Wednesday, March 30, 2011

Taxpayers Have Extra Time to Make a Contribution to Their IRA This Year

This year, you have a few extra days to make contributions to your traditional Individual Retirement Arrangements. That’s because Emancipation Day, a legal holiday in the District of Columbia, will be observed on Friday, April 15, 2011, which moves the due date for filing your tax return and making contributions to your 2010 IRA to Monday, April 18, 2011.

Here are the top 10 things the Internal Revenue Service wants you to know about setting aside retirement money in an IRA.
  1. You may be able to deduct some or all of your contributions to your IRA. You may also be eligible for the Savers Credit formally known as the Retirement Savings Contributions Credit.
  2. Contributions can be made to your traditional IRA at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means contributions for 2010 must be made by April 18, 2011. Additionally, if you make a contribution between Jan. 1 and April 18, you should designate the year targeted for that contribution.
  3. The funds in your IRA are generally not taxed until you receive distributions from that IRA.
  4. Use the worksheets in the instructions for either Form 1040A or Form 1040 to figure your deduction for IRA contributions.
  5. For 2010, the most that can be contributed to your traditional IRA is generally the smaller of the following amounts: $5,000 or $6,000 for taxpayers who were 50 or older at the end of 2010 or the amount of your taxable compensation for the year.
  6. Use Form 8880, Credit for Qualified Retirement Savings Contributions, to determine whether you are also eligible for a tax credit equal to a percentage of your contribution.
  7. You must use either Form 1040A or Form 1040 to claim the Credit for Qualified Retirement Savings Contributions or if you deduct an IRA contribution.
  8. You must be under age 70 1/2 at the end of the tax year in order to contribute to a traditional IRA.
  9. You must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment to contribute to an IRA. If you file a joint return, generally only one of you needs to have taxable compensation. However, see Spousal IRA Limits in IRS Publication 590, Individual Retirement Arrangements for additional rules.
  10. Refer to IRS Publication 590, for more information on contributing to your IRA account.
Let me know if you need help with your IRAs.

Tuesday, March 29, 2011

Are you making effective use of corporate dollars to achieve your personal financial security goals?

Monday, March 28, 2011

Beware of Tax Scams

The IRS wants taxpayers to be aware of tax scams. These scams are illegal and can lead to problems for taxpayers including significant penalties, interest and possible criminal prosecution. The schemes take several shapes, ranging from promises of large tax refunds to illegal ways of “untaxing” yourself.

Here are three important guidelines to keep in mind:

  • You are responsible and liable for the content of your tax return.
  • Anyone who promises you a bigger refund without knowing your tax situation could be misleading you, and
  • Never sign a tax return without looking it over to make sure it is accurate.
Beware of these common schemes:

Return Preparer Fraud:
Dishonest tax return preparers can cause many headaches for taxpayers who fall victim to their ploys. Such preparers derive financial gain by skimming a portion of their clients’ refunds and charging inflated fees for return preparation services. They attract new clients by promising large refunds. Choose carefully when hiring a tax preparer. As the saying goes, if it sounds too good to be true, it probably is. No matter who prepares your tax return you are ultimately responsible for its accuracy and for any tax bill that may arise due to a questionable claim.

To increase confidence in the tax system and improve compliance with the tax law, the IRS is implementing a requirement that all paid tax return preparers register with the IRS and obtain a preparer tax identification number (PTIN). Later this year, registered preparers will have to pass a competency exam and take continuing education courses.

Identity Theft:
It pays to be choosy when it comes to disclosing personal information. Identity thieves have used stolen personal data to access financial accounts, run up charges on credit cards and apply for new loans. The IRS is aware of several identity theft scams involving taxes or scammers posing as the IRS itself. The IRS does not use e-mail to contact taxpayers about issues related to their accounts. If you have any doubt whether a contact from the IRS is authentic, call 800-829-1040 to confirm it.

Frivolous Arguments:
Promoters have been known to make outlandish claims such as that the Sixteenth Amendment concerning congressional power to establish and collect income taxes was never ratified; that wages are not income; that filing a return and paying taxes are merely voluntary; and that being required to file Form 1040 violates the Fifth Amendment right against self-incrimination or the Fourth Amendment right to privacy. Don’t believe these or other similar claims. Such arguments are false and have been thrown out of court. Taxpayers have the right to contest their tax liabilities in court, but no one has the right to disobey the law.

