New Car Credit for 2009?

So, there's been some discussion about the "new" credit for new car purchases. I love when urban legends get mixed up with tax law. Well, I'm going to go into a little more detail to give clarity to the matter.

As part of the American Recovery and Reinvestment Act (ARRA) of 2009, taxpayers who bought a new car this year may be entitled to a special tax deduction (not credit) on their 2009 return.

Let's look into the key pointers for this deduction:

--First and foremost, the purchase must occur after Feb. 16, 2009, and before Jan. 1, 2010.
--Qualified purchases new (not used) cars, light trucks, motor homes and motorcycles.
--Sales taxes (both state and local) paid on up to $49,500 of the purchase price of qualifying vehicle is deductible.
--This deduction can be taken whether you itemize or not. Typically, sales taxes can only be deducted under Schedule A Itemized Deductions.
--The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.

Hopefully, this brings clarity to the subject and helps those who are wondering about the deduction and probably will count on unnamed boxed tax software to ask them the right yes or no question so that they're eligible. Yes, a shameless plug as to why you should use a professional preparer...

Remember, your questions and comments are what will make this blog more valuable and worthwhile! If you have any further questions on this topic or any other tax related issues, please contact us at info@proctortaxprep.com or call locally at 704-385-1040, non-local callers can call 866-510-5477.

TP

Filing Status? Which am I?

In preparation for the 2010 filing season, we want to ensure that everyone is educated and informed on the pros and/or cons of your filing status. Your filing status puts you in a certain tax bracket and allows you to claim certain credits and exemptions. So, let’s break them down shall we?

SINGLE: one of the following must be TRUE (has the highest tax bracket)
•You were never married
•You were legally separated from your separated from your spouse under a divorce or separate maintenance decree
•You were widowed before January 1, 2009 and did not remarry in 2009.
•Does not have any dependents

Married Filing Jointly: one of the following must be TRUE (has lowest tax bracket)
•You were married on the last day of the year even if you did not live with your spouse.
•You are living together in a common-law marriage that is recognized in the state where you now live where the common –law marriage began.
•You are separated under an interlocutory (not final) decree of divorce.
•Your spouse died during the tax year and you did not remarry during the year
Both parties are responsible for payments and or any correspondences from the IRS. There are exceptions and documents to file for a spouse not to be liable for their spouse’s tax issues. Please contact and inform your tax professional of your issue to claim the best Filing Status for you and your spouse.

Married Filing Separately: (has highest tax bracket)
•Married, but do not want to be responsible for spouse’s portion of the tax
•You cannot claim the standard deduction if your spouse itemizes deductions
•You cannot claim the EARNED INCOME CREDIT
•You cannot take the credit for adoption expenses
•You cannot claim the credit for child and dependent care expenses in most instances
•You cannot deduct interest paid on a qualified student loan
•You cannot claim education credits


Head of Household:
•Be unmarried or considered unmarried as of the last day of the tax year
•Have paid more than half the cost of keeping up a home for the tax year; and in most cases,
•Have a qualifying person who lived with you in the home for more than half the tax year.

Qualifying Widower with dependent child: all must be met (same tax bracket as MFJ)
•You could have filed a joint return with your spouse for the tax year he/she died
•Your spouse died in 2007 or 2008 and you did not remarry before the end of 2009
•You have a child or stepchild whom you can claim as a dependent
•You paid over half the cost of keeping up a home that is the main home for you and the dependent child for the entire year.

Remember, your questions and comments are what will make this blog more valuable and worthwhile! If you have any further questions on this topic or any other tax related issues, please contact us at info@proctortaxprep.com or call locally at 704-385-1040, non-local callers can call 866-510-5477.

VP

Newlywed Tips

First, I would like to congratulate Mr. and Mrs. Brian and Melba Beatty on joining the world of marital bliss! In talking about marriage, let's discuss some tips to avoid stress at tax time.

1. Brides...please notify the Social Security Administration of your name change so your name and SSN will match when you file your next tax return. Informing the SSA of a name change is quite simple. File a Form SS-5, Application for a Social Security card at your local SSA office. The form is available on SSA’s Web site at www.socialsecurity.gov.

