Tax Resolutionaries

Job Search Deductions for the Unemployed

noreply@blogger.com (Babyboomer11852) — Tue, 12 Jan 2010 22:15:00 +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.

Allowable Job Search Tax Deductions

You may be eligible for the following deductions while you're searching for a job.

Employment agency fees: If in a later year your new employer repays your agency fees, you must include the amount in your income up to the amount of the deduction you claimed earlier. If your employer pays fees directly to the agency, you don't have to include them in your income.

Resume preparation: typing and printing, postage, long-distance charges, advertising, and photographs required for your resume.

Travel: airfare, mileage (some automobile expenses have been approved), meals (based on either actual expenses or standard federal per diem rates) and lodging (actual expenses only).

Qualifications: 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.

HSAs and Their Tax Consequences

noreply@blogger.com (Babyboomer11852) — Tue, 12 Jan 2010 22:11:00 +0000

HSAs

An HSA is a savings account used to pay for out-of-pocket medical expenses. Contributions to your HSA are either tax-deductible (similar to deductible IRA contributions) or made pre-tax if the HSA is offered through an employer's benefit plan (similar to 401(k) contributions). Earnings in the account are not taxed, and distributions from the account that are used to pay for qualified medical expenses are tax-free. To be eligible to contribute to an HSA, you must have a high-deductible health plan, or HDHP. The HDHP:

must have a high deductible; for 2009 the minimum deductibles are $1,150 for self-only HDHP coverage and $2,300 for family coverage.

must not pay medical benefits until the deductible is satisfied. For example, a medical plan that pays for prescription drugs or office visits without regard to the deductible is not a qualifying HDHP.

There are, however, exceptions for preventative or "wellness" benefits, such as basic health check-ups, maintenance drugs, cancer screenings, etc.

Other eligibility requirements:

You must not be a dependent on another person's return, you may not have any other type of health insurance coverage, and you may not be enrolled in Medicare. Certain "permitted coverage" is allowed, including dental, vision and long-term care insurance. There is no earned income requirement.

If you meet all of the requirements, you may contribute up to $3,000 ($5,950 if you have family HDHP coverage) to your HSA. If you are at least age 55, you may contribute an additional $1,000. You may use your HSA funds tax-free to pay for out-of-pocket medical expenses including doctors visits, prescriptions and over-the-counter medicines, laboratory tests and hospital stays. But if you use HSA funds for some other purpose, the distribution is subject to tax at ordinary rates and, if you are younger than 65, a 10% penalty. The HSA/HDHP combination is not for everybody because of the high deductible. If you are taking several prescription medications or if you expect to visit the doctor several times, you would have to pay a great deal out-of-pocket until your HDHP deductible is met. Or, you may not have enough to be able to fund an HSA. But if your medical expenses are relatively low and you are able to contribute consistently to an HSA, consider all of these advantages in addition to the tax advantages:
HSA funds are not "use or lose," unlike flexible spending accounts (FSAs). You may keep the funds in the account as long as you wish and use them only when you need to.

Unlike Roth IRAs, there is no waiting period before you can begin taking tax-free distributions.

You may be eligible for a 1-time rollover of IRA or unused FSA funds to help fund your HSA.

HDHP premiums are often considerably lower than traditional health plan premiums. The lower premiums can mean you have additional funds to handle the HDHP deductible and fund the HSA.

Employers may fund some or all of the HSA for you.

Employer contributions are tax-exempt.

FSAs

Health FSAs are employer-established benefit plans. These may be offered in conjunction with other employer-provided benefits as part of a cafeteria plan. A health FSA allows employees to be reimbursed for qualified medical expenses, including co-pays, eyeglasses and prescription and over-the-counter medicine. FSAs are usually funded through voluntary salary reduction agreements with your employer.

You may enjoy several benefits from having an FSA.

Contributions made by your employer can be excluded from your gross income.

No employment or federal income taxes are deducted from the contributions.

Withdrawals may be tax-free if you pay qualified medical expenses.

You can withdraw funds from the account to pay qualified medical expenses even if you have not yet placed the funds in the account.

You contribute to your FSA by electing an amount to be withheld from your pay by your employer. At the beginning of the plan year, you must designate how much you want to contribute. Then, your employer will deduct amounts periodically (generally, every payday) in accordance with your annual election. You can change the amount you designate at the beginning of the plan year only if a specified event occurs.

Examples include marriage, divorce, birth or death of a child, loss of coverage under other insurance, and a change in employment status. You aren't taxed on the salary you contribute or the amounts your employer contributes to the FSA. However, contributions made by your employer to provide coverage for long-term care insurance must be included in income. Usually, the amount of money you contribute that isn't spent by the end the plan year is forfeited. In other words, the money is use-or-lose. But some plans contain a provision that allows you an additional 2½ months to use the money. Be sure to base your contribution on a reasonable estimate of the qualifying expenses you expect to have during the year.

Because of the tax savings, an FSA may be advantageous even if you have a small amount of money you'll have to forfeit. You must provide the health FSA with a written statement from an independent third party stating that the medical expense has been incurred and the amount of the expense. You must also provide a written statement that the expense has not been paid or reimbursed under any other health plan coverage.

Dependent Care FSAs

FSAs can also be established to pay for dependent (usually child) care. The amount you can set aside for dependent care generally is limited to $5,000 a year. Although you receive a tax advantage with a health FSAs, dependent care FSAs are a tradeoff between pre-tax deductions and tax credits, such as the Child Care Credit. Generally, the higher your income, the lower the Child Care Credit you'll receive due to income phaseouts. Check with your tax professional to see which is more beneficial to your situation.

What Are Estimated Tax Payments

noreply@blogger.com (Babyboomer11852) — Tue, 12 Jan 2010 22:05:00 +0000

What are estimated taxes?

You're required to pay estimated tax if you receive income from which tax isn't withheld, including income from self-employment, investments and alimony, and your tax (after subtracting credits and withholding) is expected to be $1,000 or more. Here are a few good things to know about estimated tax payments:

The payments are due April 15, June 15, Sept. 15 and Jan. 15.

If you fail to pay enough on each installment due date, you may be subject to the penalty for underpayment of estimated tax even if your return shows a refund.

If you pay in as much as your tax liability for the previous year, you can pay your balance due without penalty when you file your return, regardless of the amount. See below for an exception if your prior-year income was high.

How much do I pay?

As part of your year-end planning, compare your projected year-end tax payments with your expected tax liability. If your payments are expected to be less than 90% of current-year tax, you generally will have to increase your withholding or make estimated tax payments. However, if your payments are made timely and will be at least as much as your prior-year tax liability, you're probably safe from the penalty. But if your prior-year adjusted gross income was more than $150,000 ($75,000 if Married Filing Separately), you'll have to pay 110% of your prior year tax liability to avoid the penalty. Figure your estimated tax with Form 1040-ES - Estimated Tax for Individuals.

Withholding Taxes

Tax withheld from your paycheck is considered to be paid evenly throughout the year, which means extra tax withheld late in the year can make up for earlier underpayments. If you have a job, you can file a new Form W-4 with your employer to withhold extra amounts from the final paychecks of the year so you're not subject to the penalty when you file your return.

Underpayment of Estimated Taxes

If you do not pay enough estimated tax and are subject to the penalty, don't automatically pay it. There are several exceptions to the penalty. Information can be found in the instructions for Form 2210.

Kiddie Tax for Dependents - 18 and Under

noreply@blogger.com (Babyboomer11852) — Tue, 12 Jan 2010 22:03:00 +0000

The Kiddie Tax rules provide that investment income in excess of $1,900 (for 2009) will be taxed at the higher of the parent's rate or the child's rate. For this purpose, investment income is income other than earned income. However, income splitting can still save your family money.

There are 3 key issues to keep in mind when deciding how much investment income you want to give your child:

The Kiddie Tax applies to unmarried children younger than 18, to children age 18 whose earned income is not more than half their support and to children older than 18but younger than age 24 who are full-time students and whose earned income is not more than half their support.

Your child's earned income from jobs or self-employment is not subject to these rules.

The Kiddie Tax affects only unearned income in excess of an annual threshold ($1,900 for 2009).

In other words, your child can have up to $33,950 of taxable income for 2009 (earned and/or unearned) and pay tax at the 10% or 15% (or 0% on long-term capital gains and qualified dividends — this rate is 5% beginning after 2010) rates.

Investment Options

Because the Kiddie Tax disappears after a child turns 24, consider giving your kids investments that defer income until the Kiddie Tax no longer applies. U.S. savings bonds can be a good choice because income can be deferred until the bond is cashed. If the bond is cashed after the Kiddie Tax no longer applies, the interest that accrued up to that time is taxed at the child's own rate.

However, it may be better to buy the bonds in your name and cash them when your child begins college. If your income is below the limit for the year you cash in the bonds, you can exclude the interest if the amount you redeem is not more than the qualified education expenses for the year.

Stocks are another way around the Kiddie Tax. As the stock appreciates, there's no tax on the paper profit. If the stock is sold after the Kiddie Tax no longer applies, the profit is taxed at the child's rate.

Note: if a child invests in stock mutual funds, rather than individual stocks, the fund may pay out capital-gain distributions each year based on gains recognized by the fund. Such income would be subject to the Kiddie Tax if the child's unearned income exceeds $1,900 for 2009.

For income splitting to work, the child must actually own the assets that generate the income. If you want your son to pay tax at his rate on $1,000 of interest income generated by a $25,000 savings account, you can't simply give him the $1,000. You must give him the $25,000 in the account. Only then will the income it produces be his for tax purposes.

Custodial Accounts

The easiest way to make such a gift to a minor child is to set up a custodial account under your state's Uniform Gift to Minors Act or Uniform Transfer to Minors Act. Banks, savings & loans, credit unions, mutual funds and brokerage firms offer such accounts. All you need is a social security number for the child and a custodian to manage the account until the minor comes of age. You can name yourself custodian, but if you are also the donor and you die before the child reaches maturity, the gift will be considered part of your estate for federal estate-tax purposes.