For more information about these and other tax scams visit the IRS Web site at Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is

Sunday, March 27, 2011

Eight Tips for Deducting Charitable Contributions

Charitable contributions made to qualified organizations may help lower your tax bill. The IRS has put together the following eight tips to help ensure your contributions pay off on your tax return.

1. If your goal is a legitimate tax deduction, then you must be giving to a qualified organization. Also, you cannot deduct contributions made to specific individuals, political organizations and candidates. See IRS Publication 526, Charitable Contributions, for rules on what constitutes a qualified organization.

2. To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A.

3. If you receive a benefit because of your contribution such as merchandise, tickets to a ball game or other goods and services, then you can deduct only the amount that exceeds the fair market value of the benefit received.

4. Donations of stock or other non-cash property are usually valued at the fair market value of the property. Clothing and household items must generally be in good used condition or better to be deductible. Special rules apply to vehicle donations.

5. Fair market value is generally the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts.

6. Regardless of the amount, to deduct a contribution of cash, check, or other monetary gift, you must maintain a bank record, payroll deduction records or a written communication from the organization containing the name of the organization, the date of the contribution and amount of the contribution. For text message donations, a telephone bill will meet the record-keeping requirement if it shows the name of the receiving organization, the date of the contribution, and the amount given.

7. To claim a deduction for contributions of cash or property equaling $250 or more you must have a bank record, payroll deduction records or a written acknowledgment from the qualified organization showing the amount of the cash and a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift. One document may satisfy both the written communication requirement for monetary gifts and the written acknowledgement requirement for all contributions of $250 or more. If your total deduction for all noncash contributions for the year is over $500, you must complete and attach IRS Form 8283, Noncash Charitable Contributions, to your return.

8. Taxpayers donating an item or a group of similar items valued at more than $5,000 must also complete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser.

For more information on charitable contributions, refer to Form 8283 and its instructions, as well as Publication 526, Charitable Contributions. For information on determining value, refer to Publication 561, Determining the Value of Donated Property.

Friday, March 25, 2011

14 Charged with Homebuyer Tax Credit Fraud

Boston - Fourteen individuals have been charged with committing various crimes in which they fraudulently claimed the First-Time Homebuyer Tax Credit, including one longtime IRS employee.
Seven individuals from Massachusetts were indicted separately for filing false tax returns with the IRS and obtaining tax refunds after falsely claiming the First-Time Home Buyer Tax Credit even though they had not in fact purchased a home. They include Celestino Alves, 43, of Brockton; John Davis, 32, of Dorchester; Trystin Johnson, 34, of Mattapan; Maxine Thevenin, 33 of Dorchester; Jerry Janvier, 32, of Hyde Park; Samuel Jean, 33, of Dorchester; and Theresa Finocchio, 38, of Canton. Each of them faces up to five years in prison, followed by three years of supervised release, and a $250,000 fine.

An eighth individual, Michael Doyle, 44, of Hudson, N.H., was also indicted for filing false, fictitious and fraudulent claims with the IRS and faces the same penalties. Doyle was a longtime employee of the IRS who falsely claimed to have purchased his home in 2008 in order to obtain a tax refund by claiming the First-Time Homebuyer Tax Credit, even though he allegedly had purchased his home in 2007 and therefore wasn’t eligible for the stimulus-related benefit.

“Congress created and modified the Homebuyer Credit to stimulate the economy and help taxpayers achieve the American Dream, not to line the pockets of wrongdoers,” said Treasury Inspector General for Tax Administration J. Russell George in a statement. “It is especially troubling when fraud is committed by IRS employees. Their actions damage the integrity of our nation’s tax system. TIGTA will continue to vigorously investigate allegations of wrongdoing by IRS employees.”

Two individuals, Christopher Proe, 27, of Michigan and Junior Lopez, 29, of Southbridge, Mass., were indicted together for conspiring to defraud the government by filing tax returns which falsely claimed the First-Time Homebuyer Tax Credit. The indictment alleges that Proe and Lopez filed these false tax returns after obtaining identity information from third parties under false pretenses and creating false W-2 forms for a fictitious company called Lawn Brothers Landscaping. The indictment further alleges that Proe and Lopez filed over 50 fraudulent tax returns for the tax year 2008 and obtained over $500,000 in tax refunds which they directed to bank accounts controlled by Proe and Lopez.

