Do You Know the Best Way to File Your Return?
Do You Know What Filing Status Works Best for Your Household?
Do You Know Tax Law?
Just as in the rest of our lives, what you don’t know can/will hurt you!
Just as in our Christian walk we are to surround ourselves with those who are wise, so is it in our professional lives.
Finding an Accountant who can help with all substantive tax and financial management issues is essential.
The below is a sample inquiry we might receive from a client to begin to address all of their personal financial management issues:
If I file joint married return for 2011 what would difference be in tax liability versus filing married filing separately? Just looking get idea if I should consider doing if it would save me money and how much.
Below is my response:
Yes it would be worthwhile..
It would save you approximately $3,000 to the IRS and $100 to GA.
Please note this is based upon:
Only your taxable income
When you get ready to file your personal tax return, perhaps one of the biggest issues you will want to initially determine is your filing status. This one issue will affect not only the way you compile and file your return but the actual amount of your tax obligation as well. Tax law mandates that your filing status is determined by your marital status on the last day of the tax year, December 31st. Frequently, taxpayers will file their returns incorrectly, believing their filing status is determined by their marital status for the predominant portion of the year. However, this would be incorrect as it is solely one’s marital status on the last day of the year that is the determining factor.
Determining Filing Status/Dependent/Exemptions
Determining your filing status, exemptions and dependents will be three critical aspects of determining your lowest legal possible tax. If you are a single taxpayer and have a child who is also your dependent who lives with you full time, you may file as Head of Household, which will allow your income to be taxed at a lower rate. In a situation with a child having two parents who do not live together, typically a parent with primary legal custody will be the one allowed to claim Head of Household.
Taxpayers who are married may also file returns, Married Filing Separately. These tax rates/brackets are the highest of the four brackets and are generally the least advantageous. However, if a taxpayer is married and either of them have a tax obligation that either occurred while they were single or married filing separately, then it would be prudent to consider filing Married Filing Separately to avoid having either the IRS or state merging their files, collection efforts and obligations.
Determining Dependents
All taxpayers (who are not claimed as dependents by others) are allowed dependents, which reduces taxable income. If married and filing a joint return, you are allowed to claim your spouse as a dependent. Taxpayers generally can claim as dependents family members and children, provided they provide over half of their support and they live with the taxpayer full time. Generally children can be claimed until they become of legal age (18) and then be claimed for several years beyond that provided they are a full time student for more than five months a year. If a child files their own return and claims themselves, then a parent, who otherwise would have qualified to claim the child, are precluded from also claiming the child. Each dependant qualifies the taxpayer to take an exemption which is a statutory amount indexed annually for inflation. This total reduces a taxpayer’s gross income in determining the taxable amount.
Determining Exemptions
The number of dependents a taxpayer has is one of the key factors used in calculating the total number of exemptions. To this total taxpayers who are disabled, blind, or elderly are allowed to take an additional exemption when determining their taxable income. One’s total dependents and additional exemptions are then multiplied by that year’s amount to determine the total reduction in taxable income. Exemptions, like itemized deductions, are by law phased out/reduced based upon the taxpayer’s filing status and adjusted gross income.
Monday, May 16, 2011
Monday, May 24, 2010
Selling Real Estate Q&A with Melanie Greenwell
With lenders becoming more conservative, money tightening up, and the real estate market in decline, many homeowners and speculators find themselves faced with some unpleasant choices. One strategy is to wait until home prices rebound, but that could be some time and probably too far off for the owner with a variable rate or short-term introductory rate loan and increasing mortgage payments.
There are other reasons—such as job relocation, divorce, declining income or poor health—that can force a property owner to sell in a down market and possibly take a financial loss. This article explores the tax ramifications of selling a home or rental property at a loss. But first, here are some terminology and tax rules associated with selling property:
• Personal-Use Property - The general rule that applies to personal-use property is that gains are taxable as capital gains but losses are not deductible. Examples of personal-use property are the family car (no business use) and the family home or second home. So, if you sell your personal residence or second residence at a loss, that loss is not deductible.
• Investment Property – For investment property, generally, gains are taxable and losses are deductible as capital gains/losses. However, the amount of capital loss that can be deducted annually is limited. If, after combining all investment capital gains and losses, the result is a loss, the loss is generally limited to $3,000 per year. Examples of investment property include vacant land or improved real estate that is not a business property, home or second home.
• Business Property – The general rule for business property is that gains are taxable as capital gains and losses are deductible as ordinary income. Examples of business property include residential rentals, commercial rentals and an office-in-the-home.
• Primary Home Sale Gain Exclusion – Generally, an individual who owns and lives in a home for two of the prior five years can exclude $250,000 of home sale gain. This applies to each individual so a couple could exclude $500,000. In addition, an individual who does not meet the two-out-of-five requirements may still be able to exclude a lesser amount if the home was sold due to certain unforeseen circumstances.
Now let’s apply these general rules to some representative situations that are likely to occur in a down real estate market.
Example #1 – You sell your primary (or second) home for a loss when taking into consideration what you originally paid for the home, improvements and the sales costs. Bad news - your home is personal use property and losses from “personal-use property” are not deductible. Thus, there is no tax relief from having a loss on the sale of your primary or secondary home.
Example #2 – You purchased a residential or commercial property as a rental. Now the value has declined below your basis and a sale will result in a loss. Since it is business property, the entire loss will be deductible as ordinary income in the year of sale.
Example #3 – You purchased vacant land for an investment and need to sell it. Unfortunately, the sale will result in a loss. The good news is the loss is tax-deductible, but lacking any capital gains to offset the loss, you will only be able to deduct $3,000 ($1,500 if filing as married separate) of the loss in the sale year; the excess loss carries over to future years.
Example #4 – Your home that you are selling for a loss includes an office from which you conduct your business. The home office is deductible under the income tax rules, and represents 10% of the home. In this case, 10% of the loss would be deductible as an ordinary loss in the sale year. None of the remaining 90% of the loss is deductible due to the personal- use property rules.
Example #5 – Yes, we read your mind. You are planning to move out of your home that will sell for a loss and convert it to a rental thinking you could then deduct the loss. Problem with this strategy is that tax law requires you to use the fair market value (FMV) of the home at the time of conversion as the business basis if the FMV is less than your adjusted cost basis. Thus, the loss in value that occurred prior to the conversion will not be included in your loss when you sell the rental. However, if the market continues to decline, you will be able to take advantage of any future losses.
Example #6 – The property will sell for a loss, so you decide to just let it go into foreclosure. By doing this, you avoid the sales costs but destroy your credit rating for years to come. In addition, if the property sells at auction for less than the mortgage balance, you may, depending on some complicated rules, have to include in your income the difference between the loan amount and the sales price (referred to as debt relief income).
