Sunday, February 28, 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.

Friday, February 26, 2010

Seven Tax Tips for Disabled Taxpayers

Taxpayers with disabilities may qualify for a number of IRS tax credits and benefits. Parents of children with disabilities may also qualify. Listed below are seven tax credits and other benefits that are available if you or someone else listed on your federal tax return is disabled.

  1. Standard Deduction Taxpayers who are legally blind may be entitled to a higher standard deduction on their tax return.
  2. Gross Income Certain disability-related payments, Veterans Administration disability benefits, and Supplemental Security Income are excluded from gross income.
  3. Impairment-Related Work Expenses Employees, who have a physical or mental disability limiting their employment, may be able to claim business expenses in connection with their workplace. The expenses must be necessary for the taxpayer to work.
  4. Credit for the Elderly or Disabled This credit is generally available to certain taxpayers who are 65 and older as well as to certain disabled taxpayers who are younger than 65 and are retired on permanent and total disability.
  5. Medical Expenses If you itemize your deductions using Form 1040 Schedule A, you may be able to deduct medical expenses. See IRS Publication 502, Medical and Dental Expenses.
  6. Earned Income Tax Credit EITC is available to disabled taxpayers as well as to the parents of a child with a disability. If you retired on disability, taxable benefits you receive under your employer’s disability retirement plan are considered earned income until you reach minimum retirement age. The EITC is a tax credit that not only reduces a taxpayer’s tax liability but may also result in a refund. Many working individuals with a disability who have no qualifying children, but are older than 25 and younger than 65 do -- in fact -- qualify for EITC. Additionally, if the taxpayer’s child is disabled, the age limitation for the EITC is waived. The EITC has no effect on certain public benefits. Any refund you receive because of the EITC will not be considered income when determining whether you are eligible for benefit programs such as Supplemental Security Income and Medicaid.
  7. Child or Dependent Care Credit Taxpayers who pay someone to come to their home and care for their dependent or spouse may be entitled to claim this credit. There is no age limit if the taxpayer’s spouse or dependent is unable to care for themselves.

For more information on tax credits and benefits available to disabled taxpayers, see Publication 3966, Living and Working with Disabilities or Publication 907, Tax Highlights for Persons with Disabilitiesavailable on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Free Tax Assistance for Members of the Military

The IRS wants military members and their spouses to know they may be eligible to receive free tax return preparation assistance. The U.S. Armed Forces participates in the Volunteer Income Tax Assistance program and provides free tax advice, tax preparation, return filing and other tax assistance to military members and their families.

1. Armed Forces Tax Council The Armed Forces Tax Council oversees the operation of the military tax programs worldwide, conducting outreach with the IRS to military personnel and their families. The AFTC consists of tax program coordinators for the Marine Corps, Air Force, Army, Navy and Coast Guard.

2. Volunteer Tax Sites Volunteer assistors at Military-based VITA sites are trained to address military-specific tax issues, such as combat zone tax benefits and the new Earned Income Tax Credit guidelines.

3. What to Bring To receive this free assistance, you should bring the following records to your military VITA site:

  • Valid photo identification
  • Social Security cards for you, your spouse and dependents or a social security number verification letter issued by the Social Security Administration
  • Birth dates for you, your spouse and dependents
  • Current year’s tax package, if you received one
  • Wage and earning statement(s) -- Form W-2, W-2G, 1099-R
  • Interest and dividend statements (Forms 1099)
  • A copy of last year’s federal and state tax returns, if available
  • Checkbook to get routing number and account number for direct deposit
  • Total amount paid for day care and day care provider’s identifying number
  • Other relevant information about income and expenses
4. Joint returns If your filing status is Married Filing Jointly and you wish to file your tax return electronically, both you and your spouse should be present to sign the required forms. If it isn’t possible for both of you to be present, a valid power of attorney that allows tax preparation can be used to sign and file the return.

5. Special Exception There is a special exception to using a power of attorney for spouses in combat zones that permits the filing spouse to e-file a joint return with only a written statement setting forth that the other spouse is in a combat zone and is unable to sign.

Thursday, February 25, 2010

Seven Things You Should Know About Checking the Status of Your Refund

Are you expecting a tax refund from the Internal Revenue Service this year? If so, here are seven things you should know about checking the status of your refund once you have filed your federal tax return.

