Archive for 'Taxes'

Dec 01

Many family-owned businesses shift income between family members.

The kiddie tax requires the excess unearned income of children to be taxed at their parents’ marginal rate. Unearned income would include interest and dividends, for example.

It used to apply only to children under 18 in 2007. Beginning in 2008 it now applies to all children under 19 and to full-time students under age 24, unless the student’s earned income is one-half of his or her support.

Nov 23

If you installed energy-efficient doors, windows or skylights, added insulation or bought an energy efficient furnace and air conditioning systems, you’ll qualify for a tax credit equal to 30% of the cost, up to a maximum of $1,500.

The residential energy property credit will also apply for 2010.

Nov 17

The IRS has issued guidelines for taxpayers making year-end charitable contributions.

 The IRS reiterated that contributions are deductible only if made to qualified organizations.

 Credit Card

 Contributions are deductible in the year made. Therefore, if you charge a donation on a credit card before the end of 2009, it is deductible in 2009. This is true even if you do not pay the credit card bill until 2010.

 Clothing and Household Goods

 Donations of clothing and household items must generally be in “good used condition or better” to be deductible.

 The fair market value of used clothing and other household items is usually far less than the original purchase price. There are no fixed methods for determining the value of used clothing. Taxpayers should claim the price used in thrift and consignment stores.

 If you donate property at a charity’s unattended drop site, you should maintain a written record of the donation, including information as to the property donated, location of the site, charity’s name, description of the property, and method used to determine the value. Additional substantiation rules apply to contributions of $250 or more.

 Regardless of the amount, donations of money must be evidenced by a bank record or a written communication from the charity. You must also get an acknowledgment from the charity for each deductible contribution (either money or property) of $250 or more.


Nov 17

Remember that you may be entitled to a “worthless stock” deduction in 2009.

Nov 11

The IRS has released (IR-2009-111) the standard mileage rates for 2010 (Rev. Proc. 2009-54)

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

  • 50 cents per mile for business miles driven [down from 55 cents last year]
  • 16.5 cents per mile driven for medical or moving purposes [down from 24 cents]
  • 14 cents per mile driven in service of charitable organizations [same as last year]

The new rates for business, medical and moving purposes are slightly lower than last year’s. The mileage rates for 2010 reflect generally lower transportation costs compared to a year ago. to a spike in gasoline prices. The rate for charitable purposes is set by law and is unchanged from 2008.

Nov 10

If you did, you can deduct state and local sales tax from your 2009, regardless of whether you itemize or not.

 A qualified motor vehicle is a passenger automobile, light truck, or motorcycle with a gross vehicle weight rating of 8,500 pounds or less. The car has to be new. The new car sales tax deduction is limited to the first $49,500 of vehicle’s price. There is no limit to the number of vehicles that you can buy. 

This tax break begins to phase out for single filers with modified AGI of $135,000 and for couples with modified AGI of $260,000.

Nov 06

Normally, the cost of your inventory cannot be written off until it is sold. However if you have any inventory that is damaged, out of date or unsalable, you may be able to write off this inventory for 2009.

Nov 05

There is a new college credit: the American Opportunity tax credit. Unlike the Hope credit that it temporarily replaces for 2009 and 2010, the American Opportunity credit is available for the first four years of college education. It is worth up to $2,500 and up to 40% of the credit is refundable.  Tuition of course qualifies. Now related fees, books and other required course materials also (generally) qualify. This credit is available for single taxpayers with less than $80,000 of modified AGI and married couples with less than $160,000.

While 2009 is the first year for the American Opportunity credit, 2009 will be the last year for the tuition deduction. This deduction is not limited to undergraduate courses. Thus graduate students, people taking undergraduate classes beyond four-years, and people taking occasional classes will take to review the tuition deduction versus the Lifetime Learning tax credit. Both the tuition deduction and Lifetime Learning credit are based only on tuition expenses.

Nov 04

The third quarter of 2009 has seen a flood of new federal tax developments. We’d like to highlight some of the more important federal tax developments for you. As always, please give our office a call or send us an email if you have any questions about these developments.


The IRS is gearing-up to launch a new employment tax compliance project. The project is expected to focus on four areas: worker classification, fringe benefits, non-filers, and officers’ compensation. Taxpayers will be randomly selected for the NPR study of employment tax noncompliance.         

First-time homebuyer credit

 The first-time homebuyer credit, which reaches 10 percent or $8,000 of the purchase price of a qualified residence, is set to end after November 30, 2009. A residence constructed by the taxpayer only qualifies for the first-time homebuyer credit if the taxpayer occupies it on or before November 30, 2009.

 Motor vehicle sales tax deduction

In July, the IRS reminded taxpayers that the motor vehicle sales tax deduction may be claimed for more than one vehicle butthe deduction per vehicle is limited to the tax on up to $49,500 of the purchase price of each qualifying vehicle. The deduction phases out for higher-income individuals. If you are considering a new car or truck purchase before year-end, please contact our office for more information about this valuable tax incentive.

