This is a repeat blog from a year ago. The only thing that changed was the dollar limitation.
Do you have a simple federal tax return to file? You can do it on-line free through the IRS. You qualify if you receive a W-2 from your employer, and have some interest and dividend income. You even can own a home and qualify. The major restriction is that all of your income must be below $57,000.
You can file your return through an IRS partner, or you can complete the tax forms found on the IRS Web site http://www.irs.gov/efile/article/0,,id=118986,00.html?portlet=4. This is a fast, easy, and free way to file your return. Would you like to have your refund in less than 3 weeks? You can have it deposited directly into your checking account. Have a personal check in front of you when you file your return so you have the numbers they require to take advantage of direct deposit. This system is appropriate only for uncomplicated returns.
This link to the IRS Web site can help you file your return.
http://www.irs.gov/efile/article/0,,id=118986,00.html?portlet=4
Saturday, January 31, 2009
Thursday, January 29, 2009
Pension Distribution
You Do Not Have To take that Pension Distribution
If you have money in a pension or IRA and are age 70-1/2 or over you are required to take distributions every year so that you will withdraw all of your tax deferred money over your expected life. This is called a Required Minimum Distribution (RMD). Congress enacted a special rule for 2009 only that allows you to skip the RMD for 2009. This means that you do not have to take a distribution. This is a one-year provision only.
There is also a special rule for the year you turn 70-1/2. You may take the RMD up to April 1st of the following year. Thus, if you turned 70-1/2 in 2008 you must take the RMD for 2008 by April 1, 2009. The law mentioned above does not apply to the RMD for 2008. You still must take your 2008 distribution by April 1, 2009 but you may skip the 2009 distribution that should be taken by December 31, 2009
Confused? Comment on this blog with a question or try this IRS link to get more information
http://www.irs.gov/retirement/article/0,,id=96989,00.html
If you have money in a pension or IRA and are age 70-1/2 or over you are required to take distributions every year so that you will withdraw all of your tax deferred money over your expected life. This is called a Required Minimum Distribution (RMD). Congress enacted a special rule for 2009 only that allows you to skip the RMD for 2009. This means that you do not have to take a distribution. This is a one-year provision only.
There is also a special rule for the year you turn 70-1/2. You may take the RMD up to April 1st of the following year. Thus, if you turned 70-1/2 in 2008 you must take the RMD for 2008 by April 1, 2009. The law mentioned above does not apply to the RMD for 2008. You still must take your 2008 distribution by April 1, 2009 but you may skip the 2009 distribution that should be taken by December 31, 2009
Confused? Comment on this blog with a question or try this IRS link to get more information
http://www.irs.gov/retirement/article/0,,id=96989,00.html
Tuesday, January 27, 2009
Buying Equipment for your Business
Do you buy a lot of equipment for your business? Equipment is any business purchase that should last more than one year. Paper, staples, boxes etc are supplies not equipment. Desks and machinery etc are equipment. Computers may be technologically obsolete when you first plug them in but they are considered equipment because they will physically last for several years.
The IRS requires you to deduct the cost of your equipment over 3 to 7 years rather than all at once. This is called depreciating the equipment. This can present a cash flow problem. You spend $35,000 for a nice fancy piece of equipment and then you get a tax deduction over 7 years. You pay $35,000 but only deduct $5,000 that year. It doesn’t seem fair does it?
There is a special provision in the tax code for small business. You can buy up to $125,000 ($250,000 in 2008) in equipment in a year and write it off in full that year. So in the case sited above the full $35,000 is deductible in the year you bought it. Then next year you can buy more equipment and expense it. That seems fair to me.
There are several hurdles your must clear to take this deduction. If you spend more than $800,000 on equipment in one year, you start to lose the right to expense your equipment that year. $800,000? That doesn’t sound like a small business to me. None of my clients have ever spent that much in one year.
You also cannot take this deduction when you buy real estate. You must depreciate business real estate like an office condominium over 39 years.
The various tax packages you can use to prepare your tax return will handle this very well. However, if you are in business, hiring a tax professional could be a great idea.
The IRS requires you to deduct the cost of your equipment over 3 to 7 years rather than all at once. This is called depreciating the equipment. This can present a cash flow problem. You spend $35,000 for a nice fancy piece of equipment and then you get a tax deduction over 7 years. You pay $35,000 but only deduct $5,000 that year. It doesn’t seem fair does it?
There is a special provision in the tax code for small business. You can buy up to $125,000 ($250,000 in 2008) in equipment in a year and write it off in full that year. So in the case sited above the full $35,000 is deductible in the year you bought it. Then next year you can buy more equipment and expense it. That seems fair to me.
