As you get ready to prepare your 2009 tax return, the Internal Revenue Service wants to make sure you have all the details about tax law changes that may impact your tax return.
Here are the top five changes that may show up on your 2009 return.
1. The American Recovery and Reinvestment Act
ARRA provides several tax provisions that affect tax year 2009 individual tax returns due April 15, 2010. The recovery law provides tax incentives for first-time homebuyers, people who purchased new cars, those that made their homes more energy efficient, parents and students paying for college, and people who received unemployment compensation.
2. IRA Deduction Expanded
You may be able to take an IRA deduction if you were covered by a retirement plan and your 2009 modified adjusted gross income is less than $65,000 or $109,000 if you are married filing a joint return.
3. Standard Deduction Increased for Most Taxpayers
The 2009 basic standard deductions all increased. They are:
* $11,400 for married couples filing a joint return and qualifying widows and widowers
* $5,700 for singles and married individuals filing separate returns
* $8,350 for heads of household
Taxpayers can now claim an additional standard deduction based on the state or local sales or excise taxes paid on the purchase of most new motor vehicles purchased after February 16, 2009. You can also increase your standard deduction by the state or local real estate taxes paid during the year or net disaster losses suffered from a federally declared disaster.
4. 2009 Standard Mileage Rates
The standard mileage rates changed for 2009. The standard mileage rates for business use of a vehicle:
* 55 cents per mile
The standard mileage rates for the cost of operating a vehicle for medical reasons or a deductible move:
* 24 cents per mile
The standard mileage rate for using a car to provide services to charitable organizations remains at 14 cents per mile.
5. Kiddie Tax Change
The amount of taxable investment income a child can have without it being subject to tax at the parent's rate has increased to $1,900 for 2009.
For more information about these and other changes for tax year 2009, visit IRS.gov.
Wednesday, March 3, 2010
Monday, March 1, 2010
Seven Important Facts about Claiming the First-Time Homebuyer Credit
If you purchased a home in 2009 or early 2010, you may be eligible to claim the First-Time Homebuyer Credit, whether you are a first-time homebuyer or a long-time resident purchasing a new home.
Here are seven things the IRS wants you to know about claiming the credit:
1. You must buy – or enter into a binding contract to buy – a principal residence located in the United States on or before April 30, 2010. If you enter into a binding contract by April 30, 2010, you must close on the home on or before June 30, 2010.
2. To be considered a first-time homebuyer, you and your spouse – if you are married – must not have jointly or separately owned another principal residence during the three years prior to the date of purchase.
3. To be considered a long-time resident homebuyer you and your spouse – if you are married – must have lived in the same principal residence for any consecutive five-year period during the eight-year period that ended on the date the new home is purchased. Additionally, your settlement date must be after November 6, 2009.
4. The maximum credit for a first-time homebuyer is $8,000. The maximum credit for a long-time resident homebuyer is $6,500.
5. You must file a paper return and attach Form 5405, First-Time Homebuyer Credit and Repayment of the Credit with additional documents to verify the purchase. Therefore, if you claim the credit you will not be able to file electronically.
6. New homebuyers must attach a copy of a properly executed settlement statement used to complete such purchase. Buyers of a newly constructed home, where a settlement statement is not available, must attach a copy of the dated certificate of occupancy. Mobile home purchasers who are unable to get a settlement statement must attach a copy of the retail sales contract.
7. If you are a long-time resident claiming the credit, the IRS recommends that you also attach any documentation covering the five-consecutive-year period, including Form 1098, Mortgage Interest Statement or substitute mortgage interest statements, property tax records or homeowner’s insurance records.
Here are seven things the IRS wants you to know about claiming the credit:
1. You must buy – or enter into a binding contract to buy – a principal residence located in the United States on or before April 30, 2010. If you enter into a binding contract by April 30, 2010, you must close on the home on or before June 30, 2010.
2. To be considered a first-time homebuyer, you and your spouse – if you are married – must not have jointly or separately owned another principal residence during the three years prior to the date of purchase.
3. To be considered a long-time resident homebuyer you and your spouse – if you are married – must have lived in the same principal residence for any consecutive five-year period during the eight-year period that ended on the date the new home is purchased. Additionally, your settlement date must be after November 6, 2009.
4. The maximum credit for a first-time homebuyer is $8,000. The maximum credit for a long-time resident homebuyer is $6,500.
5. You must file a paper return and attach Form 5405, First-Time Homebuyer Credit and Repayment of the Credit with additional documents to verify the purchase. Therefore, if you claim the credit you will not be able to file electronically.
