A plan that has a higher-than-traditional deductible can be considered an HDHP, but the IRS does have specific requirements for the plan to qualify for favorable tax treatment. We won’t try in this article to cover all the tricky details for figuring out which HDHP plans qualify and which don’t. Your PRO-TAX professional can provide the latest information on these limits and requirements.

HDHP premiums are usually lower than traditional health insurance plans because the cover less items. The purpose of the HSA is to pay expenses during the year that are not reimbursed by the HDHP (deductibles, copays, dental, orthodontic, and vision care, and other non-covered items). If you take money from the HSA to pay for these expenses, the distribution is tax-free. If you take a distribution for any other reason, the distribution will be taxable, and may be subject to an additional 20% tax (unless other factors are met).

HSA Benefits

• New for 2011: For HSA, MSA, FSA and HRA purposes, a medicine/drug will be a qualified medical expense ONLY if it (a) requires a prescription, (b) is available without a prescription and you get a prescription for it, or (c) it is insulin.
• You can still claim a tax deduction for contributions made by you, or someone other than your employer, even if you don’t itemize.
• Contributions made to an HSA by your employer may be excluded from your gross income.
• Contributions are rolled over in the HSA account from year to year until they are used (no “use it or lose it”).
• Interest and other earnings in the account are tax-free.
• Distributions are tax-free, if used for qualified medical expenses.
• It’s portable, so it stays with you even during employment changes or if you leave the work force.

Examples of qualified medical expenses include amounts paid for doctors’ fees, prescription medicines and necessary hospital services not paid for by insurance. Expenses are qualified if they are incurred by you, your spouse, or any dependents claimed on your tax return.

In addition to the HSA, there are other tax-favored, medically-related accounts – namely, the MSA, FSA, and HRA. Each one is slightly different than the other, but if you have one of these accounts, you should become familiar with the rules.

To get the most benefit from your HSA, or other tax-favored account, bring any questions you may have, and ask your tax preparer while you are having your return prepared at your local PRO-TAX office.

However, perhaps the easiest way to determine whether you need to file a tax return is to contact your PRO-TAX Professional Preparers - click Here for locations. We would be happy to help you determine whether you’ll need to file this year. To get you started with information about gathering your important documents, please click Here for a Pre-Visit Checklist. You also may call us with questions or to set up an appointment at 1-800-809-2829.

The IRS reminds taxpayers that some people should file even if they aren't required to because they may get a refund if they had taxes withheld or they may qualify for refundable credits.  As general information, even if you don’t have to file for 2011, here are six reasons why you may want to:

1. Federal Income Tax Withheld You should file to get money back if your employer withheld federal income tax from your pay, you made estimated tax payments, or had a prior year overpayment applied to this year’s tax.
2. Earned Income Tax Credit You may qualify for EITC if you worked, but did not earn a lot of money. EITC is a refundable tax credit; which means you could qualify for a tax refund. To get the credit you must file a return and claim it.
3. Additional Child Tax Credit This refundable credit may be available if you have at least one qualifying child and you did not get the full amount of the Child Tax Credit.
4. American Opportunity Credit Students in their first four years of postsecondary education may qualify for as much as $2,500 through this credit. Forty percent of the credit is refundable so even those who owe no tax can get up to $1,000 of the credit as cash back for each eligible student.
5. Adoption Credit You may be able to claim a refundable tax credit for qualified expenses you paid to adopt an eligible child.
6. Health Coverage Tax Credit Certain individuals who are receiving Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance, Alternative Trade Adjustment Assistance or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a 2011 Health Coverage Tax Credit. Eligible individuals can claim a significant portion of their payments made for qualified health insurance premiums.

…And remember, a Credit when earned, means money for you even if there are no taxes due!

Although it feels like having salt rubbed into a wound, unemployment benefits are considered taxable income at both the federal and state levels.

Taxable unemployment compensation generally includes any amounts received under the unemployment compensation laws of the United States or of a particular state, so both the state benefits as well as any federally-funded extended benefits are considered taxable income. It also includes railroad unemployment compensation benefits, and disability benefits that you have received as a substitute for unemployment compensation. Unemployment compensation does not include Workers’ Compensation.

However, supplemental unemployment benefits from a company-financed fund, are not considered to be unemployment compensation. Instead, those benefits are fully taxable as wages, and are reported on Form W-2 as income.

Some states will withhold 10% of your unemployment benefits to cover the taxes. If your state allows that option, you will be notified of it when you sign up for unemployment. It’s a good idea to select this option if you can, as it will save you from having to come up with the extra money when you file your returns.

If you have received unemployment compensation benefits during the year, you should receive a Form 1099-G, which is a report of income received from a government source. Any unemployment compensation you have received must be reported in the appropriate places on both your federal and state returns.

Thankfully, there’s a good chance that if you have had withholding done you may get a refund. Also, some of the expenses you have incurred while you have been searching for a job are deductible – such as the cost of phone calls to prospective employers, the costs of preparing and copying your resume, career counseling, etc. You may even be eligible for some tax credits if you have taken classes in your line of work to improve your chances of getting hired.

Your PRO-TAX preparer can help you with any questions you may have about what to report, and what is deductible. You can easily make an appointment to see your favorite professional preparer at your local PRO-TAX office by clicking Here, or by calling PRO-TAX at 800-809-2829.

According to federal law, District of Columbia holidays impact tax deadlines in the same way that federal holidays do; therefore, all taxpayers will have two extra days to file this year.

If you will need more time to get your paperwork complete, IRS Form 4868 has to be filed by the end of the day on the 17th. This gives you an automatic six-month extension of time to file. Taxpayers requesting an extension will have until October 15 to file their 2011 tax returns.

IMPORTANT NOTE: An Extension of Time to file is not an “Extension of Time to Pay.” The Extension gives you an automatic six months of additional time to get your paperwork together and file that return. But, if you owe more than what you paid with an estimate, you’ll need to pay the total estimated taxes due before April 18, 2012. Otherwise, you will be accumulating penalties and interest on the difference.

