Thursday, December 24, 2009

Friday, December 18, 2009

IRS Reminds Car Shoppers About 2009 Tax Break

WASHINGTON — The Internal Revenue Service today reminds individual taxpayers who are considering buying a new car that they have until Dec. 31 to take advantage of a tax break that may not be around in 2010.

Taxpayers who buy a qualifying new motor vehicle this year after Feb. 16 can deduct the state or local sales or excise taxes they paid on the first $49,500 of the purchase price. Qualifying motor vehicles include new passenger automobiles, light trucks, motorcycles, and motor homes.

Individuals who itemize and those who take the standard deduction can benefit from this tax break. In states without a sales tax, other taxes or fees can qualify if they are assessed on the purchase of the vehicle and are based on the vehicle’s sales price or as a per unit fee.

The deduction is reduced for joint filers with modified adjusted gross incomes (MAGI) between $250,000 and $260,000 and other taxpayers with MAGI between $125,000 and $135,000. Taxpayers with higher incomes do not qualify.

Taxpayers who take the standard deduction need to complete Schedule L and attach it to Form 1040 or Form 1040A to increase the standard deduction by the allowable amount of state or local sales or excise taxes paid on the purchase of the new vehicle. Also, check the box on line 40b on Form 1040 or line 24b on Form 1040A. Individuals who itemize should include the allowable amount of state or local sales or excise taxes from the purchase of the vehicle on Form 1040, Schedule A.

Tuesday, December 15, 2009

Pre-Retirement Checklist

As you approach retirement, there are various matters that you should take care of. Here are some of the items you should check:

Health Insurance. Are you among the lucky few who will continue to be covered after retirement? If not, you'll need to replace the coverage. If you will be eligible for Medicare, you may want to start checking up on "Medigap" coverage.

  • Tip: Before you retire, take care of any non-emergency medical, dental, or optical needs (if your employee plan coverage is broader than Medicare).

Other Types of Insurance. Once you retire, you may need to replace employer-provided life insurance by buying added life coverage. You should also consider purchasing long-term health care insurance to cover the risk that you'll need a lengthy nursing home stay in the future.

Social Security. Decide whether you want to take early Social Security benefits if you're retiring before your full retirement age. You can get 80% of your benefits at age 62.

  • Tip: For most people, taking Social Security benefits at their full retirement age makes the most financial sense. Be sure to discuss this with a financial advisor if you think you might need to take early benefits.

Company Plan Payout. It's important to plan well in advance how you'll take the payout from your pension plan or 401(k) plan. Will you transfer the funds to an IRA? How will the funds be invested?

Relocation. If you're planning on moving to another state, check out various states to see what the financial ramifications of living there will be.

  • Tip: If you'll be relocating, it might be a good idea to buy the new home before retirement.

Thursday, December 10, 2009

IRS Offers Tips for Year-End Donations

Individuals and businesses making contributions to charity should keep in mind several important tax law provisions that have taken effect in recent years.

Some of these changes include the following:

Special Charitable Contributions for Certain IRA Owners

This provision, currently scheduled to expire at the end of 2009, offers older owners of individual retirement accounts (IRAs) a different way to give to charity. An IRA owner, age 70½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charity. This option, created in 2006, is available for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.

To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity. Amounts so transferred are not taxable and no deduction is available for the transfer.

Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.

Amounts transferred to a charity from an IRA are counted in determining whether the owner has met the IRA’s required minimum distribution. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats transferred amounts as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions.

Rules for Clothing and Household Items

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

Guidelines for Monetary Donations

To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.

Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.


To help taxpayers plan their holiday-season and year-end giving, the IRS offers the following additional reminders:

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

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

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

  • For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.

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

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

To figure the value of items you have donated, please contact me so that we can put together accurate valuations.

Tuesday, December 8, 2009

What To Do If Your College Savings Plan Is Battered

The severe bear market has pounded away at almost everyone’s investment portfolios and retirement plan accounts. But those aren’t the only investments that have been mauled. The turbulence on Wall Street has also hammered Section 529 plans designed to build up savings for college. The problem is especially acute for those who need to withdraw funds within the next few years.

A Section 529 plan is a tax-favored way to save for a student’s college education. For starters, you can set aside generous amounts in a state-sponsored savings plan. There’s no current tax on accumulations within the account, and distributions are tax-free if used to pay for tuition, room and board, and other qualified college expenses.

There are two basic types of Section 529 plan: the prepaid tuition plan and the college savings plan. With the former, you can lock in payment for future tuition by purchasing credits at a specified rate. Suppose this year’s tuition at a public university in the state sponsoring the plan is $6,000. Invest $3,000 now for a four-year-old child, and you’ll be guaranteed a credit for half a year’s tuition when the student matriculates, even if costs have doubled or tripled by then. This type of plan protects you from investment downturns because the school assumes the risk—not you. You’re essentially buying tuition inflation insurance, which can be a pretty good deal at a time when college costs are rising much faster than the overall cost of living. In fact, some states offering such plans are having trouble making good on their end of the bargain.

With college savings plans, however, you’re the one taking investment risk. These plans, also sponsored by states but generally available to out-of-state investors as well, let you spend your money on any public or private college. And though the investment menus vary widely from one 529 to the next, many plans offer a range of options similar to those in a 401(k) retirement plan. Most provide age-adjusted accounts that shift from more aggressive, stock-dominated portfolios when a child is young to more conservative, largely fixed-income allocations when college age approaches. But investors also may be able to choose all-stock accounts. Those seemed like a good deal when share prices were rising, but the recent market plunge has hit such accounts particularly hard.

