shopping and getting ready for tax time. Here are my eight tax tips in order to get ready for the 2010 tax season.

Start gathering your records. Round up any documents or forms you’ll need when filing your taxes: receipts, canceled checks and other documents that support an item of income or a deduction you’re taking on your return.

Be on the lookout. W-2s and 1099s will be coming soon from your employer; you’ll need these to file your tax return.

Try e-file. When you file electronically, the software will handle the math calculations for you. If you use direct deposit, you will get your refund in about half the time it takes when you file a paper return. E-file is now the way the majority of returns are filed. In fact, last year, 2 out of 3 taxpayers used e-file.

Check out Free File. If your income is $57,000 or less you may be eligible for free tax preparation software and free electronic filing. The IRS partners with 20 tax software companies to create this free service. Free File is for the cost conscious taxpayer who wants reliable question-and-answer software to help them prepare a return.
Consider all filing options. There are many different options for filing your tax return. You can prepare it yourself or go to a tax preparer. You may be eligible for free face-to-face help at an IRS office or volunteer site. Give yourself time to weigh all the different options and find the one that best suits your needs.

Consider Direct Deposit. If you elect to have your refund directly deposited into your bank account, you’ll receive it faster than waiting for a paper check.

Remember this number: 17 Check out Publication 17, Your Federal Income Tax on IRS.gov. It’s a comprehensive collection of information for taxpayers highlighting everything you’ll need to know when filing your return.

Review! Review! Review! Don’t rush. We all make mistakes when we rush. Mistakes will slow down the processing of your return. Be sure to double-check all the Social Security Numbers and math calculations on your return as these are the most common errors made by taxpayers.

noreply@blogger.com (Phil) — Sat, 02 Jan 2010 08:01:00 +0000

Happy New Year

Small Business Tax Tips

noreply@blogger.com (Phil) — Mon, 28 Dec 2009 15:54:00 +0000

Update Your Accounting: It's important as part of your year-end tax strategy to have a good understanding of your company's financial situation. Spend extra time ensuring your books are up-to-date and accurate. It won't hurt to plan time with your accountant for year-end advice, particular to your operations.

Purchase A SUV: While buying a big SUV may not be politically correct, the fact is these vehicles are very useful if you need to haul people and stuff around. They also have a big tax advantage for businesses. Specifically, new and pre-owned “heavy” SUVs used over 50% for business qualify for a first-year Section 179 depreciation write-off of $25,000. You then depreciate the rest of the SUV’s cost using the general rules, which include 50% first-year bonus depreciation for new (not used) SUVs.
To collect the $25,000 first-year deduction, you must buy an SUV with a manufacturer’s gross vehicle weight rating above 6,000 pounds. Only these heavy SUVs qualify for this deduction. First-year depreciation deductions for lighter SUVs, passenger cars and light trucks are much skimpier. You can usually find a vehicle’s gross vehicle weight ratings on a label on the inside edge of the driver’s side door where the hinges meet the frame.

Purchase Business Equipment And Software: There’s a much larger first-year Section 179 depreciation deduction for things that are not SUVs. The write-off which is equal to $250,000 is available for the cost of most new and used items of business equipment and software.
That includes computer systems, office furniture, machinery, and software that is put to use during tax years beginning in 2009.
The $250,000 Section 179 deduction privilege is also available for heavy pickups and vans whose wight is above 6,000 lbs that are not classified as SUVs under the tax law. These include the following:
* Pickups with a cargo area that is at least six feet in interior length. Most pickups with full-size cargo beds will meet this description.
* Closed load-carrying vehicles with no seating behind the driver’s seat and no body section protruding more than 30 inches ahead of the leading edge of the windshield. Delivery vans will qualify.
* Vehicles designed to seat more than nine passengers behind the driver’s seat. Shuttle vans and minibuses will qualify.

50% First Year Bonus Depreciation:Your business can also claim 50% first-year bonus depreciation for qualifying new (not used) equipment and software placed in service by December 31, 2009. New real estate land improvements (sidewalks, drainage systems, and so forth) and certain leasehold improvements qualify too (most other real estate costs do not). For a new asset that’s also eligible for the Section 179 depreciation write-off, the 50% bonus depreciation deduction is based on the cost remaining after the Section 179 deduction. Any cost remaining after claiming the Section 179 and 50% bonus depreciation deductions is depreciated under the normal tax rules.
Warning: The December 31, 2009 deadline for 50% first-year bonus depreciation applies whether your business’s tax year is based on the calendar year or not.