An important point about custodial accounts is that your gift is irrevocable — you can't get it back. Once the child becomes an adult under your state's law — usually at age 18 or 21 — adult supervision of the account ends and the child can do anything he or she wants with the money.

You don't need a custodial account if you invest the child's money in U.S. savings bonds. Just buy the bonds in the child's name. Don't name yourself co-owner, though, or the income will be taxed to you when the bonds are cashed.

American Opportunity Credit and Hope Credit

noreply@blogger.com (Babyboomer11852) — Tue, 12 Jan 2010 22:01:00 +0000

The American Opportunity Credit is an expanded version of the Hope Credit. Although the American Opportunity Credit generally will be larger than the Hope Credit, the Hope Credit may be larger for students who attend school in a Midwestern disaster area. You can claim the Hope Credit only if you use it for all eligible students; you may not claim both the American Opportunity Credit and the Hope Credit.

Am I eligible?
If you, your spouse, or your dependent child plans to attend college, you can claim the American Opportunity Credit or the Hope Credit if he or she is:

enrolled post-secondary education (in 1 of the first 2 years of post-secondary education — generally the freshman and sophomore years of college for the Hope Credit only; or any of the first 4 years of college for the American Opportunity Credit)

enrolled in a program that leads to a degree, certificate or other recognized educational credential

taking at least half the normal full-time workload for his or her course study during at least one 2009 academic period

free of felony convictions for the possession or sale of illegal substances at the end of 2009

didn't claim a Hope Credit in more than 1 previous tax year. (This rule doesn't apply to the American Opportunity Credit.)

A dependent can claim either of the credits only if the person who is eligible to claim the dependent does not claim an exemption for the dependent. The dependent can't claim a personal exemption on his or her return even if the parent doesn't claim it.

You can't claim either credit if you're married filing separately.

Important: The American opportunity tax credit is not refundable if claimed by an individual who is subject to the kiddie tax.

What are eligible expenses?
Eligible expenses include tuition, as well as fees and expenses for required books and equipment if the fees and expenses are required to be paid to the educational institution as a condition of enrollment or attendance. For the American Opportunity Credit only, eligible expenses include books, supplies and equipment needed for a course of study whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance

How much is my credit?
The American Opportunity Credit is equal to 100% of the first $2,000 of qualified expenses plus 25% of the next $2,000 of qualified expenses, for a maximum credit of $2,500 for each eligible student. Forty percent of the credit is refundable, which means you get that part of the credit even if your tax is reduced to zero. Your credit amount will be reduced if your MAGI is between $80,000 and $90,000 (between $160,000 and $180,000 if Married Filing Jointly). You can't claim the American Opportunity Credit if your modified adjusted gross income (MAGI) is $90,000 or more ($180,000 or more if Married Filing Jointly).

The Hope Credit is equal to 100% of the first $1,200 and 50% of the next $1,200 of qualified expenses, for a maximum credit of $1,800 for each eligible student. Your credit amount will be reduced if your MAGI is between $50,000 and $60,000 (between $100,000 and $120,000 if Married Filing Jointly). You can't claim the Hope Credit if your modified adjusted gross income (MAGI) is $60,000 or more ($120,000 or more if Married Filing Jointly).

Note: For students attending school in a Midwestern disaster area, the Hope Credit is 100% of the first $2,400 and 50% of the next $2,400 of qualified expenses. The maximum credit is $3,600. The MAGI phase-out amounts for the Hope Credit apply.

Credit Tips
The Hope Credit and 60% of the American Opportunity Credit are nonrefundable, so if your credit exceeds your tax, the difference isn't refunded to you.

Either credit can be claimed for eligible expenses you pay for an academic period that begins during the first 3 months of the following tax year. This feature may be especially useful for students whose tuition fees fluctuate from semester to semester.

You can claim either the American Opportunity Credit or Hope Credit for one or more students and the Lifetime Learning Credit for different students, but you can't claim more than one credit for the expenses of the same student. You can claim the Hope Credit only if you choose not to claim the American Opportunity Credit for any student.

Overlooked Credits & Deductions

noreply@blogger.com (Babyboomer11852) — Tue, 12 Jan 2010 21:53:00 +0000

Overview

Commonly overlooked tax deductions and tax credits include the Earned Income Credit, Child Tax Credit, Saver's Credit, medical expenses, moving expenses, state and local taxes, charitable donations, job expenses and self-employment deductions.

Nearly 4.1 million people fail to claim education tax benefits, including the Hope Credit, Lifetime Learning Credit, Tuition and Fees Deduction, Student Loan Interest Deduction, and the Exclusion for Savings Bond Interest.

File an amended tax return to claim missed deductions and credits within 3 years.

Earned Income Credit (EIC)

The EIC is designed to offset the burden of Social Security taxes for low-income workers. You can claim this tax credit even if you have no tax liability. You may qualify for the EIC if your earned income and adjusted gross income are less than:

$13,440 ($18,440 if Married Filing Jointly) with no qualifying children.
$35,463 ($40,463 if Married Filing Jointly) with 1 qualifying child.
$40,295 ($45,295 if Married Filing Jointly) with 2 qualifying children
$43,279 ($48,279 if Married Filing Jointly) with more than 2 qualifying children.

Child Tax Credit

You can claim $1,000 for each child. The 2009 Child Tax Credit begins to phase out when your AGI is more than these limits:

$75,000 if Single, Head of Household or Qualifying Widow(er)
$110,000 if Married Filing Jointly
$55,000 if Married Filing Separately If your income tax is reduced to zero and your earned income is more than $3,000 (for 2009), you may be eligible to claim the additional Child Tax Credit.

Saver's Credit

If you qualify, you could get a tax credit for up to half of what you contribute to a qualified retirement plan or IRA. Claim the Saver's Credit if you meet all the qualifications:

You're age 18 or older.
You aren't a full-time student.
You aren't claimed as a dependent on someone else's return.
Your AGI doesn't exceed $27,750 ($55,500 if Married Filing Jointly, or $41,625 for Head of Household).

Education Tax Benefits

Even if you don't itemize your tax deductions, you could save money with these education credits and deductions.

American Opportunity Credit or Hope Credit — You can claim either the American Opportunity Credit or the Hope Credit. The American Opportunity Credit is equal to 100% of the first $2,000 and 25% of the next $2,000 per student for tuition and related fees, with a credit maximum of $2,500 per student. It's restricted to the first 4 years of college and can be claimed only 4 times per student. Up to $1,000 of the credit may be refundable. It generally will be advantageous to claim the Hope Credit only if a student is attending an education institution in a Midwestern disaster area. The credit for these students is equal to 100% of the first $2,400 and 50% of the next $2,400 per student for tuition and related fees, with a credit maximum of $3,600 per student. However, if you choose to claim the Hope credit, you must use it for all students and the credit for students not attending a school in a Midwestern disaster area is only 100% of the first $1,200 and 50% of the next $1,200 per student for tuition and related fees, with a credit maximum of $1,800 per student. In addition, the Hope credit can't be used for a student if you've already claimed it for that student more than once.

Lifetime Learning Credit — A credit of 20% of your annual tuition and related fees, with a credit maximum of $2,000 per return. The tax credit may be claimed for an unlimited number of years.

Tuition and Fees Deduction — You can deduct up to $4,000 per student for tuition and fees.

Student Loan Interest Deduction — Deduct up to $2,500 per return for interest paid on student loans.

Exclusion for Savings Bond Interest — Some or all of the interest received from eligible bonds issued after 1989 may be excludable if qualified higher education expenses for the year are at least as much as the proceeds of the redeemed bonds. Note: You can't use the same expenses to claim more than 1 of the above benefits, and other restrictions apply.

Medical Expenses

If you spend more than 7.5% of your adjusted gross income on medical expenses, such as insurance (but not your pre-tax premiums), prescriptions, other out-of-pocket expenses, and mileage to and from medical facilities, then you may deduct the amount that exceeds that figure.

Keep in mind, you must itemize income tax deductions to claim medical deductions.

Moving Expenses

Even if you don't itemize income tax deductions, you could deduct moving-related expenses. Your move must meet the following qualifications:

Your move must be job-related.

Your new job would have increased your commute by more than 50 miles if you hadn't moved.

You must be employed full time for at least 39 weeks during the 12 months after you move. If you're self-employed, the applicable figures are 78 weeks and 24 months, respectively, and at least 39 of the weeks must be in the first 12 months.

Your moving expenses can't be reimbursed by your employer.

State & Local Taxes

If you itemize income tax deductions, you have the option of claiming your state and local sales tax or state and local income tax for the year. Be sure to determine which amount will be larger, because you can't claim both. If you choose to deduct income tax, include your withholding and estimated tax payments for the current year as well as any balance due from a prior year.

If you credited an overpayment from last year's tax return to his year's estimated tax payment, be sure to include that amount too. You can deduct the state or local sales or excise tax on a new motor vehicle purchased after Feb. 16, 2009 and before Jan. 1, 2010.

If you are not itemizing deductions, add this amount to your standard deduction. If you are itemizing deductions and are claiming the deduction for state and local income tax, enter the deduction on Schedule A, line 7. If your adjusted gross income (AGI) is $135,000 or more ($260,000 or more if you are Married Filing Jointly), you can't claim the deduction.

If the purchase price of the motor vehicle is more than $49,500, you can deduct only the tax attributable to the first $49,500 of the purchase price. If you're subject to Alternative Minimum Tax (AMT) and have a state tax refund, it may be better for you to claim the sales tax deduction even if it's smaller than the income tax deduction. If you choose to deduct sales tax, you can deduct either the actual amount you paid or the amount from the table in the Schedule A instructions. You can add to the amount in the table the sales tax you pay on a car as well as other items specified in the instructions.