Example #7 – Let’s say you originally purchased your home for $200,000; it increased in value to $300,000, so you refinanced it for $240,000 and used the money to buy a car, go on vacation, pay off credit card balances, etc. Now your mortgage is higher than both your basis (cost) in the home and its current value. Your home sells for $225,000, and assuming you have $10,000 in sales costs, you end up with a tax gain of $15,000 rather than a loss, which may come as a surprise. The gain may or may not be taxable depending upon whether you qualify for the home sale gain exclusion. Bad news is you need to make up the $15,000 mortgage shortage and the $10,000 sales costs.
Buying or Selling your home???? Give me a call!
Melanie Greenwell
Dazcon Properties
704.746.2485
There are other reasons—such as job relocation, divorce, declining income or poor health—that can force a property owner to sell in a down market and possibly take a financial loss. This article explores the tax ramifications of selling a home or rental property at a loss. But first, here are some terminology and tax rules associated with selling property:
• Personal-Use Property - The general rule that applies to personal-use property is that gains are taxable as capital gains but losses are not deductible. Examples of personal-use property are the family car (no business use) and the family home or second home. So, if you sell your personal residence or second residence at a loss, that loss is not deductible.
• Investment Property – For investment property, generally, gains are taxable and losses are deductible as capital gains/losses. However, the amount of capital loss that can be deducted annually is limited. If, after combining all investment capital gains and losses, the result is a loss, the loss is generally limited to $3,000 per year. Examples of investment property include vacant land or improved real estate that is not a business property, home or second home.
• Business Property – The general rule for business property is that gains are taxable as capital gains and losses are deductible as ordinary income. Examples of business property include residential rentals, commercial rentals and an office-in-the-home.
• Primary Home Sale Gain Exclusion – Generally, an individual who owns and lives in a home for two of the prior five years can exclude $250,000 of home sale gain. This applies to each individual so a couple could exclude $500,000. In addition, an individual who does not meet the two-out-of-five requirements may still be able to exclude a lesser amount if the home was sold due to certain unforeseen circumstances.
Now let’s apply these general rules to some representative situations that are likely to occur in a down real estate market.
Example #1 – You sell your primary (or second) home for a loss when taking into consideration what you originally paid for the home, improvements and the sales costs. Bad news - your home is personal use property and losses from “personal-use property” are not deductible. Thus, there is no tax relief from having a loss on the sale of your primary or secondary home.
Example #2 – You purchased a residential or commercial property as a rental. Now the value has declined below your basis and a sale will result in a loss. Since it is business property, the entire loss will be deductible as ordinary income in the year of sale.
Example #3 – You purchased vacant land for an investment and need to sell it. Unfortunately, the sale will result in a loss. The good news is the loss is tax-deductible, but lacking any capital gains to offset the loss, you will only be able to deduct $3,000 ($1,500 if filing as married separate) of the loss in the sale year; the excess loss carries over to future years.
Example #4 – Your home that you are selling for a loss includes an office from which you conduct your business. The home office is deductible under the income tax rules, and represents 10% of the home. In this case, 10% of the loss would be deductible as an ordinary loss in the sale year. None of the remaining 90% of the loss is deductible due to the personal- use property rules.
Example #5 – Yes, we read your mind. You are planning to move out of your home that will sell for a loss and convert it to a rental thinking you could then deduct the loss. Problem with this strategy is that tax law requires you to use the fair market value (FMV) of the home at the time of conversion as the business basis if the FMV is less than your adjusted cost basis. Thus, the loss in value that occurred prior to the conversion will not be included in your loss when you sell the rental. However, if the market continues to decline, you will be able to take advantage of any future losses.
Example #6 – The property will sell for a loss, so you decide to just let it go into foreclosure. By doing this, you avoid the sales costs but destroy your credit rating for years to come. In addition, if the property sells at auction for less than the mortgage balance, you may, depending on some complicated rules, have to include in your income the difference between the loan amount and the sales price (referred to as debt relief income).
Example #7 – Let’s say you originally purchased your home for $200,000; it increased in value to $300,000, so you refinanced it for $240,000 and used the money to buy a car, go on vacation, pay off credit card balances, etc. Now your mortgage is higher than both your basis (cost) in the home and its current value. Your home sells for $225,000, and assuming you have $10,000 in sales costs, you end up with a tax gain of $15,000 rather than a loss, which may come as a surprise. The gain may or may not be taxable depending upon whether you qualify for the home sale gain exclusion. Bad news is you need to make up the $15,000 mortgage shortage and the $10,000 sales costs.
Buying or Selling your home???? Give me a call!
Melanie Greenwell
Dazcon Properties
704.746.2485
Greenwell & Associates Newsletter June 2010
Second estimated tax payment due June 15
June 15, 2010, is the due date for making your second installment of 2010 individual estimated tax. Your check to the United States Treasury should be accompanied by Form 1040-ES.
2010 Proposed Tax Changes
It is rather difficult to stay on top of your taxes these days, considering all of the limited period changes being made by Congress to stabilize the economy. Each year, some provisions expire, some are extended, there are new provisions and some are available for only a limited period of time. There are still additional changes in the works as outlined in President Obama’s proposed changes. Please email me and I will send you over a rundown of some of these provisions that affect individuals and small businesses in 2010.
IRS offers Health Care Tax Credit for Businesses
IRS OFFERS DETAILS ON NEW SMALL BUSINESS HEALTH CARE TAX CREDIT
WASHINGTON — The Internal Revenue Service today issued new guidance to make it easier for small businesses to determine whether they are eligible for the new health care tax credit under the Affordable Care Act and how large a credit they will receive. The guidance makes clear that small businesses receiving state health care tax credits may still qualify for the full federal tax credit. Additionally, the guidance allows small businesses to receive the credit not only for regular health insurance but also for add-on dental and vision coverage.
Notice 2010-44 provides detailed guidelines, illustrated by more than a dozen examples, to help small employers determine whether they qualify for the credit and estimate the amount of the credit. The notice also requests public comment on issues that should be addressed in future guidance.
Included in the Affordable Care Act approved by Congress in March and signed into law by the President, the small business health care tax credit, which is in effect this year, is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.
In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees in 2010. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers.
For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. The maximum credit goes to smaller employers –– those with 10 or fewer full-time equivalent (FTE) employees –– paying annual average wages of $25,000 or less. The credit is completely phased out for employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more. Because the eligibility rules are based in part on the number of FTEs, not the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals.
QUICKBOOKS TIP - Quickbooks helps you Navigate Tricky Waters – The Budget
As Quickbooks Professionals, we want to make sure that you are using your software to its fullest potential and NOT creating more work for yourself. Your time is valuable. Call us today for a FREE consultation.