Proe and Lopez each face a maximum penalty of 10 years in prison, to be followed by three years of supervised release and a $250,000 fine on the conspiracy counts. On the substantive count, they each face up to five years in prison, to be followed by 3 years of supervised release and a $250,000 fine.Additionally, two brothers, George Saad, 32, and Elias Saad, 29, of Methuen, Mass., were charged in an information with conspiring to commit wire fraud and submitting false claims for tax refunds. Along with the brothers, George Saad’s wife, Harlene Grullon, 34, of Methuen, and Kristijan Katjna, 32, of Boston, were also charged with falsely claiming the First-Time Homebuyer Tax Credit and making false statements on mortgage applications to the Department of Housing and Urban Development and to the Federal Housing Administration.

The information alleges that George and Elias Saad conspired to commit wire fraud by recruiting people to purchase properties on their behalf and then claiming the First-Time Homebuyer Tax Credit on those falsely obtained properties. Frequently, those properties were obtained by lying on the mortgage application and falsely stating that the “straw” purchasers were buying the properties when, in fact, George and Elias Saad were the true purchasers.

If convicted of conspiracy, George and Elias Saad each face up to five years in prison, to be followed by three years of supervised release and a $250,000 fine. George Saad, Grullon, and Katjna each face up to five years in prison on the false statement counts, to be followed by three years of supervised release and a $250,000 fine. The false statement counts carry an additional maximum of two years imprisonment, to be followed by one year of supervised release and a $250,000 fine.

The cases were investigated by the Internal Revenue Service’s Criminal Investigation division, the U.S. Department of Housing and Urban Development, Office Inspector General, the Federal Bureau of Investigation - Boston Field Office and the Treasury Inspector General for Tax Administration. They are being prosecuted by Assistant U.S. Attorneys Fred M. Wyshak, Jeffrey M. Cohen and Robert Fisher of U.S. Attorney Carmen Ortiz’s Public Corruption Unit.

Thursday, March 24, 2011

What might the "high cost of dying" mean to you and your family?

Wednesday, March 23, 2011

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IRS Warns of Tax Preparer Fraud

The Internal Revenue Service has been investigating and helping prosecute a number of tax preparers in Southern California who have been cheating the government and their clients.

As the tax filing season is in full swing, the IRS noted that it’s important for taxpayers to find honest, qualified tax professionals if they need tax preparation assistance. Taxpayers are legally responsible for what’s on their own tax returns even if prepared by someone else. Choosing a dishonest tax preparer can be costly as dishonest tax professionals may, for example, place fictitious information or false deductions on their client’s tax returns resulting in an inflated refund.

The IRS Web site at provides various tips in what to look for—and what to look out for—when choosing a tax professional. Tax professionals must now have a Preparer Tax Identification Number. Use of the PTIN is required on all federal returns prepared by paid tax return preparers starting on Jan. 1, 2011.

“Return preparer fraud is a priority for IRS Criminal Investigation and we have committed many resources to investigating and prosecuting these types of cases,” said Leslie P. DeMarco, special agent-in-charge at the IRS Criminal Investigation division’s Los Angeles field office. “Taxpayers should be very careful when choosing a return preparer. You should be as careful as you would in choosing a doctor or lawyer. It is important to know that even if someone else preparers your return, you are ultimately responsible for all the information on the tax return.”

In addition to being on the alert for abusive return preparers, the IRS is encouraging taxpayers to visit the IRS Web site for the latest updates on tax schemes and scams and what to avoid. Some of these scams include fictitious emails supposedly from the IRS. The IRS does not send out unsolicited emails or ask for detailed personal and financial information via email.

Taxpayers should also be careful of employment tax schemes where an employer wrongfully classifies the employee to eliminate the withholding and payment of employment taxes. This scheme can affect the employee directly who may see future benefits such as social security, unemployment compensation and Medicare greatly reduced or eliminated.