Charitable Donations

If you itemize income tax deductions, you may deduct your charitable donations. You'll want to keep good records or all your donations.

Money Donations — Receipts are required for all money donations.

Item Donations — Give new or used goods to charity and deduct their fair market value. Special rules apply to donations of vehicles and to donations of appreciated property (property that is worth more than you paid for it).

Volunteering — Deduct 14¢ per mile while driving for charity. You can also deduct other out-of-pocket expenses.

Out-of-pocket Job Expenses

Keep track of job expenses not reimbursed by your employer. You could deduct these costs:
Driving expenses (the non-commuting kind)
Travel expenses
Uniforms
Union dues
Continuing education expenses

Self-employment Tax Deductions

If you're self-employed, you could qualify for additional income tax deductions. If you work out of your home, there are even more opportunities to claim your expenses. Here are a few examples:

Deduct half of your self-employment tax.

The Section 179 Deduction generally allows you to write off up to $250,000 of business property other than real estate purchased in 2009. Higher limits may apply.

If you use a part of your home exclusively and regularly for business, you can deduct the business portion of rent, mortgage interest, real estate taxes, utilities, insurance and repairs.

You can establish a retirement plan that may allow you to make contributions that exceed the amount you can contribute to a traditional IRA or Roth IRA. This deduction is not allowed for self-employment tax purposes.

AMT Credit

If you were subject to the AMT in a prior year and you're not subject to the AMT this year, you may be eligible to claim the minimum tax credit. Up to 50% of the amount carried to 2009 from years before 2007 may be refundable.

Claiming Overpaid Taxes

If you're eligible for any of the above tax credits, the IRS allows you to reclaim your lost money by filing an amended tax return for prior years. However, you generally can file an amended return only for up to the past 3 years.

Sales Tax on New Vehicle Purchases

noreply@blogger.com (Babyboomer11852) — Tue, 12 Jan 2010 21:48:00 +0000

Sales and Excise Tax on a New Motor Vehicle

You can deduct the state and local sales and excise tax on a new motor vehicle purchased after Feb. 16, 2009, and before Jan. 1, 2010.

If you are not itemizing deductions, add this amount to your standard deduction. If you are itemizing deductions and are claiming the deduction for state and local income tax, enter the deduction on Schedule A, line 7. If your adjusted gross income (AGI) is $135,000 or more ($260,000 or more if you are Married Filing Jointly), you can't claim the deduction.

If the purchase price of the motor vehicle is more than $49,500, you can deduct only the tax attributable to the first $49,500 of the purchase price.

Education Credit Changes for 2009 Filing Season

noreply@blogger.com (Babyboomer11852) — Tue, 12 Jan 2010 21:44:00 +0000

Overview

Claim the American Opportunity Credit for qualified expenses paid during the first 4 years of higher education, up to $2,500 per student per year. Forty percent (up to $1,000) of the credit is refundable.

Claim the Hope Credit for qualified expenses during the first 2 years of higher education at an eligible institution, up to $1,800 per student per year. The limit is $3,600 for students attending school in a Midwestern disaster area. You can claim this credit only if you choose to not claim the American Opportunity Credit for all eligible students.

The Tuition and Fees Deduction allows you to deduct up to $4,000 of qualified education expenses.

Higher education expenses that don't qualify for the Hope or American Opportunity credits may qualify for the the Lifetime Learning credit.

You may be able to deduct up to $2,500 of interest payments on a qualified student loan.

Available Education Credits

There are 3 credits allowed for higher education at an eligible institution: the Hope Credit, the American Opportunity Credit and the Lifetime Learning Credit. You can claim the credits for eligible expenses paid on behalf of yourself, your spouse or a dependent for whom you can claim an exemption.

Hope Credit — The credit is allowed for the first 2 years of college. It may not be claimed for more than 2 years, and the student must be enrolled in at least half of a full-time load in a degree program. Plus, the student can't be convicted of felony possession of a controlled substance.

American Opportunity Credit — The credit is allowed for the first 4 years of college. It may not be claimed for more than 4 years. The student must be enrolled in at least half of a full-time program load in a degree program. Plus, the student can't have been convicted of felony possession of a controlled substance.

Lifetime Learning Credit — This credit can be claimed for any number of years. The number of hours the student is enrolled and drug felony convictions aren't factors for the Lifetime Learning Credit. You can claim either the American Opportunity Credit or the Hope Credit. Or, you may claim the Lifetime Learning Credit. However, you can claim only 1 of the credits for any student.

For example, you can claim either an American Opportunity Credit or a Hope Credit for your son and the Lifetime Learning Credit for your daughter, but you can't claim both credits on behalf of either of the children. Note: You cannot claim the American Opportunity Credit for any student if you claim the Hope Credit for a Midwestern Disaster Area victim for one or more students. Married taxpayers filing separate returns can't claim any of the education credits.

To claim the Hope Credit or Lifetime Learning Credit, modified adjusted gross income (MAGI) must be less than $60,000 ($120,000 for Married Filing Jointly). You can claim the American Opportunity Credit if MAGI is less than $90,000 ($180,000 for Married Filing Jointly). Forty percent of the American Opportunity Credit is refundable, which means you will receive that part of the credit even if your tax is reduced to zero. If the parents are eligible to claim the student as a dependent, they claim the credit unless they choose not to claim the exemption for the student. The student can't claim his or her exemption even though he or she can claim the credit.

Note: For students who attended an eligible educational institution in a Midwestern disaster area, the Hope Credit can be as much as $3,600. The Lifetime Learning Credit for such students is 40% of eligible expenses with a maximum credit of $4,000.

TUITION AND FEES DEDUCTION

If your MAGI is $65,000 ($130,000 if Married Filing Jointly) or less, you can deduct up to $4,000 of eligible tuition and fees for yourself, your spouse or a person for whom you claim a dependent exemption. If your MAGI is between $65,000 and $130,000 ($130,000 and $160,000 if Married Filing Jointly), you can deduct up to $2,000 of eligible tuition and fees.

If your MAGI is more than $80,000 ($160,000 or more if Married Filing Jointly) you can't claim the tuition and fees deduction. You can't claim the deduction if you're Married Filing Separately, if another person can claim you as a dependent, or if you were a nonresident alien for any part of the year (unless you elect to be treated as a resident alien). You can claim the tuition and fees deduction or an education credit for a student, but not both. Choose the benefit that results in the larger tax savings. You can't use expenses used to figure this deduction when figuring the exclusion for savings bonds interest or the exclusion for income from a distribution from a Coverdell ESA or QTP. You also must reduce the expenses used to figure this deduction by the amount of tax-free scholarships and nontaxable employer-provided educational assistance you received.

Student Loan Interest Deduction

You may be able to deduct up to $2,500 of interest payments on a qualified student loan if your modified adjusted gross income (MAGI) is less than than $75,000 ($150,000 if Married Filing Jointly). You can't deduct student loan interest if someone else claims you as a dependent or if you're Married Filing Separately. For the Student Loan Interest Deduction, a dependent includes the following:

An individual who was not eligible to be claimed as a dependent because the individual filed a joint return.

An individual who was not eligible to be claimed as a dependent because the individual had gross income of $3,650 or more.

An individual for whom you can't claim an exemption only because you're the dependent of another taxpayer. The loan can't be from a related person or made under a qualified employer plan. You can deduct the interest only if you are legally required to make payments on the loan.

The student must be enrolled at least half-time in a program leading to a degree or other recognized educational credential. You can't claim the deduction for student loan interest if a deduction for the interest would be allowed under another rule (for example, under the rules for home mortgage interest). The Student Loan Interest Deduction is taken as an adjustment to income, so you can claim this deduction even if you don't itemize deductions on Schedule A (Form 1040).

Work-related Education and Employer-provided Educational Assistance

You may be able to deduct the cost of qualifying work-related education as a business expense if you weren't reimbursed by your employer or if the cost exceeded your reimbursement. You can claim the deduction only if you itemize deductions. The deduction is one of the deductions subject to the 2% of adjusted gross income floor. The education must also meet one of these criteria:

The education is required by law or by your employer to keep your present salary, status or job.

The education maintains or improves skills needed in your present work. If the education is needed solely to meet the minimum educational requirements of your present job, or will qualify you for a new trade or career, you can't deduct the educational expenses. Tuition and fees you can't deduct because they don't meet the requirements may be deductible as part of the tuition and fees deduction discussed above. It's generally better to claim the tuition and fees deduction.

If you receive educational assistance benefits from your employer under an educational assistance program, you can exclude up to $5,250 of those benefits each year. Payments in excess of $5,250 are taxable unless the payment qualifies as a working condition fringe benefit. The payment will qualify under this provision if you could deduct the education expense if you paid for it. Benefits include payments for tuition, fees, books, supplies and equipment. The payments may be for either undergraduate- or graduate-level courses. To qualify, the plan must be written. Your employer will include the taxable amount (if any) in your W-2 wages.

Earned Income Changes for 2009 Filing Season

noreply@blogger.com (Babyboomer11852) — Tue, 12 Jan 2010 21:40:00 +0000

The EIC is designed to help low-income workers continue working. As long as your income is below specified amounts and you meet certain other tests, you may qualify for this credit. Plus, the EIC is a refundable credit, meaning that once your tax gets down to $0, the rest of the tax credit is refunded to you.

For 2009, that means you could get up to an extra $457 if you don't have any qualifying children, $3,043 if you have 1 qualifying child, $5,028 if you have 2 qualifying children, or $5,657 if you have 3 or more qualifying children — just for filing a tax return.

EIC Requirements

The tests to determine whether you qualify for the EIC depend on whether you have 1 or more qualifying children. However, everyone must meet 8 tests:

You must file a tax return, and you can't be Married Filing Separately.