The price of gasoline is just one of many factors putting pressure on our economy as a whole. Now it’s more important than ever to keep a close eye on your company’s performance. Many business owners compare financial results to an annual budget. If you don’t have your budget in place yet, we’ll show you how to get started. Even if you have, we’ll show you how to use last year’s results as a measuring stick with comparative financial reports. Once you understand these techniques, we’ll explain why you should create a monthly appointment with yourself to ensure that your results continue to measure up—and take action if they don’t.
TIP: Keep in mind that tough financial years do have a silver lining—you’ll likely pay less in income taxes. If revenues are down or expenses are up, don’t forget to trim your withholding or estimated tax payments accordingly. Doing so enables you to boost your cash flow now, rather than waiting around on a tax refund next spring.
Budget Basics
The QuickBooks Planning & Budgeting menu gives you the ability to create budgets and forecasts. In reality, both features work the same way, so we’ll use creating a budget as our example. But which one should you use? You might find it helpful to use the Forecast feature as an alternate budget and as a best-case scenario, while the Budget feature offers a better expectation of reality. Either way, here’s how to create a budget in QuickBooks:
1. Choose Company, Planning & Budgeting, and then Set Up Budgets.
2. When the Set Up Budgets window appears, click the Create New Budget button in the upper right-hand corner.
3. Select the year that you’d like to create a budget for (such as 2008 or 2009), select Profit and Loss, and then click Next.
Budget Tips: The Copy Across button enables you to copy the same amount across all twelve months. As shown in Figure 2, the Adjust Row Amounts button provides a quick way to adjust existing numbers up or down by either a percentage or dollar amount. You can edit your budget at any time: choose Company, Planning & Budgeting, and then Set Up Budgets. Choose your budget from the Budget list, and then make changes as needed.
Comparative Reports
Regardless of whether you use budgets in QuickBooks or not, it’s always helpful to compare this year’s results to last year. Doing so enables you to see trends in your data, such as how automobile expenses have increased.
We appreciate your business, and we would appreciate your referrals. If you know someone in need of our services, please mention our name to them. We are a growing firm, and we would like more good clients like you. Be Blessed and Keep Shining!!!!
Daniel T. Greenwell II
This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.
PO Box 5255, Mooresville, NC 28117 - Telephone: 704.500.4325
Email: Dan@GreenwellAccounting.com
June 15, 2010, is the due date for making your second installment of 2010 individual estimated tax. Your check to the United States Treasury should be accompanied by Form 1040-ES.
2010 Proposed Tax Changes
It is rather difficult to stay on top of your taxes these days, considering all of the limited period changes being made by Congress to stabilize the economy. Each year, some provisions expire, some are extended, there are new provisions and some are available for only a limited period of time. There are still additional changes in the works as outlined in President Obama’s proposed changes. Please email me and I will send you over a rundown of some of these provisions that affect individuals and small businesses in 2010.
IRS offers Health Care Tax Credit for Businesses
IRS OFFERS DETAILS ON NEW SMALL BUSINESS HEALTH CARE TAX CREDIT
WASHINGTON — The Internal Revenue Service today issued new guidance to make it easier for small businesses to determine whether they are eligible for the new health care tax credit under the Affordable Care Act and how large a credit they will receive. The guidance makes clear that small businesses receiving state health care tax credits may still qualify for the full federal tax credit. Additionally, the guidance allows small businesses to receive the credit not only for regular health insurance but also for add-on dental and vision coverage.
Notice 2010-44 provides detailed guidelines, illustrated by more than a dozen examples, to help small employers determine whether they qualify for the credit and estimate the amount of the credit. The notice also requests public comment on issues that should be addressed in future guidance.
Included in the Affordable Care Act approved by Congress in March and signed into law by the President, the small business health care tax credit, which is in effect this year, is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.
In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees in 2010. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers.
For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. The maximum credit goes to smaller employers –– those with 10 or fewer full-time equivalent (FTE) employees –– paying annual average wages of $25,000 or less. The credit is completely phased out for employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more. Because the eligibility rules are based in part on the number of FTEs, not the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals.
QUICKBOOKS TIP - Quickbooks helps you Navigate Tricky Waters – The Budget
As Quickbooks Professionals, we want to make sure that you are using your software to its fullest potential and NOT creating more work for yourself. Your time is valuable. Call us today for a FREE consultation.
The price of gasoline is just one of many factors putting pressure on our economy as a whole. Now it’s more important than ever to keep a close eye on your company’s performance. Many business owners compare financial results to an annual budget. If you don’t have your budget in place yet, we’ll show you how to get started. Even if you have, we’ll show you how to use last year’s results as a measuring stick with comparative financial reports. Once you understand these techniques, we’ll explain why you should create a monthly appointment with yourself to ensure that your results continue to measure up—and take action if they don’t.
TIP: Keep in mind that tough financial years do have a silver lining—you’ll likely pay less in income taxes. If revenues are down or expenses are up, don’t forget to trim your withholding or estimated tax payments accordingly. Doing so enables you to boost your cash flow now, rather than waiting around on a tax refund next spring.
Budget Basics
The QuickBooks Planning & Budgeting menu gives you the ability to create budgets and forecasts. In reality, both features work the same way, so we’ll use creating a budget as our example. But which one should you use? You might find it helpful to use the Forecast feature as an alternate budget and as a best-case scenario, while the Budget feature offers a better expectation of reality. Either way, here’s how to create a budget in QuickBooks:
1. Choose Company, Planning & Budgeting, and then Set Up Budgets.
2. When the Set Up Budgets window appears, click the Create New Budget button in the upper right-hand corner.
3. Select the year that you’d like to create a budget for (such as 2008 or 2009), select Profit and Loss, and then click Next.
Budget Tips: The Copy Across button enables you to copy the same amount across all twelve months. As shown in Figure 2, the Adjust Row Amounts button provides a quick way to adjust existing numbers up or down by either a percentage or dollar amount. You can edit your budget at any time: choose Company, Planning & Budgeting, and then Set Up Budgets. Choose your budget from the Budget list, and then make changes as needed.
Comparative Reports
Regardless of whether you use budgets in QuickBooks or not, it’s always helpful to compare this year’s results to last year. Doing so enables you to see trends in your data, such as how automobile expenses have increased.
We appreciate your business, and we would appreciate your referrals. If you know someone in need of our services, please mention our name to them. We are a growing firm, and we would like more good clients like you. Be Blessed and Keep Shining!!!!
Daniel T. Greenwell II
This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.