6. New homebuyers must attach a copy of a properly executed settlement statement used to complete such purchase. Buyers of a newly constructed home, where a settlement statement is not available, must attach a copy of the dated certificate of occupancy. Mobile home purchasers who are unable to get a settlement statement must attach a copy of the retail sales contract.
7. If you are a long-time resident claiming the credit, the IRS recommends that you also attach any documentation covering the five-consecutive-year period, including Form 1098, Mortgage Interest Statement or substitute mortgage interest statements, property tax records or homeowner’s insurance records.
Seven Important Facts about Claiming the First-Time Homebuyer Credit
If you purchased a home in 2009 or early 2010, you may be eligible to claim the First-Time Homebuyer Credit, whether you are a first-time homebuyer or a long-time resident purchasing a new home.
Here are seven things the IRS wants you to know about claiming the credit:
1. You must buy – or enter into a binding contract to buy – a principal residence located in the United States on or before April 30, 2010. If you enter into a binding contract by April 30, 2010, you must close on the home on or before June 30, 2010.
2. To be considered a first-time homebuyer, you and your spouse – if you are married – must not have jointly or separately owned another principal residence during the three years prior to the date of purchase.
3. To be considered a long-time resident homebuyer you and your spouse – if you are married – must have lived in the same principal residence for any consecutive five-year period during the eight-year period that ended on the date the new home is purchased. Additionally, your settlement date must be after November 6, 2009.
4. The maximum credit for a first-time homebuyer is $8,000. The maximum credit for a long-time resident homebuyer is $6,500.
5. You must file a paper return and attach Form 5405, First-Time Homebuyer Credit and Repayment of the Credit with additional documents to verify the purchase. Therefore, if you claim the credit you will not be able to file electronically.
6. New homebuyers must attach a copy of a properly executed settlement statement used to complete such purchase. Buyers of a newly constructed home, where a settlement statement is not available, must attach a copy of the dated certificate of occupancy. Mobile home purchasers who are unable to get a settlement statement must attach a copy of the retail sales contract.
7. If you are a long-time resident claiming the credit, the IRS recommends that you also attach any documentation covering the five-consecutive-year period, including Form 1098, Mortgage Interest Statement or substitute mortgage interest statements, property tax records or homeowner’s insurance records.
Here are seven things the IRS wants you to know about claiming the credit:
1. You must buy – or enter into a binding contract to buy – a principal residence located in the United States on or before April 30, 2010. If you enter into a binding contract by April 30, 2010, you must close on the home on or before June 30, 2010.
2. To be considered a first-time homebuyer, you and your spouse – if you are married – must not have jointly or separately owned another principal residence during the three years prior to the date of purchase.
3. To be considered a long-time resident homebuyer you and your spouse – if you are married – must have lived in the same principal residence for any consecutive five-year period during the eight-year period that ended on the date the new home is purchased. Additionally, your settlement date must be after November 6, 2009.
4. The maximum credit for a first-time homebuyer is $8,000. The maximum credit for a long-time resident homebuyer is $6,500.
5. You must file a paper return and attach Form 5405, First-Time Homebuyer Credit and Repayment of the Credit with additional documents to verify the purchase. Therefore, if you claim the credit you will not be able to file electronically.
6. New homebuyers must attach a copy of a properly executed settlement statement used to complete such purchase. Buyers of a newly constructed home, where a settlement statement is not available, must attach a copy of the dated certificate of occupancy. Mobile home purchasers who are unable to get a settlement statement must attach a copy of the retail sales contract.
7. If you are a long-time resident claiming the credit, the IRS recommends that you also attach any documentation covering the five-consecutive-year period, including Form 1098, Mortgage Interest Statement or substitute mortgage interest statements, property tax records or homeowner’s insurance records.
Friday, February 26, 2010
Top Mistakes In Itemizing Deductions
The IRS estimates that the average taxpayer takes more than 21 hours to do their return from gathering the information to completing the tax return. Particularly with the introduction of new tax laws, the average tax payer is not aware of many new deductions that are now available. An experienced accountant should be able to take advantage of every possible deduction. Remember, the tax preparer’s fee is deductible. There are many common mistakes made by taxpayers that you need to pay attention to:
Tip 1: Check Your Math
The IRS indicated that 20 percent of those filing paper returns include computation errors. When completing your tax return, it is important to double check your math.
Tip 2: Organize and Attach Necessary Backup Paperwork
If the IRS cannot verify the information you provide, it makes its own adjustments to the amount you owe. Failing to have the necessary backup paperwork could also lead to an audit.