There are several hurdles your must clear to take this deduction. If you spend more than $800,000 on equipment in one year, you start to lose the right to expense your equipment that year. $800,000? That doesn’t sound like a small business to me. None of my clients have ever spent that much in one year.
You also cannot take this deduction when you buy real estate. You must depreciate business real estate like an office condominium over 39 years.
The various tax packages you can use to prepare your tax return will handle this very well. However, if you are in business, hiring a tax professional could be a great idea.
Saturday, January 24, 2009
Gassing Up
I have a prediction: gasoline will hit $3.00 per gallon by July 4th. Why do I say this? Adjusted for inflation, gas prices are lower now than they were when I was in college…and that was a long time ago. The major oil producing countries are finally lowering production. The federal and state government are proposing raising gas taxes to pay for road repairs and construction. Massachusetts has a proposal to up the gas tax by 29 cents per gallon. Drivers are becoming less interested in conserving gas. In my opinion, this means that gas prices will rise.
Couple that with the current inability of the automobile industry to sell cars. The spike in gas prices killed off the market for monster cars. Then the drop in gas prices lessened interest in small cars. Toyota is even having trouble selling the Prius. This presents a glorious opportunity. Prepare for the increase in gas prices by buying a fuel-efficient car now at what are probably bargain basement prices. Once the price of gas goes up, the price of these small cars will rise too. Think of the savings when the price of gas goes over $4 or $5 per gallon permanently.
What does this have to do with taxes? Nothing. But preparing for it now will improve your own personal finances in the future.
Couple that with the current inability of the automobile industry to sell cars. The spike in gas prices killed off the market for monster cars. Then the drop in gas prices lessened interest in small cars. Toyota is even having trouble selling the Prius. This presents a glorious opportunity. Prepare for the increase in gas prices by buying a fuel-efficient car now at what are probably bargain basement prices. Once the price of gas goes up, the price of these small cars will rise too. Think of the savings when the price of gas goes over $4 or $5 per gallon permanently.
What does this have to do with taxes? Nothing. But preparing for it now will improve your own personal finances in the future.
Wednesday, January 21, 2009
The Economic Stimulus Payment
Did you get your stimulus payment in 2008, the check for $600 per person you were supposed to receive? Don’t despair if you haven’t, you can still get it.
There are a couple of reasons you might not have gotten your rebate in 2008. Your income might have been too high to qualify or you might have filed your tax return late. You are out of luck if your income was too high. That is not bad news. It is better to have a high income than to get a few dollars from Uncle Sam. If your return was late you can get the money by using the Rebate Recovery Credit on your 2008 tax return. Just remember to file the return. The earlier you file the sooner you will have the money.
Suppose you got your stimulus check in 2008. You could be eligible for more if any of the following has occurred in the past year:
* Your income went down from 2007 to 2008.
* You added a child as a dependent during 2008. This could be by adoption or birth.
* You became legally independent in 2008. This happens to people who graduate high school or college.
* You got a Social Security number in 2008. This would apply if you received your green card in 2008 and then got your Social Security number.
How do you calculate the additional amount? Here’s the good news: the IRS will calculate it for you if you wish. Just file your return and wait for the check.
Again you must file a return for 2008 to collect your money.
Check out this link to the IRS web site if you want more information:
http://www.irs.gov/newsroom/article/0,,id=186065,00.html?portlet=7
There are a couple of reasons you might not have gotten your rebate in 2008. Your income might have been too high to qualify or you might have filed your tax return late. You are out of luck if your income was too high. That is not bad news. It is better to have a high income than to get a few dollars from Uncle Sam. If your return was late you can get the money by using the Rebate Recovery Credit on your 2008 tax return. Just remember to file the return. The earlier you file the sooner you will have the money.
Suppose you got your stimulus check in 2008. You could be eligible for more if any of the following has occurred in the past year:
* Your income went down from 2007 to 2008.
* You added a child as a dependent during 2008. This could be by adoption or birth.
* You became legally independent in 2008. This happens to people who graduate high school or college.
* You got a Social Security number in 2008. This would apply if you received your green card in 2008 and then got your Social Security number.
How do you calculate the additional amount? Here’s the good news: the IRS will calculate it for you if you wish. Just file your return and wait for the check.
Again you must file a return for 2008 to collect your money.
Check out this link to the IRS web site if you want more information:
http://www.irs.gov/newsroom/article/0,,id=186065,00.html?portlet=7
Monday, January 19, 2009
Swapping Your House
Are you having trouble selling your house?
The real estate market has slowed to a crawl and its probably going to continue being slow into 2010. That creates a problem for people who have to move now. This could be because of a job change, retirement, health issues, or just wanting to be closer to family and friends. Houses sell now but only at aggressive prices (translation: less than you want to sell it for).
