Have I Missed Any Deductions or Credits? Year End Review: Being Prepared for Tax Season

by Bryan Miller, Senior Tax Analyst

The American Recovery and Reinvestment Act (ARRA) of 2009 put into place many deductions for the individual taxpayer that should be taken advantage of prior to the end of year 2010. This is part of an overall plan by our government to strengthen and rebuild the economy, but it translates into lower taxable income for you. Some of the benefits may be obvious if you participated in a program to receive a specific tax benefit, but some of the credits and deductions are not as obvious. This is part of an overall plan by our government to strengthen and rebuild the economy. To ensure you have planned and positioned yourself for the best available deductions and credits, here is a rundown checklist:

Homebuyer Credit One of the more obvious deductions, but you should remember the date was pushed back this year. If you purchased and closed on your home by September 30, 2010, you may be eligible for up to an $8,000.00 tax credit. The home must be your primary residence, and the have rules changed for each tax year since 2008, in case you are filing or amending any of your past 3 years returns. Documentation requirements apply for any year, and you will need to file a paper return rather than e-file along with Form 5405.
See http://www.irs.gov/newsroom/article/0,,id=204671,00.html for all the details.

COBRA Individuals who involuntarily lost their jobs between September 1st, 2008 and May 31st, 2010 may be able to reduce the cost of COBRA health insurance premiums.

Energy Star Credits 30% of the cost of qualified Energy Star products may be taken as a tax credit up to $1,500.00. For example, if you purchased and installed a qualifying Energy Star product by December 31st, 2010 that costs $5,000.00, you may receive the full $1,500.00 credit ($5000 x .30% = $1500) on your return! Not all Energy Star products qualify. The credit applies mainly to HVAC, insulation, roofing, heating and cooling systems, windows and doors, as well as some appliances and alternative energy systems. See the Energy Star website for a full list and description.

Earned Income Tax Credit This credit has been a staple for many households to help make ends meet, and is bigger for tax year 2010. Also, more families will qualify for the Additional Child Tax Credit since earned income is set at only $3,000.00. The minimum earned income was slated to be $12,550.00 before the American Recovery and Reinvestment Act (ARRA), but was subsequently lowered. This credit may apply even if no tax is due – which would result in a refund for the taxpayer. See the IRS website or your tax professional for advice on this additional child tax credit.

Making Work Pay Tax Credit What was meant to be a blessing has for some turned out to be a curse. This credit allowed taxpayers to take more pay home out of their checks by adjusting the tax withholding downward. You won’t need to adjust this yourself; Uncle Sam took care of this for you. There are some people who may find themselves negatively affected by this credit. Some taxpayers may find out they did not have enough income tax withheld. This may result in a smaller refund, or they may owe this coming tax season. Taxpayers who may have been affected include: married couples with two incomes, individuals with multiple jobs, social security beneficiaries who work, dependents, undocumented workers and pensioners. You can check your 2010 withholding and adjust it accordingly using the IRS withholding calculator.

$250 for Social Security Recipients, Veterans and Railroad Retirees – Call 1-866-234-2942 and select option #1, or visit Did I receive a 2009 Economic Recovery Payment?

Unemployment Benefits – The first $2,400.00 of unemployment benefits will be excluded from income in tax year 2010. Be sure to check your withholding.

Money Back for New Vehicles and Increased Transportation Subsidy - These are leftovers from 2009 purchases of certain vehicles, or an increase of employer-provided commuter highway vehicle benefits for mileage and parking. See page 2 of Publication 15-T for more details.

Be sure to check for any carryover items from previous tax years that may benefit you in this tax year. And for a more broad scope of how the IRS is utilizing your money to recover the economy on both a national and local level, visit http://www.whitehouse.gov/recovery or http://www.recovery.gov/Pages/default.aspx.

Closing Deadline Extended to Sept. 30 for Eligible Homebuyer Credit Purchases

The IRS recently announced the extension of the closing deadline to September 30th for eligible homebuyer credit purchasers. Read the full IRS release below.
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WASHINGTON — Eligible taxpayers who contracted to buy a home, qualifying for the first-time homebuyer credit, before the end of April now have until Sept. 30, 2010 to close the deal, according to the Internal Revenue Service.

The Homebuyer Assistance and Improvement Act of 2010, signed by the President today, extended the closing deadline from June 30 to Sept. 30 for any eligible homebuyer who entered into a binding purchase contract on or before April 30 to close on the purchase of the home on or before June 30, 2010. The new law addresses concerns that many homebuyers might be unable to meet the original June 30 closing deadline.