PO Box 5255, Mooresville, NC 28117 - Telephone: 704.500.4325
Email: Dan@GreenwellAccounting.com
Monday, February 15, 2010
The Cove Church - Mooresville, NC
Please click on the link below to access information on the Cove Church
Mooresville, NC Churches > The Cove Church
Mooresville, NC Churches > The Cove Church
Tuesday, December 22, 2009
2009 Personal Income Tax Checklist
Tax Preparation Checklist
Before you prepare your 2009 income tax return, go through the following checklist. Not every category will apply to you, so just pick those that do, and make sure you have that information available.
Before you start tax preparation
Check things off as you collect them, and enter information such as Social Security numbers and cash amounts.
If you maintain your financial data in a personal finance software program such as Quicken®, print a report of your financial transactions for 2009. This is an invaluable tax preparation resource as you prepare your income tax return, and helps you clearly see where your money goes each year. Having this information in a report is much easier than going through your checks for the entire year.
Personal information
The IRS needs to know exactly who's filing and who is covered in your tax return. To do this, they require Social Security numbers and dates of birth.
Social Security Numbers
• Yours ________________________________________________
• Spouse ________________________________________________
• Dependents ________________________________________________
Information about your income
The following documents will help to identify all of your various sources of income for the year.
Income from Jobs
• Forms W-2 for all employers for whom you and your spouse worked during the year
Investment Income
• Interest income - Form 1099-INT
• Dividend income - Form 1099-DIV
• Proceeds from the sale of stocks, bonds, etc. - Form 1099-B
• Confirmation slips or brokers' statements for all stocks, etc., that you sold in 2009
• Schedule(s) K-1 (Form 1065) from investments in partnerships
• Schedule(s) K-1 (Form 1120S) from investments in S Corporations
• Income from foreign investments: Amount of foreign taxes paid (you can find this on the brokers' statements) ________________________________________________
• Stock option exercises and sales:______________________________
• Stock option agreement (showing type of options you received)
• Stock option statement showing exercise prices of options
• Form 1099-B for proceeds from stock sales
• Sale of employee stock purchase plan shares:
• Stock price on grant date _________________________________________________
• Stock price on purchase date _________________________________________________
• If the stock sale occurred before qualifying period began, Form W-2 showing "compensation income" from a disqualifying disposition
Income from State and Local Income Tax Refunds
• Form 1099-G from state or local governments
• State income tax return from 2008, if any
• City income tax return from 2008, if any
Alimony Received
• Bank statements or record of deposits
Business or Farming Income
• Books/accounting records for your business OR:
• Invoices or billings
• Bank statements
• Cancelled checks for expenses
• Payroll records
If You Use Your Home for Business
• Square footage of your home office area ________________________________________________
• Total square footage of your home ________________________________________________
• Total rent paid, if home is rented ________________________________________________
• Mortgage interest reported on Form 1098 ________________________________________________
• Property tax payments from assessor's bill, cancelled checks, or impound records ________________________________________________
• Homeowner insurance premium payments ________________________________________________
• Invoices for repairs and maintenance on your house
• Utility bills
IRA/Pension Distributions
• Form 1099-R for payments from IRAs or retirement plans
• Account summary form for the year for your IRA accounts , or
• Deposit receipts and contribution records
• If you received a distribution from an IRA account, the most-recently filed Form 8606 (if you made contributions in prior years to IRAs that weren't deductible on your income tax return)
Rental Property Income
• Profit and loss statements from your property manager, or
• Checkbook or cancelled checks for expenses
• Form 1099-MISC or other records for rental income paid to you
• Mortgage interest reported on Form 1098
• Property tax payments from assessor's bill, cancelled checks or impound records
• Record of suspended rental losses from prior years (usually shown on last year's income tax return)
Unemployment Income
• Form 1099-G from your state unemployment agency, or
• Unemployment check stubs and deposit records
Social Security Benefits
• Form SSA-1099
Income From Sales of Property
If the property was sold in 2009:
• Sales proceeds: Bill of sale, escrow statement, closing statement or other records
• Cost of the property you sold: Invoices, receipts or cancelled checks
• Improvements made to the property: Invoices or construction contracts and cancelled checks
• Form 1099-C if your lender cancelled or forgave a portion of your debt. Normally considered taxable income, debt forgiveness on your principal residence is exempt from federal taxes through 2012. (You'll need Form 982.)
Miscellaneous Income
• Jury duty pay records
• Form(s) W-2G for gambling and lottery winnings
• Receipts for all gambling purchases
• Form 1099-MISC for prizes and awards you received
• Form 1099-MSA for distributions from medical savings accounts
• Scholarship records (if you used the money for anything other than tuition, books and supplies)
• Director's fees receipts if you received money for serving on a corporate board of directors
Adjustments to your income
The following can help reduce the amount of your income that is taxed, which can increase your tax refund or lower your tax due.
Homebuyer Credits
• Form 5405
• Purchasers must attach a properly executed settlement statement to their return (for homes purchased after Nov. 6, 2009)
• The revised law passed on Nov. 6, 2009, gives the IRS broader authority, called “math error authority,” to deny first-time homebuyer credit claims, without having to first audit a taxpayer’s return. This authority applies, retroactively, to credits claimed on original and amended 2008 returns, as well as to claims yet to be filed.
IRA Contributions
• Year-end account summary or bank statements
Green Energy Credits
• Form 5695 for residential energy credits
• Receipts for adding insulation, energy efficient exterior windows, energy-efficient heating and air conditioning systems, solar hot water heaters, geothermal heat pumps, and wind turbines
Student Loan Interest
• Form 1098-E showing interest paid, or
• Loan statements
Medical Savings Account Contributions
• Account statements or
• Cancelled checks
Moving Expenses
• Invoices from moving companies, or
• Cancelled checks, and
• Paycheck stub for moving expense reimbursements
Self-employed Health Insurance
• Insurance premium bills, or
• Cancelled checks
Keogh, SEP, SIMPLE and Other Self-employed Pension Plans
• Year-end account summary, or
• Cancelled checks
• Alimony Paid
• Cancelled checks
Educator Expenses
• Cancelled checks for expenses paid for classroom supplies, etc.
Itemized tax deductions and credits
The government offers a number of deductions and credits to help lower the tax burden on individuals, which means more money in your pocket. You'll need the following documentation to make sure you get all the deductions and credits you deserve.
