Contribute to Haitian Earthquake Relief Now and Write It Off on Your 2009 Tax Return

IR-2010-12, Jan. 25, 2010

WASHINGTON — People who give to charities providing earthquake relief in Haiti can claim these donations on the tax return they are completing this season, according to the Internal Revenue Service.

Taxpayers who itemize deductions on their 2009 return qualify for this special tax relief provision, enacted Jan. 22. Only cash contributions made to these charities after Jan. 11, 2010, and before March 1, 2010, are eligible. This includes contributions made by text message, check, credit card or debit card.

“Americans have opened their hearts to help those affected by the Haiti earthquake,” said IRS Commissioner Doug Shulman.” This new law provides an immediate tax benefit for the many taxpayers who have made generous donations.”

Taxpayers can benefit from their donations, almost immediately, by filing their 2009 returns early, filing electronically and choosing direct deposit. Refunds take as few as ten days and can be directly deposited into a savings, checking or brokerage account, or used to purchase Series I U.S. savings bonds.

The new law only applies to cash (as opposed to property) contributions. The contributions must be made specifically for the relief of victims in areas affected by the Jan. 12 earthquake in Haiti. Taxpayers have the option of deducting these contributions on either their 2009 or 2010 returns, but not both.

To get a tax benefit, taxpayers must itemize their deductions on Schedule A. Those who claim the standard deduction, including all short-form filers, are not eligible.

Taxpayers should be sure their contributions go to qualified charities. Most organizations eligible to receive tax-deductible donations are listed in a searchable online database available on IRS.gov under Search for Charities. Some organizations, such as churches or governments, may be qualified even though they are not listed on IRS.gov. Donors can find out more about organizations helping Haitian earthquake victims from agencies such as USAID.

The IRS reminds donors that contributions to foreign organizations generally are not deductible. IRS Publication 526, Charitable Contributions, provides information on making contributions to charities.

Federal law requires that taxpayers keep a record of any deductible donations they make. For donations by text message, a telephone bill will meet the recordkeeping requirement if it shows the name of the donee organization, the date of the contribution and the amount of the contribution. For cash contributions made by other means, be sure to keep a bank record, such as a cancelled check, or a receipt from the charity showing the name of the charity and the date and amount of the contribution. Publication 526 has further details on the recordkeeping rules for cash contributions.

This year’s special Haiti relief provision is modeled on a 2005 law that, in the wake of the Dec. 26, 2004, Indian Ocean tsunami, allowed taxpayers to deduct donations they made during January 2005 as if they made the donations in 2004.

Is New York City the 51st State? They’re Sure Taxing Like They Are!

Average New York City households will pay as much as $2,300 more in taxes and fees in 2010 than last year — but brace your wallets for further impact.

With Gov. Paterson set to unveil his proposed 2010-11 budget for the cash-starved state on Tuesday, fiscal watchdogs say New Yorkers are already reeling from a spate of tax and rate hikes that add up to a serious blow.

“It’s burdensome — people feel they are paying a lot, and they’re not going to be happy about anymore,” said Carol Kellermann of the Citizens Budget Commission.

But the city faces a $4 billion deficit and the state fears a looming $3 billion gap.

“I think both the city and state will propose additional fees and penalties to raise more revenues. It’s probably a safe bet such things will happen,” Kellermann said.

The city added or raised several key taxes last year, and New Yorkers will feel the full, 12-month brunt in 2010. It hiked its general sales tax from 4 to 4.5 percent. Combined with the 4 percent state sales tax and a commuter tax, consumers now pay 8.875 percent on most purchases.

The city also restored its 4.5 percent sales tax on clothing over $110, while the state did not.

In a stealth move that got little notice, the Bloomberg administration also tacked the 4.5 sales tax onto gas and electric bills — that’s expected to enrich city coffers by $74 million. The new tax will cost a household an extra $28.50 this month alone, based on a typical Con Ed January bill — $551.28 for gas plus $80.97 for electricity, a spokeswoman said.