 Filing status

The Tax Court signaled in July that it does not plan to extend married filing joint status to same-sex couples anytime soon (Merrill v. Commr). Married filing joint status is based on a marriage, the court found. The Defense of Marriage Act of 1996 declared for federal purposes that marriage is between a man and a woman and a spouse is defined as a person of the opposite sex.

Roth IRAs

Effective for 2010, individuals will be able to roll over funds to a Roth IRA regardless of current income and other restrictions, the IRS reminded taxpayers in September. The IRS also issued interim guidance on rollovers from employer plans to Roth IRAs. It’s not too early to start planning for Roth IRA conversions. Please contact our office if you have any questions.


Starting in 2010, taxpayers can check a box on their return to use all or part of their refund to purchase Series I U.S. savings bonds. The bonds will be mailed directly to the taxpayer.

COI income

The IRS issued election procedures in August for deferring cancellation of indebtedness (COI) income on repurchased debt.

The American Recovery and Reinvestment Act of 2009 enacted Code Sec. 108(i) giving taxpayers an election to defer COI income from the reacquisition at a discount of an applicable debt instrument in 2009 or 2010. The income is deferred until 2014 and then must be reported ratably over five years, through 2018.


The American Recovery and Reinvestment Act of 2009 added two new targeted groups for the Work Opportunity Tax Credit (WOTC): disconnected youth and unemployed veterans working for an eligible employer during 2009 or 2010. In August, the IRS clarified who qualifies as a disconnected youth or unemployed veteran and provided some transition relief.

 S corporations

S corporations are a popular choice of business entity. The IRS reminded S corporation shareholders that when corporate officers perform a service for the corporation and receive or are entitled to payments, these payments are considered wages.

Accounting methods

In September, the IRS announced revised procedures for automatic consent to change of accounting method. Generally, taxpayers must obtain IRS consent to change a method of accounting. The IRS has attempted to streamline this process by permitting taxpayers to obtain automatic consent for over 140 enumerated changes.

LLCs and LLPs

In July, the Tax Court rejected the IRS’s claim that members of limited liability companies (LLCs) and limited liability partnerships (LLPs) should be automatically presumed not to materially participate in the entities’ activities under the Tax Code or temporary regulations (Garnett v. Commr).

Nov 04

As you probably know, there is a federal tax credit for a first-time home buyer. This credit has already appeared in two versions:

  • For home purchases on or after April 9, 2008, and before January 1, 2009.

This credit went up to $7,500.

If this is you, you have to repay the credit by 1/15 of the credit amount for each tax year during the 15-year recapture period. The period begins with the second tax year following the tax year of the purchase. So, if you bought the house in 2008, you start repaying the credit in 2010.

  • For home purchases after  2008 and before December 1, 2009

This credit goes up to $8,000.

If this is you, the credit does not have to be repaid unless you sell the home or otherwise stop using it as a personal residence within 36 months after the purchase.

You are a first-time homebuyer if you (and your spouse, if married) did not own a home in the three-year period before you bought the home. Technically, you do not have to be a “first-time” buyer, just a “not in the last three years” buyer.

You “phase out” of the credit if you are single and your modified adjusted gross income (MAGI) is between $75,000 and $95,000. If you are married, then the phase-out is between $150,000 and $170,000.

This credit was to expire November 30, 2009.

                                                            The New Law

Congress extended the credit period. It no longer ends on November 30, 2009. The new period ends April 30, 2010 but not really. If you have a contract to purchase in place by on April 30, 2010, you actually have until June 30, 2010 to close.

Congress also eased up on the income phase-out limits. If you are single, then the MAGI limits are $125,000 and $145,000. If you are married, the limits are $$225,000 and $245,000.

There are some new restrictions, such as the credit being disallowed if the house costs more than $800,000. Also no credit is allowed if you are under age 18 when you buy the home (with an exception).  The IRS learned that some “taxpayers” as you g as age four were claiming the credit, so the put the nix on the underage thing. You now also have to attach a copy of the closing statement to your return.

Remember that you were allowed to buy the home in 2009 and claim the credit on your 2008 tax return? This was an effort by Congress to get the money to you quicker. What happens now if you buy a house in 2010? You guessed it: you can claim the credit on your 2009 return.

What if you owe no tax for 2009 or, at least, a lot less than $8,000? You get up to $8,000 back. The credit is “refundable,” which means you get the money even if you paid no tax.

Oh, how about buying a house from a relative? Forget about it, it won’t qualify. What if you buy from your spouse’s relatives?  Hey, they are not your relatives, right?  You are clever. This used to work but not anymore. Congress closed the loophole.

                                                            The New Credit

You don’t have to be a “not in the last three years” buyer any more.  You can presently own a home and still get the credit, as long as you lived in the home for at least five of the last eight years. 

You may have read this credit referred to as the “move up” credit. That is not accurate. You don’t have to trade-up. An empty-nester moving to a less expensive condo qualifies for the credit.

Now, the move-up credit isn’t as much as the new-homebuyer credit: the maximum is $6,500. You still have to live at the new place for three years.  There is no proration here: if you move out after 2 ½ years, for example, you pay back the full credit not just 6/36 or $1,083. There are some exceptions, such as death, but that is rather extreme tax planning.