If you have questions, or need assistance completing Form 4868, please visit your local PRO-TAX office – click Here for locations. We would be happy to help you file the extension correctly and on-time. To get you started with information about gathering your important documents, please click Here for our Pre-Visit Checklist. You also may call us at 1-800-809-2829.

It’s a challenge for all you artists out there, but it can be done! The first step: keep immaculate records. Make sure you keep ALL of your receipts, even if it means just having a big envelope you stash them in. Once you meet with your tax professional to determine what is and what is not deductible, you can get a better idea of how to organize your records for future years.

Most artists have a combination of regular wages and self-employment income. With a regular job, the employer will withhold payroll taxes, including Social Security and Medicare. If you get self-employment income, you are responsible for paying these taxes to the Federal government. And your income may come in the form of cash, check or goods in trade. Whatever the form of payment is, you have to claim it all on your return.

For regular paycheck earners (typically, this will be if a certain gig lasts more than a few weeks), you will be issued a W-2 at the end of the year. This will report your earnings, as well as any payroll taxes paid on your behalf by the employer. It may also report any money you have withheld for retirement, insurance or dependent care benefits, depending on your arrangement with that employer.

If you are a W-2 employee, you will deduct any expenses on your Form 1040 by using Schedule A, under “Unreimbursed Employee Business Expenses”, or on Form 2106, which then carries to the Schedule A. The types of deductions reported here include:

• Union dues
• Purchase and dry cleaning of uniforms, special clothing (i.e. tap shoes or costumes – something you would not wear in public), makeup, wigs
• Lessons for voice, dancing, acting that improve your performance
• Photos, CDs, videos used for marketing

For independent contractors (where you don’t get a regular paycheck), you will typically get a 1099-MISC at the end of the year from each organization that has paid you for a performance or project. In the meantime, you are responsible for paying the Social Security and Medicare taxes, otherwise known as the Self-Employment tax, in addition to Federal income tax. You will need to do estimated taxes, e.g. paying these taxes throughout the year, instead of sending the IRS a check for the total on April 15. You will report your income and expenses, still on the 1040, but this time enumerated on Schedule C. Schedule C gives you a great breakdown of possible expense categories, but in addition to the ones mentioned above, these are the ones you will use most:

• Advertising, including any marketing material costs, as well as print ads.
• Legal and professional fees:  Any amounts you have paid to agents, attorneys, accountants and tax professionals to reimburse them for helping you attain work, review contracts and keep track of your income.
• General union dues can be reported here also.
• Transportation expenses. Keep track of mileage to auditions and jobs. If you use other forms of transport, keep your receipts and tickets. However, if you are a traveling to a regular gig, you might not be able to take the expense. The best way here is to keep a log with daily expenses and note what job or audition it was for and where it was.
• Lodging and meals. You may be able to take a deduction for these costs – again, save your receipts and keep a log. Your tax preparer can then review these at the end of the year and help you determine which are deductible.
• Insurance. Special insurance (such as bonds) required for you to perform.
• Other expenses. Cell phone for work purposes only, trade subscriptions – anything used to attain or retain work.
• Equipment. Instruments, recording equipment, and sound equipment will go under expenses – as well as your computer and any special software used for your business of entertainment. However, anything that is expected to last you more than one year will have to be depreciated, meaning you only get to take part of the cost on the tax return this year, and will take partial deductions in the years to come.

For all expenses you are not sure about, keep the receipt in a separate folder and talk with your tax professional.

For the entertainer or artist who has both W-2 and 1099-MISC employment, you will want to take as many expenses on the Schedule C as you can, so that you can lower your self-employment taxes. Your tax preparer can help you determine what percentage of the expenses can go on the Schedule C.

On top of all of this, if your work takes you to multiple states and countries, and you are paid by different entities, you will be required to file additional tax returns for each of the places where you got paid.

A few parting words of wisdom: Most of the entertainers who have gotten in trouble for tax evasion have not educated themselves on what and what is not deductible, and have relied on less-than-scrupulous accountants who did not understand the tax process themselves. You are responsible for keeping good records and understanding what you sign. Be vigilant and pick someone who has appropriate tax knowledge for your business.

For more information, feel free to contact a PRO-TAX professional any time of the year!

Income tax time starts very early in the new year – we know that many people put off to the last minute all the preparation needed to file your federal and state income tax returns – and unfortunately, this can be a cause of stress.  And you certainly do not need more stress as you approach the holidays!

You will be able to relax and have a festive Holiday Season without worries about the IRS and its numerous rules and regulations. 

Right here on this Web Page you will find some useful resources to make you “tax life” easier.  Please refer to the right side and check out the list of services. There’s information about electronic filing (which even the IRS strongly encourages).  Look also at the Refund Options box where you can see some important choices you’ll have, and also the extremely important Guarantees available to PRO-TAX clients!

Extremely useful is the Item Drop-off Services  which includes a handy check list to help preparation, plus a form to complete in advance of your visit.

Finally-- on this page you will even find the ability to make an appointment at your convenience!

Make plans now to contact your professional PRO-TAX preparer who will be glad to lead you through all the myriad trails you now need to follow. They will get you started early with information about gathering your important document now that the year’s end is rapidly arriving.   You will find experts there with friendly and necessary skills to help! Call us at 1-800-809-2829, or Click here for a guide to our locations.

The Congress has accepted and the President has signed an extension of the amount that will be deducted as “payroll taxes” – social security or FICA taxes – so the amount deducted from your paycheck will not [yet] change from what you had in 2011.

Nearly 160 million workers will benefit from the extension of the reduced payroll tax rate that was in effect for 2011. The “Temporary Payroll Tax Cut Continuation Act of 2011” extends the two percentage point payroll tax cut for employees that was in effect for this past year 2011 for two months. [This reduced Social Security withholding will have no effect on future Social Security benefits.]

Under the Congressional package which has been accepted, the employee’s share of the FICA tax will stay at the current level -- 4.2 percent of wages-- through February 29, 2012. In the absence of Congressional action, it would have reverted to the usual 6.2 percent next month.

The government will also continue paying unemployment insurance benefits under current policy through February.

Employers will be implementing the new payroll tax rate as soon as possible in 2012 but they need to do so not later than January 31, 2012. (For any Social Security tax over-withheld during January, in case some employers were not sure what Congress would do, employers should make an offsetting adjustment in workers’ pay as soon as possible but not later than March 31, 2012.)