You must have a valid social security number.

You must be a U.S. citizen or resident alien for the entire year.

You must have earned income (income for which you performed services).

If you have investments, your income from them can't be more than $3,100 in 2009.

You can't file Form 2555 or 2555-EZ to exclude foreign source income.

Your earned income and adjusted gross income in 2009 must be less than $13,440 if you have no qualifying children ($18,440 Married Filing Jointly), $35,463 if you have 1 qualifying child ($40,463 Married Filing Jointly), $40,295 if you have 2 qualifying children ($45,295 Married Filing Joint), or $43,279 if you have more than 2 qualifying children ($48,279 Married Filing Jointly).

You (or your spouse) can't be the qualifying child of another person.

Qualifying Children

A qualifying child must meet these 4 tests: relationship, age, residency and joint return.
Relationship: The child must be your son or daughter, stepchild, foster child, brother or sister, stepbrother or stepsister, or a descendant of any of them (for example, your grandchild, niece or nephew). To be an eligible foster child, the child must have been placed with you by a qualified placement agency, or by judgment, decree, or other order of any court of competent jurisdiction.

The child does not have to be eligible to be your dependent unless the child is married. (A married child must be eligible to be your dependent unless you're divorced or separated and have given up the right to claim the child as a dependent to the other parent.)

Age: The child must be younger than 19 at the end of the year unless the child is a full-time student or permanently and totally disabled. Full-time students for at least 5 months of the year must be younger than 24. Permanently and totally disabled individuals may be any age. In addition, unless the child is disabled, the child must be younger than you (and your spouse if Married Filing Joint).

Residency: The child must have lived with you in your U.S. home for more than 6 months of the year. (Members of the U.S. Armed Forces who are out of the country on extended active duty are considered to be living in the U.S.) Time away for temporary absences (for example, attending college) counts as time living with you. A child who was born or died during the year meets the residency test as long as he or she lived with you the entire time he or she was alive. Also, the child must have a social security number that is valid for employment in the U.S.

Joint Return: The child cannot file a joint return with his or her spouse unless they are filing a joint return only as a claim for refund and the separate returns of the spouses would not show a tax liability.

Claiming the EIC without a Qualifying Child

If you meet the requirements above, but don't have a child who meets the relationship, age and residency tests, you must meet all of the following conditions to claim the EIC:

You must be at least 25 and younger than 65 at the end of the year.

You don't qualify as a dependent of another person.

You must have lived in the U.S. for more than half the year.

The Advance EIC

If you have at least 1 qualifying child and expect to qualify for the EIC, the Advance EIC allows you to receive part of the credit in each paycheck during the year you qualify for the credit. The maximum Advance EIC an employer can give you throughout the year is $1,830 for tax year 2010.

First-Time Homebuyers Credit for 2009 Filing Season

noreply@blogger.com (Babyboomer11852) — Tue, 12 Jan 2010 21:37:00 +0000

Refundable First-time Homebuyer Credit.

Individuals who purchase a principal residence from an unrelated party at fair market value before May 1, 2010, and who did not own a principal residence during the 3-year period ending on the date of purchase may claim a refundable tax credit for 10% of the purchase price.

The maximum credit is $8,000 ($4,000 Married Filing Separately). In addition, individuals who purchase a home after Nov. 6, 2009, and who owned a home they used as their main home for at least 5 consecutive years during the 8-year period ending on the date they purchase a subsequent residence may now claim the credit.

The credit for these individuals is equal to 10% of the purchase price with a maximum credit of $6,500 ($3,250 Married Filing Separately). A home purchased under a written binding contract entered into by April 30, 2010, qualifies for the credit if the closing of the purchase occurs before July 1, 2010. Members of the Armed Forces, the Foreign Service, and the intelligence community serving on qualified official extended duty outside the United States for at least 90 days during the period from Jan. 1, 2009, through April 30, 2010, can claim the credit for a home purchased before May 1, 2011 (before July 1, 2011, for a home purchased under a written binding contract entered into by April 30, 2011, if the closing of the purchase occurs before July 1, 2011.)

In addition, the recapture requirement is waived for all members of the Armed Forces, the Foreign Service and the intelligence community serving on qualified official extended duty for at least 90 days, regardless of where they are stationed, who sell their homes after 2009 in connection with government orders.

For homes purchased before Nov. 7, 2009, the credit is reduced when modified adjusted gross income (AGI) exceeds $75,000 ($150,000 if Married Filing Jointly) and is eliminated when modified AGI reaches $95,000 ($190,000 if Married Filing Jointly). For homes purchased after Nov. 6, 2009, the credit is reduced when modified adjusted gross income (AGI) exceeds $125,000 ($225,000 if Married Filing Jointly) and is eliminated when modified AGI reaches $145,000 ($245,000 if Married Filing Jointly). For homes purchased after Nov. 6, 2009, no credit is allowed

if the purchase price exceeds $800,000

for a home purchased by an individual who is eligible to be claimed as a dependent by another taxpayer

for a purchaser who is less than 18 years of age.

A married taxpayer is treated as meeting the age requirement if either the taxpayer or the taxpayer's spouse is at least age 18 on the date of purchase. For credits claimed on a 2009 or 2010 return, you must attach to your return a properly executed copy of the settlement statement used to complete the purchase. The extended credit must be repaid if the home is sold or ceases to be your personal residence within 36 months of the purchase, unless an exception applies.

For homes purchased in 2009 or 2010, individuals may claim the credit on the return for the year in which the residence is purchased or on an amended return for the year before that year.

Unemployment Partially Taxable

noreply@blogger.com (Babyboomer11852) — Tue, 12 Jan 2010 21:33:00 +0000

The IRS has issued relief for those who are presently receiving or received unemployment benefits in 2009. When you file your tax return this filing season, the first $2400 of unemployment will not be included in your taxable income.

The amount of unemployment compensation over $2,400 received by each individual is taxable.

Unlike wages, no tax is withheld from unemployment unless you specifically request it by submitting a completed Form W-4V - Voluntary Withholding Request to the unemployment office where you applied for benefits. Once your request is processed, 10% of your benefits will be withheld for federal taxes. Also, you may be able to deduct some of the expenses of finding your next job.

IRS Could Use Mortgage Data to Catch Tax Evaders

noreply@blogger.com (Babyboomer11852) — Tue, 01 Sep 2009 19:10:00 +0000

The Internal Revenue Service should check Form 1098 mortgage interest statements to catch tax dodgers, recommended a new report.

The report, from the Treasury Inspector General for Tax Administration, said the information could help the IRS identify individuals who are either not filing their taxes or underreporting their income on their tax returns. TIGTA auditors found that large numbers of people are paying a significant amount of mortgage interest and are either not filing their tax returns or filing returns indicating that their income is not sufficient to cover their mortgage obligations and basic living expenses. The report recommended that the IRS explore the possibility of making greater use of data from mortgage interest statements to pursue tax evaders.

TIGTA used data from 2005 to produce a random sample of 100 potential nonfilers, and found that 21 of them may collectively owe up to $177,715 in delinquent taxes and $107,209 in penalties and interest. A similar random sample of 100 individuals who filed returns showing income insufficient to cover their mortgage and expenses indicated that 37 individuals might collectively owe $265,018 in additional taxes and $61,233 in penalties and interest.

“Information reporting is a key component in IRS compliance programs that are designed to detect and pursue noncompliant taxpayers who underreport income, overstate deductions or fail to file tax returns,” said TIGTA Inspector General J. Russell George in a statement. “Individuals who fail to file required returns and/or underreport their income create unfair burdens on honest taxpayers and diminish the public’s respect for the tax system.”

The IRS agreed with TIGTA’s recommendations and plans to take action. “We concur with your recommendation and agree that we should explore the feasibility of making greater use of mortgage interest data to pursue additional nonfilers and underreporters for audit,” wrote Christopher Wagner, commissioner of the IRS’s Small Business/Self-Employed Division, in a letter to TIGTA.

In addition to the TIGTA report, the Government Accountability Office also issued a report Monday recommending that the IRS closely watch mortgage interest deductions.

"Several options exist for expanding information reporting on taxpayers’ mortgages and using private sector data to enhance compliance," said the report. "Useful information would include property addresses, debt balances, and an indicator of loan refinancing. This information would allow [the] IRS to identify taxpayers reporting mortgage interest exceeding the acquisition debt limit. Third parties who send information reports to [the] IRS initially may incur some additional costs to provide the data, but those costs are likely to be one-time expenses. Additional loan information from private sector sources also might help [the] IRS detect home equity noncompliance."

Eight Things to Know If You Receive an IRS Notice

noreply@blogger.com (Babyboomer11852) — Wed, 26 Aug 2009 17:32:00 +0000

Every year, the IRS sends millions of letters and notices to taxpayers. Many taxpayers will receive this correspondence during the late summer and fall. Here are eight things every taxpayer should know about IRS notices – just in case one shows up in your mailbox.

Don’t panic.

Many of these letters can be dealt with simply and painlessly.

There are number of reasons the IRS sends notices to taxpayers. The notice may request payment of taxes, notify you of a change to your account or request additional information. The notice you receive normally covers a very specific issue about your account or tax return.

Each letter and notice offers specific instructions on what you are asked to do to satisfy the inquiry.

If you receive a correction notice, you should review the correspondence and compare it with the information on your return.

If you agree with the correction to your account, usually no reply is necessary unless a payment is due.

If you do not agree with the correction the IRS made, it is important that you respond as requested. Write to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.

Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call to help us respond to your inquiry.

It’s important that you keep copies of any correspondence with your records.