The IRS reminds taxpayers that special filing and documentation requirements apply to anyone claiming the homebuyer credit. To avoid refund delays, those who entered into a purchase contract on or before April 30, but closed after that date, should attach to their return a copy of the pages from the signed contract showing all parties’ names and signatures if required by local law, the property address, the purchase price, and the date of the contract.

Besides filling out Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, all eligible homebuyers must also include with their return one of the following documents:

• A copy of the settlement statement showing all parties’ names and signatures if required by local law, property address, sales price, and date of purchase. Normally, this is the properly executed Form HUD-1, Settlement Statement.
• For mobile home purchasers who are unable to get a settlement statement, a copy of the executed retail sales contract showing all parties’ names and signatures, property address, purchase price and date of purchase.
• For a newly constructed home where a settlement statement is not available, a copy of the certificate of occupancy showing the owner’s name, property address and date of the certificate.

Besides providing a tax benefit to first-time homebuyers and purchasers who haven’t owned homes in recent years, the law allows a long-time resident of the same main home to claim the credit if they purchase a new principal residence. To qualify, eligible taxpayers must show that they lived in their old homes for a five-consecutive-year period during the eight-year period ending on the purchase date of the new home. Homebuyers claiming this credit can avoid refund delays by attaching documentation covering the five-consecutive-year period:

• Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements,
• Property tax records or
• Homeowner’s insurance records.

There are three options for claiming the credit on a qualifying 2010 purchase:

• If a 2009 return has not yet been filed, claim it on Form 1040 for tax-year 2009. Though these returns cannot be filed electronically, taxpayerscan still use IRS Free Fill to prepare their return. The returns must be printed out and sent to the IRS, along with all required documentation. The IRS urges taxpayers claiming refunds to choose direct deposit.
• If a 2009 return has already been filed, claim it on an amended return using Form 1040X.
• Whether or not a 2009 return has been filed, wait until next year and claim it on a 2010 Form 1040.

More details on claiming the credit can be found in the instructions to Form 5405, as well as on the First-Time Homebuyer Credit page on IRS.gov.

Posted by JK Harris

Obama discusses tax breaks ahead of Tax Day

With April 15th days away, the President reminded tax payers not to miss the opportunity to use tax credits from the recent Stimulus legislation. Some of the tax credits include an expanded child tax credit, energy savings initiatives and incentives for first-time home buyers. Below is the release from Yahoo News.

WASHINGTON – Just ahead of Tax Day, President Barack Obama is urging Americans to take advantage of tax credits for first-time homebuyers, college students and others.

Obama used his weekly radio and Internet address Saturday to promote some of the tax benefits in last year’s stimulus bill, saying they could save people hundreds or even thousands of dollars and were available to more than 100 million Americans. Even those who file before the April 15 deadline can amend their returns if there are savings they missed, Obama noted.

“No one I’ve met is looking for a handout. And that’s not what these tax cuts are,” Obama said. “Instead, they’re targeted relief to help middle-class families weather the storm, to jump-start our economy and to bring the fundamentals of the American dream — making an honest living, earning an education, owning a home and raising a family — back within reach for millions of Americans.”

Credits taxpayers may be eligible for include:

_Up to $8,000 for first-time homebuyers. The credit will be available through the end of April.

_Up to $2,500 for college expenses.

_Up to $1,500 for making energy-efficiency improvements to homes.

_For new vehicles purchased between Feb. 17-Dec. 31, 2009, the state and local taxes can be deducted.

_An expanded child tax credit providing $1,000 for each child under 17.

_The earned income tax credit now provides up to $5,657 to low-income families with at least three children.

Many workers have already received, through adjusted withholding in their paychecks, the “Making Work Pay” credit of as much as $800 for couples and $400 for individuals. For those who haven’t yet received the full amount due, they will get the additional money when they file.

Those who already have the full amount must claim the credit on their return. Due to an IRS glitch, however, some workers will owe money; in some cases, withholding tables gave people more than they should have received.

In their weekly address, Republicans accused Obama of raising taxes and expanding government too much with the health care bill and other initiatives.

Sen. Jon Kyl, R-Ariz., noted that taxes would rise Jan. 1, when President George W. Bush’s tax cuts expire.

“So, these are two Republican ideas: first, reining in Washington spending; second, keeping taxes at a manageable level. If we do these two things, private businesses and American families will be able to save, invest and plan for the future,” Kyl said.

Obama wants to extend Bush’s tax cuts, except for individuals making more than $200,000 a year and couples making $250,000.

Posted by JK Harris

Interest Rates Remain the Same for the First Quarter of 2010

Here is a recent news release from the IRS. It appears interest rates will remain at their near-zero levels, meaning the cost to access credit will stay low for Americans.