In the greater Southern California area, IRS Criminal Investigation special agents are actively investigating those involved in alleged criminal violations of the tax laws and related federal offenses. Federal court records reveal the following recent legal actions pertaining to return preparer fraud:

Tax Preparer Serving Life Sentence Gets 37 Months - After receiving a life sentence for his involvement in attempting to overthrow the Cambodian government, Yasith Chhun was sentenced Monday afternoon in federal court to 37 months imprisonment, to be served concurrently, for tax fraud charges.

On Nov. 13, 2008, Chhun pleaded guilty to charges that he conspired to defraud the United States and that he aided and assisted in the preparation of false tax returns.

Chhun was the owner of CCC Professional Accounting Services in Long Beach, Calif., a tax preparation business. Chhun prepared federal income tax returns for members of the Cambodian community who were often on welfare or another form of government assistance.

Chhun assisted in the preparation of federal income tax returns for clients that falsely stated the clients earned between $8,000 and $10,000 as income for sewing work— and requested an Earned Income Tax Credit of between $2,000 and $3,000 per return— when, in fact, the clients did not earn such income and were not entitled to the requested EIC. In total, the improperly claimed credit from the numerous fraudulent federal income tax returns was more than $400,000.

San Bernardino Preparer Sentenced to Serve 5 ½ Years in Federal Prison – Robert Dean Larsen, a tax return preparer who operated a return preparation business in Apple Valley, was sentenced on Feb. 7, 2011 to spend 66 months in federal prison after pleading guilty to charges that he conspired to defraud the United States and that he aided and assisted in the preparation of false tax returns.

Larsen, who operated Larsen’s Tax Pros at various locations in San Bernardino County and operated Laza’s Tax Service in Apple Valley, admitted in his plea agreement that, from 2002 to 2006, tax return preparers at his businesses filed at least 1,162 tax returns with the IRS that were false claiming refunds totaling over $3.6 million.

El Segundo Tax Return Preparer Sentenced to 24 Months in Federal Prison – Gene S. Wong, who operated a tax return preparation and bookkeeping business known variously as “TaxLAX”, “Tax 4 Less”, and “GW Accounting & Bookkeeping Center” was sentenced on Aug. 9, 2010 to spend 24 months in federal prison after previously pleading guilty to charges that he willfully failed to file his personal income tax return for 2005 and that he filed false claims for tax refunds on behalf of his clients. Wong was further ordered by U.S. District Judge Christina A. Snyder to pay restitution totaling $255,236 to the IRS.

According to his plea agreement, Wong filed at least 92 false claims for tax refunds with the IRS on behalf of third parties claiming false refunds totaling over $255,000.
The false claims for refunds filed by Wong claimed fraudulent tax credits including general business tax credits, fuel tax credits, and alternative vehicle tax credits. In his plea agreement, Wong admitted that there was no basis for the tax credits claimed on the false returns he prepared.

West Covina Man Pleads Guilty to Preparing a False Tax Return Filed with the IRS – Nestor Bermudez pleaded guilty on Jan. 24, 2011 to preparing and submitting a false tax return in the name of another individual to the IRS.

In his plea agreement, Bermudez admitted that he agreed to prepare false and fraudulent tax returns in exchange for a fee of up to $500 per tax return. Thereafter, another individual provided Bermudez with the names, dates of birth and Social Security numbers for 127 persons in whose names Bermudez prepared tax returns. The returns were false in that they falsely reported filing status, income, and number of dependants and falsely claimed tax refunds based upon the earned income tax credit, child care credit and/or recovery rebate credit. The information reported on the tax returns, including filing status, amount of income, and number of dependants was necessary to determine whether any tax was due.

When sentenced on June 20th, Bermudez faces a statutory maximum three years in federal prison and fines totaling $250,000.

Monday, March 21, 2011

Congresswoman Introduces Bill to Tax Millionaires and Billionaires

Washington, D.C. - Rep. Jan Schakowsky, D-Ill., has introduced a bill that would levy taxes of 45 to 49 percent on millionaires and billionaires.

Schakowsky, who was a member of President Obama’s deficit reduction commission, introduced the Fairness in Taxation Act on Wednesday. The bill would create the following new tax brackets for millionaires and billionaires:

• $1-10 million: 45%

• $10-20 million: 46%

• $20-100 million: 47%

• $100 million to $1 billion: 48%

• $1 billion and over: 49%

The current top tax bracket begins at $373,000 in income and fails to distinguish between the “well off” and billionaires, such as the top 20 hedge fund managers whose average income last year was over $1 billion, Schakowsky pointed out.