1. Online Access to Refund Information Where’s My Refund? or ¿Dónde está mi reembolso? are interactive tools on IRS.gov and the fastest, easiest way to get information about your federal income tax refund. Whether you split your refund among several accounts, opted for direct deposit into one account, used part of your refund to buy U.S. savings bonds or asked the IRS to mail you a check, Where’s My Refund? and ¿Dónde está mi reembolso? give you online access to your refund information nearly 24 hours a day, 7 days a week. It’s quick, easy and secure.

2. When to Check Refund Status If you e-file, you can get refund information 72 hours after the IRS acknowledges receipt of your return. If you file a paper return, refund information will generally be available three to four weeks after mailing your return.

3. What You Need to Check Refund Status When checking the status of your refund, have your federal tax return handy. To get your personalized refund information you must enter:

  • Your Social Security Number or Individual Taxpayer Identification Number
  • Your filing status which will be Single, Married Filing Joint Return, Married Filing Separate Return, Head of Household, or Qualifying Widow(er)
  • Exact whole dollar refund amount shown on your tax return
4. What the Online Tool Will Tell You Once you enter your personal information, you could get several responses, including:

  • Acknowledgement that your return was received and is in processing.
  • The mailing date or direct deposit date of your refund.
  • Notice that the IRS could not deliver your refund due to an incorrect address. In this instance, you may be able to change or correct your address online using Where’s My Refund?.
5. Customized Information Where’s My Refund? also includes links to customized information based on your specific situation. The links guide you through the steps to resolve any issues affecting your refund. For example, if you do not get the refund within 28 days from the original IRS mailing date shown on Where’s My Refund?, you may be able to start a refund trace.

6. Visually Impaired Taxpayers Where’s My Refund? is also accessible to visually impaired taxpayers who use the Job Access with Speech screen reader used with a Braille display and is compatible with different JAWS modes.

7. Toll-free Number If you do not have internet access, you can check the status of your refund in English or Spanish by calling the IRS Refund Hotline at 800-829-1954 or the IRS TeleTax System at 800-829-4477. When calling, you must provide your or your spouse’s Social Security number, filing status and the exact whole dollar refund amount shown on your return.

Refund checks are normally sent out weekly on Fridays. If you check the status of your refund and are not given the date it will be issued, please wait until the next week before checking back.
 
If the return was prepared by my office, you can check the status of your return by calling 866-730-2274 (or 866-931-1040 in Spanish) or going to my website http://www.nfsnet.com/ and clicking the Status of My Return in the Tax Prep Section.

Wednesday, February 24, 2010

Be Sure to Know Whether You Qualify for the Earned Income Tax Credit

The Earned Income Tax Credit, commonly referred to as EITC, can be a financial boost for working people adversely impacted by hard economic times. However, one in four eligible taxpayers could miss out on the credit because they don’t check it out. Here are the top 9 things the Internal Revenue Service wants you to know about this valuable credit, which has been making the lives of working people a little easier for 35 years.

  1. Just because you didn’t qualify last year, doesn’t mean you won’t this year. As your financial, marital or parental situations change from year-to-year, you should review the EITC eligibility rules to determine whether you qualify.
  2. If you qualify, it could be worth up to $5,657 this year. EITC not only reduces the federal tax you owe, but could result in a refund. The amount of your EITC is based on the amount of your earned income and whether or not there are qualifying children in your household. New EITC provisions mean more money for larger families.
  3. If you qualify, you must file a federal income tax return and specifically claim the credit in order to get it – even if you are not otherwise required to file.
  4. Your filing status cannot be Married Filing Separately.
  5. You must have a valid Social Security Number. You, your spouse – if filing a joint return – and any qualifying child listed on Schedule EIC must have a valid SSN issued by the Social Security Administration.
  6. You must have earned income. You have earned income if you work for someone who pays you wages, you are self-employed, you have income from farming, or – in some cases – you receive disability income.
  7. Married couples and single people without kids may qualify. If you do not have qualifying children, you must also meet the age and residency requirements as well as dependency rules.
  8. Special rules apply to members of the U.S. Armed Forces in combat zones. Members of the military can elect to include their nontaxable combat pay in earned income for the EITC. If you make this election, the combat pay remains nontaxable.
  9. It’s easy to determine whether you qualify. The EITC Assistant, an interactive tool available on IRS.gov, removes the guesswork from eligibility rules. Just answer a few simple questions to find out if you qualify and estimate the amount of your EITC.
Help is available at my office and we will figure the credit for you when we prepare your return.

