Tuesday Tax Time

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Tuesday Tax Time: Crime Does Pay (or at least get you a tax deduction)

March 9, 2010 in THINK, Tuesday Tax Time | No comments

Seal of the Internal Revenue Service

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The Tax Court recently allowed a dentist to deduct restitution payments (plus interest) on his Schedule C during tax time.  His wife bilked insurers out of money for services he never rendered.  She went to Women’s Prison and he paid everybody back.  The payments were paying back the insurers for lost funds (as opposed to being punitive payments), so the doc got to deduct them on his tax return.  Pretty cool.

And the write off was so big, it caused a net operating loss he used to create a refund.  So there, wife.

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Tuesday Tax Time: No “First Time Home Buyer” Credit for You

March 2, 2010 in THINK, Tuesday Tax Time | No comments

Seal of the Internal Revenue Service

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Did you know you can’t get the First Time Home Buyer’s credit if you buy your new home from a relative?  And the IRS recently said (in a Private Letter ruling) that if you buy your home from an estate (and you are an heir to that estate), then you don’t get the credit either.

And the credit doesn’t count if you inherit the home… because it just doesn’t.  So there.

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Tuesday Tax Time: Time To Pay Up

February 23, 2010 in THINK, Tuesday Tax Time | No comments

I hate taxes
Image by chadinbr via Flickr

Remember?  Remember when the government coerced you to buy a house in 2008 to stimulate the economy?  Remember the $7,500 credit you got, and how ticked you were when everyone else waited and got an $8k credit?  And it was so bad because you have to pay your $7,500 back, and they get to keep their $8k.  Bites.

Well, that payback starts this year.  Did you forget?  Starting in 2010, you have to put $500 in taxes on your tax return for 15 years until you pay back the $7,500 to the government.

Details:

1.  Put this payback on your 2010 return (due by April 15, 2011),

2.  Use Form 5405 to give the government back their money – $500 per year,

3.  If you sell your home before the 15 years is up at a loss, the debt is forgiven,

4.  If you sell your home before the 15 years is up at a profit, you will be taxed on the lesser of your profit or the balance of the credit.

Have fun.

Thanks, Jason M. Blumer, CPA

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Tuesday Tax Time: Haiti Relief

February 16, 2010 in THINK, Tuesday Tax Time | No comments

Haitian Flag, the National Flag of Haiti
Image by Beverly & Pack via Flickr

Here are the details on the Haiti Relief tax write offs:

1.  Donations to charities helping the Haiti earthquake victims can be made in 2010, but deducted on your 2009 tax return

2.  The charity you are giving money to has to be a qualified charity (search for eligible charities here), typically foreign entities will NOT count

3.  You have to make the cash donations (as opposed to property) before March 1st of 2010 to qualify

4.  It’s just like any other charitable donation – you have to itemize first before it will actually help you (it doesn’t apply to you if you claim the standard deduction)

5.  You have to have a receipt for your donation, and if you texted “haiti” to the Red Cross and gave some cash through text message, then that is deductible too (but keep your phone bill as a receipt)

Thanks, Jason M. Blumer, CPA

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Tuesday Tax Time: The Home Buyer Credit (Again) Edition

February 9, 2010 in THINK, Tuesday Tax Time | No comments

1967 Elcona Mobile Home
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This has come up before, but there are some rules you need to know about the Home Buyer Credit:

1.  We can’t efile your return if you are claiming the Home Buyer’s Credit because the IRS is making us attach the settlement statement to your return.  Dang.  *there goes all those fraudsters that would buy up a bunch of houses just to get a $6,500 credit*

2.  If it’s a mobile home (thus, the pic of my summer home to the left), then there is no settlement statement… you gotta produce something!  Include the signed sales agreement with the return or something to keep the Agency off your back.

3.  Building a home?  First, you better talk to your tax preparer and make sure you move in on the right day… if you don’t, it could cost you the credit.  Second, go ahead and bring the Occupancy Certificate to the tax meeting while you’re at it so we can attach that to the tax return too (I ain’t kidding).