Employers and payroll companies will handle the withholding changes, so workers most likely will not need to take any additional action.

Under the terms negotiated by Congress, the law also includes a new “recapture” provision, which applies only to those employees who receive more than $18,350 in wages during the two-month period. (The IRS will issue additional guidance as needed to implement the provisions of this two-month extension, including revised employment tax forms and instructions and information for employees who may be subject to a new “recapture” provision.)

There are many other facets to the changes and PRO-TAX will keep you up to date here on these pages, so be sure to check back often. In any event, we suggest you contact your professional PRO-TAX preparer who will be glad to lead you through all the details of this legislation.  You will find experts there with the necessary skills to help! Call us at 1-800-809-2829, or Click here  for a guide to our locations.

But you need to act fast!

The year is rapidly ending and donations need to be finalized on or before December 31 in order to qualify as deductions for this Tax Year.

There is a special donation available now but expiring at the end of this calendar year:

This provision, currently scheduled to expire at the end of 2011, offers older owners of individual retirement accounts (IRAs) a different way to give to charity. An IRA owner, age 70½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charity. This option, created in 2006, is available for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible. To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity. Amounts so transferred are not taxable and no deduction is available for the transfer. Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.

Other Donations

PRO-TAX is also passing along these reminders from the IRS to help taxpayers plan their holiday-season and year-end giving:

• Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2011 count for 2011. This is true even if the credit card bill isn’t paid until 2012. Also, checks count for 2011 as long as they are mailed in 2011.
• Make sure the organization qualifies. Only donations to qualified organizations are tax-deductible. IRS Publication 78, searchable and available online, lists most organizations that are qualified to receive deductible contributions. It can be found at IRS.gov under Search for Charities. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in Publication 78.
• For individuals, only taxpayers who itemize their deductions can claim deductions for charitable contributions.

Your PRO-TAX professional tax return preparer can help you determine easily whether you will benefit by submitting the Schedule A. Remember that you will need receipts in most cases as well as good records for things like the available deduction for miles you drove as a result of your charitable work.

Make plans now to contact your professional PRO-TAX preparer who will be glad to assist you. They will get you started early with information about gathering your important documents now that the year’s end is rapidly arriving.   You will find experts there with friendly and necessary skills to help! Call us at 1-800-809-2829, or click here for a guide to our locations.

Especially if you or a client has received a letter from IRS addressed to “Savings Bond Owners” this might be very important.

Treasury Securities that have Stopped Earning Interest

Are there savings bonds that have matured and stopped earning interest? If so, it's time to cash them in, or have the money start working again by reinvesting it!  It may also be time to report the interest to the IRS!

It's important to check your savings bonds periodically to determine if they're still earning interest, and if they're not, they should be redeemed.

Use the tables below to determine whether your bonds have stopped earning interest, or for how long you can expect them to earn interest.

You can also check Treasury Hunt, if you're not sure whether you own any bonds that have matured.

”Well, Grandma gave me an old “E” bond.  What do I do with that now?”

IRS laws require bond owners to report the interest earned on a government bond under two circumstances:  first, in the year that the bond matures, OR the year the bond is redeemed, whichever comes first.

“What to do?”

Take the bond(s) to a local bank or credit union that offers redemption service.

The tax obligation is interesting. The bank will calculate and pay you the face value of the bond, plus all the interest earned since the bond was purchased.  That institution will issue a 1099-INT which also goes to the IRS.

Be sure to hold on to this document because you’ll need to give it to your PRO-TAX preparer when you’re ready for your 2011 tax preparation.

“But where can I find the value of my bond?”

There is a “calculator” conveniently located on the Internet at www.treasurydirect.gov .

Questions back at you:

Do you…

• Or a deceased loved one own a savings bond, or registered Treasury note or bond that has matured and is no longer earning interest?
• Have HH/H interest that you haven't received?
• Have Legacy Treasury Direct payments that you haven’t received?

You most likely will benefit by going to Treasury Hunt, which does not contain a record of all savings bonds but provides information on Series E bonds issued in 1974 and after.

Treasury Hunt may not completely identify any/all savings bonds you may have lost... only those that have reached final, which maturity and were issued in 1974 and after. You can’t search for undeliverable bonds in Treasury Hunt.

To file a claim for bonds, you must submit one of the following:

For lost, stolen or destroyed bonds, submit Form PD F 1048.

For undeliverable bonds (bonds not received), submit Form PD F 3062-4.

You will need to provide information about dates of purchase, names on bonds, and other pertinent data.

In any event, we suggest you contact your professional PRO-TAX preparer who will be glad to lead you through all the myriad trails you now need to follow.  You will find experts there with the necessary skills to help! Call us at 1-800-809-2829, or Click here  for a guide to our locations.

That is, if certain conditions are met IRS will help you pay your taxes when you make certain energy-efficiency improvements to your home. Energy efficiency improvements include adding insulation, energy-efficient exterior windows and doors and certain roofs. The cost of installing these items does not count.

The credit can also be claimed for the cost of residential energy property, including labor costs for installation. Residential energy property includes certain high-efficiency heating and air conditioning systems, stoves that burn biomass fuel and non-solar water heaters. Qualifying improvements must be placed into service to the taxpayer’s principal residence located in the United States before January 1, 2012.

There is a $500 lifetime limit for this type of credit, meaning that if you have already received some credit in past years, the amount of the available credit for 2011 is limited. And for products "placed in service" in 2011, IRS Form 5695 needs to be completed and filed with your 2011 taxes (by April 15, 2012).

Other limits and qualifications apply, and this is one more excellent reason to be in touch with your PRO-TAX professional!

Homeowners going green could also qualify for the Residential Energy Efficient Property Credit, designed to spur investment in alternative energy equipment. Some of those credits extend to 2016 –that is from 2006 through December 31, 2016 for existing principle residences or new construction.

This is a different credit that equals 30 percent of what a homeowner spends on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property. Presently, no cap exists on the amount of credit available except for fuel cell property, and generally, labor costs are included when figuring this credit. 