Monitor Your Income and Expenses: If you run your operation as a sole proprietorship, S corporation, LLC, or partnership, the net income generated by your business will be reported on your Form 1040 and taxed at your personal rates. The scheduled 2010 individual federal income tax rate brackets are virtually the same as this year’s, so they remain taxpayer-friendly. Therefore, the traditional strategy of deferring income into next year while accelerating deductible expenditures into this year still makes sense if you expect to be in the same or lower tax bracket next year. In that case, deferring income and accelerating deductions will, at a minimum, postpone part of your tax bill from 2009 until 2010. It could even cause some income to be taxed at a lower rate next year.
On the other hand, if your business is healthy, and you expect to be in a significantly higher tax bracket in 2010 (say 35% vs. 28%), take the opposite approach. Accelerate income into this year (if possible) and postpone deductible expenditures until 2010. That way, more income will be taxed at this year’s lower rate instead of next year’s higher rate.

Amazing Peace: A Christmas Poem

noreply@blogger.com (Phil) — Fri, 25 Dec 2009 08:16:00 +0000

By Maya Angelou

Thunder rumbles in the mountain passes
And lightning rattles the eaves of our houses.
Flood waters await us in our avenues.

Snow falls upon snow, falls upon snow to avalanche
Over unprotected villages.
The sky slips low and grey and threatening.

We question ourselves.
What have we done to so affront nature?
We worry God.
Are you there? Are you there really?
Does the covenant you made with us still hold?

Into this climate of fear and apprehension, Christmas enters,
Streaming lights of joy, ringing bells of hope
And singing carols of forgiveness high up in the bright air.
The world is encouraged to come away from rancor,
Come the way of friendship.

It is the Glad Season.
Thunder ebbs to silence and lightning sleeps quietly in the corner.
Flood waters recede into memory.
Snow becomes a yielding cushion to aid us
As we make our way to higher ground.

Hope is born again in the faces of children
It rides on the shoulders of our aged as they walk into their sunsets.
Hope spreads around the earth.
Brightening all things,
Even hate which crouches breeding in dark corridors.

In our joy, we think we hear a whisper.
At first it is too soft.
Then only half heard.
We listen carefully as it gathers strength.
We hear a sweetness.
The word is Peace.
It is loud now. It is louder.
Louder than the explosion of bombs.

We tremble at the sound.
We are thrilled by its presence.
It is what we have hungered for.
Not just the absence of war.
But, true Peace.
A harmony of spirit, a comfort of courtesies.
Security for our beloveds and their beloveds.

We clap hands and welcome the Peace of Christmas.
We beckon this good season to wait a while with us.
We, Baptist and Buddhist, Methodist and Muslim, say come.
Peace.

Come and fill us and our world with your majesty.
We, the Jew and the Jainist, the Catholic and the Confucian,
implore you to stay awhile with us so we may learn by your shimmering light
how to look beyond complexion and see community.

It is Christmas time, a halting of hate time.
On this platform of peace, we can create a language
to translate ourselves to ourselves and to each other.
At this Holy Instant, we celebrate the Birth of Jesus Christ

Into the great religions of the world.
We jubilate the precious advent of trust.
We shout with glorious tongues the coming of hope.
All the earth’s tribes loosen their voices to celebrate the promise of
Peace.

We, Angels and Mortals, Believers and Nonbelievers,
Look heavenward and speak the word aloud.
Peace.

We look at our world and speak the word aloud.
Peace.

We look at each other, then into ourselves,
And we say without shyness or apology or hesitation:

Peace, My Brother.
Peace, My Sister.
Peace, My Soul

Charitable Deductions

noreply@blogger.com (Phil) — Thu, 24 Dec 2009 05:54:00 +0000

Well it is the season for giving and during this time we spend most of our money purchasing gifts for our children, parents, and other loved ones. Lets remember that we can also give to the less fortunate and get a tax benefit at the same by making charitable donations by Dec 31. In order to deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A. The amount deduction may be limited according to certain rules. For instance, for 2009, the total of your charitable contributions and itemized deductions may be limited if your income is more than $166,800 ($83,400 if you are married filing separately).

Here is a list of reminders when making charitable donations.

Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2009 count for 2009. This is true even if the credit card bill isn’t paid until 2010. Also, checks count for 2009 as long as they are mailed in 2009 and clear, shortly thereafter.

Check that the organization is qualified. Only donations to qualified organizations are tax-deductible. IRS Publication 78, available online and at many public libraries, lists most organizations that are qualified to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in Publication 78.

For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction, including anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2009 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.

For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value.

The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.

If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.

To be deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances and linens.

Special rules apply if you contributed taxidermy property, property subject to a debt, a fractional interest in a tangible personal property, a partial interest in property,
A qualified conservation contribution, a future interest in tangible personal property, inventory from your business, and a patent or other intellectual property.