Advance Child Tax Credit Payment
• Copy of the IRS notice announcing the amount of your payment
• Amount of the payment you received ________________________________________________
Child Care Costs
• Cancelled checks or invoices
• Child care provider's name________________________________________________
• Provider's address ________________________________________________
• Provider's tax ID or Social Security number ________________________________________________
Education Costs
• Receipts for tuition (or cancelled checks) for post-high school education
• Tuition statement
Adoption Costs
• Social Security number or ID number of adopted child ________________________________________________
• Receipts or cancelled checks for:
• Legal fees
• Transportation
• Other costs
Interest You Paid
Home mortgage interest:
• Form 1098, or
• Your mortgage statement or bill for January 2009
Points:
• Form 1098 if you purchased a home in 2009
• Your 2008 tax return if you refinanced in prior year and are deducting points on that loan over its life
Investment interest expense:
• Brokers' statements showing margin interest paid
• Loan statements for loans taken out to purchase investments
Charitable Donations
Cash donations:
• Charity bills, receipts or cancelled checks
• Records of the mileage incurred for charitable purposes (such as Scouts)
Donations of property:
• Receipts from a charitable agency
• Estimated value of property given ________________________________________________
• Appraisal fees for expensive donations ________________________________________________
Other charitable donations:
• Prior years' tax returns if you have unused charitable contributions (carryovers) from earlier years
• Year-end paycheck stub if donations were paid through your wage
Casualty and Theft Losses
• Description of property damaged or stolen
• Receipts or cancelled checks showing cost of property
• Insurance policy and insurance reports showing reimbursement
• Appraisal fees if applicable
• Previous year’s return if your loss was in a federally-declared disaster area and you plan to deduct your 2009 loss on an amended 2008 return
Other Miscellaneous Tax Deductions
• Reimbursement check stubs or reports from your employer
• Union dues - paycheck stub for automatic withdrawals
• Gifts to clients, etc. - receipts showing date, cost and description
• Supplies - receipts or bills
• Property purchased for use in your work - invoices, receipts
• Uniform and special clothing costs - bills or paycheck stubs showing deductions
Sales Tax and Fee Deductions for New Vehicle Purchases
• Bill of sale showing fees or taxes paid on qualified vehicles costing up to $49,500 purchased between Feb. 17, 2009, and Dec. 31, 2010.
Job Expenses
• Seminar fees - receipts or invoices
• Professional publications and books - receipts or invoices
• Receipts for small tools and supplies you purchased
Job travel information:
• Invoices, receipts or ticket stubs for transportation
• Mileage records per vehicle used
• Hotel bills
• Restaurant tickets showing name and address of establishment
• Parking fee receipts
Medical and Dental Expenses
• Invoices, receipts for medical or dental expenses, hospital care, medical aids, medicines and drugs, nursing care, nursing home expenses, transportation costs for obtaining medical care
Taxes you've paid
Properly documenting the taxes you've already paid can keep you from overpaying.
State and Local Income Taxes
• Last year's state income tax return
• Forms W-2
• Cancelled checks for state estimates paid
Real Estate Taxes
• Tax collector bills or cancelled checks
• Form 1098 or closing statement if you bought, sold or refinanced property in the current year
Personal Property Taxes
• Tax bills or cancelled checks
• Automobile licensing bills, if fees are charged annually based on value
Other tax payments
If you paid quarterly estimated tax payments (usually paid by self-employed workers), you'll need:
• Records showing the date paid and amount
If you applied a tax overpayment from 2008 to 2009, you'll need:
• Your 2008 income tax return
If you filed or plan on filing extensions for your 2009 tax return, you'll need:
• Cancelled checks for payments you made with the extension
Hybrid or clean diesel auto purchases
To receive a tax break for the purchase of a hybrid or clean diesel automobile, you must provide:
• Bill of sale for a hybrid automobile purchased in 2009
Before you prepare your 2009 income tax return, go through the following checklist. Not every category will apply to you, so just pick those that do, and make sure you have that information available.
Before you start tax preparation
Check things off as you collect them, and enter information such as Social Security numbers and cash amounts.
If you maintain your financial data in a personal finance software program such as Quicken®, print a report of your financial transactions for 2009. This is an invaluable tax preparation resource as you prepare your income tax return, and helps you clearly see where your money goes each year. Having this information in a report is much easier than going through your checks for the entire year.
Personal information
The IRS needs to know exactly who's filing and who is covered in your tax return. To do this, they require Social Security numbers and dates of birth.
Social Security Numbers
• Yours ________________________________________________
• Spouse ________________________________________________
• Dependents ________________________________________________
Information about your income
The following documents will help to identify all of your various sources of income for the year.
Income from Jobs
• Forms W-2 for all employers for whom you and your spouse worked during the year
Investment Income
• Interest income - Form 1099-INT
• Dividend income - Form 1099-DIV
• Proceeds from the sale of stocks, bonds, etc. - Form 1099-B
• Confirmation slips or brokers' statements for all stocks, etc., that you sold in 2009
• Schedule(s) K-1 (Form 1065) from investments in partnerships
• Schedule(s) K-1 (Form 1120S) from investments in S Corporations
• Income from foreign investments: Amount of foreign taxes paid (you can find this on the brokers' statements) ________________________________________________
• Stock option exercises and sales:______________________________
• Stock option agreement (showing type of options you received)
• Stock option statement showing exercise prices of options
• Form 1099-B for proceeds from stock sales
• Sale of employee stock purchase plan shares:
• Stock price on grant date _________________________________________________
• Stock price on purchase date _________________________________________________
• If the stock sale occurred before qualifying period began, Form W-2 showing "compensation income" from a disqualifying disposition
Income from State and Local Income Tax Refunds
• Form 1099-G from state or local governments
• State income tax return from 2008, if any
• City income tax return from 2008, if any
Alimony Received
• Bank statements or record of deposits
Business or Farming Income
• Books/accounting records for your business OR:
• Invoices or billings
• Bank statements
• Cancelled checks for expenses
• Payroll records
If You Use Your Home for Business
• Square footage of your home office area ________________________________________________
• Total square footage of your home ________________________________________________
• Total rent paid, if home is rented ________________________________________________
• Mortgage interest reported on Form 1098 ________________________________________________
• Property tax payments from assessor's bill, cancelled checks, or impound records ________________________________________________
• Homeowner insurance premium payments ________________________________________________
• Invoices for repairs and maintenance on your house
• Utility bills
IRA/Pension Distributions
• Form 1099-R for payments from IRAs or retirement plans
• Account summary form for the year for your IRA accounts , or
• Deposit receipts and contribution records
• If you received a distribution from an IRA account, the most-recently filed Form 8606 (if you made contributions in prior years to IRAs that weren't deductible on your income tax return)
Rental Property Income
• Profit and loss statements from your property manager, or
• Checkbook or cancelled checks for expenses
• Form 1099-MISC or other records for rental income paid to you
• Mortgage interest reported on Form 1098
• Property tax payments from assessor's bill, cancelled checks or impound records
• Record of suspended rental losses from prior years (usually shown on last year's income tax return)
Unemployment Income
• Form 1099-G from your state unemployment agency, or
• Unemployment check stubs and deposit records
Social Security Benefits
• Form SSA-1099
Income From Sales of Property
If the property was sold in 2009:
• Sales proceeds: Bill of sale, escrow statement, closing statement or other records
• Cost of the property you sold: Invoices, receipts or cancelled checks
• Improvements made to the property: Invoices or construction contracts and cancelled checks
• Form 1099-C if your lender cancelled or forgave a portion of your debt. Normally considered taxable income, debt forgiveness on your principal residence is exempt from federal taxes through 2012. (You'll need Form 982.)