4.  If you are taking the $6,500 Home Buyer’s Credit (where you have to live in your current home for 5 out of the last 8 years), then prepare to prove it.  I’m talking records of property tax statements, proof of insurance coverage, etc.

5.  And since everything is getting sent via snail mail, the IRS is ramping up their staff to handle the deluge of paper returns.  The Agency won’t start processing returns with the Home Buyer’s Credit attached until mid-February (so it’s just about time).  I think they are reprogramming their computers or something like that.  Don’t expect your check anytime soon… it’s going to take longer to stuff the envelopes.  Don’t hate.

Thanks, Jason M. Blumer

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Tuesday Tax Time – 2010: the Year to Die

February 2, 2010 in THINK, Tuesday Tax Time | No comments

Still-Life with a Skull, vanitas painting.

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I know it’s a crass title, but this TTT speaks of the funkiness of our laws.  The estate tax, or death tax on your estate when you die, expired in 2009 (but not the gift tax, which is often tied to the estate tax).  And it’s currently scheduled to come back on January 1, 2011.  Weird.  So if you are going to die, 2010 is the year to do it (especially if you are rich and you have heirs).

Break it down, homey:

Pre 2010:  the Estate Tax Rate was 45% with a $3.5 Million exemption.

Post 2010:  the Estate Tax Rate will be 55% with $1 Million exemption.

Thoughts:

-No way Congress is going to let the Estate tax lapse – too much cash in it, so expect them to establish something and make it retroactive back to January 1, 2010.

-I’ve heard that the Republicans may have enough votes in the Senate to get a $5 Million exemption and a 35% tax rate instituted.  That would be good news for hefty estates everywhere.

-There is a twist to the estate tax in 2010: the “stepped up basis” rules do not apply in 2010.  That is, when someone dies, the heir gets a stepped up basis in the inherited property.  They get to consider the basis in the property they inherit to be valued on the date of death of the decedent.  That means they won’t pay as much gain on the subsequent sale of the property after inheriting it.  In the current law, that stepped up basis has gone away.  Not good.

Interesting to see where all of this will go, but you can be sure – there will be changes.  Anything you’ve heard?  Leave it in the comments.

Thanks, Jason M. Blumer, CPA

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Tuesday Tax Time: COBRA Subsidy Extended

January 26, 2010 in THINK, Tuesday Tax Time | No comments

Indian Spectacled Cobra, Naja Naja Family, Par...

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I know talking smack about the extension of the COBRA subsidy gets you excited.

Wha…  Calm down, and check the facts:

1.  You are eligible if you were involuntarily terminated between Sept. 1, 2008 and Feb. 28, 2010 (so if you are working on being involuntarily terminated, you’ve only got just over 35 days to do it),

2.  You can be on COBRA now for 15 months (used to be 9 months),

3.  If you are on COBRA (and you are eligible), you pay 35% of the premiums, and your former employer pays 65% of the premiums (who are then reimbursed on their employment tax returns),

4.  Employers must notify individuals eligible for COBRA by Feb. 17, 2010,

5.  COBRA has nothing to do with snakes – it stands for the Consolidated Omnibus Budget Reconciliation Act of 1985

Here are some question and answers for employers trying to comply with the reporting requirements of COBRA.

Peace

Jason M. Blumer, CPA

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Tuesday Tax Time: 2010 Small Business Changes

January 19, 2010 in THINK, Tuesday Tax Time | No comments

Seal of the United States Internal Revenue Ser...

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The lawmakers were busy messing with health care late last year and missed adjusting some big small business write offs for 2010.  Maybe they’ll fix it this year and make them retroactive.

1.  The 50% bonus depreciation write off is gone in 2010.  Before 2010, you could write off half of the purchase price of certain equipment purchased in 2009.  Bye bye.

2.  Similar to #1 (but different), the higher write offs of equipment purchases used to be capped at $250k in 2009… now down to $134k.