The most important paperwork for you to have available includes W-2s, other forms that show taxes withheld during the year, and receipts for itemized deductions and charitable donations. Make sure to attach to your tax return your W-2, other forms that show taxes withheld during the year, and any other applicable schedules.
Regarding charitable donations, note that if the donation is over $250 you must have a letter from the charity showing you made the specified monetary donation. Also, if you receive a gift thanking you for the donation (like a tote bag or a mug), you can only deduct the amount you donated that exceeds the value of the item. For example, if you donated $250, and you received a $50 gift in return, then you can only deduct $200.
Tip 3: Report All of Your Income
Failing to report income can lead to the payment of interest and penalties. Note, you must report all income, even if you didn't receive a 1099 form for work you performed. Penalties for unreported income can be very high. In addition to having to pay taxes on the unreported amount, interest will be about 6 percent per year and you could incur penalties of up to 20 percent.
Tip 4: Itemize for Deductions
Kiplinger reports that 46 million people itemize their deductions and claim approximately $1 trillion in deductions. The taxpayers (85 million) who take the standard deduction claim half that amount. A good tax preparer will calculate your income tax both ways (applying the standard deduction and itemizing deductions) to alert you to which method works in your favor.
Tip 5: Unemployment and Deductions
To help the 15 million people who are currently unemployed in this country, new tax laws have been enacted. A professional tax preparer should be aware of the new laws that can benefit you.
For example, the first $2,400 in unemployment benefits is tax free.
If you have been searching for a job in your field, job hunting deductions may be available to you such as employment agency fees, resume preparation, traveling for interviews, and postage for mailing out job applications and resumes.
These expenses may be available to you as long as the total of your miscellaneous itemized tax deductions exceed 2 percent of your adjusted gross income.
Note that expenses incurred while looking for your first job are not deductible; however, moving expenses could be. For example, if you had to move 50 miles for your first job in 2009, you can deduct your moving expenses, using the mileage reimbursement of 24 cents a mile for driving your car to your new home, plus parking costs and tolls paid driving there.
Tip 6: First Time Home Buyer Credit
In an effort to boost home sales, the stimulus package includes an expanded first time home buyer credit and a credit for long-time home owners in an amount up to $6,500. The IRS estimates that approximately 1.4 million buyers took advantage of the first-time home buyer tax credit.
Tip 7: Common Mistakes To Guard Against
Make sure your social security number is entered correctly. An incorrect social security number will prevent your return from being processed and delays you refund.
Sign and date your return. If you are filing a joint return, both people need to sign and date the return. If you use a tax preparer, make sure the preparer does the same.
Tip 1: Check Your Math
The IRS indicated that 20 percent of those filing paper returns include computation errors. When completing your tax return, it is important to double check your math.
Tip 2: Organize and Attach Necessary Backup Paperwork
If the IRS cannot verify the information you provide, it makes its own adjustments to the amount you owe. Failing to have the necessary backup paperwork could also lead to an audit.
The most important paperwork for you to have available includes W-2s, other forms that show taxes withheld during the year, and receipts for itemized deductions and charitable donations. Make sure to attach to your tax return your W-2, other forms that show taxes withheld during the year, and any other applicable schedules.
Regarding charitable donations, note that if the donation is over $250 you must have a letter from the charity showing you made the specified monetary donation. Also, if you receive a gift thanking you for the donation (like a tote bag or a mug), you can only deduct the amount you donated that exceeds the value of the item. For example, if you donated $250, and you received a $50 gift in return, then you can only deduct $200.
Tip 3: Report All of Your Income
Failing to report income can lead to the payment of interest and penalties. Note, you must report all income, even if you didn't receive a 1099 form for work you performed. Penalties for unreported income can be very high. In addition to having to pay taxes on the unreported amount, interest will be about 6 percent per year and you could incur penalties of up to 20 percent.
Tip 4: Itemize for Deductions
Kiplinger reports that 46 million people itemize their deductions and claim approximately $1 trillion in deductions. The taxpayers (85 million) who take the standard deduction claim half that amount. A good tax preparer will calculate your income tax both ways (applying the standard deduction and itemizing deductions) to alert you to which method works in your favor.
Tip 5: Unemployment and Deductions
To help the 15 million people who are currently unemployed in this country, new tax laws have been enacted. A professional tax preparer should be aware of the new laws that can benefit you.
For example, the first $2,400 in unemployment benefits is tax free.
If you have been searching for a job in your field, job hunting deductions may be available to you such as employment agency fees, resume preparation, traveling for interviews, and postage for mailing out job applications and resumes.
These expenses may be available to you as long as the total of your miscellaneous itemized tax deductions exceed 2 percent of your adjusted gross income.