For more information about IRS notices and bills, see Publication 594, The IRS Collection Process. Information about penalties and interest charges is available in Publication 17, Your Federal Income Tax for Individuals. Both publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Publication 594, The IRS Collection Process
Publication 17, Your Federal Income Tax for Individuals

Ten Tips for Taxpayers Making Charitable Donations

noreply@blogger.com (Babyboomer11852) — Wed, 26 Aug 2009 17:28:00 +0000

Every year, millions of taxpayers itemize their deductions on their federal tax return. One of the most common itemized deductions is a donation made to a charitable organization.

Here are the top ten things the IRS wants every taxpayer to know before deducting charitable donations.

Charitable contributions must be made to qualified organizations to be deductible. You can ask any organization whether it is a qualified organization and most will be able to tell you. You can also check IRS Publication 78, which lists most qualified organizations. IRS Publication 78 is available at IRS.gov.

Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.

You generally can deduct your cash contributions and the fair market value of most property you donate to a qualified organization. Special rules apply to several types of donated property, including clothing or household items, cars and boats.

If your contribution entitles you to receive merchandise, goods, or services in return – such as admission to a charity banquet or sporting event – you can deduct only the amount that exceeds the fair market value of the benefit received.

Be sure to keep good records of any contribution you make, regardless of the amount. For any contribution made in cash, you must maintain a record of the contribution such as a bank record – including a cancelled check or a bank or credit card statement – a written record from the charity containing the date and amount of the contribution and the donor’s name, or a payroll deduction record.

Only contributions actually made during the tax year are deductible. For example, if you pledged $500 in September but paid the charity only $200 by Dec. 31, your deduction would be $200.
Include credit card charges and payments by check in the year they are given to the charity, even though you may not pay the credit card bill or have your bank account debited until the next year.

For any contribution of $250 or more, you must have written acknowledgment from the organization to substantiate your donation. This written proof must include the amount of cash and a description of any property you contributed, and whether the organization provided any goods or services in exchange for the gift.

To deduct charitable contributions of items valued at $500 or more you must complete a Form 8283, Noncash Charitable Contributions, and attached the form to your return.
An appraisal generally must be obtained if you claim a deduction for a contribution of noncash property worth more than $5,000. In that case, you must also fill out Section B of Form 8283 and attach the form to your return.

For more information see IRS Publication 526, Charitable Contributions, and for information on determining value, refer to Publication 561, Determining the Value of Donated Property. These publications are available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Form 8283, Noncash Charitable Contributions
Publication 526, Charitable Contributions

Employee vs. Independent Contractor - Ten Tips for Business Owners

noreply@blogger.com (Babyboomer11852) — Fri, 21 Aug 2009 19:51:00 +0000

If you are a small business owner, whether you hire people as independent contractors or as employees will impact how much taxes you pay and the amount of taxes you withhold from their paychecks. Additionally, it will affect how much additional cost your business must bear, what documents and information they must provide to you, and what tax documents you must give to them.

Here are the top ten things every business owner should know about hiring people as independent contractors versus hiring them as employees.

Three characteristics are used by the IRS to determine the relationship between businesses and workers: Behavioral Control, Financial Control, and the Type of Relationship.

Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.

Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker's job.

The Type of Relationship factor relates to how the workers and the business owner perceive their relationship.

If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.

If you can direct or control only the result of the work done -- and not the means and methods of accomplishing the result -- then your workers are probably independent contractors.

Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms.

Workers can avoid higher tax bills and lost benefits if they know their proper status.
Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8 – Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding – with the IRS.

You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee at IRS.gov by selecting the Small Business link. Additional resources include IRS Publication 15-A, Employer's Supplemental Tax Guide, Publication 1779, Independent Contractor or Employee, and Publication 1976, Do You Qualify for Relief under Section 530? These publications and Form SS-8 are available on the IRS Web site or by calling the IRS at 800-829-3676 (800-TAX-FORM).

Contractor vs. Employee
Publication 1779
Publication 15-A

Tax Amnesty 2009 for Individual Taxpayers

noreply@blogger.com (Babyboomer11852) — Fri, 21 Aug 2009 19:48:00 +0000

Maryland's Tax Amnesty program runs September 1 - October 30 and allows individual and business taxpayers to get a Tax Do Over on past liabilities for most tax types.

The amnesty application is available now, but payments will not be accepted until September 1.
Maryland's Tax Amnesty program covers liabilities for:

Individual income tax
Fiduciary income tax
Pass-through entity nonresident tax
Corporate income tax
Employer withholding tax
Sales and Use tax
Admission and Amusement tax

Taxpayers can take advantage of Maryland's programs for liabilities on returns due on or before December 31, 2008. Approved applicants will have all unpaid civil penalties, except previously assessed fraud penalties, and one-half any unpaid interest waived as part of the program.
Any taxpayer who took advantage of the 2001 Tax Amnesty is NOT eligible for the 2009 program for the same tax covered under the past amnesty initiative.

Determining Your Liability

The Comptroller's Office has made it easy to figure out how much you would owe if approved for amnesty.

If you have an existing liability, please refer to bills you received in the past. By September 1, you'll be able to click on the Amnesty BillPay icon and enter your notice number. With this program, your amnesty eligible liability will be calculated for you. You'll also be able to determine payment plan amounts based on the length of the plan and calculate interest using a separate amnesty calculator. Currently, you can calculate the interest using the interest table provided on the paper amnesty application.

If you have not filed a return recently or can't locate a past bill, email us at amnesty@comp.state.md.us or call us at 1-800-MD-TAXES to determine your liability.

Getting Your Tax Do Over

Getting your Tax Do Over is easy. Simply complete and file a separate application. Nonfilers need to also file an original or amended return for each tax type. Include full payment of the tax and one half the interest or include a payment of at least 10% of the amnesty amount due and indicate your preference for a payment plan.

Paying Up

As of September 1, you can make your payment by direct debit through Amnesty BillPay. You can also pay by credit card check or money order. If you choose to setup a payment plan, you MUST provide bank account information and agree to have your account debited each month for the duration of the plan. All payments plans must be completed by December 31, 2010.

For More Information

More detailed information on Maryland's Tax Amnesty program can be found in our frequently asked questions. The amnesty application is online, but payments will not be accepted until September 1. Call 1-800-MD-TAXES for more assistance or email us at amnesty@comp.state.md.us. In person assistance can also be obtained at any of the agency's 11 local offices.

Deadline Looms for NOL Carryback Election

noreply@blogger.com (Babyboomer11852) — Fri, 21 Aug 2009 19:44:00 +0000

Time is running out for many small businesses wishing to take advantage of the expanded business loss carryback option included in the American Recovery and Reinvestment Act of 2009. Eligible individuals have until October 15 to choose this expanded carryback option.

Eligible calendar-year corporations have until September 15.

Small businesses that had expenses exceeding their income for 2008 can choose to carry the resulting loss back three, four, or five years, instead of the usual two. This means that a business that had a net operating loss (NOL) in 2008 could carry that loss as far back as tax-year 2003.

The option is available for an eligible small business that has no more than an average of $15 million in gross receipts over a three-year period ending with the tax year of the NOL. This choice may be made for only one tax year.

Eight Important Questions for Hobbyists

noreply@blogger.com (Babyboomer11852) — Wed, 19 Aug 2009 21:41:00 +0000

Summer is a time many Americans take their fishing poles and gardening tools out of storage.

Hobbies – such as woodworking, stamp collecting and scrapbooking – are often done for pleasure, but can result in a profit.

If your favorite activity does make a profit every year or so, there may be tax implications. You must report income to the IRS from almost all sources, including hobbies.

Here are eight questions that will help determine if your activity is a hobby or a business.

Is the purpose of your activity to make a profit? Generally, your activity is considered a business if it is carried on with the reasonable expectation of earning a profit.
Do you participate in your activity just for fun? Hobbies – also called not-for-profit activities – are those activities that are not pursued for profit.

Do you depend on income from the activity? If so, your activity is likely considered a business.

Have you changed methods of operation to improve profitability? If so, your hobby may actually be a business.

Do you have the knowledge needed to carry on the activity as a successful business? People who carry out hobbies just for fun, often don’t have the business acumen to turn their not-for-profit activity into a profitable business venture.

Have you made a profit in similar activities in the past? This may indicate your activity is a business rather than a not-for-profit hobby. An activity is presumed carried on for profit if it makes a profit in at least three of the last five tax years, including the current year – or at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses.

Does the activity make a profit in some years? Even if your activity does not make a profit every year, it still may be considered a business.

Do you expect to make a profit in the future from the appreciation of assets used in the activity?

This indicates your activity may be a business rather than a hobby.

If your activity is not carried on for profit, allowable deductions cannot exceed the gross receipts for the activity. If you are conducting a trade or business you may deduct your ordinary and necessary expenses.

More information about not-for-profit activities is available in Publication 535, Business Expenses, available on the IRS.gov Web site or by calling 800-TAX-FORM (800-829-3676).
Link: IRS Publication 535, Business Expenses

Top Ten Tips for Taxpayers Deducting Casualty and Theft Losses

noreply@blogger.com (Babyboomer11852) — Wed, 19 Aug 2009 21:39:00 +0000

Taxpayers who find themselves the victim of a natural disaster or theft this summer should know the rules for deducting their casualty losses next year when they file their federal tax return. Generally, you may deduct losses to your home, household items and vehicles on your federal income tax return.

Here are ten things the IRS wants you to know about deducting casualty or theft losses.

You may not deduct casualty and theft losses covered by insurance unless you file a timely claim for reimbursement. You must reduce your loss by the amount of the reimbursement.

A casualty does not include normal wear and tear or progressive deterioration from age or termite damage.

The damage must be caused by a sudden, unexpected or unusual event like a car accident, fire, earthquake, flood or vandalism.

If your property is not completely destroyed or if it is personal-use property, the amount of your casualty or theft loss is the lesser of the adjusted basis of your property, or the decrease in fair market value of your property as a result of the casualty or theft, reduced by any insurance or other reimbursement you receive or expect to receive.

