Special Sales Tax Deduction for Car Purchases Available through End of 2009
| With 2010 models arriving in dealer showrooms, the Internal Revenue Service reminds taxpayers that purchasing a new car, light truck, motor home or motorcycle could qualify them for a special deduction for the state and local sales and excise taxes on their 2009 tax returns.
Purchases made before Jan. 1, 2010, will qualify for this deduction under the American Recovery & Reinvestment Act of 2009 (ARRA). The deduction is limited to the sales and excise taxes and similar fees paid on up to $49,500 of the purchase price of a new vehicle. The deduction is reduced for joint filers with modified adjusted gross incomes (MAGI) between $250,000 and $260,000 and other taxpayers with MAGI between $125,000 and $135,000. Taxpayers with higher incomes do not qualify. Taxpayers who make qualifying new vehicle purchases this year can estimate the deduction with the help of Worksheet 10 in IRS Publication 919, How Do I Adjust My Withholding? Lines 10a to 10k of the worksheet show how to take into account purchases above the $49,500 limit, as well as the reduced deductions for taxpayers at higher income levels. The special deduction is available regardless of whether taxpayers itemize deductions on their returns. Taxpayers who do not itemize will add this additional amount to the standard deduction on their 2009 tax return. For those that have questions about the deduction for sales tax and other fees, these questions and answers might help. A video on the IRS Youtube.com channel and audio podcasts in English and Spanish are also available to help taxpayers take full advantage of the deduction. From www.irs.gov |
Small Business Tax Consultations
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First Time Home Buyer Credit Amended
A new law that went into effect Nov. 6 extends the first-time homebuyer credit five months and expands the eligibility requirements for purchasers.
The Worker, Homeownership, and Business Assistance Act of 2009 extends the deadline for qualifying home purchases from Nov. 30, 2009, to April 30, 2010. Additionally, if a buyer enters into a binding contract by April 30, 2010, the buyer has until June 30, 2010, to settle on the purchase.
The maximum credit amount remains at $8,000 for a first-time homebuyer –– that is, a buyer who has not owned a primary residence during the three years up to the date of purchase.
But the new law also provides a “long-time resident” credit of up to $6,500 to others who do not qualify as “first-time homebuyers.” To qualify this way, a buyer must have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new home as a primary residence.
For all qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 tax returns.
A new version of Form 5405, First-Time Homebuyer Credit, will be available in the next few weeks. A taxpayer who purchases a home after Nov. 6 must use this new version of the form to claim the credit. Likewise, taxpayers claiming the credit on their 2009 returns, no matter when the house was purchased, must also use the new version of Form 5405. Taxpayers who claim the credit on their 2009 tax return will not be able to file electronically but instead will need to file a paper return.
A taxpayer who purchased a home on or before Nov. 6 and chooses to claim the credit on an original or amended 2008 return may continue to use the current version of Form 5405.
Income Limits Rise
The new law raises the income limits for people who purchase homes after Nov. 6. The full credit will be available to taxpayers with modified adjusted gross incomes (MAGI) up to $125,000, or $225,000 for joint filers. Those with MAGI between $125,000 and $145,000, or $225,000 and $245,000 for joint filers, are eligible for a reduced credit. Those with higher incomes do not qualify.
For homes purchased prior to Nov. 7, 2009, existing MAGI limits remain in place. The full credit is available to taxpayers with MAGI up to $75,000, or $150,000 for joint filers. Those with MAGI between $75,000 and $95,000, or $150,000 and $170,000 for joint filers, are eligible for a reduced credit. Those with higher incomes do not qualify.
New Requirements
Several new restrictions on purchases that occur after Nov. 6 go into effect with the new law:
- Dependents are not eligible to claim the credit.
- No credit is available if the purchase price of a home is more than $800,000.
- A purchaser must be at least 18 years of age on the date of purchase.
For Members of the Military
Members of the Armed Forces and certain federal employees serving outside the U.S. have an extra year to buy a principal residence in the U.S. and still qualify for the credit. An eligible taxpayer must buy or enter into a binding contract to buy a home by April 30, 2011, and settle on the purchase by June 30, 2011.