The bill would also tax capital gains and dividend income as ordinary income for those taxpayers with income over $1 million. If enacted in 2011, the Fairness in Taxation Act would raise an estimated $78 billion or more, according to Schakowsky.

“In the United States today, the richest 1 percent owns 34 percent of our nation’s wealth,” Schakowsky said in a statement. “That’s more than the entire bottom 90 percent, who own just 29 percent of the country’s wealth. And the top one-hundredth of 1 percent now makes an average of $27 million per household per year. The average income for the bottom 90 percent of Americans? $31,244. It’s time for millionaires and billionaires to pay their fair share, which is why I introduced the Fairness in Taxation Act. This isn’t about punishment or revenge. It’s about fairness. It’s about avoiding budget cuts that harm middle-class families and those who aspire to it. We can choose to cut education, job creation and health care, or we can choose to ask those who can contribute more to do so.”

The bill has attracted support from several other Democrats, including the co-chairs of the Congressional Progressive Caucus, Raul Grijalva, D-Ariz., and Keith Ellison, D-Minn., as well as Jesse Jackson, Jr., D-Ill., Donna Edwards, D-Md., Bob Filner, D-Calif., Jerry Nadler, D-N.Y., Steve Cohen D-Tenn., John Yarmuth, D-Ken., and Peter DeFazio, D-Ore.

On Thursday, House Ways and Means Committee Chairman Dave Camp,. R-Mich., proposed cutting the top tax rate for individuals and corporations to 25 percent.

What Parents Should Know about Their Child’s Investment Income

Parents need to be aware of the tax rules that affect their children’s investment income. Here are four facts from the IRS that 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 meets one of three age requirements for 2010:
    • Was under age 18 at the end of the year,
    • Was age 18 at the end of the year and did not have earned income that was more than half of his or her support, or
    • Was a full-time student over age 18 and under age 24 at the end of the year and did not have earned income that was more than half of his or her support.
  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.

More information can be found in IRS Publication 929, Tax Rules for Children and Dependents.

Saturday, March 19, 2011

Come visit me at the LCOR Health Fair Sunday 03/20/11 from 9:30-11am and bring your questions on Life Insurance, Health Insurance, Disability & LTC. 212 Main Street, Foxboro MA 02035

Friday, March 18, 2011

Congressman Proposes Bill to Let IRS Prepare Taxes

Washington, D.C. - A Tennessee congressman has introduced a bill that would allow the Internal Revenue Service to prepare taxes for a taxpayer.

Rep. Jim Cooper, D-Tenn., introduced the Simple Return Act (H.R. 1069). The bill would allow the IRS to fill out a basic tax return for every American with the financial information it already receives from each taxpayer’s employer and financial institution: W-2 and 1099. Every American would have the opportunity to review and sign the government return, or simply throw it away and fill out their return on their own.

“Here’s a simple idea for reducing the hassle of paying your federal income taxes,” Cooper said in a statement. “Make the IRS do your paperwork. They already have much of your tax information like copies of your W-2 and 1099s. Today they use that information to catch you if you make a mistake. Why not get the IRS to use that information to help you instead of punish you?”

The Simple Return could be used by anyone with basic tax information. It is estimated that around 40 million Americans would be able to use this service saving $2 billion in preparation fees and 225 million hours of preparation time. Converting that time into money, it is estimated that savings could reach $44 billion over 10 years.

The idea was floated 25 years ago by President Reagan, and he asked the Treasury Department to study the concept, according to an op-ed in The Tennessean written by CPA Mike Schmerling, which Cooper ran on his Web site. California has already run a successful pilot program using a Simple Return for state income taxes.

By Accounting Today

Thursday, March 17, 2011

IRS Sends 200,000 Balance Due Notices by Mistake

Due to a computer processing glitch, the IRS mailed 200,000 CP-14 balance due notices to taxpayers who filed electronically. These notices told the taxpayers that their balance was due by April 15, even if they had already designated automatic withdrawal from their bank accounts.