Not all energy-efficient improvements qualify for these tax credits, so homeowners should check the manufacturer’s tax credit certification statement before they purchase. Taxpayers can normally rely on this certification statement which can usually be found on the manufacturer’s website or with the product packaging.

Because these are credits and not deductions, they reduce the amount of tax owed dollar for dollar. An eligible taxpayer can claim these credits regardless of whether he or she itemizes deductions on Schedule A. As mentioned above, your PRO-TAX Professional Preparers can and will advise you so that you can obtain these valuable tax credits. You can call us at 1-800-809-2829, or click here for a guide to our locations. As always, PRO-TAX is here to help!

• Personal and dependent exemption values increase to $3,800 (up by $100)
• The standard deduction for Married Filing Jointly increases to $11,900 (up $300); to $5,905 for single and Married Filing Separate returns (up $150); and to $8,700 for Head of Household filers (up $200).
• Tax bracket thresholds have also increased for each filing status.

Concentrating on the first four, there are some recent developments of great interest to Medicare beneficiaries.

Most people on Medicare have Part A which covers Hospital care essentially and pay no specific premium for that coverage.

However, Part B of Medicare is Health Insurance for medical expenses out of hospital – and last year the majority of Medicare beneficiaries paid a monthly premium of $96.40 which was automatically deducted from their monthly Social Security check.  Because there has been no cost-of-living increase in Social Security monthly income benefits for the last few years, by law, that Part B premium was not allowed to increase. (This was a kind of quirk in the way the law was written.)

Recently, the public was informed that for 2012 there is to be a 3.6 percent increase in monthly payments to Social Security enrollees. Consequently, most people expected that the lower Part B premium was to be a thing of the past, and everybody would be paying the $115.40 premium that recent enrollees have been paying each month.

The government has now announced that the 2012 Part B premium is to be $99.90 a month – for all beneficiaries!  That means that older beneficiaries will have an increase of only $3.50 per month – probably much less than the increased monthly income.   Part B recipients who’ve been paying the full $115.40 will actually get a REDUCTION to $99.90 – a monthly savings of $15.50.  (This is largely due to the provisions of the Affordable Care Act.)

Part C, as it is called, refers to Medicare health Plans – typically HMOs or PPOs, and are known as Medicare Advantage Plans (MA).  On average, MA premiums will be 4 percent lower in 2012 than in 2011, and plans project enrollment to increase by 10 percent. Of people with Medicare, 99.7 percent continue to enjoy access to a Medicare Advantage plan, and benefits remain consistent with those offered in 2011.

In some areas, however, there will be a more limited choice of available MA plans, so Medicare beneficiaries are advised to seek counseling – typically from local Agencies on Aging.  Beneficiaries in Virginia can call 1-800-491-0762 to locate free Medicare counseling. This number will connect to the commonwealth’s Senior Health Insurance Program (“SHIP”) which is called VICAP in Virginia.

Part D – Drug coverage. The estimate for the average 2012 Part D premium for basic coverage is $30. This is slightly lower than the actual average for 2011 of $30.76. The estimate for the average 2012 Part D premium is $38.

Again, because of many changes to plan premiums and formularies, Part D holders should closely compare their current plan to what will be available in 2012.  The Medicare Plan Finder at Medicare.gov can be very helpful – but again, beneficiaries are urged to seek counseling from a VICAP or SHIP counselor.

Even during the current downturn in the economy, the entrepreneurial spirit is alive and well in the US! To provide encouragement to you small business owners, the IRS can help you cover some of the costs of doing business in the form of tax deductions. And a professional preparer at PRO-TAX is available to help you when it’s time for you to file your small business return.

What can I deduct as a small business owner?

Here are the ten categories that can provide you with valuable tax deductions:

• Vehicle Expenses
• Education Expenses
• Travel Expenses
• Communication Expenses
• Advertising and Other Business Expenses
• Home Office Expenses
• Self-Employed Health Insurance Premiums
• Sales Taxes
• Retirement Plans
• Upfront Depreciation
  

Some of the deductions and/or credits that you’ll be eligible for are pretty straightforward, but others are not – and this is where PRO-TAX can help. 

How much can I deduct in these categories?

Let’s say, for example, that you do have a workspace in your home used for your profitable hobby.

1. Deductions for personal as well as business activities (home mortgage interest and taxes) may be taken in full.
2. As long as the deductions in Number 1 do not exceed the hobby income, you can next deduct hobby activity items such as advertising, insurance premiums and wages.
3. Last, business deductions that reduce the basis of property (depreciation and amortization) can be taken, but again only if the gross income for the hobby activity is more than the deductions taken in the first two categories.

In other words – the total of itemized deductions, beyond the normal deductions you would claim if you were not involved in an income-producing activity, CANNOT exceed the hobby income.

EXAMPLE ONE:  Jill has hobby activity income of $2,000.  Her normal itemized deductions are for home mortgage interest ($1,500) and property taxes ($500).  Jill cannot take any further deductions.

EXAMPLE TWO:  Jill’s hobby activity income is $3,000 and her normal itemized deductions total $2000.  Jill paid $1,000 in advertising expenses for her hobby.  She can deduct this, but she cannot deduct any depreciation or amortization for any equipment.

EXAMPLE THREE:  Jill’s hobby activity income is $4,000.  She has normal itemized deductions ($2,000) and advertising expenses ($1,000) to deduct, leaving her with a profit still of $1,000.  Jill had to purchase some equipment for her hobby and would like to depreciate it.  She can depreciate the equipment, but only up to $1,000.

How do I take a deduction for depreciation?

Let’s say you bought an expensive new computer as part of your home business. It is business “equipment,” but you generally cannot deduct, in one year, the entire cost for the use of the computer in your income-producing hobby or business if it has a useful life beyond the tax year. Instead, you can depreciate it. That is, you can spread the cost over a number of years, and deduct a part of the cost each of those years. There are other circumstances under which you might be able to recover all or part of the cost of the qualifying computer by deducting it in the first year it is placed in service. Talk to your PRO-TAX professional for guidance in this area.

What actually qualifies business use of a home?