Note that expenses incurred while looking for your first job are not deductible; however, moving expenses could be. For example, if you had to move 50 miles for your first job in 2009, you can deduct your moving expenses, using the mileage reimbursement of 24 cents a mile for driving your car to your new home, plus parking costs and tolls paid driving there.
Tip 6: First Time Home Buyer Credit
In an effort to boost home sales, the stimulus package includes an expanded first time home buyer credit and a credit for long-time home owners in an amount up to $6,500. The IRS estimates that approximately 1.4 million buyers took advantage of the first-time home buyer tax credit.
Tip 7: Common Mistakes To Guard Against
Make sure your social security number is entered correctly. An incorrect social security number will prevent your return from being processed and delays you refund.
Sign and date your return. If you are filing a joint return, both people need to sign and date the return. If you use a tax preparer, make sure the preparer does the same.
Wednesday, February 24, 2010
Eight Facts about the New Vehicle Sales and Excise Tax Deduction
If you bought a new vehicle in 2009, you may be entitled to a special tax deduction for the sales and excise taxes on your purchase.
Here are eight important facts the Internal Revenue Service wants you to know about this deduction:
1. State and local sales and excise taxes paid on up to $49,500 of the purchase price of each qualifying vehicle are deductible.
2. Qualified motor vehicles generally include new cars, light trucks, motor homes and motorcycles.
3. To qualify for the deduction, the new cars, light trucks and motorcycles must weigh 8,500 pounds or less. New motor homes are not subject to the weight limit.
4. Purchases must occur after Feb. 16, 2009, and before Jan. 1, 2010.
5. Purchases made in states without a sales tax — such as Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon — may also qualify for the deduction. Taxpayers in these states may be entitled to deduct other qualifying fees or taxes imposed by the state or local government. The fees or taxes that qualify must be assessed on the purchase of the vehicle and must be based on the vehicle’s sales price or as a per unit fee.
6. This deduction can be taken regardless of whether the buyers itemize their deductions or choose the standard deduction. Taxpayers who do not itemize will add this additional amount to the standard deduction on their 2009 tax return.
7. The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.
8. Taxpayers who do not itemize must complete Schedule L, Standard Deduction for Certain Filers to claim the deduction.
Here are eight important facts the Internal Revenue Service wants you to know about this deduction:
1. State and local sales and excise taxes paid on up to $49,500 of the purchase price of each qualifying vehicle are deductible.
2. Qualified motor vehicles generally include new cars, light trucks, motor homes and motorcycles.
3. To qualify for the deduction, the new cars, light trucks and motorcycles must weigh 8,500 pounds or less. New motor homes are not subject to the weight limit.
4. Purchases must occur after Feb. 16, 2009, and before Jan. 1, 2010.
5. Purchases made in states without a sales tax — such as Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon — may also qualify for the deduction. Taxpayers in these states may be entitled to deduct other qualifying fees or taxes imposed by the state or local government. The fees or taxes that qualify must be assessed on the purchase of the vehicle and must be based on the vehicle’s sales price or as a per unit fee.
6. This deduction can be taken regardless of whether the buyers itemize their deductions or choose the standard deduction. Taxpayers who do not itemize will add this additional amount to the standard deduction on their 2009 tax return.
7. The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.
8. Taxpayers who do not itemize must complete Schedule L, Standard Deduction for Certain Filers to claim the deduction.
Tuesday, February 23, 2010
Is this Income Taxable?
While most income you receive is generally considered taxable, there are some situations when certain types of income are partially taxed or not taxed at all.
To ensure taxpayers are familiar with the difference between taxable and non-taxable income, the Internal Revenue Service offers these common examples of items that are not included in your income:
* Adoption Expense Reimbursements for qualifying expenses
* Child support payments
* Gifts, bequests and inheritances
* Workers' compensation benefits
* Meals and Lodging for the convenience of your employer
* Compensatory Damages awarded for physical injury or physical sickness
* Welfare Benefits
* Cash Rebates from a dealer or manufacturer
Some income may be taxable under certain circumstances, but not taxable in other situations. Examples of items that may or may not be included in your income are:
* Life Insurance If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds, which were paid to you because of the insured person’s death, are not taxable unless the policy was turned over to you for a price.
* Scholarship or Fellowship Grant If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify.
* Non-cash Income Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.
All other items—including income such as wages, salaries and tips—must be included in your income unless it is specifically excluded by law.
These examples are not all-inclusive. For more information, see Publication 525, Taxable and Nontaxable Income, which can be obtained at IRS.gov or by calling the IRS at 800-TAX-FORM (800-829-3676).
