Five Tips for 2009

The next two years are full of tax law changes. Knowing the timing of these changes can help you position yourself to take full advantage of the current tax laws before they change once again. Here are some tips:

Tip 1Dividends and Capital Gains. Dividends and Long-term capital gains (LTCG) have a tax preferential rate of 0 to 15%. With future changes, dividends will once again be taxed as ordinary income and the primary LTCG rate could be 20% after 2010. So now is the time to assess cashing in on gains or perhaps deferring losses to match against gains after the change.

Tip 2Estate taxes are repealed in 2010. For one year, in 2010, Federal Estate and Gift taxes are repealed. But one year later, the law reverts back to 2001 levels. Knowing this, it may make sense to talk to an estate planner to make sure more of your assets are protected from the new, potentially higher estate tax.

Tip 3Take a look at the New Hope Credit. The new American Opportunity Credit modifies the existing Hope Credit for tax years 2009 and 2010, making it available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. Tuition, related fees, books and other required course materials generally qualify for the maximum annual credit of $2,500 per student.

Tip 4Tax break for unemployment benefits. For 2009 the first $2,400 of unemployment benefits an individual receives are tax-free. This provision applies only to benefits received in 2009. Normally, unemployment benefits are taxable.

Tip 5Avoid Minimum Distributions from Retirement Accounts with losses. For 2009, you do not need to take the required minimum distributions from retirement accounts. This is in response to the rapid decline in stock values, but is for 2009 only.

When Should Your 'Can I Save on Taxes' Antenna Go Up?

Instead of memorizing all the tax law changes, outlined here are some major areas where recent tax law changes could be impacting you:

• You go through foreclosure or experience mortgage debt forgiveness
  


• You purchase or consider purchasing a new home
  


• You purchase or consider purchasing a new car
  


• You or your family member(s) are going to college or graduate school
  


• Someone in your family is in the military
  


• You lost money in a ponzi scheme
  


• You make or plan to make energy improvements to your home
  


• You have recently lost your job
  


• You have children that may make you eligible for the Earned Income Tax Credit (EITC).
  


• Your company benefits now include an HSA (Health Savings Account) option.
  


• You paid Alternative Minimum Tax (AMT) last year.
  


• You purchased new equipment for your business.
  

While this list does not cover all subject areas changed, it should help raise a red flag for potential tax savings for you and your family.

Cash for Clunkers: Right for You?

In an effort to stimulate purchase of new vehicles, the new CARS Act allows consumers who trade-in qualifying old gas guzzlers a voucher of $3,500 or $4,500 toward the purchase of a new fuel-efficient vehicle. The program runs from July 1st through November 1, 2009 or until funds are used up and is in addition to the deduction of sales taxes paid on new vehicle purchases from Feb. 17th 2009 through December 31st 2009.

The Qualifications:

• You must purchase a qualified new (not used) car.


• The trade-in vehicle must be in running order and registered/insured by you for the past twelve months.
  


• The value of credit is either $3,500 or $4,500 depending upon the mileage rating difference between the trade-in vehicle and the new vehicle being purchased.


• The new vehicle can not cost more than $45,000


• The trade-in vehicle must not be older than 25 years at the time of purchase.


• The vehicle must be scrapped (not resold).

Tip 1 Make sure the trade-in value of your car does not exceed the CARS Act credit PLUS the salvage value of your vehicle or you may be better off selling your old car.

Tip 2 Do not use the credit just to use the credit. Often the best financial deal on a car is a newer used car versus purchasing a new one.

Tip 3 Make sure the dealer you purchase the new car from is registered for the CARS program or you will not get the credit.

Want to see what your old car might be worth under the program? Check out www.cars.gov for current information.

If you are considering this program, please note that the credit is not taxable income to you. The dealer should apply the amount of the voucher/credit directly against the purchase price of your new vehicle.

IRS Says Gotcha!

In recent tax legislation the IRS secured the right to penalize late filers of Sub S Corporation tax returns. This despite the fact that late filing of the Sub S tax return, due March 15th often does not impact the receipt of the taxes due on April 15th. Those that are getting this "gotcha" penalty are often sole proprietors and couples who have formed a Sub S Corporation to handle their small businesses. The penalty is calculated based on each partial month the return is late times each shareholder. So a return filed 17 days late with no tax due could cost a married couple with an S-Corporation $350 to $400 in penalties!

Tip 1 If you have a Sub S Corporation, or other flow through entity, either file an extension or submit your tax return on time. Remember, an extension gives you six months to file and you do not owe the tax until the flow through tax return due date (typically April 15th).
Tip 2 Challenge the penalty. While you may not be successful, remember the Treasury is still receiving the taxes owed to them on a timely basis.

IRS Identifies Tax Scams

Each year the IRS publishes common tax scams that often lead to lost income, significant penalties and interest charges for the unwary. In the spirit of cooperation, listed here are some of the more common scams:

1 Phishing. You are tricked into giving sensitive information to the "IRS" via an email or through the internet. Remember the IRS NEVER corresponds to you this way.

2 Filing false or misleading tax forms. False returns are filed in order to claim refunds. The more common scams are claiming backup withholding or creating frivolous information returns.

3 Hiding income offshore. The IRS is aggressively pursuing promoters and taxpayers who are hiding income in offshore accounts.

4 Charitable deduction abuse. Either abusive use of tax-exempt organizations to shield income or donors over-valuing non-cash donated assets.

5 Refund and abatement requests. Filing form 843 to claim a refund for individuals who did not file a tax return in the first place.

6 Filing amended information returns to lower income. In this case a phony wage or income return (like a 1099) is filed to replace a legitimate form, thus lowering the income reported to the IRS.

7 Misuse of trusts. Unwary taxpayers are approached by promoters to transfer assets into trusts to shield them from taxes or creditors. While many are legitimate, certain promoters are over promising results and creating a tax headache for you when they are identified by the IRS.

Getting Married? These Tips are for You!

1 If you recently got married, plan to get married or know someone who is taking the matrimonial trip, make sure they get their tax work in order.

2 Notify the Social Security Administration (SSA) with any name change(s). The IRS has a name match program with the SSA and will potentially reject deductions and joint filing if not done timely. Do this by filing Form SS-5.

3 Update your address with the IRS if either of you is moving. You do this with IRS Form 8822.

4 Also change your name and addresses with your employer and the USPS to ensure your W-2s are correctly stated and delivered to the correct address.

5 Recalculate your payroll withholdings and file a new W-4. If both newlyweds work, your combined income
could put you into a higher tax bracket. This phenomena is referred to as "the marriage penalty". By changing withholdings now, you can avoid a big surprise at tax time.

Review your employee benefits and make necessary changes in health care, insurance, retirement account beneficiaries, and tax preferred spending accounts. Marriage is a qualified event to make mid-year changes by most employees.