The question, of course, is what to do now if your child’s account has suffered deep losses. You may need to reconsider your investment allocations, and a new IRS rule, in effect only for 2009, permits you to shift investments within a plan twice rather than just once during the year. Your first step, as painful as it may be, is to look at your current 529 account balances and project what they’ll be when your student starts school. Then consider possible changes to your strategy.

  • If your child is graduating from high school soon, damage control is in order. It may be tempting to roll the dice on stocks, hoping to recoup some of your losses, but at this point preservation is much more important than growth. An allocation dominated by bonds or cash investments probably makes sense.

  • If you have younger children too, consider changing the 529 plan beneficiary to someone who won’t need the funds until the markets have had a chance to recover. Or simply delay making withdrawals until the later years of college. These strategies assume you have other funds available to pay near-term expenses.

  • If college is still years in the future, having much of your plan invested in stocks could still be a good idea. Share prices have taken a big hit and may fall further, but being patient and staying invested for the eventual rebound may reward you nicely. Even so, choosing a diversified investment option could minimize volatility and increase potential gains.

  • Switching to a prepaid tuition plan now could relieve you of future investment risk. But it will lock in your 529 plan’s losses and also limit your child’s choice of college.

  • Increasing current contributions to college accounts could also help make up for the market plunge. With college costs rising quickly and potential sources of financial aid shrinking, having personal savings to draw on will be more important than ever in the years ahead.

Of course, education savings is only one of your many financial priorities. We can help you assess your current situation and work with you to make sure your overall financial strategy remains on track. We can also assist you in filing FAFSA forms.

Monday, December 7, 2009

2010 Standard Mileage Rates Announced

The Internal Revenue Service has issued the 2010 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2010, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

50 cents per mile for business miles driven
16.5 cents per mile driven for medical or moving purposes
14 cents per mile driven in service of charitable organizations

The new rates for business, medical and moving purposes are slightly lower than last year’s. The mileage rates for 2010 reflect generally lower transportation costs compared to a year ago.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Revenue Procedure 2009-54 contains additional details regarding the standard mileage rates.

Friday, December 4, 2009

Financial Planning Do's & Dont's

During these uncertain economic times, financial planning has become a challenge. Here are a few financial planning suggestions that can add to your peace of mind about financial matters and simplifying your life:

  • At least once a year, write down your investment goals and what strategy you will use to reach them. This will keep you focused.

  • Instead of giving money to many different charities, pick a few that are important to you, and give them a larger amount. This type of directed giving not only makes more sense, but will make it easier to track your donations at tax time.
    Related Financial Guide: CHARITABLE CONTRIBUTIONS: How To Give Wisely

  • Inventory your household possessions, with a camera or camcorder if you desire. Keep the inventory at work or in a safe-deposit box. This inventory will help should you need to submit a homeowner's insurance claim.

  • Use one insurance agent and one financial adviser for your transactions.

  • If you have doubts about entering into a transaction, don't do it. You will probably save yourself money, time, and aggravation.

Wednesday, December 2, 2009

Lower Your Taxes and Heating Bills

You can weatherize your home and be rewarded for the effort. Homeowners making energy-saving improvements can cut their winter heating bills and lower their 2009 tax bill as well.
The American Recovery and Reinvestment Act (Recovery Act), enacted earlier this year, expanded two home energy tax credits: the nonbusiness energy property credit and the residential energy efficient property credit.

Nonbusiness Energy Property Credit

This credit equals 30 percent of what a homeowner spends on eligible energy-saving improvements, up to a maximum tax credit of $1,500 for the combined 2009 and 2010 tax years. The cost of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass all qualify, along with labor costs for installing these items. In addition, the cost of energy-efficient windows and skylights, energy-efficient doors, qualifying insulation and certain roofs also qualify for the credit, though the cost of installing these items does not count.

By spending as little as $5,000 before the end of the year on eligible energy-saving improvements, a homeowner can save as much as $1,500 on his or her 2009 federal income tax return. Due to limits based on tax liability, other credits claimed by a particular taxpayer and other factors, actual tax savings will vary. These tax savings are on top of any energy savings that may result.

Residential Energy Efficient Property Credit

Homeowners going green should also check out a second tax credit designed to spur investment in alternative energy equipment. The residential energy efficient property credit, equals 30 percent of what a homeowner spends on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property. Generally, labor costs are included when calculating this credit. Also, no cap exists on the amount of credit available except in the case of fuel cell property.

Not all energy-efficient improvements qualify for these tax credits. For that reason, homeowners should check the manufacturer's tax credit certification statement before purchasing or installing any of these improvements. The certification statement can usually be found on the manufacturer's website or with the product packaging. Normally, a homeowner can rely on this certification. The IRS cautions that the manufacturer's certification is different from the Department of Energy's Energy Star label, and not all Energy Star labeled products qualify for the tax credits.

Eligible homeowners can claim both of these credits when they file their 2009 federal income tax return. Because these are credits, not deductions, they increase a taxpayer's refund or reduce the tax he or she owes. An eligible taxpayer can claim these credits, regardless of whether he or she itemizes deductions on Schedule A. Contact me if you need assistance with either of these credits.