Here’s a possible solution: how about trading houses with someone in a similar situation? People are moving all over the country. Maybe someone in sunny Florida wants to move to Buxton, Maine. They could trade houses with a resident of Maine who wants to move to Florida. That’s right, swap houses permanently.
How would you go about this? Thank heavens for the Internet. Go to Google and search on "Swapping Homes". This should result in 1.5 million links. That should keep you busy for a while. They represent all sorts of opportunities. There has been a thriving vacation swap presence for years. That is when you trade your house for a week for someone else’s house for a week and both of you have inexpensive vacations. The market has expanded to sites that promote house trades where you "sell" your house and get paid for it with another house. These sites have boomed since the dramatic drop in real estate activity.
Once you have located a desirable property, you need to treat the transaction like a purchase and sale. A swap is more complicated than a sale. A direct value for value swap is rare so haggle over the value of both houses. A cash payment usually is necessary to even out the values. Have the house inspected and hire a lawyer to do the legal work to reduce the chance of a problem. You can even hire a real estate agent to help.
Swapping can have some tax complications. When you swap houses you must deal with the tax consequences as if it were a sale. Generally this is not a problem. You only pay tax if the gain exceeds $250,000 if you are single or $500,000 if you are married. In this market, few people will exceed this threshold. You also must have owned the house for more than two years. Most people will not have to pay any tax on the transaction.
Remember this is not a do-it-yourself proposition. Enlist help from real estate, legal, and tax professionals who are familiar with the process.
Check out this link to Smart Money for some pitfalls that you might encounter:
http://www.smartmoney.com/spending/deals/home-swapping-sites-no-easy-fix-for-desperate-sellers-23206/?hpadref=1
The real estate market has slowed to a crawl and its probably going to continue being slow into 2010. That creates a problem for people who have to move now. This could be because of a job change, retirement, health issues, or just wanting to be closer to family and friends. Houses sell now but only at aggressive prices (translation: less than you want to sell it for).
Here’s a possible solution: how about trading houses with someone in a similar situation? People are moving all over the country. Maybe someone in sunny Florida wants to move to Buxton, Maine. They could trade houses with a resident of Maine who wants to move to Florida. That’s right, swap houses permanently.
How would you go about this? Thank heavens for the Internet. Go to Google and search on "Swapping Homes". This should result in 1.5 million links. That should keep you busy for a while. They represent all sorts of opportunities. There has been a thriving vacation swap presence for years. That is when you trade your house for a week for someone else’s house for a week and both of you have inexpensive vacations. The market has expanded to sites that promote house trades where you "sell" your house and get paid for it with another house. These sites have boomed since the dramatic drop in real estate activity.
Once you have located a desirable property, you need to treat the transaction like a purchase and sale. A swap is more complicated than a sale. A direct value for value swap is rare so haggle over the value of both houses. A cash payment usually is necessary to even out the values. Have the house inspected and hire a lawyer to do the legal work to reduce the chance of a problem. You can even hire a real estate agent to help.
Swapping can have some tax complications. When you swap houses you must deal with the tax consequences as if it were a sale. Generally this is not a problem. You only pay tax if the gain exceeds $250,000 if you are single or $500,000 if you are married. In this market, few people will exceed this threshold. You also must have owned the house for more than two years. Most people will not have to pay any tax on the transaction.
Remember this is not a do-it-yourself proposition. Enlist help from real estate, legal, and tax professionals who are familiar with the process.
Check out this link to Smart Money for some pitfalls that you might encounter:
http://www.smartmoney.com/spending/deals/home-swapping-sites-no-easy-fix-for-desperate-sellers-23206/?hpadref=1
Tuesday, January 13, 2009
An Alleged Tax Credit
This year, Congress passed a bill that gives a $7500 credit to first-time homebuyers. This credit is available if you closed on your home after April 9, 2008 and before July 1, 2009. Your income must be less than $95,000 if you are single and $170,000 if you are married to take advantage of the credit.
A first time homebuyer is someone who has not owned a home for three years. (Only in America can someone who has previously owned a home be declared a first time homebuyer.) The credit is taken on your 2008 or 2009 tax return and can be refunded - which means that if you bought a home and owe no federal income tax, the IRS will send you a check for $7500 (just because they are so wonderful).
Now for the alleged part…this is not really a tax credit. You have to pay it back over a fifteen-year period. That’s comes out to $500 per year. It’s a loan rather than a credit. The bonus is you do not have to pay any interest on it.
Should you take this money? Absolutely! You should think of it as your own personal bailout. You have $7500 in your pocket now and have 15 years to pay it back. If you put $7500 in the bank you will get a magnificent 0.5% interest on it - $35 in the first year - enough for a few cups of coffee. You can use this for anything you want, but the best use of this money is to pay down your mortgage.