Homeowners will pay 7 percent more in property taxes, though landlords will likely pass on a rent hike to tenants.

The average property-tax bill for a single-family home in Manhattan, $18,600, will jump by $971 in 2010; in the other boroughs, add $184 to the average $3,500 bill, says the Independent Budget Office. Condo owners will pay $415 a year more in Manhattan and $71 in the other boroughs, an average citywide increase of $276.

It gets worse for families. The City University of New York raised full-time tuition 15 percent at its four-year colleges, from $4,000 to $4,600, starting last September, and 13.4 percent at its community colleges, from $2,500 to $3,175. Trustees have voted to hike tuition another 2 percent.

The State University of New York has raised tuition from $4,660 to $5,070 since last year.

The Legislature hiked more than 50 state taxes and fees estimated to generate $8 billion in revenues this fiscal year — from adding a 5-cent deposit on bottled water, to raising income taxes for married couples making $300,000 or more.

The lawmakers rejected Paterson’s proposed “obesity tax” on sugary drinks but raised the tax on wine about two cents a bottle and on beer about 1.5 cents a six-pack. It will charge $25 instead of $15 to reissue license plates. Drivers will also pay a $50 surcharge to renew registration, fees imposed — among subway, bus, taxi and bridge-toll hikes — to bail out the MTA.

The state also hiked taxes on utilities, health insurers and car-insurance companies — costs bound to trickle down.

“They’ll say, ‘Oh, we’re taxing business,’ but business always passes it on to the consumer,” Kellermann said.

The Tax Foundation, a fiscal watchdog based in Washington, DC, says President Obama kept his promise not to raise taxes his first year — except on cigarette smokers. The feds hiked the tax on a pack of cancer sticks from 39 cents to $1.01. Adding New York’s $2.75 and the city’s $1.50 brings the total tax on 20 smokes to $5.26.

But Obama will spur “change” when the “George Bush tax cuts” of 2001 to 2003 all expire in 2011, the foundation notes. That’s when the president is expected to carry out his plan to raise income taxes for couples with income over $250,000 and single people with income above $200,000.

Feel the squeeze

Here’s an estimate of how higher tax rates and fees in 2010 raise costs for a city family of four that earns $75,000 a year, has a kid in college, owns a Manhattan condo and a car, and includes a pack-a-day smoker:

CITY

General sales tax

* Increase: raised from 4 to 4.5%

* Added cost: $170

Tax on clothing over $110

Read more: http://www.nypost.com/p/news/local/latest_tax_hike_wallop_to_your_wallet_aKrNHt3Cckr1RjOymo2YcO#ixzz0ctkq2vAX

Get Your 2010 Bookkeeping Done Now And Make 2010 Your Year!

We have people contacting us to get straightened out for 2010 and file accurate tax returns. They will incorporate or form an LLC so they have limited liability for their business activities and tax advantages just to get off 2010 on the right foot. The tax authorities are more aggressive and have more tools than ever to audit your tax return. The usual flags apply and apply especially to the small entrepreneur.

Most widely used audit flags by the IRS and DOR:

1. Cash businesses. You HAVE to have a detailed accounting of cash activities including date, vendor name, amount, and expense category or it will be disallowed.

2. Home office deduction. Yes they will visit you unannounced and ask to see your home office. IRS agents like to get out of the office as much as you do. If there’s kids toys in the “home office” or ESPN on the TV you may have a problem.

3.Schedule C’s. The IRS doesn’t like Schedule C filers or sole proprietors or sole member LLC’s. The IRS wants to know what’s personal and what’s business. The Schedule C to them is a gold mine of disallowed business expenses that should be personal expenses. Incorporate and hire yourself as an employee and they’ll leave you alone audit wise. Plus incorporation may mitigate self employment taxes.

4.EITC. Don’t lie when filing for the Earned Income Tax Credit, which is basically a payment for working and not seeking public assistance or you may go to jail. Thank me later.

5. Mismatched reports from people you do business with. An erroneous 1099 from a government agency such as the Lottery Commission will always spur an audit. Lucky you.