Miscellaneous Income
• Jury duty pay records
• Form(s) W-2G for gambling and lottery winnings
• Receipts for all gambling purchases
• Form 1099-MISC for prizes and awards you received
• Form 1099-MSA for distributions from medical savings accounts
• Scholarship records (if you used the money for anything other than tuition, books and supplies)
• Director's fees receipts if you received money for serving on a corporate board of directors
Adjustments to your income
The following can help reduce the amount of your income that is taxed, which can increase your tax refund or lower your tax due.
Homebuyer Credits
• Form 5405
• Purchasers must attach a properly executed settlement statement to their return (for homes purchased after Nov. 6, 2009)
• The revised law passed on Nov. 6, 2009, gives the IRS broader authority, called “math error authority,” to deny first-time homebuyer credit claims, without having to first audit a taxpayer’s return. This authority applies, retroactively, to credits claimed on original and amended 2008 returns, as well as to claims yet to be filed.
IRA Contributions
• Year-end account summary or bank statements
Green Energy Credits
• Form 5695 for residential energy credits
• Receipts for adding insulation, energy efficient exterior windows, energy-efficient heating and air conditioning systems, solar hot water heaters, geothermal heat pumps, and wind turbines
Student Loan Interest
• Form 1098-E showing interest paid, or
• Loan statements
Medical Savings Account Contributions
• Account statements or
• Cancelled checks
Moving Expenses
• Invoices from moving companies, or
• Cancelled checks, and
• Paycheck stub for moving expense reimbursements
Self-employed Health Insurance
• Insurance premium bills, or
• Cancelled checks
Keogh, SEP, SIMPLE and Other Self-employed Pension Plans
• Year-end account summary, or
• Cancelled checks
• Alimony Paid
• Cancelled checks
Educator Expenses
• Cancelled checks for expenses paid for classroom supplies, etc.
Itemized tax deductions and credits
The government offers a number of deductions and credits to help lower the tax burden on individuals, which means more money in your pocket. You'll need the following documentation to make sure you get all the deductions and credits you deserve.
Advance Child Tax Credit Payment
• Copy of the IRS notice announcing the amount of your payment
• Amount of the payment you received ________________________________________________
Child Care Costs
• Cancelled checks or invoices
• Child care provider's name________________________________________________
• Provider's address ________________________________________________
• Provider's tax ID or Social Security number ________________________________________________
Education Costs
• Receipts for tuition (or cancelled checks) for post-high school education
• Tuition statement
Adoption Costs
• Social Security number or ID number of adopted child ________________________________________________
• Receipts or cancelled checks for:
• Legal fees
• Transportation
• Other costs
Interest You Paid
Home mortgage interest:
• Form 1098, or
• Your mortgage statement or bill for January 2009
Points:
• Form 1098 if you purchased a home in 2009
• Your 2008 tax return if you refinanced in prior year and are deducting points on that loan over its life
Investment interest expense:
• Brokers' statements showing margin interest paid
• Loan statements for loans taken out to purchase investments
Charitable Donations
Cash donations:
• Charity bills, receipts or cancelled checks
• Records of the mileage incurred for charitable purposes (such as Scouts)
Donations of property:
• Receipts from a charitable agency
• Estimated value of property given ________________________________________________
• Appraisal fees for expensive donations ________________________________________________
Other charitable donations:
• Prior years' tax returns if you have unused charitable contributions (carryovers) from earlier years
• Year-end paycheck stub if donations were paid through your wage
Casualty and Theft Losses
• Description of property damaged or stolen
• Receipts or cancelled checks showing cost of property
• Insurance policy and insurance reports showing reimbursement
• Appraisal fees if applicable
• Previous year’s return if your loss was in a federally-declared disaster area and you plan to deduct your 2009 loss on an amended 2008 return
Other Miscellaneous Tax Deductions
• Reimbursement check stubs or reports from your employer
• Union dues - paycheck stub for automatic withdrawals
• Gifts to clients, etc. - receipts showing date, cost and description
• Supplies - receipts or bills
• Property purchased for use in your work - invoices, receipts
• Uniform and special clothing costs - bills or paycheck stubs showing deductions
Sales Tax and Fee Deductions for New Vehicle Purchases
• Bill of sale showing fees or taxes paid on qualified vehicles costing up to $49,500 purchased between Feb. 17, 2009, and Dec. 31, 2010.
Job Expenses
• Seminar fees - receipts or invoices
• Professional publications and books - receipts or invoices
• Receipts for small tools and supplies you purchased
Job travel information:
• Invoices, receipts or ticket stubs for transportation
• Mileage records per vehicle used
• Hotel bills
• Restaurant tickets showing name and address of establishment
• Parking fee receipts
Medical and Dental Expenses
• Invoices, receipts for medical or dental expenses, hospital care, medical aids, medicines and drugs, nursing care, nursing home expenses, transportation costs for obtaining medical care
Taxes you've paid
Properly documenting the taxes you've already paid can keep you from overpaying.
State and Local Income Taxes
• Last year's state income tax return
• Forms W-2
• Cancelled checks for state estimates paid
Real Estate Taxes
• Tax collector bills or cancelled checks
• Form 1098 or closing statement if you bought, sold or refinanced property in the current year
Personal Property Taxes
• Tax bills or cancelled checks
• Automobile licensing bills, if fees are charged annually based on value
Other tax payments
If you paid quarterly estimated tax payments (usually paid by self-employed workers), you'll need:
• Records showing the date paid and amount
If you applied a tax overpayment from 2008 to 2009, you'll need:
• Your 2008 income tax return
If you filed or plan on filing extensions for your 2009 tax return, you'll need:
• Cancelled checks for payments you made with the extension
Hybrid or clean diesel auto purchases
To receive a tax break for the purchase of a hybrid or clean diesel automobile, you must provide:
• Bill of sale for a hybrid automobile purchased in 2009
Friday, December 18, 2009
What's New in Federal Tax Law for 2009 Filing....
What's New in Federal Tax Law for 2009 Filing….
Making Work Pay Credit
To give the economy an immediate boost in 2009, Congress had the IRS modify its withholding tables to increase take-home pay for many workers.