WASHINGTON — The Internal Revenue Service today announced that interest rates for the calendar quarter beginning January 1, 2010, will remain the same as they were in the prior quarter. The rates will be:

* four (4) percent for overpayments [three (3) percent in the case of a corporation];
* four (4) percent for underpayments;
* six (6) percent for large corporate underpayments; and
* one and one-half (1.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The interest rates announced today are computed from the federal short-term rate during October 2009 to take effect November 1, 2009, based on daily compounding.

Revenue Ruling 2009-37, announcing the rates of interest, will appear in Internal Revenue Bulletin No. 2009-52, dated December 28, 2009.

Tax day… can you breathe a sigh of relief?

For most Americans, April 15th allows us to relax knowing our tax obligation is taken care of for yet another year. The deadline to file taxes is here and we can collectively breathe a sigh of relief and feel we are ‘done’ for another year, but is that really the case?

As you well know, taxpayers must file, pay their taxes (if you owe) and have the envelope postmarked by the April 15th deadline. You can file for an extension, as long as you do it by the April 15th deadline, but did you know that an extension to file does not mean an extension to pay your taxes? Many Americans are unaware of this fact and it could cost them in penalties and interest.

Other things you may not know… if you do not file your taxes this year, you will miss out on receiving your rebate stimulus check. Even if you do not owe taxes, you must file in order to receive your rebate check. There are special instructions for some filers, so it is best to visit the <a href=”“>IRS website and follow the link on the home page to the informational section on the stimulus rebate.

Also, did you know audits are on the increase? The number of individual returns audited in 2007 increased 7% over 2006, while audits of business returns increased 14%. The IRS is increasingly auditing returns, so be aware of this as you finalize your returns. Take extra care with itemized deductions and save all receipts, mileage logs or other documentation that will help you prove these deductions, should the need arise.

Lastly, if you are behind and owe back taxes, there is never a better time than the present to ‘get right’ with the IRS. If you owe more than you pay, the IRS has programs that may be able to help you. Whether you can afford to pay monthly payments or have suffered a loss of income and cannot currently pay, there are programs available that might help. Visit our website at www.jkharris.com for more information on some of the programs available to help you get rid of the burden to back tax debt.

Remember, you can breathe easy on April 15th, as long as you stay current with the IRS.

Want your rebate? File a return and the IRS will do the rest

Peter Hukki – Enrolled Agent

Congress has passed the Economic Stimulus Package, which means checks will begin going out to qualifying taxpayers beginning in May.

So exactly what do you, as a taxpayer, need to do to receive this rebate check? Well, if you qualify for the rebate, all you have to do is file your 2007 tax return, and the IRS will take care of the rest. And what’s even better is, if you had your tax refund direct deposited into your bank account, your rebate check will also be direct deposited.

In most instances, the rebate will equal the amount of the tax liability on your tax returns, with a maximum amount of $600 for individuals and $1,200 for taxpayers who file a joint return. Those taxpayers with qualifying children will receive an additional $300 for each qualifying child with a valid Social Security number.

Now, those with incomes greater than $75,000 if single and $150,000 if married and filing jointly will have their payments reduced by 5 percent of the amount over the cap. In other words, the rebate will be reduced by $50 for every $1,000 over the cap.

The most important thing to remember about the stimulus rebate is that you MUST file a 2007 tax return in order to receive the rebate.

I’m sure that brings up a few more questions, like:

What if I don’t normally file a tax return because of my income level?

Even if you do not usually file a return, no payment will be made unless you do. For an example of how to fill out your tax return, please visit http://www.irs.gov/pub/newsroom/1040a.pdf.

What if I receive Social Security or veteran benefits?

If you have at least $3,000 of qualifying income from Social Security benefits, veterans’ disability compensation, pension or survivors’ benefits from the Department of Veterans Affairs, you will be eligible to receive a payment.

What if I file an extension for my tax return?

If you file an extension and wait until October 15, 2008, you will not get a check until year-end. Also, no checks will be issued after December 31.

How is this rebate going to affect my 2008 tax return?

These rebates are a form of advance payments on the 2008 taxes. If for some reason you did not get a rebate or you got a reduced rebate based on your income, you can get an adjustment on your 2008 tax return when filed in 2009. For example, you had a higher than normal income in 2007 but it drops back to a lower income in 2008. You would then be eligible for the rebate on your 2009 tax return. If your income was too low in 2007 and you received a reduced rebate or no rebate but you qualify in 2008, you can then receive the rebate.

For additional answers to some frequently asked questions about the stimulus rebate, visit http://www.irs.gov/newsroom/article/0,,id=179181,00.html.

Peter Hukki is an Enrolled Agent for JK Harris and Company, LLC. He has been an EA since 1974 and is also a practicing Tax Practitioner, completing tax returns for individuals, corporations, trusts, partnerships and estates.