Four Facts Every Parent Should Know about Their Child’s Investment Income

The IRS wants parents to be aware of the tax rules that affect their children’s investment income. The following four facts will help parents determine whether their child’s investment income will be taxed at the parents’ rate or the child’s rate.

1. Investment Income Children with investment income may have part or all of this income taxed at their parents’ tax rate rather than at the child’s rate. Investment income includes interest, dividends, capital gains and other unearned income.

2. Age Requirement The child’s tax must be figured using the parents’ rates if the child has investment income of more than $1,900 and meet one of three age requirements for 2009:

  • The child was born after January 1, 1992.
  • The child was born after January 1, 1991, and before January 2, 1992, and has earned income that does not exceed one-half of their own support for the year.
  • The child was born after January 1, 1986, and before January 2, 1991, and a full-time student with earned income that does not exceed one-half of the child’s support for the year.
3. Form 8615 To figure the child's tax using the parents’ rate for the child’s return, fill out Form 8615, Tax for Certain Children Who Have Investment Income of More Than $1,900, and attach it to the child's federal income tax return.

4. Form 8814 When certain conditions are met, a parent may be able to avoid having to file a tax return for the child by including the child’s income on the parent’s tax return. In this situation, the parent would file Form 8814, Parents' Election To Report Child's Interest and Dividends.

Tuesday, February 23, 2010

Five Tips About the First-Time Homebuyer Credit Documentation Requirements

Claiming the First-Time Homebuyer Tax Credit on your 2009 tax return might mean a larger refund but it can seem complex. Are you confused about the documentation requirements? The IRS recognizes that the settlement documents can vary from location to location, so here are five tips to clarify the documentation requirements.

  1. Settlement Statement: Purchasers of conventional homes must attach a copy of Form HUD-1 or other properly executed Settlement Statement.
  2. Properly Executed Settle Statement: Generally, a properly executed settlement statement shows all parties' names and signatures, property address, sales price and date of purchase. However, settlement documents, including the Form HUD-1, can vary from one location to another and may not include the signatures of both the buyer and seller. In areas where signatures are not required on the settlement document, the IRS encourages buyers to sign the settlement statement when they file their tax return -- even in cases where the settlement form does not include a signature line.
  3. Retail Sales Contract: Purchasers of mobile homes who are unable to get a settlement statement must attach a copy of the executed retail sales contract showing all parties' names and signatures, property address, purchase price and date of purchase.
  4. Certificate of Occupancy: For a newly constructed home, where a settlement statement is not available, attach a copy of the certificate of occupancy showing the owner’s name, property address and date of the certificate.
  5. Long-Time Residents: If you are a long-time resident claiming the credit, the IRS recommends that you also attach documentation covering the five-consecutive-year period such as Form 1098, Mortgage Interest Statement or substitute mortgage interest statements, property tax records or homeowner’s insurance records.
For more information about the First-Time Homebuyer Tax Credit and the documentation requirements, please contact me.

Five Tips for Taxpayers Making a Move


The IRS offers five tips for taxpayers who have moved or are about to move. If you’ve changed your home or business address, make sure you update that information with the IRS to ensure you receive any refunds or correspondence from the IRS.
1. How to Change Your Address You can change your address on file with the IRS in several ways:

  • Correct the address legibly on the mailing label that comes with your tax package;
  • Write the new address in the appropriate boxes on your tax return;
  • Use Form 8822, Change of Address, to submit an address or name change any time during the year;
  • Give the IRS written notification of your new address by writing to the IRS center where you file your return. Include your full name, old and new addresses, Social Security Number or Employer Identification Number and signature. If you filed a joint return, be sure to include the information for both taxpayers. If you filed a joint return and have since established separate residences, both taxpayers should notify the IRS of your new addresses; and
  • Should an IRS employee contact you about your account, you may be able to verbally provide a change of address.
2. Notify Your Employer Be sure to also notify your employer of your new address so you get your W-2 forms on time.

3. Notify the Post Office If you change your address after you’ve filed your return, don’t forget to notify the post office at your old address so your mail can be forwarded.

4. Estimated Tax Payments If you make estimated tax payments throughout the year, you should mail a completed Form 8822, Change of Address, or write the IRS campus where you file your return. You may continue to use your old pre-printed payment vouchers until the IRS sends you new ones with your new address. However, do not correct the address on the old voucher.