To ensure taxpayers are familiar with the difference between taxable and non-taxable income, the Internal Revenue Service offers these common examples of items that are not included in your income:
* Adoption Expense Reimbursements for qualifying expenses
* Child support payments
* Gifts, bequests and inheritances
* Workers' compensation benefits
* Meals and Lodging for the convenience of your employer
* Compensatory Damages awarded for physical injury or physical sickness
* Welfare Benefits
* Cash Rebates from a dealer or manufacturer
Some income may be taxable under certain circumstances, but not taxable in other situations. Examples of items that may or may not be included in your income are:
* Life Insurance If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds, which were paid to you because of the insured person’s death, are not taxable unless the policy was turned over to you for a price.
* Scholarship or Fellowship Grant If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify.
* Non-cash Income Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.
All other items—including income such as wages, salaries and tips—must be included in your income unless it is specifically excluded by law.
These examples are not all-inclusive. For more information, see Publication 525, Taxable and Nontaxable Income, which can be obtained at IRS.gov or by calling the IRS at 800-TAX-FORM (800-829-3676).
Monday, February 22, 2010
Five Tax Changes for 2009
As you get ready to prepare your 2009 tax return, the Internal Revenue Service wants to make sure you have all the details about tax law changes that may impact your tax return.
Here are the top five changes that may show up on your 2009 return.
1. The American Recovery and Reinvestment Act
ARRA provides several tax provisions that affect tax year 2009 individual tax returns due April 15, 2010. The recovery law provides tax incentives for first-time homebuyers, people who purchased new cars, those that made their homes more energy efficient, parents and students paying for college, and people who received unemployment compensation.
2. IRA Deduction Expanded
You may be able to take an IRA deduction if you were covered by a retirement plan and your 2009 modified adjusted gross income is less than $65,000 or $109,000 if you are married filing a joint return.
3. Standard Deduction Increased for Most Taxpayers
The 2009 basic standard deductions all increased. They are:
* $11,400 for married couples filing a joint return and qualifying widows and widowers
* $5,700 for singles and married individuals filing separate returns
* $8,350 for heads of household
Taxpayers can now claim an additional standard deduction based on the state or local sales or excise taxes paid on the purchase of most new motor vehicles purchased after February 16, 2009. You can also increase your standard deduction by the state or local real estate taxes paid during the year or net disaster losses suffered from a federally declared disaster.
4. 2009 Standard Mileage Rates
The standard mileage rates changed for 2009. The standard mileage rates for business use of a vehicle:
* 55 cents per mile
The standard mileage rates for the cost of operating a vehicle for medical reasons or a deductible move:
* 24 cents per mile
The standard mileage rate for using a car to provide services to charitable organizations remains at 14 cents per mile.
5. Kiddie Tax Change
The amount of taxable investment income a child can have without it being subject to tax at the parent's rate has increased to $1,900 for 2009.
For more information about these and other changes for tax year 2009, visit IRS.gov.
Here are the top five changes that may show up on your 2009 return.
1. The American Recovery and Reinvestment Act
ARRA provides several tax provisions that affect tax year 2009 individual tax returns due April 15, 2010. The recovery law provides tax incentives for first-time homebuyers, people who purchased new cars, those that made their homes more energy efficient, parents and students paying for college, and people who received unemployment compensation.
2. IRA Deduction Expanded
You may be able to take an IRA deduction if you were covered by a retirement plan and your 2009 modified adjusted gross income is less than $65,000 or $109,000 if you are married filing a joint return.
3. Standard Deduction Increased for Most Taxpayers
The 2009 basic standard deductions all increased. They are:
* $11,400 for married couples filing a joint return and qualifying widows and widowers
* $5,700 for singles and married individuals filing separate returns
* $8,350 for heads of household
Taxpayers can now claim an additional standard deduction based on the state or local sales or excise taxes paid on the purchase of most new motor vehicles purchased after February 16, 2009. You can also increase your standard deduction by the state or local real estate taxes paid during the year or net disaster losses suffered from a federally declared disaster.
4. 2009 Standard Mileage Rates
The standard mileage rates changed for 2009. The standard mileage rates for business use of a vehicle:
* 55 cents per mile
The standard mileage rates for the cost of operating a vehicle for medical reasons or a deductible move:
* 24 cents per mile
The standard mileage rate for using a car to provide services to charitable organizations remains at 14 cents per mile.
5. Kiddie Tax Change
The amount of taxable investment income a child can have without it being subject to tax at the parent's rate has increased to $1,900 for 2009.
For more information about these and other changes for tax year 2009, visit IRS.gov.
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