2. If you have a new address you should notify the IRS and state taxing agency. This is crucial! In the event that they have to send you critical information, or some random refund that you may be due, you want to be sure it makes it to you.

3. Report any name and address changes to your employer(s) to ensure receipt of your Form W-2 after the end of the year. It won't be cool when you're still wondering where your documents are and April 15th is rapidly approaching.

4. Change your W-4. Pay close attention here...you will change your status from Single to Married, however, be sure to accurately fill out the form in regard to exemptions. You don't want to have too little withheld and have a hefty tax bill next year. Of course, like Brian and Melba, our office can prepare this updated form for you.

Remember, your questions and comments are what will make this blog more valuable and worthwhile! Feel free to post your questions or comments here, or you can give us a call at (866) 510-5477 or via email info@proctortaxprep.com

Hold On To Those Records!

First...our apologies for missing on past two weeks. We were at the National Tax Forum in Atlanta reinforcing our tax knowledge and meeting with wonderful vendors. Now, on to our regularly scheduled posting...

Although most people won’t be filing their tax returns for several months, the cool days of fall are actually a great time to start planning for the tax filing season by ensuring your records are organized. Whether you are an individual taxpayer or a business owner, you can avoid headaches at tax time with good records because they will help you remember transactions you made during the year.

Here are a few pointers to keep in mind about keeping good records:
Keeping well-organized records ensures you are able to answer questions if your return is selected for examination or prepare a response if you are billed for additional tax. In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, you should keep any and all documents that may have an impact on your federal tax return.
Individual taxpayers should usually keep the following records supporting items on their tax returns for at least three years:
•Bills
•Credit card and other receipts
•Invoices
•Mileage logs
•Canceled, imaged or substitute checks or any other proof of payment
•Any other records to support deductions or credits you claim on your return, i.e. charitable contributions. You must obtain and keep in your records a contemporaneous written acknowledgment from the donee organization indicating the amount of the cash donation and/or a description of any property contributed, and whether the donee organization provided any goods or services in exchange for the gift.

You should normally keep records relating to property until at least three years after you sell or otherwise dispose of the property. Examples include:
•A home purchase or improvement
•Stocks and other investments
•Individual Retirement Arrangement transactions
•Rental property records

If you are a small business owner, you must keep all your employment tax records for at least four years after the tax becomes due or is paid, whichever is later.
Examples of important documents business owners should keep include:
•Gross receipts: Cash register tapes, bank deposit slips, receipt books, invoices, credit card charge slips and Forms 1099-MISC
•Proof of purchases: Canceled checks, cash register tape receipts, credit card sales slips and invoices
•Expense documents: Canceled checks, cash register tapes, account statements, credit card sales slips, invoices and petty cash slips for small cash payments
•Documents to verify your assets: Purchase and sales invoices, real estate closing statements and canceled checks

Remember, your questions and comments are what will make this blog more valuable and worthwhile! Feel free to post your questions or comments here, or you can give us a call at (866) 510-5477 or via email info@proctortaxprep.com

Employee vs. Independent Contractor – Ten Tips for Business Owners

If you are a small business owner, whether you hire people as independent contractors or as employees will impact how much taxes you pay and the amount of taxes you withhold from their paychecks. Additionally, it will affect how much additional cost your business must bear, what documents and information they must provide to you, and what tax documents you must give to them.

Here are the top ten things every business owner should know about hiring people as independent contractors versus hiring them as employees:

1. Three characteristics are used by the IRS to determine the relationship between businesses and workers: Behavioral Control, Financial Control, and the Type of Relationship.
2. Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.
3. Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker's job.
4. The Type of Relationship factor relates to how the workers and the business owner perceive their relationship.
5. If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.
6. If you can direct or control only the result of the work done -- and not the means and methods of accomplishing the result -- then your workers are probably independent contractors.
7. Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms.
8. Workers can avoid higher tax bills and lost benefits if they know their proper status.
9. Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8 – Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding – with the IRS.
10. You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee at IRS.gov by selecting the Small Business link. Additional resources include IRS Publication 15-A, Employer's Supplemental Tax Guide, Publication 1779, Independent Contractor or Employee, and Publication 1976, Do You Qualify for Relief under Section 530? These publications and Form SS-8 are available on the IRS Web site or by calling the IRS at 800-829-3676 (800-TAX-FORM)

Remember, your questions and comments are what will make this blog more valuable and worthwhile! Feel free to post your questions or comments here, or you can give us a call at (866) 510-5477 or via email info@proctortaxprep.com

What Happens If I File Late or Don't File At All?