For more details on the credit, visit the First-Time Homebuyer Credit page on IRS.gov.
Taxpayer’s Advocate Service Is Your Friend
Are you at wit’s end about a dispute with the IRS? Are they threatening to take you to federal court over the matter? Are they just not listening to your side? You should contact your IRS Advocate. The best part about it is that their services are free!
The Taxpayer Advocate’s Service or TAS is an independent organization within the IRS. It was established in 1979 as the Office of the Taxpayer Ombudsman to serve as the primary advocate for taxpayers under The Taxpayer Bill of Rights. In 1996 the name was changed to The Taxpayer Advocate Service. In 1998 it was mandated that the Taxpayer Advocates could not work for the IRS for the preceding two years or the five years following his or her tenure at the TAS to enforce the agency’s independence.
The TAS targets systemic flaws in the IRS review system. For example an ex employee of a corporation was issued a 1099 MISC non employee compensation form, which income was reported to the IRS as taxable. When the ex employee communicated to the IRS that the return was issued in error because the payments were for COBRA insurance and therefore non taxable health insurance premiums he was told to request that the issuer file a corrected 1099. When the issuer refused to comply with the taxpayer’s request the IRS threatened to take the taxpayer to federal court. It was only when the TAS forwarded to the IRS emails from the ex employer stating that they believed (erroneously) that the COBRA payments were taxable did the IRS agree with the taxpayer.
To contact an IRS advocate go here: http://www.irs.gov/advocate/content/0,,id=150972,00.html
Unsolicited Emails From IRS Are Fakes
The IRS Does Not Send Unsolicited Emails
Scam E-mail Sends Malicious Software to Recipients’ Computers
| In recent weeks, a phony e-mail claiming to come from the IRS has been circulating in large numbers. The subject line of the e-mail often states that the e-mail is a notice of under reported income. The e-mail may contain an attachment or a link to a bogus Web page directing taxpayers to their “tax statement.” In either case, when the recipient opens the attachment or clicks on the link, they download a Trojan horse-type of virus to their computers.
Malicious code (also known as malware), of which the Trojan horse is but one example, can take over the victim’s computer hard drive, giving someone remote access to the computer, or it could look for passwords and other information and send them to the scammer. The scammer will then use whatever information they gather to commit identity theft, gain access to bank accounts and more. The IRS does not send unsolicited e-mails to taxpayers about their tax accounts. Anyone who receives an unsolicited e-mail claiming to come from the IRS should avoid opening any attachments or clicking on any links. People can report suspicious e-mails they receive which claim to come from the IRS to a mailbox set up for this purpose, phishing@irs.gov. Those who believe they may already be victims of identity theft should find out what do by going to the U.S. Federal Trade Commission’s Web site, OnGuardOnLine.gov. More information on e-mail scams may be viewed on How to Report and Identify Phishing, E-mail Scams and Bogus IRS Web Sites and Suspicious e-Mails and Identity Theft. From their website, www.irs.gov |
IRS Pursues Wealthy Tax Cheats
WASHINGTON (Reuters) – A new Internal Revenue Service unit set up to catch rich tax cheats hiding their wealth in complex business entities is rapidly taking shape with the hiring of hundreds of employees.
The IRS high wealth unit, part of a broader effort to combat international tax evasion, is focusing on “the entire web of business entities controlled by a high wealth individual,” IRS Commissioner Doug Shulman told a tax conference this week.
Another IRS official told Reuters “hundreds” of people have already been hired to staff the new unit, including some from within the agency.
“We have drawn top talent within the IRS that have expertise involving wealthy individuals as well as examination of their related entities,” said Mae Lew, an IRS special counsel.
The high-wealth unit is focusing on trusts, real estate investments, privately held companies and other business entities controlled by rich individuals.
While use of sophisticated legal structures can be legal, in other instances they “mask aggressive tax strategies,” Shulman said.
Tax authorities in Japan, Germany and the UK have also created similar units.