If business or income-producing property, such as rental property, is completely destroyed, the amount of your loss is your adjusted basis in the property minus any salvage value, and minus any insurance or other reimbursement you receive or expect to receive.

To claim a casualty or theft loss, you must complete Form 4684, Casualties and Thefts, and attach it to your return. Generally, you may claim casualty or theft loss of personal use property only if you itemize deductions on Form 1040, Schedule A. However, you can deduct a 2008 or 2009 net disaster loss from a federally-declared disaster even if you do not itemize your deductions.

If the property was held by you for personal use, you must further reduce your loss by $100. This $100 reduction for losses of personal-use property applies to each casualty or theft event that occurred during the year other than 2009. For 2009, individuals must reduce their casualty and theft losses for personal-use property by $500 instead of $100. This $500 reduction for losses of personal-use property applies to each casualty or theft event.

The total of all your casualty and theft losses of personal-use property usually must be further reduced by 10 percent of your adjusted gross income. The 10 percent AGI limitation does not apply to net disaster losses resulting from federally declared disasters in 2008 and 2009.

In figuring your loss, do not consider the loss of future profits or income due to the casualty.

Casualty losses are normally deductible only in the year the casualty occurred. But if you have a deductible loss from a federally declared disaster you can choose to deduct that loss on your tax return for the previous year. If you have already filed your return for the preceding year, you can claim the loss on the previous year tax return by filing an amended return.

For more information about casualty and theft losses and the special rules for net disaster losses see Publication 547, Casualties, Disasters and Thefts available on the IRS.gov Web site or by calling 800-TAX-FORM (800-829-3676).

Links:
Tax Relief in Disaster Situations
Publication 547, Casualties, Disasters and Thefts
Form 4684, Casualties and Thefts

A Tax Deduction ---for your "Pet"

noreply@blogger.com (Babyboomer11852) — Wed, 19 Aug 2009 20:04:00 +0000

Is this an idea whose time has come? A new bill in the U.S. House would allow pet owners to deduct up to $3,500 for "qualified pet-care expenses" for household pets, including vet bills.

Would the so-called HAPPY (Humanity and Pets Partnered Through the Years) Act give pet owners a break they deserve? Would it encourage more people to adopt abandoned or neglected pets? Would we finally be able to list some dependents on our income tax return? (Others have attempted -- unsuccessfully -- to use their pets as deductions.)

Bing: New tax deductions

Actually, the bill has some serious goals, according to PetWellbeing.com, including:

Making it more affordable for people to provide the care their pets need.

Making it less likely that pet owners are who suffering during the recession will abandon their pets.

"Qualified pet expenses" appears to include a wide variety of undefined things involved in providing care, with the exception of acquisition costs. Thus, the adoption fee at the pound would not be included. But would you get a tax break for the grooming session that includes nail polish for FiFi, or every can of Fancy Feast or each new toy? Or how about the little castle you buy for the fish tank?

The bill was introduced by Rep. Thaddeus McCotter, R-Mich., who has taken a ribbing. "You might also think that Mr. McCotter would have more important issues on his mind. For instance, the unemployment rate in his home state of Michigan is 15.2%," Howard Gleckman wrote at TaxVox.

The humorous "individual pet tax return" linked to at TaxVox suggests that pet owners also get a pet damage credit for things like dog throw-up or other deposits on the carpet, or mauled furniture.

Kathy at Blogging For Michigan also notes that people can deduct expenses for their own medical care only if those costs exceed 7.5% of adjusted gross income, so the bill would give your pet's medical bills better tax treatment than your own.

"I'm all for responsible pet ownership, but I also think people should maintain the brakes on their car so I don't have to worry about getting rear-ended while I'm stopped at a traffic light," Kathy wrote in a mocking tone. "Maybe we should give car owners tax deductions for repairs."

We love our dogs, but we think this is kind of silly. Sure, pets have gained more legal rights in the last decade or so, and aren't simply property that you can treat any way you want. Thank goodness for that. But a tax deduction? We can imagine all kinds of problems, including how this would be enforced.

Cindi, a reader of For the Love of the Dog Blog, also said she loves her dogs but "this legislation is ridiculous. A lot of our human citizens don't even have basic health insurance ...." (Certain tax breaks are available for people who have guide dogs or other service dogs and those who provide foster care for animals in collaboration with nonprofit groups.)

How about this idea? If you can't afford the real cost of pet ownership, don't get one.

The Pet Industry Joint Advisory Council supports the bill. On the other hand, the From the Dean blog at the Washington State University College of Veterinary Medicine said about the HAPPY Act:

I will mostly let this pass without comment, although in spite of the importance of our cats to my family, my recognition of the changing role of companion animals in society, and my involvement in this profession, I am still taking a bit of a sideways glance at this.

The Biggest Tax Cheats: Rich Folks (Who Would Have Thought!)

noreply@blogger.com (Babyboomer11852) — Wed, 19 Aug 2009 19:54:00 +0000

A new study based on unpublished Internal Revenue Service data shows the rich are different when it comes to paying taxes: They hide more of their income.

The previously unreported study estimates that taxpayers whose true income was between $500,000 and $1 million a year understated their adjusted gross incomes by 21% overall in 2001, compared with an 8% underreporting rate for Americans earning $50,000 to $100,000 and even lower rates for those earning less.

(The "net misreporting rate," as the IRS calls it, includes both underreported income and inflated deductions.)

In all, because of their higher noncompliance rates, those with true incomes of $200,000 or more received 25% of all income but accounted for 40% of net underreported income and 42% of underreported tax in 2001, according to the new analysis.

Talk back: Would you report a tax cheat?

The study was written by Joel Slemrod, an economics professor and the director of the Office of Tax Policy Research at the University of Michigan's business school, and Andrew Johns, an IRS researcher. It has not been officially endorsed or even released by the IRS, but it seems sure to add fuel to the election season debate over whether Americans earning $250,000 or more should pay higher tax rates, as Sen. Barack Obama, the Democratic presidential nominee, has proposed.

The Slemrod-Johns analysis uses unpublished data from special research audits the IRS conducted on a sample of 45,000 individual returns filed for 2001. It was the IRS' first such research effort since 1988, and it led the agency to estimate the 2001 gross "tax gap" at $345 billion.

Many of the world's wealthiest people have been suspected of tax evasion, but convictions for cheating the government out of revenue are relatively rare. Click here to see some of the richest recent tax dodgers.

Easier to hide money The main reason for the income-related disparity in cheating: Higher-income folks receive more of their income from sources that are easier to hide, including self-employment earnings; income from rents, partnerships and S corporations; and capital gains.
"The distribution of noncompliance lines up pretty closely with who gets income that's hard (for the IRS) to keep track of,'' Slemrod said. Still, he noted, the distribution of income by source doesn't explain all the increased noncompliance at higher income levels.

In its 2001 tax gap study, the IRS estimated that individuals underreported business income by 43% overall. Sole proprietors, who report self-employment income on schedule C of their tax returns, underreported their incomes by a stunning 57%.

More from MSN Money and Forbes.com
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By contrast, the IRS found, 99% of all wages were reported by individual tax filers. The obvious explanation is that workers have no choice: Their employers report their earnings to the IRS and withhold taxes on them.

Meanwhile, net capital gains for 2001 were underreported by 12%, the IRS estimated. The agency receives reports from brokers of taxpayers' gross sales of stocks and bonds but not of their initial costs and profits. Therefore, it has no way to easily check their reported capital gains. (Last month, as part of the $700 billion bailout bill, Congress mandated that brokers report the basis of any stocks bought in 2011 or later.)

Habits of the superrich

The new study seems to show that the really rich are more tax-compliant than the merely well-off, although not nearly as compliant as middle- and working-class wage slaves. Those earning $2 million-plus had an 11% underreporting rate. But Slemrod said he was "less comfortable" with that finding, noting that the very rich may have made use of techniques that IRS research audits didn't detect.

"I just don't know whether these audits were able to track down really sophisticated noncompliance or Swiss bank accounts. They may underestimate it (noncompliance) at the top,'' Slemrod said.

Who cheats the most
Net misreporting rate
True income
21% $500,000 to $1 million
20% $200,000 to $500,000
16% $1 million to $2 million
13% $100,000 to $200,000

See the full list on Forbes.com

Indeed, in the past several years, the IRS has collected billions in back taxes from wealthy taxpayers who had used dicey tax shelters to manufacture huge phony losses in the late 1990s, 2000 and 2001. But the IRS didn't get a handle on the nature or extent of these shelters until years later and relied on tax shelter promoters' customer lists and special self-disclosure programs, not audits, to find most of the taxpayers involved.

Currently, the government is suing UBS for the names of 18,000 wealthy Americans it believes may have had unreported Swiss bank accounts.

This article was reported and written by Janet Novack for Forbes.com.

The 9 Wackiest Tax Deductions

noreply@blogger.com (Babyboomer11852) — Wed, 19 Aug 2009 19:45:00 +0000

Check out this year's salute to taxpayer creativity -- and see which of the wildly imaginative attempts were OK'd by the IRS.

[Related content: taxes, deductions, IRS, donations, economy]
By Bankrate.com

Did you hear the one about the instant "nephew"? The $35,000 in dance lessons? The new definition of office paperwork?

That's right, it's time for the fourth installment of Bankrate's wackiest tax deductions, our homage to the endlessly creative ways some taxpayers try to limbo under the tax code.

In our first installment, taxpayers tried to write off everything from sperm donations to an arsonist's fee. Our second installment found clever filers trying to deduct a "love shack," doggie day care and a pimped-out Amish buggy. Round three featured otherwise law-abiding Americans trying to write off a $50,000 wedding as a business expense and claim New York City as a dependent.

This year's best cocktail stories -- culled from certified public accountants nationwide, some of whom requested to remain unidentified -- often come with a disclaimer: Do not try this at home. Or in the home office, for that matter.