You've worked hard for your money, and you feel like you don't have to pay Uncle Sam. Well, pump your brakes there...if you received income, you may be required to file an income tax return. Also, that return (or extension to file) must be filed by April 15th. If not, Uncle Sam won't slap you on the wrist, he goes straight for the pocket (or wage garnishment, or bank levy). So, let's see exactly how Uncle Sam does his deed...

1. The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return and explore other payment options in the meantime.

2. The penalty for filing late is usually 5 percent of the unpaid taxes for each month of part of a month that a return is late. This penalty will not exceed 25 percent of the taxpayer’s unpaid taxes.

3. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

4. You will not have to pay a failure-to-file penalty if you can show that you failed to file on time because of reasonable cause and not because of willful neglect.

5. You will have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid.

6. If you filed an extension and you paid at least 90 percent of your actual tax liability by the due date, you will not be faced with a failure-to-pay penalty.

7. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty. However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.

Taxpayers unable to pay the total taxes due are encouraged to pay as much as possible. By paying as much as possible when you file, you lessen the amount of penalties and interest owed. Our office can then work with the IRS to work on an arrangement to pay the taxes due.

Based on the circumstances, you may qualify for an agreement to pay your bill within 60 or 120 days. The IRS is willing to offer these short term agreements in order to assist in tax debt repayment. Penalties and interest incurred will be less through this arrangement, as opposed to seeking to enter into an installment agreement.

Other arrangements used to assist our clients include:
* Monthly payments through an Installment Agreement,
* Temporary delay or significant hardship consideration, or
* Offer in Compromise

Remember, your questions and comments are what will make this blog more valuable and worthwhile! Feel free to post your questions or comments here, or you can give us a call at (866) 510-5477 or via email info@proctortaxprep.com.

Tax Benefits for Job Seekers

Posting courtesy of Internal Revenue Service:

Many taxpayers spend time during the summer months polishing their résumé and attending career fairs. If you are searching for a job this summer, you may be able to deduct some of your expenses on your tax return.

Here are the top six things the IRS wants you to know about deducting costs related to your job search.

1. In order to deduct job search costs, the expenses must be spent on a job search in your current occupation. You may not deduct expenses incurred while looking for a job in a new occupation.
   
2. You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year.
   
3. You can deduct amounts you spend for preparing and mailing copies of a résumé to prospective employers as long as you are looking for a new job in your present occupation.
   
4. If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can only deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity compared to the amount of time you spend looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.
   
5. You cannot deduct job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one.
   
6. You cannot deduct job search expenses if you are looking for a job for the first time.

Remember, your questions and comments are what will make this blog more valuable and worthwhile! Feel free to post your questions or comments here, or you can give us a call at (866) 510-5477 or via email info@proctortaxprep.com.

Where's My 2nd Stimulus Check??

So, we had a call come in last week asking about a supposed 2nd stimulus check. After further inquiry, we realized that our client was referring to the Making Work Pay Credit. However, the rumor mill has been referring to it as a second stimulus check. So, let's clear the air and get it right...

The Making Work Pay Credit isn't another free refund check. It equates to a refundable tax credit of up to $400 for individuals and up to $800 for married filing jointly taxpayers. In the scheme of things, this money is received throughout the year by way of lowered tax withholding rates. This lower withholding typically amounts to approximately $16-35 per bi-weekly paycheck. However, particular taxpayers who fall into any of these following groups should review their W-4 to ensure enough tax is withheld: multiple job holders, families in which both spouses work, workers who can be claimed as dependents by other taxpayers and pensioners.

Failure to adjust your withholding could result in potentially smaller refunds or may cause you to owe tax rather than receive a refund next year.