These notices were not to be processed in the middle of tax season, and instead should have been processed after the database had been updated to account for direct debit payments.

The IRS has stated that if a taxpayer consequently pays twice using direct debit and check, the IRS will automatically issue a refund for any overpayment.

It is important to note that not all taxpayers have received a Notice CP-14 in error. If the bank account listed on the tax return was listed incorrectly, a taxpayer would receive this notice.

Employee Business Expenses

If you itemize deductions and are an employee, you may be able to deduct certain work-related expenses. The IRS has put together the following facts to help you determine which expenses may be deducted as an employee business expense.

Expenses that qualify for an itemized deduction include:
  • Business travel away from home
  • Business use of car
  • Business meals and entertainment
  • Travel
  • Use of your home
  • Education
  • Supplies
  • Tools
  • Miscellaneous expenses
You must keep records to prove the business expenses you deduct. For general information on recordkeeping, see IRS Publication 552, Recordkeeping for Individuals available on the IRS website,, or by calling 800-829-3676.

If your employer reimburses you under an accountable plan, you do not include the payments in your gross income, and you may not deduct any of the reimbursed amounts.

An accountable plan must meet three requirements:
  1. You must have paid or incurred expenses that are deductible while performing services as an employee.
  2. You must adequately account to your employer for these expenses within a reasonable time period, and
  3. You must return any excess reimbursement or allowance within a reasonable time period.
If the plan under which you are reimbursed by your employer is non-accountable, the payments you receive should be included in the wages shown on your Form W-2. You must report the income and itemize your deductions to deduct these expenses.

Generally, report expenses on IRS Form 2106 or IRS Form 2106-EZ to figure the deduction for employee business expenses and attach it to Form 1040. Deductible expenses are then reported on Form 1040, Schedule A, as a miscellaneous itemized deduction subject to 2% of your adjusted gross income rules. Only employee business expenses that are in excess of 2% of your adjusted gross income can be deducted.

For more information see IRS Publication 529, Miscellaneous Deductions available on the IRS website.

Wednesday, March 16, 2011

Do You Still Have Enough Life Insurance?

Work From Home? Consider the Home Office Deduction..

Whether you are self-employed or an employee, if you use a portion of your home for business, you may be able to take a home office deduction. Here are six things the IRS wants you to know about the Home Office deduction

1. Generally, in order to claim a business deduction for your home, you must use part of your home exclusively and regularly:
  • as your principal place of business, or
  • as a place to meet or deal with patients, clients or customers in the normal course of your business, or
  • in any connection with your trade or business where the business portion of your home is a separate structure not attached to your home.
2. For certain storage use, rental use, or daycare-facility use, you are required to use the property regularly but not exclusively.

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

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

5. If you are self-employed, use Form 8829, Expenses for Business Use of Your Home to figure your home office deduction and report those deductions on line 30 of Form 1040 Schedule C, Profit or Loss From Business.

6. If you are an employee, additional rules apply for claiming the home office deduction. For example, the regular and exclusive business use must be for the convenience of your employer.

For more information see IRS Publication 587, Business Use of Your Home. I am here to help - let me know if I can be of any assistance.

Monday, March 14, 2011

Ten Things to Know About the Child and Dependent Care Credit

If you paid someone to care for your child, spouse, or dependent last year, you may be able to claim the Child and Dependent Care Credit on your federal income tax return. Below are 10 things the IRS wants you to know about claiming a credit for child and dependent care expenses.

  1. The care must have been provided for one or more qualifying persons. A qualifying person is your dependent child age 12 or younger when the care was provided. Additionally, your spouse and certain other individuals who are physically or mentally incapable of self-care may also be qualifying persons. You must identify each qualifying person on your tax return.
  2. The care must have been provided so you – and your spouse if you are married filing jointly – could work or look for work.
  3. You – and your spouse if you file jointly – must have earned income from wages, salaries, tips, other taxable employee compensation or net earnings from self-employment. One spouse may be considered as having earned income if they were a full-time student or were physically or mentally unable to care for themselves.
  4. The payments for care cannot be paid to your spouse, to the parent of your qualifying person, to someone you can claim as your dependent on your return, or to your child who will not be age 19 or older by the end of the year even if he or she is not your dependent. You must identify the care provider(s) on your tax return.
  5. Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child.
  6. The qualifying person must have lived with you for more than half of 2010. There are exceptions for the birth or death of a qualifying person, or a child of divorced or separated parents. See Publication 503, Child and Dependent Care Expenses.
  7. The credit can be up to 35 percent of your qualifying expenses, depending upon your adjusted gross income.
  8. For 2010, you may use up to $3,000 of expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.
  9. The qualifying expenses must be reduced by the amount of any dependent care benefits provided by your employer that you deduct or exclude from your income.
  10. If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer and may have to withhold and pay social security and Medicare tax and pay federal unemployment tax. See Publication 926, Household Employer's Tax Guide.
For more information on the Child and Dependent Care Credit, see Publication 503, Child and Dependent Care Expenses or contact my office.