There are two scenarios in which you can deduct for business use of your home – as an employee of someone else or as a business owner. But care must be taken. Various items - including the amount of use, purpose of area, kinds of expenses - can affect both whether there can be a deduction and the amount of deduction available. 

If you are both an employee and business owner, direct and indirect expenses play an important role in determining how much of certain items are deductible. In short:

• Direct expenses benefit only the business part of the home (painting or repairs made to the specific area or room dedicated specifically for the business). 100% of direct expenses are generally deductible against business income of the business owner.
• Indirect expenses apply to both the business and personal parts of the home (upkeep and running of the entire home, mortgage interest, points).  The business percentage of all indirect expenses is generally deductible against the business income of the business owner.

Note:  The business percentage may be different for each item. And where the deduction is claimed depends on whether it’s an employee or business owner who is taking deductions. Several different forms and schedules may be involved, but the time taken can result in big tax savings for you!

Bring your business return questions to your local PRO-TAX office. You will find experts there with the necessary skills to help! Call us at 1-800-809-2829, or Click here  for a guide to our locations.

We are sure that many who filed for an extension thought they’d have everything together long before six months. Now the due date is HERE!

It is income tax season for some people, especially small business owners, who got an extension to file their returns. We at PRO-TAX fully understand that your main task is to live your lives and/or run your business – and that also may be the reason why you have not yet filed your return after the extension.

Our PRO-TAX professionals are here to help you unravel the possibly confused state of your books and help you file on time. Maybe the tax forms keep getting set aside because of other pressing matters. Is there ever enough time to do it all?

Don't make the error of thinking that you can just not file. That would be a mistake. The Internal Revenue Service will assign a late filing penalty, in addition to penalties and interest on the tax you owe. The IRS says, "Failure to file a return or filing late can be costly. If taxes are owed, a delay in filing may result in penalty and interest charges that could increase your tax bill by 25 percent or more."

If it turns out that you may not have the money to pay the IRS now you should go ahead and file the return by October 17 to avoid the non-filing penalty. The IRS recognizes that not everyone can pay right away. It usually is willing to set up installment payment plans.

Our PRO-TAX professionals can help you apply for a payment plan and help you fill out an Installment Agreement Request. You can call us at 1-800-809-2829, or click here for a guide to our locations. As always, PRO-TAX is here to help!

Up until last year, anyone could learn to prepare tax returns and either work as a Tax Preparer within an organization, or set themselves up an independent business-owner doing tax preparation. Taxpayers who did not want to bother with learning to prepare their own returns were glad to pay someone else to do it. Tax preparation service for individuals became especially attractive in the 1980’s when the IRS introduced electronic filing as a way to cut operational costs. The IRS could now process returns much more quickly, and the banks – through the tax preparation firms – started offering Refund Anticipation Loans or RALs to taxpayers who were happy to pay a small fee in order to get their refund “instantly”.

From the 1980’s up to the present, there has been a steady increase in the percentage of individuals who use the services of a professional tax preparer. As the tax return profession was growing, the IRS tax code was becoming more and more complicated. Last year – 2010 - the IRS rolled out the first part of their new Return Preparer Initiative. The goal of this initiative is to regulate the tax preparation industry so that the taxpayers will receive better, more consistent service and filed returns will have fewer errors.

The first significant step for paid preparers took place last year, when the IRS announced that the optional registration of a PTIN (Preparer Tax Identification Number) with the IRS would be required starting January 1, 2011 for anyone who prepares all or substantially all of any federal tax return for pay. On September 28, 2010, the IRS launched an online PTIN sign-up system that requires preparers to create an account, complete the PTIN application, pay a $64.25 fee and get a PTIN. Even preparers who previously had PTINs had to renew their numbers through the new sign-up system. For preparers who did not wish to use the online system, the IRS also created a new paper application, Form W-12.

This new PTIN sign-up process allows the IRS to see how many paid federal tax return preparers there are, and to create a searchable database that can be used by taxpayers. It also creates an online account for preparers that eventually will allow them to track their testing and education courses, which most preparers will be required to pass if they wish to continue working as a paid tax preparer.

Currently, preparers can obtain their PTINs prior to testing, but once the IRS competency exam is available in fall of 2011, preparers will need to pay a testing fee and pass the exam before obtaining a PTIN. In addition, the IRS will require each preparer to pass a background check and be finger-printed. Once the preparer has completed all these requirements, the IRS will assign them the designation of Registered Tax Return Preparer or RTRP.

At PRO-TAX, we have tax professionals in every one of our offices who are on track to complete these IRS requirements. If you love preparing taxes and providing excellent customer service, we invite you to join the professionals at PRO-TAX! Just click on the link below to go to the Employment page of this website, and apply now!

Employment at PRO-TAX

Although it is September and not April, it's income tax season for some people, especially small business owners, who got an extension until October 15 to file their returns. There is a choice: Start now and do the returns in an orderly fashion, or experience last minute panic. We at PRO-TAX fully understand that your main task is to run your business – and that also may be the reason why you have not yet filed your return after the extension.

Our PRO-TAX professionals are here to help you unravel the possibly confused state of your books and help you file on time. Maybe the tax forms keep getting set aside because of other pressing matters. Is there ever enough time to do it all?

We are sure that many who filed for an extension thought they’d have everything together long before six months. Now it's late September and the due date is just around the corner.

Don't make the same error as other small business owners by thinking that you can just not file. That would be a mistake. The internal Revenue Service will assign a late filing penalty, in addition to penalties and interest on the tax you owe. The IRS says, "Failure to file a return or filing late can be costly. If taxes are owed, a delay in filing may result in penalty and interest charges that could increase your tax bill by 25 percent or more."

If it turns out that you may not have the money to pay the IRS now you should go ahead and file the return by October 17 to avoid the non-filing penalty.  The IRS recognizes that not everyone can pay right away.  It usually is willing to set up installment payment plans.

Our PRO-TAX professionals can help you apply for a payment plan and help you fill out an Installment Agreement Request. As always, PRO-TAX is here to help!

If you have a child planning to attend college sometime in the near future and you want to pay the lowest price possible, you may need to hit the books to help them. The problem is the cost of a college education keeps rising, and the confusing financial aid rules make the income tax system look like simple grade-school math.