The U.S. House of Representatives on Thursday approved a $387 million boost for the IRS for the fiscal year that started October 1, in part to fund the high-wealth unit. The Senate is expected to vote on the measure on Sunday.
NEW GLOBAL FOCUS, JOINT CORPORATE AUDITS
The IRS is also opening new criminal offices in Beijing, Panama City and Sydney to focus on funds flowing out of Europe and into Asia, in part because of a heightened focus on international enforcement in Europe.
The goal is to get those up and running during this fiscal year, which ends September 30, according to Barry Shott, IRS deputy commissioner for international issues for large and midsized business.
At the center of the agency’s offshore effort is its legal cases against Swiss banking giant UBS AG. UBS agreed to turn over nearly 5,000 names of individual American clients and paid $780 million to settle a criminal case for aiding tax evasion.
The IRS has also begun initial steps to join forces with other governments to scrutinize corporate tax filings to prevent “tax arbitrage” by companies seeking the best regime.
President Barack Obama has proposed tightening tax rules for U.S. multinationals, including one in which companies delay paying taxes on income earned offshore, a legal practice known as deferral that officials say is abused.
Some tax practitioners expressed worry about such coordination.
“With any new thing, you never want to be the guinea pig,” Mary Lou Fahey, general counsel for the Tax Executive Institute, comprised of business executives, said.
Shott said a likely scenario will likely be two countries getting together and decide to examine a narrow issue. In the beginning it will operate like a pilot program where the corporation examined would agree to take part.
“With rare exception … the taxpayer will absolutely know they are subject to a simultaneous examination,” Shott said.
Still, he said there could be cases where the audit needs to be kept quiet, such as when a criminal probe is ongoing.
Initial partners would likely include Canada, the UK and Australia, Shott said.
December 2009 – Bookkeeping and Tax News from Patriot Tax and Bookkeeping
End of Year Business Tax Checklist
The following are things that should be ready by the end of the year:
1. If you are on a cash basis make and are on a calendar year be sure to pay all the bills that you can afford to in December. Things paid after December 31st will NOT be deductible on your 2009 taxes.
2. For cash basis taxpayers communicate with customers that they do not have to pay bills until January if you can get along without the payments until then.
3. For accrual basis taxpayers don’t send out any invoices in December that you don’t have to.
4. See if you will have enough cash to pay into your SEP IRA or 401K plan. You have until March 15, 2010 to make these payments.
5. If you need a vehicle for your business buy it before December 31st. There are incentives such as the ability to write off your sales tax and special depreciation deductions available this year through the Stimulus Bill,
6. 1099’s for sole proprietors you do business with and W-2’s for employees must be sent out by January 31, 2010.
7. If you can afford it, pay your kids. Child labor laws allow your kids no matter what age (within reason) to work for you. If they are full time students they are tax exempt and anything you pay them is tax deductible to your business. Of course they have to actually do some work. This is sometimes easier said than done.
8. Have your financial information ready to send to your tax preparer as soon as is feasible. This will give them more time to review your situation and make timely recommendations. Ideally you should have them prepare financial statements for you during the year on at least a quarterly basis.
9. If you have a corporation and have not yet made your Subchapter S Small Business Election yet, do it now. If you don’t you will be paying federal corporate taxes, and if you run a loss you will not be able to use it to reduce your personal income tax liability.
Good Bookkeeping Saves Client $40,000 in Deductions
One of our clients was selected for an audit by the IRS because of an erroneously filed 1099 by the state. When the examiner asked for receipts for items paid for with cash the client discovered he could not locate them. The IRS examiner proposed to disallow all cash payment deductions. When it was pointed out that all cash payments were accounted for in a similar manner that bank and credit card transactions are, which included dates paid, amounts, and vendor names, the IRS agent allowed the deductions although the receipts could not be produced. This is one case where good bookkeeping and reconciled accounts saved the client $40,000 in what would have been disallowed deductions because of the credibility of Patriot Tax and Bookkeeping,Inc.’s accounting systems.