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HOW TO CHOOSE A TAX PROFESSIONAL
New tax laws bring many opportunities and challenges for taxpayers causing more people to look for professional help. A tax adviser can be as important to someone's financial health as a doctor is to his physical health. Select someone who shows an interest in your overall tax picture, not just in preparing a tax return. Your preparer should demonstrate an interest in your future plans and goals. Look for someone who is available year-round, who can represent you at all levels of IRS. Questions involving financial decisions come up throughout the year and so do tax emergencies. Find someone who specializes in tax for the best results.
Don't make the lowest fee your top priority. It is of far
greater importance to realize the best net benefit. You wouldn't want
to pay a low preparation fee, at the expense of a larger tax liability
than you were legally obliged to pay.
THERE IS A CHANGE IN MILEAGE RATES FOR 2010
Source: IRS – IR-2009-111, dated 12/3/09 On 12/3/09, Internal Revenue Service issued the above optional standard mileage rates to calculate the deductible costs of operating an automobile (also vans, pickups or panel trucks) used for business, charitable, medical or moving purposes. The new rates are slightly lower than last year’s. The mileage rates for 2010 reflect generally lower transportation costs compared to a year ago. A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously. Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. GIFT TAXES You will be exempt from gift tax if your annual gift to any one individual is not over $13,000 in 2009 & 2010. FICA REPORTING CHANGE If you have a nanny or an individual cleaning your home, the new annual threshold amount for having to report and pay employment taxes (FICA) is $1,700 for 2009 & 2010. FIRST TIME HOMEBUYER The “first time homeowner” credit is defined as 10% of the purchase price, up to a maximum credit of $8,000, for taxpayers who have not owned their principal residence in the prior three years. Unlike the $7,500 credit for homes purchased in 2008, the $8,000 credit does not have to be repaid in two years. The new credit is phased out, however for couples with more than $225,000 ($125,000 for singles) Adjusted Gross Income (AGI) in 2009 and is extended for purchases made before April 30, 2010. A $6,500 credit will also be available to buyers who have lived in their current residence for at lease five consecutive years during the eight-year period before the purchase of the residence. ECONOMIC RECOVERY PAYMENTS The Economic recovery payment of $250 was a one-time payment to qualified individuals in May 2009. This was accomplished through reduced withholding rates and extra payments for those collecting social security benefits. UNEMPLOYMENT BENEFITS Unemployment benefits became tax-free for the first $2,400 to each recipient in 2009. In November, these benefits were extended for an additional fourteen weeks, or for an additional 20 weeks in states with unemployment greater than 8 1/2%. VEHICLES PURCHASEDA qualified motor vehicle purchased after 2/17/09, weighing less than 8,500 pounds, became sales tax-free for the first $49,500 purchase price for taxpayers with modified AGI of less than $250,000 if married or less than $125,000 for singles. ENERGY CREDITS Several new energy credits were added or enhanced for tax years 2009 and beyond. If you purchase an energy-efficient product or renewable energy system for your home, you may be eligible for a federal tax credit of 30% of cost up to $1,500. The home must be an existing home and be your principal residence. New construction and rentals do not qualify. You will find that the Energy Star website at www.energystar.gov/taxcredits provides additional information on all of the energy tax credits. YOU DON’T NEED TO ITEMIZE TO GET TAX BREAKS The deduction for real estate taxes (even when not itemizing), teachers’ education expense deduction, the $4,000 higher education tuition deduction, the sales tax deduction and the homebuilders credit were also extended through 2009.
CANCELLED DEBT
Taxpayers who have lost their homes are perhaps the worse effected by current economic conditions. Normally, cancelled debt is considered “phantom income” and taxable. Congress has formulated significant exceptions, however, for those who can qualify. TAX PLANNING You may benefit long-term by accelerating income in some cases, as well as, accelerating expenses in 2009. A careful analysis of your 2010 tax liability is key. Single individuals with income above $200,000 and married couples with incomes over $250,000 will find that, not only will they pay higher taxes, but that their formerly favored dividend and capital gains income will also escalate in 2010. IRA DISTRIBUTIONS While the “required distribution” from your IRA has been suspended for those over age 70 1/2, you may benefit NOW by taking a portion to pay for anticipated purchases in 2010. In 2010, the opportunity to convert any IRA into a Roth IRA, without the former restriction of $100,000 income limit, has many individuals already setting aside funds. Some individuals with AGI less than $100,000, however, may do better to convert to a Roth IRA before the end of 2009, when the value of their traditional IRA accounts, are now at historic lows. WHAT YOU NEED TO KNOW ABOUT YOUR CREDIT It is prudent to check your credit report annually to make sure that all of the information reported is correct. The website “Annual Credit Report.Com” is both safe and free. They will, however, charge you $7.95 to receive your FICO score. The FICO score is an algorithm of your credit compiled from credit history data. Principally, it will measure your credit history and compare the ratio of income to debt. A perfect score is “850”. Your score is best when debt is repaid, on time, as agreed. One missed payment will drop your score by 60 points. A bankruptcy, short sale or foreclosure will stay on your report for 7 to 10 years and reduce your score to zero. An IRS tax lien will cause havoc even if filed in error. You MUST record a release of lien whether satisfied or waived. Here are some of the things you can do to favorably influence your credit score:
Excessive inquires, over a short period of time, will have a negative affect on your credit. When shopping for a mortgage or an auto loan, you can remove these inquires by calling (888) 5 OPT OUT (567- 8688). You will be guaranteed protection by the Federal Credit Reporting Act of 2005. You are NOT responsible for a deceased person’s debt unless you were a co-signer. You are protected against medical collections by law. By sending a certified letter to the collection agency, you can obtain relief under the Doctrine of Necessity Act. In a credit crisis, your last source of funds should be from a 401(k) or borrowed money from a retirement plan to pay debt. Your retirement plan, as well as, the equity in your principal residence is protected from bankruptcy. Never negotiate a mortgage “walk away”, short sale or a foreclosure without legal counsel. The debt can follow you the rest of your life and, if sold for less than Fair Market Value, the mortgage company can come after you for the outstanding balance when sold. There is a new IRS Form 1099C for debt forgiveness. The amount of forgiveness is treated as income and is taxable unless you remain insolvent. If you need help in a credit crisis, always look for a Not-for-Profit credit counselor. Unscrupulous companies will charge outrageous fees up-front before you get any help with your credit. If you are able to negotiate debt settlement on your own, be sure to keep good records of the agreement for tax purposes and make sure you understand the terms. You can contact www.credit.com or call (877) 273-4273 for more information about your specific credit needs. Copy of December 2009 Tax Letter Look for new topics each month. D.R.S. Accounting & Tax Service is dedicated to serving you |