If you're unsure about whether you're on track or not, there is a withholding calculator on the IRS website that can help you compute your proper tax withholding. If the result suggests an adjustment is necessary, you should submit a new Form W-4 to your employer. And, for our self-employed clients, you will need to adjust the amount of your quarterly tax payments.Of course, if you need help with this form, give us a call or shoot an email.

In addition, for those of you that have claimed or are claiming unemployment benefits in 2009, the first $2,400 of those benefits are tax-free for federal income tax purposes. However, anything over that amount, we STRONGLY advise that you consider having taxes withheld. We have seen so many people end up owing large amounts of money due to this slight negligence. The Employment Security Commission technically cannot advise you one way or another because "taxes aren't their thing." Well, taxes are our thing, so consider yourself warned...

Remember, your questions and comments are what will make this blog more valuable and worthwhile! Feel free to post your questions or comments here, or you can give us a call at (866) 510-5477 or via email info@proctortaxprep.com.

PATP Tax Talks: Summertime Childcare Expenses

Summertime Childcare Expenses

Here in Charlotte, the temps average out around high 80s to low 90s, so it's a telltale sign that summer is here! And, many of our clients who work or are on the hunt for their next work assignment this summer must make some sort or childcare arrangements for their chaps during the summer vacation. (PATP disclaimer 1: this info will only apply if your chaps are under the age of thirteen)

Of course, we would like to inform you all that the Child and Dependent Care Credit (the technical IRS term) is not only available for expenses incurred during the hot and hazy days of summer, but also throughout the rest of the year. We would like to share a few facts with our valued clients about a tax credit available for these childcare expenses.

1. Yes, the cost of day camp can count as an expense towards the child and dependent care credit. However, expenses for overnight camps do not qualify. So, yes, if they spend the night, you can cancel the idea of counting it. Trust me, I love sending my kids overnight to places, but I want you all to know that IRS has no love for you on this one...:(

2. Whether your childcare provider is a sitter at your home or a daycare facility outside the home, you may be eligible to get some tax benefit if you qualify for the credit.

3. The actual credit can be up to 35 percent of your qualifying expenses, depending upon your income. If you don't work, you don't get the credit. And, for the married folks, BOTH parents must have positive income! Otherwise, IRS feels that the non-working spouse can care for the kids while the other is out working. Again folks...I'm speaking as the tax man, so please don't shoot the messenger.

4. You may use up to $3,000 of the unreimbursed expenses(not paid/reimbursed using Flex Spending funds) paid during the year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit. (Disclaimer 2: the maximum credit amount is $6,000.)

Remember, your questions and comments are what will make this blog more valuable and worthwhile! Feel free to post your questions or comments here, or you can give us a call at (866) 510-5477 or via email info@proctortaxprep.com.

Welcome to PATP Tax Talk Tuesday

So, we've decided to make our entrance into the world of blogging. Beginning today (July 14th), we will post a topic relating to the topics of taxes, bookkeeping, or payroll. If there's a subject or question that you would like feedback on, please don't hesitate to submit it to us and we'll post it on the blog for discussion. Without any further ado, here is the first post:

What should I do if I receive a notice from the IRS?

It’s a piece of mail that most people dread: a letter arrives from the IRS — and it’s not a refund check! Don’t panic; many of these letters can be dealt with easily and without much added stress. The IRS sends millions of letters and notices to taxpayers to request payment of taxes, notify them of a change to their account or request additional information. The notice you receive normally covers a very specific issue about your account or tax return. Each letter and notice offers specific instructions on what you are asked to do to satisfy the inquiry. And usually, a quick call to your preparer will allow them to work on your behalf to resolve the matter.

If you receive a correction notice, you should review the correspondence and compare it with the information provided on your return.
•If you agree with the correction to your account, usually no reply is necessary unless a payment is due.
•If you do not agree with the correction the IRS made, it is important that you respond as requested. Write to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.

Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call to aid in resolution of the matter. And, please be sure to keep copies of any correspondence with your records. It's you against the Feds...who you think is going to win this battle if you don't have your documented proof?

Remember, your questions and comments are what will make this blog more valuable and worthwhile! Feel free to post your questions or comments here, or you can please feel free to contact us at (866) 510-5477 or via email info@proctortaxprep.com.