Tax Benefits For Job Seekers

noreply@blogger.com (Phil) — Wed, 16 Dec 2009 14:14:00 +0000

Job search expenses can be deducted as miscellaneous itemized tax deductions if you look for a job in the same field at the same level as the one you left. The job search expenses are deductible even if you don't get the job.

You can deduct job-seeking expenses as long as the amount of all miscellaneous itemized tax deductions is more than 2% of your adjusted gross income (AGI). To figure your tax deduction, subtract 2% of your AGI from the total amount of these expenses. Job search expense deductions are also subject to the overall limitation on itemized deductions based on income threshold amounts.

To qualify, your job search must be for a job in your current, or most recent, trade or business and should be at a similar level of responsibility with duties similar to those of your most recent job.

If you haven't held a job in that trade or business for an extended length of time, your job search will be considered for a new trade or business, and your deductions may not be allowed.
If you held a college internship or valid job while in college and your search is for a job in the same trade or business, you will be able to deduct job search expenses.
If you're just out of school and had no paying jobs while in school that were related to your trade or business, your deductions won't be allowed.

You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year. Also, If your employer pays the fees directly to the employment agency and you are not responsible for them, you do not include them in your gross income.

You can deduct amounts you spend for preparing and mailing copies of a resume to prospective employers as long as you are looking for a new job in your present occupation. Cost for preparing resumes includes typing, printing, postage, long-distance charges, advertising, and photographs required for your resume.

If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can only deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity compared to the amount of time you spend looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.

If you are receiving unemployment compensation, these amounts are considered taxable income. You will receive Form 1099-G showing the amount you were paid and any federal income tax you elected to have withheld. If you did not elect to have any taxes withheld from your unemployment compensation you may be faced with an unexpected tax burden.

To minimize the pain felt by taxpayers who lost their jobs, the American Recovery and Reinvestment Act temporarily changed the taxation of unemployment benefits in 2009. The first $2,400 of unemployment benefits received in 2009 is tax free. Any amount over $2,400 will be subject to federal income tax. Individuals who receive unemployment benefits this year should check their withholding to ensure they are not having unnecessary tax withheld.

If you were employer either filed bankruptcy or went out of business here is some information you should know. Your employer must provide you with a Form W-2 showing your wages and withholdings by January 31 of the following year. You should keep up-to-date records or pay stubs until you receive your Form W-2. If your employer or its representatives fails to provide you with a Form W-2 by February 15, contact the IRS in order to obtain a substitute Form W-2. If your employer is liquidating your 401(k) plan, you have 60 days to roll it over to another qualified retirement plan or IRA.

House Passes Tax Extenders Bill 2009

noreply@blogger.com (Phil) — Tue, 15 Dec 2009 03:52:00 +0000

The U.S. House of Representatives voted to renew for one year 45 tax breaks due to expire December 31, including a sales tax deduction for people in states without income taxes, a property tax deduction for people who do not itemize, and the research and development credit.

Most Democrats voted to approve the measure, which includes tax increases on fund managers' income and a 30 percent withholding tax on foreign banks that fail to report information on American clients to tax authorities. Most Republicans who voted against the measure argued that tax increases would have a negative impact on new investment during the economic downturn.

If the Extenders Act of 2009 does not make it to the Senate floor for a vote before the end of the year, and the extensions expire, the tax breaks can be made retroactive, as has happened in previous years.

The Senate is not expected to approve the tax increases on fund managers. House Democrats have twice before voted to change the tax treatment of income paid on "carried interest" to compensation, which could be taxed at 35 percent, from capital gains income, which could be taxed at 15 percent, arguing that the income paid to fund managers is fee income and not just income on their 2 percent investment in their funds.

The 30 percent withholding tax on foreign banks that fail to report information on American clients to tax authorities comes as the Internal Revenue Service seeks to identify tax shelters for income earned abroad and pursue noncompliance.

Some of the key tax breaks extended in the House bill (HR 4213):

For individuals:

Deduction of state and local sales tax in states where there is no income tax
Additional standard deduction for state and local real property taxes for people who do not itemize
Above the line deduction for qualified tuition and related expenses
Deduction for certain expenses of elementary and secondary school teachers.

For businesses

Research credit.
Exceptions for active financing income
15-year straight line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements
Employer wage credit for employees who are active duty members of the uniformed services
5-year depreciation for farming business machinery and equipment.