Talk back: Have a wacky tax story to share?

As audacious as these stories might be, rest assured that the Internal Revenue Service is not amused when taxpayers fail to file, misfile, underreport income or otherwise attempt to avoid taxes.

Ready for some laughs? Behold Bankrate's wackiest tax write-offs, the 2009 edition.

1. Paper-thin home office deduction

CPAs sometimes feel they've opened a Pandora's box when they introduce newly self-employed clients to the wonderland of home office deductions: Give 'em an inch and . . . well, you wind up like one Arizona accountant whose client exhibited an unusual amount of tax swagger.

The client asked for a home office deduction for the toilet paper he bought for his house. No word on the nature of his business.

2. Hell hath no fury . . .

Walt Hatter, a CPA at Hatter & Associates in Fort Worth, Texas, has seen some generous taxpayers in his day, but none compares with the woman who gave it virtually all away.

The client, whose income was about $40,000, brought in noncash receipts from donations made to various charities. The donation total came to roughly the same dollar amount as her income.
Hatter was about to nominate her for sainthood -- until he heard the rest of the story.
"She had gotten a divorce; her husband had cheated on her and just never came back," Hatter says. "He called her up and said he would send a moving van to divide their assets. So, she loaded up everything he would want -- two or three sets of golf clubs and all the furniture, including some of his family antiques -- and took it all to Goodwill. She even had photos of all the stuff!"

It fell to Hatter to inform her that she could deduct only up to 50% of her adjusted gross income.
"We wound up with something like $15,000 in contributions," he says. "I just knew that that return was going to get audited, but it never did."

3. At least it wasn't 'travel and entertainment'

Sometimes business owners will try to slide a fast one by the IRS by classifying a business deduction in a category where the dollar signs might not raise an eyebrow.

One such fastball didn't pass the eyebrow test with this Oklahoma accountant, however.
"We were reviewing a business client's accounting entries and noted a check for over $2,000 written to a gynecologist. It was classified on the business books as 'repairs and maintenance.'"
MSN Money slide show

4. Bubble-bath credit

Taxpayers sometimes get into hot water by deducting their spas and swimming pools as medical deductions or, more boldly, as business expenses.

"We had a woman who tried to deduct her tricked-out Jacuzzi hot tub due to medical reasons," says Elizabeth Dittrick of Dittrick and Associates in Burton, Ohio. "That can be a legitimate expense -- but not the underwater speakers, the mood lighting and the in-tub stereo. So we ended up deducting a portion of it but removed the sound and light show. She did use it for medical reasons; she had arthritis and had a note from her doctor."

It was going to be a bit longer swim for one New Jersey accountant's client.
"A taxpayer wanted to write off a $100,000 swimming pool for medical reasons," says the accountant. "Swimming, he explained quite seriously, relaxed him so he could earn more money, which in turn would be taxable."
Uh . . . no.

5. Beautify your return

Ah, nature! So peaceful, so inspiring, so . . . deductible?

It can be, at least according to Allyson Baumeister, a CPA at Sanford, Baumeister & Frazier in Fort Worth.

"I had a lady client who didn't like some of her really mature trees, they didn't fit into her new landscaping theme," she says. "So, she dug them out and donated them to charity."

"She had to get somebody to appraise the value of the trees, but the IRS allowed it," Baumeister says.

6. Unmarried, filing weirdly

Common-law marriages can create tax complications, as Hatter found out when two young, single clients who had been living together for a number of years decided to file jointly as a married couple.

"You can do that in Texas by meeting certain criteria, living together for so long," Hatter says. "The problem is, when you decide that you don't want to live together anymore, it creates all sorts of problems with the IRS."

That's because once a couple files jointly, everything thereafter is keyed off the male partner's Social Security number.

"You don't have to go through a divorce per se; it just takes a little letter-writing campaign to the IRS to get it fixed," Hatter says.

7. Dancing with the IRS

Who doesn't get a little carried away with the grace and fluidity of ballroom dancing? But according to a Tucson, Ariz., CPA, some dance moves fail to charm the tax man.

The accountant's client was an elderly woman who had once been a university professor. When her doctor suggested she take up dancing to improve her arthritic hips, she enrolled at a dance studio.

"The first year, she brought in her tax data and wanted to deduct over $8,000 in dance lessons," the accountant says. "I got her to have her doctor write a letter, and I believe I did deduct it the first year."

Ah, but you know how infectious ballroom dancing can be.

"The second year, she brought in receipts totaling over $35,000 for dance lessons and another $18,000 for gowns and expenses to travel on cruises for herself and her 'instructor' from this dance studio; he was in his 20s and she was about 85 by this time," the accountant says. "I was appalled and obviously did not deduct these expenses as medical -- although I was tempted to call it a theft loss."

The accountant notified adult protective services, which launched an investigation of the situation. Her client died before it was completed.

8. Of guard cats and canine contractors

Taxpayers become pretty creative when it comes to devising ways to deduct their pets on their tax returns. In this series alone, we've featured one pet lover who claimed his dog as a dependent, another who attempted to write off the dog food for his "home security system" and yet another who claimed Fido as a landscaping subcontractor.

Ed Mendlowitz, a CPA at WithumSmith+Brown in New Brunswick, N.J., has heard it so much that he actually devised a tongue-in-cheek response:

"When I have a client ask me if they can deduct their cat or dog, I usually inquire in a very serious tone about their pet's age and whether the cat or dog is a full-time student. Parrots and other long-lived animals, by contrast, may qualify for elderly benefits."

9. Costly adoption

A Kissimmee, Fla., CPA inherited the case of a 65-year-old woman who took in a 20-something student renter and handyman. She liked the lad so much she decided to welcome him into her family -- at least on her taxes.

The woman's original accountant never questioned the deduction, which incidentally enabled the woman to not claim the rental income from her new "nephew."

"There are guidelines CPAs use to determine whether or not a relative by blood, marriage or adoption is considered a dependent," the Kissimmee CPA says. "In this case, the young man was none of the above. She was confusing emotional attachment with an actual factual definition."

Long story short: The IRS caught on three years later and slapped "Auntie" with $5,000 in back taxes and a $2,000 penalty for failing to disclose income.

Her CPA came to the rescue, filed amended returns and eventually reclaimed part of the excess taken by the IRS.

Ironically, because the renter had remodeled part of her home, "Auntie" could have offset that expense against the rental income and ended up with a larger and legitimate deduction than by claiming him as a dependent.

This article was reported by Jay MacDonald for Bankrate.com.

Celebrity Tax Debtors - No One Can Dodge the Rath of the IRS

noreply@blogger.com (Babyboomer11852) — Fri, 14 Aug 2009 13:50:00 +0000

Snoop Dogg Hit with Tax Lien
Rap singer and actor Snoop Dogg is facing a tax lien from the state of California, along with assault charges. His real name, Calvin Broadus Jr., shows up on a list of California tax scofflaws, alongside the likes of Burt Reynolds, Dionne Warwick and Sinbad. Read more

Pitcher Koosman to Plead Guilty to Tax Charges
Former baseball pitcher Jerry Koosman is expected to plead guilty later this month to charges stemming from his failure to file a tax return for 2002. Read more

MC Hammer Raps IRS over Tax Debts
August 13, 2009
Rap star MC Hammer claims the IRS is giving him a bad rap after the government filed three tax liens against him, including one in July for over $625,000.

Michael Jackson Doctor Faces Tax Lien
August 6, 2009
Dr. Conrad Murray, the doctor who attended Michael Jackson during his last days, is facing a $21,728 tax lien from the state of California.

Nicolas Cage Hit with $6.2 Million Tax Lien
August 3, 2009
Actor Nicolas Cage is facing a whopping tax lien of $6,257,005 from the Internal Revenue Service.

Henry Louis Gates’ Foundation to Revise Tax Return
July 28, 2009
A nonprofit foundation run by Harvard professor Henry Louis Gates Jr. is filing an amended 2007 tax return after it was found to have mischaracterized $11,000 in payments to officials as research grants.

‘Stone Cold’ Steve Austin Hit with Tax Lien
July 27, 2009
Actor and retired professional wrestler “Stone Cold” Steve Austin has been body-slammed by California tax authorities with a $22,000 tax lien.

Baldwin Brother Goes Bankrupt
July 22, 2009
Actor Stephen Baldwin and his wife have filed for Chapter 11 protection after incurring millions in debt, including a hefty sum owed to the IRS.

Tax Liens Filed Against Foxy Brown and Toni Braxton
July 20, 2009
Two high-profile singers, Foxy Brown and Toni Braxton, are facing large tax liens, according to recent reports.

Hatch Turned Down for Survivor Samoa Trip
July 14, 2009
Richard Hatch, the first-season winner of “Survivor,” has requested an early release from his in-home jail sentence for tax evasion so he can rejoin the show and win enough to pay back the IRS, but the judge said no.

Former QB Kosar Files for Bankruptcy
June 22, 2009
Former NFL quarterback Bernie Kosar has filed for bankruptcy, listing debts to the IRS and Broward County, Fla., along with debts arising from the collapse of the Florida real estate market.

Last Charge Dismissed for Indy 500 Champ Castroneves
May 26, 2009
The final charge against race car driver Helio Castroneves in his tax case was dismissed just two days before he went on to win the Indianapolis 500 for the third time.

Feds Sue Mike Tyson’s Ex, Robin Givens, over Tax Bill
May 8, 2009
Federal authorities have sued actress Robin Givens, ex-wife of heavyweight boxer Mike Tyson, for nearly $300,000 in unpaid taxes, interest and penalties stretching back 13 years.

Shooting for the stars
April 19, 2009
The Internal Revenue Service now has a new interest in sports and entertainment - and not just as a spectator.