5. Postal Service The IRS does use the Postal Service’s change of address files to update taxpayer addresses, but it’s still a good idea to notify the IRS directly.

Monday, February 22, 2010

Seven Facts About Social Security Benefits

If you received Social Security benefits in 2009, you need to know whether or not these benefits are taxable. Here are seven facts the Internal Revenue Service wants you to know about Social Security benefits so you can determine whether or not they are taxable to you.

1. How much – if any – of your Social Security benefits are taxable depends on your total income and marital status.

2. Generally, if Social Security benefits were your only income for 2009, your benefits are not taxable and you probably do not need to file a federal income tax return.

3. If you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status.

4. Your taxable benefits and modified adjusted gross income are figured on a worksheet in the Form 1040A or Form 1040 Instruction booklet.

5. You can do the following quick computation to determine whether some of your benefits may be taxable:

  • First, add one-half of the total Social Security benefits you received to all your other income, including any tax exempt interest and other exclusions from income.
  • Then, compare this total to the base amount for your filing status. If the total is more than your base amount, some of your benefits may be taxable.
6. The 2009 base amounts are:

  • $32,000 for married couples filing jointly.
  • $25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouses at any time during the year.
  • $0 for married persons filing separately who lived together during the year.
7. For additional information on the taxability of Social Security benefits, see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Publication 915 is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

10 Facts About Capital Gains and Losses


Have you heard of capital gains and losses? If not, you may want to read up on them because they might have an impact on your tax return. The IRS wants you to know these ten facts about gains and losses and how they could affect your tax situation.
  1. Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.
  2. When you sell a capital asset, the difference between the amount you sell it for and your basis – which is usually what you paid for it – is a capital gain or a capital loss.
  3. You must report all capital gains.
  4. You may deduct capital losses only on investment property, not on property held for personal use.
  5. Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.
  6. If you have long-term gains in excess of your long-term losses, you have a net capital gain to the extent your net long-term capital gain is more than your net short-term capital loss, if any.
  7. The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income. For 2009, the maximum capital gains rate for most people is15%. For lower-income individuals, the rate may be 0% on some or all of the net capital gain. Special types of net capital gain can be taxed at 25% or 28%.
  8. If your capital losses exceed your capital gains, the excess can be deducted on your tax return and used to reduce other income, such as wages, up to an annual limit of $3,000, or $1,500 if you are married filing separately.
  9. If your total net capital loss is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you incurred it in that next year.
  10. Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13of Form 1040.

Thursday, February 18, 2010

Top Ten Facts about Taking Early Distributions from Retirement Plans

Some taxpayers may have needed to take an early distribution from their retirement plan last year. The IRS wants individuals who took an early distribution to know that there can be a tax impact to tapping your retirement fund. Here are ten facts about early distributions.

  1. Payments you receive from your Individual Retirement Arrangement before you reach age 59 ½ are generally considered early or premature distributions.
  2. Early distributions are usually subject to an additional 10 percent tax.
  3. Early distributions must also be reported to the IRS.
  4. Distributions you rollover to another IRA or qualified retirement plan are not subject to the additional 10 percent tax. You must complete the rollover within 60 days after the day you received the distribution.
  5. The amount you roll over is generally taxed when the new plan makes a distribution to you or your beneficiary.
  6. If you made nondeductible contributions to an IRA and later take early distributions from your IRA, the portion of the distribution attributable to those nondeductible contributions is not taxed.
  7. If you received an early distribution from a Roth IRA, the distribution attributable to your prior contributions is not taxed.
  8. If you received a distribution from any other qualified retirement plan, generally the entire distribution is taxable unless you made after-tax employee contributions to the plan.
  9. There are several exceptions to the additional 10 percent early distribution tax, such as when the distributions are used for the purchase of a first home, for certain medical or educational expenses, or if you are disabled.
  10. For more information about early distributions from retirement plans, the additional 10 percent tax and all the exceptions contact my office.

Gambling Winnings Are Always Taxable Income

Gambling winnings are fully taxable and must be reported on your tax return. Here are the top seven facts the Internal Revenue Service wants you to know about gambling winnings.