3.  The lawmakers allowed for estimated tax penalty relief for small business owners by allowing them to pay in either 90% of prior year tax or 90% of current year tax, which ever is lower.  But that was 2009 (that’s so “last year”).  That benefit has now reverted back to pre-stimulus relief.  Now you have to pay in at least 100% of your prior year tax (2009), or 90% of your current year tax (2010) to avoid penalty.

4.  Late filing penalties for partnerships and S Corps go way up!  The IRS will charge you $195 per owner per month now for 12 months if your return is late.

Be careful out there…

Questions?  Leave them in the comments.

Jason M. Blumer, CPA

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Tuesday Tax Time: Tax Planning for 2010

January 12, 2010 in THINK, Tuesday Tax Time | No comments

Now is the time to begin preparing for next year’s tax time.  Here are some things you can do now so that your CPA won’t fuss at you on April 15, 2011:

1.  If you claim mileage, begin keeping a log now.  The tax return actually asks if the mileage claimed was “written.”  You want to answer “yes,” so begin keeping a log now (and you shouldn’t lie).  Keep a log that lists your mileage by client served, where you went, the date, and the beginning and ending odometer reading for each trip.  By the way, the mileage deduction is 50 cents per mile beginning January 1, 2010.

2.  If you claim the home office deduction, your CPA will need all of your insurance, utilities, phone, etc. that you spent in your household.  Begin tracking them now (maybe use a personal financial tracking system to do this!).

3.  Think about switching your traditional IRA over to a Roth IRA in this new year.  You can pay the taxes later (in 2011 and 2012), and you’ll have free money when you retire.  But before you do, read this three part series I did on the things to think about before doing so.

4.  If you have a business, begin keeping track of your profit now.  Your profit is what drives your year-end tax bill.  When you start making a lot of money, the first person to call should be your CPA (well, maybe your spouse should be first).  There are things we can do during the year to eliminate the taxes to be paid by April 15, 2011.  And if you don’t have an innovative online solution for your business accounting software – call us.  We do that.

5.  You’ve got time to start working on a new baby = new tax credit and personal exemption for 2010!

Make it a happy new tax year!

Thanks, Jason M. Blumer, CPA

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Tuesday Tax Time: Reimbursed Expenses

January 5, 2010 in THINK, Tuesday Tax Time | 1 comment

Seal of the Internal Revenue Service

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In our final part in the four part series on the IRS’s new National Research Program, we come to reimbursed expenses.  This program (which sounds more like a scientific research project, than a “find the wayward taxpayer and get more money” scheme) is a push by the IRS to recoup estimated billions of dollars of lost money on employment tax returns filed throughout the US.  How exciting this four part series has been!  I know you wait with longing for the very next Tuesday Tax Time.  All I can say is… calm down.

Anyway, this fourth topic is really going to focus on whether your company has an accountable vs. a nonaccountable expense reimbursement plan.  Accountable plans are good.  A plan being “accountable” means employees of the corporation are submitting receipts and then getting a check that equals the total of the receipts submitted for reimbursement.  Pretty simple.  Here are three aspects of an accountable plan:

1.  Expenses must be ordinary, necessary, and reasonable business expenses,

2.  There must be adequate accounting for the expenses within a reasonable amount of time, and

3.  If you get reimbursed too much, then you must return the excess funds back to the employer within a reasonable amount of time.

The IRS is going to be digging for those “reimbursements” where there is no substantiation, or that look funny (read, “new skis reimbursement” for that company outing you took last year in Vail).  Then, potentially, they get to call that wages, not reimbursements… then payroll taxes will be due on the newly minted wages.  You can maintain a defensible position if you show some kind of internal tracking mechanism to properly keep up with these expenses (forms, policies, evidence of employees following the plan, monitoring of the plan, etc.).

So, to safeguard yourself, go ahead and establish internal policies to keep an accountable plan going in your company, tell your staff about it at a staff meeting and enforce it.  You’ll be protecting yourself for the future… and besides, it’s the right thing to do.

Thanks, Jason M. Blumer, CPA

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