The Making Work Pay Credit provides up to $400 per worker, but you got it a little bit at a time in your paycheck throughout the year instead of all at once at tax time.
Your Making Work Pay Credit may be less than $400 if:
• Your income is more than $95,000 ($190,000 if married filing jointly).
• You received a $250 economic recovery payment in 2009.
• You're receiving a $250 government retiree credit
• Your earned income is less than $6,452 ($12,904 if married filing jointly).
If your credit will be less than $400, you need to adjust your withholding to avoid owing back some of what you got in your paycheck.
Economic Recovery Payment
The 2009 economic recovery payments (ERPs) of $250 were sent out automatically to recipients of:
• Social Security
• Supplemental Security Income (SSI)
• Veteran's disability
• Railroad retirement
You don't need to include your ERP in your income, but it will reduce any government retiree credit or making work pay credit you'd otherwise receive.
Government Retiree Credit
Retired government workers can receive a $250 credit on their 2009 tax returns. That's a total of $500 for a married couple if you're both government retirees.
If you received an economic recovery payment, you won't receive a government retiree credit, too.
First-Time Homebuyer Credit
You can get a credit of up to 10% of the purchase price of your main home.
Effective November 6, 2009, Congress extended and modified the homebuyer credit. If you purchased a home after November 6, different rules apply.
If you purchased a home before November 7, 2009, here are the rules:
• Your purchase is eligible for a credit if neither you nor your spouse owned a home in the 3-year period before you bought this house.
• You can claim a credit up to $8,000 ($4,000 for married filing separately).
• If your adjusted gross income is more than $75,000 ($150,000 for joint returns), your credit will be reduced or you won't qualify for it at all.
If you purchased a home after November 6, 2009, here are the rules:
• If neither you (nor your spouse, if married) owned a home in the 3-year period before you bought this house, you can claim a credit up to $8,000 ($4,000 for married filing separately).
• If you (and your spouse, if married) owned and lived in the same home for 5 consecutive years in the 8-year period before you bought this house, you can claim a credit up to $6,500 ($3,250 if married filing separately).
• You can claim a credit for a 2010 purchase on your 2009 or 2010 return.
• If your adjusted gross income is more than $125,000 ($225,000 for joint returns) your credit will be reduced or you won't qualify for it at all.
• Special rules apply to members of the military.
• You can't claim the credit if:
• You bought the home after June 30, 2010.
• You bought the home after April 30, 2010 (unless you had a binding contract before May 1, 2010).
• The purchase price is more than $800,000.
• Someone can claim you as a dependent.
• You (and your spouse, if married) were under age 18 on the purchase date.
Unlike the credit for 2008 home purchases, the credit for 2009 and 2010 home purchases doesn't have to be repaid as long as you continue to use the home as your main home for 36 months.
You'll need to send the IRS a copy of your HUD closing statement when you file your return.
Hope Credit
Hope Credit rules include:
• A maximum credit of $2,500, compared to $1,800 last year.
• Good for all 4 years of undergraduate education, not just the first 2 years.
• Income limits raised to $90,000 ($180,000 for joint filers).
• Can be used for books, supplies and materials even if not purchased from the school.
• 40% of the credit can be added to your refund.
• The credit's now called the American Opportunity Credit.
New Vehicle Sales Tax Deduction
If you bought a new vehicle in 2009, you might be able to deduct your sales and other purchase taxes even if you don't itemize your deductions.
New vehicle sales tax deduction rules include:
• You must have purchased the vehicle after February 16, 2009 and before January 1, 2010.
• Your credit will be reduced or eliminated if your income is higher than $125,000 ($250,000 for joint returns).
• If you paid more than $49,500 for a new vehicle, any tax on the purchase price above $49,500 isn't deductible.
• You can deduct your vehicle sales tax using the new deduction, or (if it qualified and if you itemize) as part of the general sales tax deduction, but not both. We'll show you which one to use.
• Cars, trucks, and motorcycles qualify as long as the vehicle doesn't weigh more than 8,500 pounds. Motor homes also qualify, but not RVs.
Tax-Free Unemployment Benefits
Tax-free unemployment benefits include:
• The first $2,400 you receive in unemployment benefits is tax-free in 2009. This is a new tax break. Previously, it was all taxable.
• If both you and your spouse received unemployment in 2009, you'll each get your own $2,400 tax exemption.
• Some states already have a tax break for unemployment benefits. Others will tax these benefits even though they're now tax-free for federal purposes. Our federal and state programs will make sure you get all the tax breaks you're allowed.
Residential Energy Credits
You can take a credit for energy-efficient home improvements in 2009.
Residential energy credit rules include:
• The credit is 30% of qualifying expenses. Check the manufacturer's certification to see if the item you purchased qualifies.
• The credit's limited to $1,500, which is higher than it's been in the past.
• You can claim a larger credit for alternative energy investments (Ex: solar, geothermal, and wind equipment) in 2009 than in 2008.
Earned Income Credit
Earned Income Credit rule changes include:
• A larger credit for families with 3 or more qualifying children.
• A larger credit for married couples.
Refundable Child Tax Credit
Some low-income families will receive a larger refund. You can now take this credit if your earned income is as low as $3,000 (formerly $8,500).
Dependent Exemption
Dependent rule changes include:
• Your qualifying child must be younger than you, unless the child's disabled.
• If a child's parent can claim a child, you can't claim that child unless your adjusted gross income's higher than that of the parent.
Homeowners' Sale Gain Exclusion
The home sale gain exclusion rules will be stricter for people who move into a vacation home or rental property after 2008 in order to sell it later on and exclude the gain.
Standard Mileage Rates
The standard mileage rates for driving in 2009 are lower than the rates in effect at the end of 2008 because the price of gas is lower.
Standard mileage rates include:
• Business mileage — 55 cents per mile
• Charitable volunteer work — 14 cents per mile
• Medical treatment and moving — 24 cents per mile
Tax Law Changes Affecting Tax Returns in 2010 and Beyond
Roth IRAs
In 2010, rules will change for Roth IRAs.
New Roth IRA rules will include:
• No income cap on conversions from an existing IRA to a Roth IRA
• Conversion taxes can be spread over 2011 and 2012
Credit Card and Stock Basis Reporting
In 2011, rules will change for credit card and stock basis reporting.
New rules for credit card and stock basis reporting include:
• Banks and other merchant payment processors will have to report a merchant's credit card transactions to the IRS after they hit $20,000 for the year.
• Merchants who refuse to provide a tax ID for this reporting will be subject to 28% back-up withholding on their receipts.
• Brokers will have to report the tax basis of stocks, bonds and mutual funds you sold.
More to Come?
Making Work Pay Credit
To give the economy an immediate boost in 2009, Congress had the IRS modify its withholding tables to increase take-home pay for many workers.