You may be aware of several tax breaks you can receive when you send your child to college. These range from tax deductions and credits, to tax-free withdrawals from 529 Plans and Education IRA’s. But these various tax breaks will not come close to covering the full cost of your child’s education. If you hope to pay less than the “full sticker price” of a college education, you’ll need to learn how to navigate the complex financial aid system. You will need to learn terms such as “FAFSA”, “Expected Family Contribution” (EFC), “Financial Aid Leveraging”, “Early Decision”, and “Student Aid Report“(SAR) and how they can affect the amount of financial aid you receive.

There are two basic forms of financial aid: Merit-Based and Need-Based.

Merit-Based Aid tends to receive most of the attention from the media. However, the largest amount of financial aid given by the schools and government is Need-Based. Therefore, no matter how strong your child’s academic record, it’s important to learn how to get your fair share of this huge pile of money.

Merit-Based Aid (as the name implies) is awarded on the performance, abilities, heritage, and various other qualities of your child. Some merit aid requires a specific form or application, but most is given by the individual colleges based on your admissions application. By the way, when you hear the stories that “millions of scholarship dollars go unclaimed every year”, don’t take it too seriously, it is largely a myth.

The name “Need-Based Aid” can be a little confusing because this aid is NOT really awarded based on what you need, but on how needy you appear on paper at the time of filling out your FAFSA. Actual wealth (or lack of it) may have little to do with how the colleges evaluate your situation. Also, what YOU think you need and what the colleges think you need will be completely different amounts.

Americans like to complain about the IRS and income taxes, but our tax system is basically “fair” because the “rules of the game” (i.e. tax laws) are known and published.  So as confusing as the laws may seem, our government actually wants you to know exactly how much to pay and when. Unfortunately, the colleges don’t want to give you that much information. The less you know about what they do, the better for them.

Here’s a little secret most colleges hope you never learn: Let’s say two students apply to the same university. They have equal grades and abilities, plus their family’s income and assets are roughly the same. But, the colleges may charge them drastically different prices by offering more need-based financial aid to one student rather than the other. More than likely, although both families have similar financial resources, this price difference is because one family may “look” poorer to the financial aid officers. While this doesn’t seem fair, those families who know how the financial aid system works will tend to pay less. The key to unlocking the financial aid money is in knowing how the college financial aid officers “see” your family’s ability to pay.  

Let’s look at a simple example of how the price can be so different:

Two families have been diligent and each saved $10,000 to cover some of the costs for their college student. However, they invested the money in different financial instruments. One family invested in a bank Certificate of Deposit (CD) in the child’s name; and the other saved it in their home equity by paying down their mortgage.

So, why should that matter? $10,000 is still $10,000, right?

Unfortunately, to the financial aid officer it’s a HUGE difference where the money is saved and they’re the ones distributing the money. Not taking any other information into account (and the colleges usually take EVERYTHING into account), the family that saved the money in the child’s name will be expected to come up with $2,000 MORE in the first year than the family that had the money in their home equity. If the family leaves the $10,000 in the CD in child’s name during all four years of college and doesn’t spend it down, the college will reduce the total financial aid offered by $8,000 (four years x $2,000 per year = $8,000), effectively charging them $8,000 MORE than the other family!

It’s shocking that a $10,000 savings in one place could cost you $8,000 in lost aid but that’s how the financial aid rules can work against you if you don’t know what you’re doing.

Before you believe that it’s ALWAYS bad to save money in a kid’s name during the college years, it’s NOT. Sometimes it makes good financial sense to put MORE money in a child’s name but you must be aware that everything depends on your family’s situation and the colleges your child is considering.

Unlike the income tax system, there are exceptions to every rule in the world of college funding. If you have any questions about the tax benefits available to college students or how to make the financial aid process work for you, the professional tax preparers at PRO-TAX stand ready to help you find answers to all tax-related issues. Feel free to call us at 1-800-809-2829.

This relief, which primarily applies to corporations, partnerships and trusts that previously obtained a tax filing extension, is available to taxpayers regardless of their location.

This relief does not apply to any tax payment requirements.

This relief is in addition to the filing and payment relief the IRS is providing to taxpayers located in disaster areas declared by the Federal Emergency Management Agency (FEMA). For details, visit Tax Relief in Disaster Situations on the IRS website. You may also wish to go to the FEMA Blog for the latest updated disaster declarations.

Once a major disaster declaration is made, the tax relief postpones certain tax filing and payment deadlines and also includes the estimated tax payment for the third quarter of 2011, which would normally be due Sept. 15.

Although Virginia is not yet included in the list of “major disaster” states, it is among the states with an “emergency declaration” making available federal resources to support response efforts in the Commonwealth. PRO-TAX will keep you advised of important information dealing with the effects of Irene, so be sure to check back here often.

A related article on this PRO-TAX website might be of interest. For additional help, contact PRO-TAX at 1-800-809-2829, or click here for a guide to our locations.

We know what happened to Dorothy, but what about you? How does relocating affect your tax status?

Let’s say that you’re looking for a new career challenge, and your current position and company don’t have much to offer. So you start to look outside your company, your town, and maybe even the state you currently live in. However it happened, the “wanderlust” is upon you. You mail employment histories, complete interviews and are offered two positions. But wait, both jobs are so far away!

Does it really make financial sense to commute?   Probably not.  Could it pay for you to move?  Maybe.  The IRS allows you to deduct many expenses of moving to a new locale to take a new job (or even to take the same job in the same company, but at a different location). 

You’ll need to meet a few tests to see if you qualify for special deductions. Here’s how it works:  

• TIME - If you start a new job in a new location, you’ll need to move to your permanent residence within one year of starting the position. 
• DISTANCE - This one’s a little tricky.  It starts with your former residence.  If you worked seven miles from your old home, then your new “office” must be 57 miles from your old home.  That’s right, from your OLD home. 
• MORE TIME - This is the amount of time you actually work in the new area.   You have to work for 39 weeks of the first 12 months after your arrival at your new home, AND you have to work a total of 78 weeks during the first two years.  This does not mean that you have to wait two years to claim your moving expenses. It does mean that if you leave the area, you’ll have to “pay back” the deductions to Uncle Sam.  