6. Tax returns with inadequate disclosure. When they “recommend” detailed statements they will get them one way or another including an audit. It’s always best to file as detailed a tax return as possible.

6. Obviously expenses that are not “ordinary and necessary” business deductions such as write-offs for clothing, personal services, Cuban cigars promoting your race horse (from an actual case), etc. will get you some attention.

We only defend our own returns. We can recommend CPA firms or tax attorneys to represent you for returns under audit from our predecessors. Then we can go on from there.

Making Work Pay Credit (MWP) Available for 2009 and 2010

IRS Special Edition Tax Tip 2009-07

Working taxpayers may be eligible for the Making Work Pay tax credit, a significant tax provision of the American Recovery and Reinvestment Act of 2009. This tax credit means more take-home pay for millions of American workers. Here are five things the IRS wants every taxpayer to know about the Making Work Pay tax credit:

1. This credit — available for tax years 2009 and 2010 — equals 6.2 percent of a taxpayer’s earned income. The maximum credit for a married couple filing a joint return is $800 and $400 for other taxpayers. Most wage earners have been enjoying a boost in their paychecks from this credit since April.

2. Eligible self-employed taxpayers can also benefit from the credit by evaluating their expected income tax liability. If eligible, self-employed taxpayers can make the appropriate adjustments to the amounts of their upcoming estimated tax payments in September and January.

3. Taxpayers who fall into any of the following groups should review their tax withholding to ensure enough tax is being withheld. Those who should pay particular attention to their withholding include:

• Married couples with two incomes
• Individuals with multiple jobs
• Dependents
• Pensioners
• Social Security recipients who also work
• Workers without valid Social Security numbers

Having too little tax withheld could result in potentially smaller refunds or – in limited instances –small balance due rather than an expected refund.

4. The Making Work Pay tax credit is either phased out or unavailable for higher-income taxpayers. The phase out begins at $75,000 for single taxpayers and $150,000 for couples filing a joint return.

5. For those who believe their current withholding is not right for their personal situation, a quick withholding check using the IRS withholding calculator on IRS.gov may be helpful. Taxpayers can also do this by using the worksheets in IRS Publication 919, How Do I Adjust My Withholding? Adjustments can be made by filing a revised Form W-4, Employee’s Withholding Allowance Certificate. Pensioners can adjust their withholding by filing Form W-4P, Withholding Certificate for Pension or Annuity Payments.

For more information on this and other key tax provisions of the Recovery Act, visit the official IRS Website at IRS.gov/Recovery.

Massachusetts Photographers Subject to 6.25% Sales Tax

Letter ruling 84-42 states that all fees for photography are subject to sales tax since all the services provided are done in order to sell tangible personal property. If “sitting fees” are charged and no photographs are sold, then since no tangible personal property is produced there is no sales tax liability. The principal is the same as artists producing paintings or other tangible items for sale.

See the letter ruling here:

http://www.mass.gov/?pageID=dorterminal&L=8&L0=Home&L1=Businesses&L2=Help+%26+Resources&L3=Legal+Library&L4=Letter+Rulings&L5=Letter+Rulings+-+By+Year%28s%29&L6=1984+and+Prior&L7=1982+Rulings&sid=Ador&b=terminalcontent&f=dor_rul_reg_lr_lr_82_42&csid=Ador

Good News If You Were Foreclosed or Agreed to A Deed in Lieu of Foreclosure (Short Sale) in 2009?

The good news is that the Mortgage Debt Relief Act of 2007 lets you exclude forgiven mortgage debt on your primary residence from income tax for up to $1 million if you’re single, or $2 million if you’re married filing jointly for 2007, 2008, and 2009.  Typically forgiven debt is taxable income because once the debt is forgiven the amount owed is converted into income for the debtor. The instances where it is not taxable income are when it is a result of bankruptcy or insolvency or if the property securing the loan was repossessed.  For years before 2007 and after 2009 any amount of forgiven mortgage debt is taxable.