CPA Sued for Martha Stewart's Daughter's Taxes
April 15, 2009
Wants $334,000 for alleged mistakes.

Stars Make California List of Tax Scofflaws
April 14, 2009
Burt Reynolds, Sinbad and Dionne Warwick get named and shamed.

Video: Joe the Plumber Takes on the IRS
April 6, 2009
Joe the Plumber has made his next mission the abolition of the Internal Revenue Service.

HHS Nominee Pays $7,040 in Back Taxes
April 1, 2009
Secretary of Health and Human Services nominee Kathleen Sebelius became the latest prospective Cabinet member to run afoul of the Tax Code after she admitted to recently paying $7,040 in back taxes and $878 in interest.

U.S. Trade Rep Nominee to Pay Back Taxes
March 3, 2009
Ron Kirk, the Obama administration's nominee for U.S. Trade Representative, has agreed to pay $9,975 in back taxes he owed on $37,750 in speaking fees.

Obama Budget Includes Tax Increases on Wealthy
February 26, 2009
President Barack Obama presented his budget for fiscal 2010, including about $318 billion in tax increases mainly targeted at the wealthy.

Palin Owes Taxes on Per Diem Payments
February 20, 2009
Alaska Governor Sarah Palin will have to pay taxes on $16,951 in travel allowances that she billed the state for days she worked from home in Wasilla.

Pro Golfer Thorpe Charged with $1.6M in Back Taxes
February 12, 2009
The Internal Revenue Service has charged PGA champion golfer Jim Thorpe with income tax evasion for failing to pay $1.6 million in back taxes.

Tips on Tax Compliance for Cabinet Nominees
February 11, 2009
The Association of Chartered Certified Accountants has some advice for Obama administration officials and erstwhile nominees who have run afoul of the Tax Code, as well as regular taxpayers.

Labor Secretary Nominee Has Tax Problems Too
February 6, 2009
In the latest sign of tax trouble in the Obama cabinet, Labor Secretary-designate Hilda Solis' husband had tax liens filed against him.

Judge Denies Dismissal of Helio Castoneves' Tax Charges
February 6, 2009
Race car driver and "Dancing with the Stars" champion Helio Castroneves will be facing the music after a judge denied a motion to dismiss some of the counts in his upcoming tax evasion trial.

'Girls Gone Wild' Founder Won't Go Wild Anymore
February 5, 2009
Girls Gone Wild founder Joe Francis was arrested after he showed up five hours late to a court hearing in his tax evasion case.

Heavy Metal Rocker Cheated by Accountant
February 3, 2009
Rock guitarist Yngwie Malmsteen has won $820,000 in damages from his former accountant.

Daschle Bows Out After Tax Problems
February 3, 2009
Tom Daschle, President Obama's pick to lead the Department of Health of Human Services, has withdrawn his nomination amid revelations that he recently owed more than $140,000 in taxes and interest.

Daschle Apologizes for Unpaid Taxes
February 2, 2009
President Obama's pick to lead the Department of Health and Human Services, former Senate Majority Leader Tom Daschle, apologized for owing $140,000 in back taxes and interest.

Geithner Admits Back Tax Problems
January 14, 2009
Treasury Secretary-designate Timothy Geithner admitted owing more than $34,000 in self-employment taxes between 2001 and 2004.

Kerik Pleads Not Guilty to Tax Charges
January 5, 2009
Former New York City Police Commissioner Bernard Kerik pleaded not guilty last week to tax fraud charges.

NBA Athlete Charities Not Playing for Keeps
December 30, 2008
An analysis of charitable foundations set up by professional basketball players found that many of them spend only a fraction of their money on charitable activities.

IRS Raps Doug E. Fresh with Tax Lien
December 22, 2008
Rap singer Doug E. Fresh is facing tax liens from the federal and state government, along with foreclosure of three homes.

Magic Johnson Scores with Jackson Hewitt
November 17, 2008
Pro basketball legend Earvin "Magic" Johnson has signed a deal with Jackson Hewitt Tax Service to become the company's spokesman in a new advertising campaign.

Ex-NFL Lineman Gets Three Years for Tax Evasion
November 11, 2008
Former NFL player Ben Coleman was sentenced to three years in jail on charges of federal tax evasion, identity theft and the filing of false loan applications.

Melissa Etheridge Plans Tax Protest
November 10, 2008
Singer Melissa Etheridge said she will stop paying her California state taxes after voters there approved a ballot measure banning gay marriages.

Obama Presidency Could Worry Tax Clients
November 7, 2008
A tax attorney predicts that small businesses and high-net-worth individuals will need tax-planning advice to help protect their assets from anticipated changes in tax law.

Pro Baseball Players May Avoid Obama Tax Hike
November 6, 2008
Major League Baseball players and their agents are already looking for ways to skirt a steep income tax hike after President-elect Barack Obama takes office.

PKF North American Uses Second City
October 31, 2008

One Too Many Emperors
October 28, 2008
Let me tell you a tale about a modern day emperor with the initials H.P.

Cindy McCain Releases 2007 Tax Information
October 21, 2008
Cindy McCain has released the summary pages of her recently filed 2007 federal tax return.

Abba's Bjorn Wins $11.5M in Swedish Tax Appeal
October 16, 2008
Former Abba band member Bjorn Ulvaeus has won a legal case against the Swedish tax authorities that will return to him the equivalent of $11.5 million in taxes that he has already paid.

Dear Dustin Hoffman: It's No Longer "Plastic"
October 7, 2008
Some thirty-plus years later, let's understand that Benjamin Braddock, Dustin's character, is now a Baby Boomer.

Palin Releases Tax Returns
October 7, 2008
Republican vice presidential candidate Gov. Sarah Palin has released her 2006 and 2007 tax returns.

'Dancing with the Stars' Winner Stepped on by IRS
October 6, 2008
Race car driver Helio Castroneves, who has won the Indianapolis 500 twice, as well as "Dancing with the Stars," couldn't speed away from tax evasion charges after a grand jury indicted him Thursday.

Too Many Emperors and Empires for Transparency
September 30, 2008
Sleight-of-hand and spin is what got us into this severe and long-lasting financial crisis.

Nicolas Cage Pays $666,000+ to Settle with IRS
September 9, 2008
Actor Nicolas Cage, whose movie Bangkok Dangerous topped the weekend box office numbers, has settled his tax debts with the Internal Revenue Service for $666,000, plus interest.

IRS Places Tax Lien on Ruben Studdard
August 26, 2008
American Idol winner Ruben Studdard is facing tax liens from the Internal Revenue Service and the state of Alabama for failing to pay more than $193,000 in back taxes.

Tax Bill Bankrupts U.K. Pop Star
August 25, 2008
British singer and reality TV star Kerry Katona has been forced into bankruptcy after trying to pay off her tax bill.

IRS Celebrity Snoop Gets Three Years' Probation
August 21, 2008
An Internal Revenue Service employee who improperly accessed the financial information of 200 celebrities and sports figures was sentenced to three years' probation, 60 hours of community service and a $1,000 penalty.

Hammertime Being "Hammered" by the IRS

noreply@blogger.com (Babyboomer11852) — Fri, 14 Aug 2009 13:45:00 +0000

Rap star MC Hammer claims the IRS is giving him a bad rap after the government filed three tax liens against him, including one in July for over $625,000.
The singer, whose real name is Stanley Burrell, said the back taxes he allegedly owes are from 15 years ago, and he is disputing the sum with the IRS.

“I paid the IRS 100 percent of their claim,” said Hammer in a statement. “In the past year or so, they decided — wrongly — that I owed them additional taxes from 15 years ago. I am contesting this claim through my tax attorneys and my case is making its way through the IRS appeal process. I hope to be successful.”

The singer, whose hits have included “U Can’t Touch This,” “Turn This Mutha Out,” and “Pray,” said that the alleged past due amount of approximately $625,000 is not related to his current successful business ventures and have no impact on them. Hammer went bankrupt in 1996, but now owns or works on several businesses including Dance Jam, his own record label, production company, and musical appearances, as well as other ventures.

Hammer is currently featured on “Hammertime,” a television show on the A&E network. He also noted that he has more 1.2 million followers on Twitter at http://twitter.com/Mchammer. He was affected by the recent outage of Twitter.

Hammer claimed that news reports incorrectly give the impression that he is facing new financial issues, but he insisted that is not the case.

“I think the IRS claim is wrong and unfair,” he said. “When there was a sum of $7 million available, the IRS took the amount they said was due them. Now they want to come back for more now that it's 15 years later? That’s just not right and I’m fighting that nonsense.”

Home Office Deduction Facts

noreply@blogger.com (Babyboomer11852) — Wed, 12 Aug 2009 13:59:00 +0000

With technology making it easier than ever for people to operate a business out of their house, many taxpayers may be able to take a home office deduction when filing their 2009 federal tax return next year.

Here are five important things the IRS wants you to know about claiming the home office deduction.

1. Generally, in order to claim a business deduction for your home, you must use part of your home exclusively and regularly:

As your principal place of business, or

As a place to meet or deal with patients, clients or customers in the normal course of your business, or

In the case of a separate structure which is not attached to your home, it must be used in connection with your trade or business

For certain storage use, rental use or daycare-facility use, you are required to use the property regularly but not exclusively.

2. Generally, the amount you can deduct depends on the percentage of your home that you used for business. Your deduction for certain expenses will be limited if your gross income from your business is less than your total business expenses.

3. There are special rules for qualified daycare providers and for persons storing business inventory or product samples.

4. If you are self-employed, use Form 8829, Expenses for Business Use of Your Home, to figure your home office deduction. Report the deduction on line 30 of Schedule C, Form 1040.

5. Different rules apply to claiming the home office deduction if you are an employee. For example, the regular and exclusive business use must be for the convenience of your employer.

For more information see IRS Publication 587, Business Use of Your Home, available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Publication 587, Business Use of Your Home