So, what’s deductible? Transportation of persons and goods, using the shortest, most direct route between the two locations. In other words, you can’t go from Baltimore, MD to Charlottesville, VA via Tampa, FL and deduct related costs. 

Actual gas/oil for the trip, OR the standard mileage rate; parking and tolls for the trip (keep your receipts!); packing, crating and transporting goods to your new home; connection/disconnection of your utilities, Internet, etc.; lodging during the move. If you move cross-country and drive to get there, you can deduct motel stays for you and your family – but not meals).

What if your employer pays for a portion of your moving expenses?  If that’s the case, the reimbursement will be shown in box 12 of your W2.  Where to report all of this?  You do this on Form 3903.  Of course, since you are already fed up with unpacking boxes, and don't want to deal with IRS Forms, we would be happy to help you figure out how to maximize the Moving Expense.  

Don’t let the Wizard of Oz lead you astray! Follow the Yellow Brick Road to your local PRO-TAX office. You will find experts there with real brains and real hearts. Or you can call us at 1-800-809-2829. Click here  for a guide to our locations.

Are you in the business of farming or fishing? Did you know that you can elect to spread out your income over a three-year period? You may be able to lower your tax on the income from your farm or fishing business by using income averaging. This method allows you to move income from a high-income year to a lower-income year and lessen your taxes. You can use this method for any year that you farmed or worked as a fisherman as an individual, a partner in a partnership or as a shareholder in an S-Corporation. (However, the partnership or S-Corporation itself may not use this method, nor can other corporations, estates or trusts.) For more information on what careers qualify for farming or fishing, see the definitions below.

Income for this process is the gross farm or fish income and capital gains, minus the expenses and losses. You cannot include the gain or loss on the sale (or other disposition) of land, or from the sale or development, grazing or other rights. If you are liquidating your farm assets, you may still be able to use income averaging up to one year after your business ceases to operate. You cannot include income from another business that is not in the farming or fishing industry.

You can use this method regardless of your filing status, even if it was different in one of the years that you use for the income averaging. You don’t even have to have been in the business in those prior years. You can use this method for the current tax year, or you can use it in conjunction with an amended return for a previous year.

Definitions

Farming business. A farming business is the trade or business of cultivating land or raising or harvesting any agricultural or horticultural commodity. This includes:

• Operating a nursery or sod farm;
• Raising or harvesting of trees bearing fruits, nuts, or other crops;
• Raising ornamental trees (but not evergreen trees that are more than 6 years old when severed from the roots);
• Raising, shearing, feeding, caring for, training, and managing animals; and
• Leasing land to a tenant engaged in a farming business, but only if the lease payments are (a) based on a share of the tenant's production (not a fixed amount), and (b) determined under a written agreement entered into before the tenant begins significant activities on the land.

 A farming business does not include:

• Contract harvesting of an agricultural or horticultural commodity grown or raised by someone else, or
• Merely buying or reselling plants or animals grown or raised by someone else.

Fishing business. A fishing business is the trade or business of fishing in which the fish harvested, either in whole or in part, are intended to enter commerce or enter commerce through sale, barter, or trade. This includes:

• The catching, taking, or harvesting of fish*;
• The attempted catching, taking, or harvesting of fish;
• Any other activity which can reasonably be expected to result in the catching, taking, or harvesting of fish;
• Any operations at sea in support of, or in preparation for, any activity described in (1) through (3) above;
• Leasing a fishing vessel, but only if the lease payments are (a) based on a share of the catch (or a share of the proceeds from the sale of the catch) from the lessee's use of the vessel in a fishing business (not a fixed payment), and (b) determined under a written lease entered into before the lessee begins any significant fishing activities resulting in the catch; and
• Compensation as a crew member on a vessel engaged in a fishing business, but only if the compensation is based on a share of the catch (or a share of the proceeds from the sale of the catch).

*The word “fish” means finfish, mollusks, crustaceans, and all other forms of marine animal and plant life other than marine mammals and birds. A fishing business does not include any scientific research activity which is conducted by a scientific research vessel.

We recommend that you meet with your professional tax preparer to determine the best use of this method. Your preparer will help you choose the proper years, by taking into account not only your income, but any gains, losses and carryovers for the years being average. Come visit your local PRO-TAX office for assistance.

During the summer, teenagers make up a significant part of the workforce. Most states allow children to work as early as 14 years of age, providing they have a work permit and follow the rules of limitation.

Any person, regardless of age, that has earned income is subject to the same filing requirements set by the IRS. Many parents that have dependent children are unsure how to file the income their child earns.

Each taxpayer is responsible for reporting and paying the taxes on their own earned income, and will receive a Form W-2 from their employer. Parents are not required to include the amounts reported on a dependent’s W-2 as part of their own income when filing tax returns. Instead, the dependent may be required to file a separate return. There is no age limit for filing a tax return as a primary taxpayer.

For the 2010 tax year, a single person under 65 years old who is not blind with earned income of $5,700 is required to file. This is a combination of the standard deduction and personal exemption that all taxpayers are entitled to before taxes are calculated. The tricky part is the personal exemption. There is only one per person, and it can only be claimed on one tax return. The amount of wages your child earns will determine whether it is beneficial for the parent or the child to claim their exemption. Making the right choice and filing at the same time as your child can reduce the chances of making a major mistake on your tax return that would require an amendment. Typically, a child will file a return and claim their exemption not realizing that this will affect the parents tax return. Once the child files electronically, the parents have to file a paper return to correct it, and the refund is delayed by as much as 12 weeks. The difference on the parents tax return could exceed $1,000.

If the amount the dependent earned is less than $5,700, a tax return does not need to be filed. However, if federal and state taxes are withheld, it is a good idea to file a return to claim the refund of taxes withheld. If the amount earned exceeds $5,700, a tax return must be filed to calculate the tax liability.

If all this seems confusing PRO-TAX can help you prepare your tax return as well as those of your dependents.

The Tax on children’s unearned income (interest, dividends, etc…) has a different set of rules that are beyond this article, and PRO-TAX can help with that too!