The Making Work Pay Credit provides up to $400 per worker, but you got it a little bit at a time in your paycheck throughout the year instead of all at once at tax time.
Your Making Work Pay Credit may be less than $400 if:
• Your income is more than $95,000 ($190,000 if married filing jointly).
• You received a $250 economic recovery payment in 2009.
• You're receiving a $250 government retiree credit
• Your earned income is less than $6,452 ($12,904 if married filing jointly).
If your credit will be less than $400, you need to adjust your withholding to avoid owing back some of what you got in your paycheck.
Economic Recovery Payment
The 2009 economic recovery payments (ERPs) of $250 were sent out automatically to recipients of:
• Social Security
• Supplemental Security Income (SSI)
• Veteran's disability
• Railroad retirement
You don't need to include your ERP in your income, but it will reduce any government retiree credit or making work pay credit you'd otherwise receive.
Government Retiree Credit
Retired government workers can receive a $250 credit on their 2009 tax returns. That's a total of $500 for a married couple if you're both government retirees.
If you received an economic recovery payment, you won't receive a government retiree credit, too.
First-Time Homebuyer Credit
You can get a credit of up to 10% of the purchase price of your main home.
Effective November 6, 2009, Congress extended and modified the homebuyer credit. If you purchased a home after November 6, different rules apply.
If you purchased a home before November 7, 2009, here are the rules:
• Your purchase is eligible for a credit if neither you nor your spouse owned a home in the 3-year period before you bought this house.
• You can claim a credit up to $8,000 ($4,000 for married filing separately).
• If your adjusted gross income is more than $75,000 ($150,000 for joint returns), your credit will be reduced or you won't qualify for it at all.
If you purchased a home after November 6, 2009, here are the rules:
• If neither you (nor your spouse, if married) owned a home in the 3-year period before you bought this house, you can claim a credit up to $8,000 ($4,000 for married filing separately).
• If you (and your spouse, if married) owned and lived in the same home for 5 consecutive years in the 8-year period before you bought this house, you can claim a credit up to $6,500 ($3,250 if married filing separately).
• You can claim a credit for a 2010 purchase on your 2009 or 2010 return.
• If your adjusted gross income is more than $125,000 ($225,000 for joint returns) your credit will be reduced or you won't qualify for it at all.
• Special rules apply to members of the military.
• You can't claim the credit if:
• You bought the home after June 30, 2010.
• You bought the home after April 30, 2010 (unless you had a binding contract before May 1, 2010).
• The purchase price is more than $800,000.
• Someone can claim you as a dependent.
• You (and your spouse, if married) were under age 18 on the purchase date.
Unlike the credit for 2008 home purchases, the credit for 2009 and 2010 home purchases doesn't have to be repaid as long as you continue to use the home as your main home for 36 months.
You'll need to send the IRS a copy of your HUD closing statement when you file your return.
Hope Credit
Hope Credit rules include:
• A maximum credit of $2,500, compared to $1,800 last year.
• Good for all 4 years of undergraduate education, not just the first 2 years.
• Income limits raised to $90,000 ($180,000 for joint filers).
• Can be used for books, supplies and materials even if not purchased from the school.
• 40% of the credit can be added to your refund.
• The credit's now called the American Opportunity Credit.
New Vehicle Sales Tax Deduction
If you bought a new vehicle in 2009, you might be able to deduct your sales and other purchase taxes even if you don't itemize your deductions.
New vehicle sales tax deduction rules include:
• You must have purchased the vehicle after February 16, 2009 and before January 1, 2010.
• Your credit will be reduced or eliminated if your income is higher than $125,000 ($250,000 for joint returns).
• If you paid more than $49,500 for a new vehicle, any tax on the purchase price above $49,500 isn't deductible.
• You can deduct your vehicle sales tax using the new deduction, or (if it qualified and if you itemize) as part of the general sales tax deduction, but not both. We'll show you which one to use.
• Cars, trucks, and motorcycles qualify as long as the vehicle doesn't weigh more than 8,500 pounds. Motor homes also qualify, but not RVs.
Tax-Free Unemployment Benefits
Tax-free unemployment benefits include:
• The first $2,400 you receive in unemployment benefits is tax-free in 2009. This is a new tax break. Previously, it was all taxable.
• If both you and your spouse received unemployment in 2009, you'll each get your own $2,400 tax exemption.
• Some states already have a tax break for unemployment benefits. Others will tax these benefits even though they're now tax-free for federal purposes. Our federal and state programs will make sure you get all the tax breaks you're allowed.
Residential Energy Credits
You can take a credit for energy-efficient home improvements in 2009.
Residential energy credit rules include:
• The credit is 30% of qualifying expenses. Check the manufacturer's certification to see if the item you purchased qualifies.
• The credit's limited to $1,500, which is higher than it's been in the past.
• You can claim a larger credit for alternative energy investments (Ex: solar, geothermal, and wind equipment) in 2009 than in 2008.
Earned Income Credit
Earned Income Credit rule changes include:
• A larger credit for families with 3 or more qualifying children.
• A larger credit for married couples.
Refundable Child Tax Credit
Some low-income families will receive a larger refund. You can now take this credit if your earned income is as low as $3,000 (formerly $8,500).
Dependent Exemption
Dependent rule changes include:
• Your qualifying child must be younger than you, unless the child's disabled.
• If a child's parent can claim a child, you can't claim that child unless your adjusted gross income's higher than that of the parent.
Homeowners' Sale Gain Exclusion
The home sale gain exclusion rules will be stricter for people who move into a vacation home or rental property after 2008 in order to sell it later on and exclude the gain.
Standard Mileage Rates
The standard mileage rates for driving in 2009 are lower than the rates in effect at the end of 2008 because the price of gas is lower.
Standard mileage rates include:
• Business mileage — 55 cents per mile
• Charitable volunteer work — 14 cents per mile
• Medical treatment and moving — 24 cents per mile
Tax Law Changes Affecting Tax Returns in 2010 and Beyond
Roth IRAs
In 2010, rules will change for Roth IRAs.
New Roth IRA rules will include:
• No income cap on conversions from an existing IRA to a Roth IRA
• Conversion taxes can be spread over 2011 and 2012
Credit Card and Stock Basis Reporting
In 2011, rules will change for credit card and stock basis reporting.
New rules for credit card and stock basis reporting include:
• Banks and other merchant payment processors will have to report a merchant's credit card transactions to the IRS after they hit $20,000 for the year.
• Merchants who refuse to provide a tax ID for this reporting will be subject to 28% back-up withholding on their receipts.
• Brokers will have to report the tax basis of stocks, bonds and mutual funds you sold.
More to Come?
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