More detailed information is available at
2/7/09 I had to update the link because the original link changed.
http://www.federalhousingtaxcredit.com/faq.php
A first time homebuyer is someone who has not owned a home for three years. (Only in America can someone who has previously owned a home be declared a first time homebuyer.) The credit is taken on your 2008 or 2009 tax return and can be refunded - which means that if you bought a home and owe no federal income tax, the IRS will send you a check for $7500 (just because they are so wonderful).
Now for the alleged part…this is not really a tax credit. You have to pay it back over a fifteen-year period. That’s comes out to $500 per year. It’s a loan rather than a credit. The bonus is you do not have to pay any interest on it.
Should you take this money? Absolutely! You should think of it as your own personal bailout. You have $7500 in your pocket now and have 15 years to pay it back. If you put $7500 in the bank you will get a magnificent 0.5% interest on it - $35 in the first year - enough for a few cups of coffee. You can use this for anything you want, but the best use of this money is to pay down your mortgage.
More detailed information is available at
2/7/09 I had to update the link because the original link changed.
http://www.federalhousingtaxcredit.com/faq.php
Sunday, January 11, 2009
Estimates
This is a real quick one.
Your estimates are due by January 15th. Ignore this if you have no idea what I'm talking about.
Your estimates are due by January 15th. Ignore this if you have no idea what I'm talking about.
Saturday, January 10, 2009
Phishing with the IRS
Care to go phishing?
There is a scam going around that can cost you a lot of money. You get an email that looks and feels like it is from the IRS. It says that you are owed a refund of a minor amount of money. You are supposed to click the link and that is when you will realize that you’ve made a mistake. If you click the link you will either be directed to a phony IRS site or asked for personal information, such as your bank account numbers. Now the money will start flowing out of your bank account, not into it.
Think about it. How did the IRS get your email address? Why would they owe you money? Don’t forget, the IRS likes to collect money, not pay it out. This is just one of those things that is too good to be true.
The IRS does NOT use email to transact business. Should you get one of these emails, delete it immediately. Do not click on any links and do not provide any personal information.
Click this link (to the real IRS Web site) if you want more information.
http://www.irs.gov/privacy/article/0,,id=179820,00.html?portlet=5
There is a scam going around that can cost you a lot of money. You get an email that looks and feels like it is from the IRS. It says that you are owed a refund of a minor amount of money. You are supposed to click the link and that is when you will realize that you’ve made a mistake. If you click the link you will either be directed to a phony IRS site or asked for personal information, such as your bank account numbers. Now the money will start flowing out of your bank account, not into it.
Think about it. How did the IRS get your email address? Why would they owe you money? Don’t forget, the IRS likes to collect money, not pay it out. This is just one of those things that is too good to be true.
The IRS does NOT use email to transact business. Should you get one of these emails, delete it immediately. Do not click on any links and do not provide any personal information.
Click this link (to the real IRS Web site) if you want more information.
http://www.irs.gov/privacy/article/0,,id=179820,00.html?portlet=5
Wednesday, January 7, 2009
Introduction
I am embarking on a great adventure, blogging. I’m sure it will be fun, frustrating and frantic at times (notice the alliteration, just like the name.) As the title says, this blog is about taxes. Generally it will focus on your relationship with the Internal Revenue Service. I know, you don’t want a relationship with the IRS. Too bad, you have one. The intention is to provide information that might help you save some money on your taxes and could keep you out of jail.
The blog will stray into areas of interest to me, like soccer, my wife, my kids and grandkids. Occasionally it will wander into my opinions but they will be clearly labeled as such. I will even try to make it humorous but remember, I’m a CPA.
I plan on blogging 2 or 3 times a week and encourage your comments and questions. I will be reviewing and editing them if necessary. Write them as if your mother was reading them. Please see my comment policy.
Legal Warning: The information in this blog is as accurate as I can make it. Consult me or your tax professional before using anything posted here on your tax return. Your circumstances may be different than those assumed in the postings. Please see my disclaimer.
The blog will stray into areas of interest to me, like soccer, my wife, my kids and grandkids. Occasionally it will wander into my opinions but they will be clearly labeled as such. I will even try to make it humorous but remember, I’m a CPA.
I plan on blogging 2 or 3 times a week and encourage your comments and questions. I will be reviewing and editing them if necessary. Write them as if your mother was reading them. Please see my comment policy.
Legal Warning: The information in this blog is as accurate as I can make it. Consult me or your tax professional before using anything posted here on your tax return. Your circumstances may be different than those assumed in the postings. Please see my disclaimer.
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