Sunday, March 13, 2011

Seven Tips About Rental Income and Expenses

Do you rent property to others? If so, you’ll want to read the following seven tips from the IRS about rental income and expenses.

You generally must include in your gross income all amounts you receive as rent. Rental income is any payment you receive for the use of or occupation of property. Expenses of renting property can be deducted from your gross rental income. You generally deduct your rental expenses in the year you pay them. Publication 527, Residential Rental Property, includes information on the expenses you can deduct if you rent property.

1. When to report income. You generally must report rental income on your tax return in the year that you actually receive it.
2. Advance rent. Advance rent is any amount you receive before the period that it covers. Include advance rent in your rental income in the year you receive it, regardless of the period covered.

3. Security deposits. Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year.

4. Property or services in lieu of rent. If you receive property or services, instead of money, as rent, include the fair market value of the property or services in your rental income. If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary.

5. Expenses paid by tenant. If your tenant pays any of your expenses, the payments are rental income. You must include them in your income. You can deduct the expenses if they are deductible rental expenses. See Rental Expenses in Publication 527, for more information.

6. Rental expenses. Generally, the expenses of renting your property, such as maintenance, insurance, taxes, and interest, can be deducted from your rental income.

7. Personal use of vacation home. If you have any personal use of a vacation home or other dwelling unit that you rent out, you must divide your expenses between rental use and personal use. If your expenses for rental use are more than your rental income, you may not be able to deduct all of the rental expenses.

For more information on rental income and expenses see Publication 527 or call my office at 800-560-4NFS.

Monday, March 7, 2011

Four Credits That Can Pay You at Tax Time

You might be eligible for a valuable tax credit. A tax credit is a dollar-for-dollar reduction of taxes owed. Some credits are even refundable, which means you might receive a refund rather than owe any taxes at all. Here are four popular tax credits you should consider before filing your 2010 Federal Income Tax Return:

  1. The Earned Income Tax Credit is a refundable credit for certain people who work and have earned income from wages, self-employment or farming. Income, age and the number of qualifying children determine the amount of the credit. EITC reduces the amount of tax you owe and may also give you a refund. For more information see IRS Publication 596, Earned Income Credit.
  2. The Child and Dependent Care Credit is for expenses paid for the care of your qualifying children under age 13, or for a disabled spouse or dependent, to enable you to work or look for work. For more information, see IRS Publication 503, Child and Dependent Care Expenses.
  3. The Child Tax Credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses. For more information on the Child Tax Credit, see IRS Publication 972, Child Tax Credit.
  4. The Retirement Savings Contributions Credit, also known as the Saver’s Credit, is designed to help low-to-moderate income workers save for retirement. You may qualify if your income is below a certain limit and you contribute to an IRA or workplace retirement plan, such as a 401(k) plan. The Saver’s Credit is available in addition to any other tax savings that apply. For more information, see IRS Publication 590, Individual Retirement Arrangements (IRAs).
There are other credits available to eligible taxpayers. Since many qualifications and limitations apply to the various tax credits, taxpayers should contact my office for more information or assistance - 800-560-4NFS.

Friday, March 4, 2011

House Repeals 1099 Reporting Requirements

House Repeals 1099 Reporting Requirements

Washington, D.C. - The House approved a repeal of the expanded 1099 information reporting requirements by a vote of 314-112 on Thursday.