WebCPA

Wall Street Journal

Reuters

Year End Tax Moves

noreply@blogger.com (Phil) — Wed, 09 Dec 2009 08:04:00 +0000

2009 was a rough year financially for many Americans. You could not turn on the news with out hearing about business closures, layoffs, foreclosures and bailouts. Lets be honest, between lost jobs, shrunken paychecks and disappearing bonuses it's been a time of more pain, less gain. But the year is not over and there are tax-savvy moves you can still make to pull some financial cheer out of an otherwise dreary 2009

Gather Your Stock Market Losses.

Almost everything you own and use for personal or investment purposes is a capital asset. Examples are your home, household furnishings, and stocks or bonds held in your personal account. 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. Capital gains and losses are classified as long–term or short–term. If you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term. If your capital losses exceed your capital gains, the amount of the excess loss that can be claimed against ordinary income is $3,000. In what's often called tax loss harvesting, investors can sell assets that have generated large losses in after-tax accounts and use those losses to offset taxable income or even future gains. The losses can be used to offset capital gains as well as up to $3,000 of regular income each year. Any amount exceeding the $3,000 threshold can be carried forward to offset gains in the following year. IRS rules allow an investor to buy the asset back after 31 days — and still claim the tax loss.

Donate to a Charity

There are many people and organizations in need today, so it's a good time to review your charitable donations for the year. Donations can take the form of cash, electronics, cars, jewelry, paintings, stocks, real estate or clothing. Any donation of $250 or more requires a receipt as documentation. Property valued at more than $5,000 requires a written appraisal confirming its fair market value. There are also dollar limits: cash contributions cannot exceed 50% of adjusted gross income while property donations cannot top 30% of AGI. Contributions that exceed these limits can be carried over to the following tax year. President Obama has proposals on the table to put further limits on deductions for charitable contributions as a means of raising cash to cover the country's swelling deficit, stimulus package and health care reforms. So, taxpayers may want to max out their charitable contributions this year while limits are still generous.

Go For Energy Efficiency

Going green can offer a pretty nice payback at tax time. The IRS, through the federal stimulus package, is offering tax credits to individuals and businesses that make or use energy or energy-efficient products in 2009 and 2010. But you have to spend in 2009 to take the credit against this year's taxes. A homeowner buying energy-efficient windows, doors, water heaters or biomass stoves and those purchasing insulation, metal or reflective asphalt roofs and solar-energy systems can receive credits of 30% of the cost up to $1,500 in total. People purchasing geothermal heat pumps, solar panels and wind generators can get credits of 30% (up to $1,500) for each item through 2016. People buying plug-in hybrid electric cars can get tax credits of between $2,500 and $7,500.

Happy Thanksgiving

noreply@blogger.com (Phil) — Thu, 26 Nov 2009 10:13:00 +0000

Thanksgiving is a time for family and for reflection, a time to kick back and consider all the ways in which we, as Americans, have been blessed over the previous year

Get Your Guns Tax Free In South Carolina on Black Friday

noreply@blogger.com (Phil) — Wed, 25 Nov 2009 08:23:00 +0000

South Carolina shoppers will get a second chance to buy tax-free guns.
The 48-hour tax break begins just after midnight the Friday after Thanksgiving.
Shoppers will pay no state or local sales taxes on handguns, rifles and shotguns, which can tally 9 percent. Taxes still apply to ammunition and accessories.

South Carolina had the nation's first tax holiday on guns last year, after legislators tacked it on to a tax break on energy-efficient appliances. But the state Supreme Court threw out that law in May because of an unrelated energy amendment. Lawmakers restored the tax break as a one-time event in the budget this year.

Louisiana followed this year with its own sales tax holiday for hunters in September. That break went further, applying to any item that can be used for hunting or fishing, including off-road vehicles, airboats, animal feed and ear plugs.

South Carolina is the only state to designate a tax-free weekend during two of the year's biggest shopping days. It is also one of the top five states that provide 85% of the illegal handguns recovered in New York City. Even without a tax holiday, South Carolina gun shops sold a half-million handguns in a 10-year period.

How much shoppers saved in the gun-friendly state last Thanksgiving weekend is unknown. State economic officials estimated it would cost the state about $15,000.

South Carolina's tax-free weekend for school supplies is in August.

American Opportunity Credit

noreply@blogger.com (Phil) — Tue, 24 Nov 2009 03:02:00 +0000

Under the American Recovery and Reinvestment Act (ARRA), more parents and students will qualify over the next two years for a tax credit, the American Opportunity Credit, to pay for college expenses.

The American Opportunity Credit is not available on the 2008 returns taxpayers are filing during 2009. The new credit modifies the existing Hope Credit for tax years 2009 and 2010, making the Hope Credit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.
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 these levels. These income limits are higher than under the existing Hope and Lifetime Learning Credits