  1. Gambling income includes – but is not limited to – winnings from lotteries, raffles, horse and dog races and casinos, as well as the fair market value of prizes such as cars, houses, trips or other noncash prizes.
  2. Depending on the type and amount of your winnings, the payer might provide you with a Form W-2G and may have withheld federal income taxes from the payment.
  3. The full amount of your gambling winnings for the year must be reported on line 21 of IRS Form 1040. You may not use Form 1040A or 1040EZ. This rule applies regardless of the amount and regardless of whether you receive a Form W-2G or any other reporting form.
  4. If you itemize deductions, you can deduct your gambling losses for the year on line 28 of Schedule A, Form 1040.
  5. You cannot deduct gambling losses that are more than your winnings.
  6. It is important to keep an accurate diary or similar record of your gambling winnings and losses.
  7. To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses.

Wednesday, February 17, 2010

Seven Facts to Help You Understand the Alternative Minimum Tax

The Alternative Minimum Tax attempts to ensure that anyone who benefits from certain tax advantages pays at least a minimum amount of tax.

Here are seven facts the Internal Revenue Service wants you to know about the AMT and changes to this special tax for 2009.

1. Tax laws provide tax benefits for certain kinds of income and allow special deductions and credits for certain expenses. These benefits can drastically reduce some taxpayers’ tax obligations. Congress created the AMT in 1969, targeting taxpayers who could claim so many deductions they owed little or no income tax.

2. Because the AMT is not indexed for inflation, a growing number of middle-income taxpayers are discovering they are subject to the AMT.

3. You may have to pay the AMT if your taxable income for regular tax purposes plus any adjustments and preference items that apply to you are more than the AMT exemption amount.

4. The AMT exemption amounts are set by law for each filing status.

5. For tax year 2009, Congress raised the AMT exemption amounts to the following levels:

  • $70,950 for a married couple filing a joint return and qualifying widows and widowers;
  • $46,700 for singles and heads of household;
  • $35,475 for a married person filing separately.
6. The minimum AMT exemption amount for a child whose unearned income is taxed at the parents' tax rate has increased to $6,700 for 2009.

7. If you claim a regular tax deduction on your 2009 tax return for any state or local sales or excise tax on the purchase of a new motor vehicle, that tax is also allowed as a deduction for the AMT.
NFS February Business Briefs
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Tuesday, February 16, 2010

Seven Things You Need to Know About the Government Retiree Credit
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Seven Things You Need to Know About the Government Retiree Credit

Certain government retirees who receive a government pension or annuity payment in 2009 may be eligible for the Government Retiree Credit. The American Recovery and Reinvestment Act of 2009 provides this one-time credit of $250 for certain federal and state pensioners.

Here are seven things the IRS wants you to know about the Government Retiree Credit:

  1. You can take this credit if you receive a pension or annuity payment in 2009 for service performed for the U.S. Government or any U.S. state or local government and the service was not covered by social security.
  2. Recipients of the Making Work Pay Credit will have that credit reduced by any Government Retiree Credit they receive.
  3. The credit is $250 for individuals and $500 if married filing jointly and both you and your spouse receive a qualifying pension or annuity.
  4. You must have a valid social security number to claim the credit. If married filing jointly, both spouses must have a valid social security number to each claim the $250 credit.
  5. You cannot take the credit if you received a $250 economic recovery payment in 2009.
  6. This is a refundable credit, which means it may give you a refund even if you had no tax withheld from your pension.
  7. To claim the credit, you must complete Schedule M, Making Work Pay and Government Retiree Credits, and attach it to your Form 1040A or 1040.
Five Ways to Offset Education Costs
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Five Ways to Offset Education Costs

College can be very expensive. To help students and their parents, the IRS offers the following five ways to offset education costs.