The bill, H.R. 4, “"The Small Business Paperwork Mandate Elimination Act of 2011,” introduced by Rep. Dan Lungren, R-Calif., would repeal the provisions in last year’s Affordable Care Act and Small Business Jobs Act requiring businesses, including rental property owners, to file a Form 1099-MISC with the Internal Revenue Service reporting any purchases of $600 or more from another business during the calendar year.

Every Republican in the House voted to approve the bill, but 76 Democrats were opposed, according to The Hill’s Floor Action Blog. Democrats objected to an offset in the bill that would pay for the cost of the repeal by requiring people who had received tax credits to pay for health insurance under the health care reform bill to repay the subsidies if they end up earning too much during the year to qualify. They argued that the offset amounted to a tax increase.

“This bill would saddle hundreds of thousands of middle-income taxpayers with a hefty tax increase,” said Rep. Sander Levin, D-Mich., the ranking member on the House Ways and Means Committee. “We all favor repealing 1099, but to do so on the backs of the middle class is irresponsible. With this legislation, Republicans continue their reckless overreach, this time by gouging middle-income taxpayers.”

However, Rep. Dave Camp, R-Mich., who chairs the Ways and Means Committee, said he did not view the provision as a tax increase. “Voluntarily choosing to not enroll in government health care and thus forgoing the associated tax subsidies that one may not be eligible for might result in more government revenue according to the Joint Tax Committee, but it is not a tax increase,” he said.

He hailed the passage of the bill. "Clearly there is strong, bipartisan support to repeal the 1099 provisions so that small businesses can focus on what they do best – creating jobs," Camp said in a statement. "With more than 70 percent of the House, including 76 Democrats, voting for repeal of the 1099 provisions, I urge the Senate to move quickly to take up and pass this legislation so we can send a bipartisan bill to the President.”

The Obama administration has said it would prefer that a different way be used to pay for the repeal, however. Last month, the Senate passed its own repeal of the health care reform bill’s expanded 1099 information reporting requirements within a larger reauthorization bill for the Federal Aviation Administration that would offset the cost of the repeal with unspecified spending cuts, authorizing the Office of Management and Budget to use unobligated funds. However, that bill does not include provisions repealing the rental property owner 1099 requirements in the Small Business Jobs Act.

The Obama administration opposes the offsets used in both the House and Senate bills, but has not specified how the cost of the repeal should be paid. It said in a statement Tuesday evening that the House bill "would result in tax increases on certain middle-class families that incure unexpected tax liabilities," while the Senate bill "could cause seious disruption in a wide range of services."

By Michael Cohn

Wednesday, March 2, 2011

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Did you Take an Early Distribution from Your Retirement Plan?

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 see IRS Publication 575, Pension and Annuity Income and Publication 590, Individual Retirement Arrangements (IRAs). Both publications are available at or by calling my office for help - 800-560-4NFS.

Tuesday, March 1, 2011

More than $1.1 Billion in Tax Refunds Still Unclaimed

Washington, D.C. - Refunds totaling more than $1.1 billion may be waiting for nearly 1.1 million people who did not file a federal income tax return for 2007, according to the Internal Revenue Service.

To collect the money, a return for 2007 must be filed with the IRS no later than Monday, April 18, 2011. The IRS estimates that half of these potential 2007 refunds are for $640 or more.

Some people may not have filed because they had too little income to require filing a tax return even though they had taxes withheld from their wages or made quarterly estimated payments, the IRS noted. In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If no return is filed to claim a refund within three years, the money becomes property of the U.S. Treasury.

For 2007 returns, the window closes on April 18, 2011. The law requires that the return be properly addressed, mailed and postmarked by that date. There is no penalty for filing a late return qualifying for a refund. The IRS reminded taxpayers seeking a 2007 refund that their checks will be held if they have not filed tax returns for 2008 and 2009. In addition, the refund will be applied to any amounts still owed to the IRS, and may be used to offset unpaid child support or past due federal debts such as student loans.

By failing to file a return, people stand to lose more than a refund of taxes withheld or paid during 2007. In addition, many low-and-moderate income workers may not have claimed the Earned Income Tax Credit, the IRS noted. The EITC helps individuals and families whose incomes are below certain thresholds, which in 2007 were $39,783 for those with two or more children, $35,241 for people with one child, and $14,590 for those with no children. For more information, visit the EITC Home Page.

By Michael Cohn