  1. The American Opportunity Credit This credit can help parents and students pay part of the cost of the first four years of college. The American Recovery and Reinvestment Act modifies the existing Hope Credit for tax years 2009 and 2010, making it available to a broader range of taxpayers. Eligible taxpayers may qualify for the maximum annual credit of $2,500 per student. Generally, 40 percent of the credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes.
  2. The Hope Credit The credit can help students and parents pay part of the cost of the first two years of college. This credit generally applies to 2008 and earlier tax years. However, for tax year 2009 a special expanded Hope Credit of up to $3,600 may be claimed for a student attending college in a Midwestern disaster area as long as you do not claim an American Opportunity Tax Credit for any other student in 2009.
  3. The Lifetime Learning Credit This credit can help pay for undergraduate, graduate and professional degree courses – including courses to improve job skills – regardless of the number of years in the program. Eligible taxpayers may qualify for up to $2,000 – $4,000 if a student in a Midwestern disaster area – per tax return.
  4. Enhanced benefits for 529 college savings plans Certain computer technology purchases are now added to the list of college expenses that can be paid for by a qualified tuition program, commonly referred to as a 529 plan. For 2009 and 2010, the law expands the definition of qualified higher education expenses to include expenses for computer technology and equipment or Internet access and related services.
  5. Tuition and fees deduction Students and their parents may be able to deduct qualified college tuition and related expenses of up to $4,000. This deduction is an adjustment to income, which means the deduction will reduce the amount of your income subject to tax. The Tuition and Fees Deduction may be beneficial to you if you do not qualify for the American opportunity, Hope, or lifetime learning credits.

You cannot claim the American Opportunity and the Hope and Lifetime Learning Credits for the same student in the same year. You also cannot claim any of the credits if you claim a tuition and fees deduction for the same student in the same year. To qualify for an education credit, you must pay post-secondary tuition and certain related expenses for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. Students who are claimed as a dependent cannot claim the credit.

Monday, February 15, 2010

Five Important Facts about Dependents and Exemptions
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Five Important Facts about Dependents and Exemptions

When you prepare to file your tax return, there are two things that will factor into your tax situation: dependents and exemptions. Here are five important facts the IRS wants you to know about dependents and exemptions before you file your 2009 tax return.

  1. If someone else claims you as a dependent, you may still be required to file your own tax return. Whether or not you must file a return depends on several factors, including the amount of your unearned, earned or gross income, your marital status, any special taxes you owe and, any advance Earned Income Tax Credit payments you received.
  2. Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,650 on your 2009 tax return. Exemption amounts are reduced for taxpayers whose adjusted gross income is above certain levels, depending on your filing status.
  3. If you are a dependent, you may not claim an exemption. If someone else – such as your parent – claims you as a dependent, you may not claim your personal exemption on your own tax return.
  4. Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.
  5. Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children. See IRS Publication 501, Exemptions, Standard Deduction, and Filing Information for additional tests to determine who can be claimed as a dependent.
I am here to answer all of your dependency questions.

Wednesday, February 10, 2010

Four Steps to Follow If You Are Missing a W-2

Getting ready to file your tax return? Make sure you have all your documents before you start. You should receive a Form W-2, Wage and Tax Statement from each of your employers. Employers have until February 1, 2010 to send you a 2009 Form W-2 earnings statement. If you haven’t received your W-2, follow these four steps:

1. Contact your employer If you have not received your W-2, contact your employer to inquire if and when the W-2 was mailed. If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address. After contacting the employer, allow a reasonable amount of time for them to resend or to issue the W-2.

2. Contact the IRS If you do not receive your W-2 by February 16th, contact the IRS for assistance at 800-829-1040. When you call, you must provide your name, address, city and state, including zip code, Social Security number, phone number and have the following information:

  • Employer’s name, address, city and state, including zip code and phone number
  • Dates of employment
  • An estimate of the wages you earned, the federal income tax withheld, and when you worked for that employer during 2009. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.
3. File your return You still must file your tax return or request an extension to file by April 15, even if you do not receive your Form W-2. If you have not received your Form W-2 by April 15th, and have completed steps 1 and 2, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible. There may be a delay in any refund due while the information is verified.

4. File a Form 1040X On occasion, you may receive your missing W-2 after you filed your return using Form 4852, and the information may be different from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.

Form 4852, Form 1040X, and instructions are available from my office and can be prepared by me. Please call if you need assistance.

Tuesday, February 9, 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.

Monday, February 8, 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.

Wednesday, February 3, 2010

Eight Facts About Filing Status

Everyone who files a federal tax return must determine which filing status applies to them. It’s important you choose your correct filing status as it determines your standard deduction, the amount of tax you owe and ultimately, any refund owed to you.

Here are eight facts about the five filing status options the IRS wants you to know in order to choose the correct filing status for your situation.

  1. Your marital status on the last day of the year determines your marital status for the entire year.
  2. If more than one filing status applies to you, choose the one that gives you the lowest tax obligation.
  3. Single filing status generally applies to anyone who is unmarried, divorced or legally separated according to state law.
  4. A married couple may file a joint return together. The couple’s filing status would be Married Filing Jointly.
  5. If your spouse died during the year and you did not remarry during 2009, you may still file a joint return with that spouse for the year of death, provided the joint return election is not revoked by a personal representative for the deceased spouse.
  6. A married couple may elect to file their returns separately. Each person’s filing status would generally be Married Filing Separately.
  7. Head of Household generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.
  8. You may be able to choose Qualifying Widow(er) with Dependent Child as your filing status if your spouse died during 2007 or 2008, you have a dependent child and you meet certain other conditions.

Tuesday, February 2, 2010

Five Tips for Avoiding Refund Delays Relating to Your Economic Recovery Payment

The $250 Economic Recovery Payments that were issued in 2009 by the Social Security Administration, Department of Veterans Affairs and Railroad Retirement Board must be included when claiming the Making Work Pay Tax Credit on 2009 tax returns. Many people who worked during 2009 and also received a $250 Economic Recovery Payment in 2009 are slowing down their tax refunds by not properly including the payments when claiming the Making Work Pay Tax Credit.

Here are five tips from the IRS that will help you avoid these refund delays:

  1. If you worked during 2009, you may be eligible to claim the Making Work Pay Tax Credit that was established by the American Recovery and Reinvestment Act of 2009 and is worth up to $400 for individuals and $800 for married couples.
  2. The Economic Recovery Payments are not taxable income; however, anyone who receives social security, veteran or railroad retirement benefits, as well as certain other government retirement benefits, must reduce the Making Work Pay Tax Credit they claim by the amount of any payment they received in 2009.
  3. Taxpayers with earned income should claim the credit by attaching Schedule M to their 2009 income tax return.
  4. To help avoid delays when you claim the credit, make sure you properly report your Economic Recovery Payment on IRS Schedule M, Making Work Pay and Government Retiree Credits.
  5. If you are not certain whether you received the $250 payment, you should verify that information by contacting the appropriate agency before preparing and filing your tax return and claiming the Making Work Pay Tax Credit.
More information about the Economic Recovery Payment and the Making Work Pay Tax Credit can be found at IRS.gov/recovery or for further assistance, please contact me.

Monday, February 1, 2010

Do I have to File a Tax Return?

You must file a tax return if your income is above a certain level. The amount varies depending on filing status, age and the type of income you receive.

Check the Individuals section of IRS.gov or consult the instructions for Form 1040, 1040A, or 1040EZ for specific details that may affect your need to file a tax return with the IRS this year.

Even if you don’t have to file, here are eight reasons why you may want to file:

  1. Federal Income Tax Withheld If you are not required to file, you should file to get money back if Federal Income Tax was withheld from your pay, you made estimated tax payments, or had a prior year overpayment applied to this year's tax.
  2. Making Work Pay Credit You may be able to take this credit if you have earned income from work. The maximum credit for a married couple filing a joint return is $800 and $400 for other taxpayers.
  3. Government Retiree Credit You may be eligible for this credit if you received a government pension or annuity payment in 2009. However, the amount of this credit reduces any making work pay credit you receive.
  4. Earned Income Tax Credit You may qualify for EITC if you worked, but did not earn a lot of money. EITC is a refundable tax credit; which means you could qualify for a tax refund.
  5. Additional Child Tax Credit This credit may be available to you if you have at least one qualifying child and you did not get the full amount of the Child Tax Credit.
  6. Refundable American Opportunity Credit This education tax credit is available for 2009 and 2010. The maximum credit per student is $2,500 and the first four years of postsecondary education qualify.
  7. First-Time Homebuyer Credit The credit is a maximum of $8,000 or $4,000 if your filing status is married filing separately. The credit applies to homes bought anytime in 2009 and on or before April 30, 2010. However, you have until on or before June 30, 2010, if you entered into a written binding contract before May 1, 2010. If you bought a home after November 6, 2009, you may be able to qualify and claim the credit even if you already owned a home. In this case, the maximum credit for long-time residents is $6,500, or $3,250 if your filing status is married filing separately.
  8. Health Coverage Tax Credit Certain individuals, who are receiving Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance, or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a Health Coverage Tax Credit worth 80 percent of monthly health insurance premiums when you file your 2009 tax return.
For more information about filing requirements and your eligibility to receive tax credits, please contact me.