If you are a resident or nonresident alien earning income in the United States, you are required to file a tax return if your US income is greater than your personal exemption amount ($3,650 for 2010). If you are a student studying in the United States on an F, J, M or Q visa, and are classified as a nonresident for U.S. tax purposes, you are still required to file a tax return each year you are here if you have any income subject to U.S. income tax. It doesn't matter that your employer withheld adequate tax from your paychecks, or that you have a small amount of income and owe no tax; you are still required to file. 

Additionally, if you are an exempt individual (typically students and teachers), you are required to file Form 8843, Statement for Exempt Individuals and Individuals With a Medical Condition regardless of your income. Form 8843 is required if you are an "exempt individual." This does not mean you are exempt from paying U.S. taxes, but that you are exempt from the substantial presence test for determining residency status. You must file Form 8843 even if you are not required to file an income tax return.

Even if you do not have a tax liability, you still need to file a return. The IRS cannot charge you a penalty if you do not owe any taxes; however, your visa requires you to comply with all laws of the United States, including the requirement to file an income tax return. If you want to change your visa status, or obtain permanent residency, you may be required to show that you filed a tax return. By not filing, you could lose your visa.

The first thing you must do is to determine whether you are a resident, a nonresident, or a dual status alien for tax purposes. These titles do not relate to your immigration status. Even though you are a citizen of another country, you might still be considered a U.S. resident for U.S. tax purposes. This is an important first step because it determines whether you must file, what form to file, and whether you are eligible for treaty benefits.

For tax purposes, an alien is an individual who is not a U.S. Citizen. Aliens are classified as either nonresident aliens or resident aliens. Resident aliens generally are taxed on their worldwide income, the same as U.S. citizens. Nonresident aliens are taxed only on their income from sources within the United States and on certain income connected with the conduct of a trade or business in the United States.

To be considered a resident alien, the taxpayer must meet either the green card test or the substantial presence test for the calendar year.

• Green card test. A taxpayer is a resident for tax purposes if he is a lawful permanent resident of the United States at any time during the calendar year. An alien will generally have this status if the U.S. Citizenship and Immigration Services (USCIS) or Immigration and Naturalization Service), INS has issued an Alien Registration Card, also known as a “green card.”
• Substantial presence test. To meet this test, the alien must be physically present in the United States for at least, 31 days during the current year and 183 days during the 3-year period that includes the current year and the two years immediately before that, counting:

            a. All the days present in the current year, and

            b. 1/3 of the days present in the first year before the current year, and

            c. 1/6 of the days present in the second year before the current year.

An alien is considered a nonresident alien for tax purposes unless one of the two resident alien tests is met.

An alien is considered a dual-status alien when they have been both a resident alien and a non-resident alien in the same year. Dual status does not refer to citizenship, only to their resident status in the U.S. The most common dual-status tax years are the years of arrival and departure. Different rules apply for each part of the year. Refer to IRS Pub 519, US Tax Guide for Aliens, for more information.

To make sure you properly file your taxes, consult a professional tax preparer at PRO-TAX. He can guide you through the process of determining your type of residency, and filing all of the forms required by the IRS.

All of us owe a great deal to the women and men of the military who have helped guarantee that we remain “the Land of the Free and the Home of the Brave”. The PRO-TAX family is pleased to help remind all about the importance of recognizing our neighbors, our brothers and our sisters who are serving us in the military.

There are some special tax-related considerations for armed service personnel, especially related to the Uniformed Services Employment and Reemployment Rights Act (USERRA) and the Heroes Earnings Assistance and Relief Tax Act of 2008 (the HEART Act). These laws grant a number of benefit rights to employees on or returning from military leave. PRO-TAX wants to help make sure all those concerned are aware of these provisions.

We wish to point out to business owners not only the requirements of these Acts, but also the credit  to  eligible small business employers that make eligible differential wage payments to qualified employees who are on active duty in the uniformed services for more than 30 days. An eligible small business employer may take a credit against its income tax liability in an amount equal to 20 percent of the sum of the eligible differential wage.

The benefits are quite involved but here is a brief summary. We will also provide Internet links so that you may get further details.

• Generally, an employee who leaves a civilian job for qualified military service is entitled to be reemployed by the pre-service civilian employer if the individual returns to employment within a specified period and meets the other eligibility criteria under USERRA. The act also provides that an individual, upon reemployment, is entitled to receive certain pension, profit-sharing, and similar benefits that would have been received but for the employee’s absence during military service.
• Certain members of the uniformed services are automatically entitled to life insurance under the Servicemembers’ Group Life Insurance (SGLI) program. In general, life insurance proceeds are also excludable from income.
• Some provisions directly affect employee benefit plans sponsored by the employer. The HEART Act applies to qualified retirement plans, 403(b) plans, and 457(b) plans. If a participant dies while performing qualified military service, the survivors are entitled to receive any additional benefits (other than benefit accruals relating to the period while on military leave) provided under the plan as if the participant had resumed employment on the day before death.
• An employee reemployed under USERRA is treated as not having incurred a break in service because of the period of military service. The employee’s military service is treated as service with the employer for vesting and benefit accrual purposes and the employee is permitted to make additional elective deferrals and employee contributions.  The employee is entitled to any accrued benefits that are contingent on employee contributions or elective deferral to the extent the employee pays the contributions or elective deferrals to the plan.
• Qualified retirement plans must provide that, in the case of a participant who dies while performing qualified military service; the survivors of the participant are entitled to any additional benefits that would have been provided under the plan had the participant resumed employment and then terminated employment on account of death.  This tax qualification requirement also applies to tax-deferred annuities under § 403(b) of the Code and to governmental eligible deferred compensation plans under § 457(b).
• Under current law, a taxpayer who receives a distribution from a qualified retirement plan prior to age 59¹/₂, death, or disability is generally subject to a 10-percent additional income tax under § 72(t) unless an exception applies. Amendments made by the Pension Protection Act of 2006 provide that the 10-percent additional income tax does not apply to a distribution to a qualified reservist.
• Earned Income Credit: The taxpayer may choose to treat combat pay that is otherwise excluded from gross income as earned income for purposes of the Earned Income Credit
• Exclude many items which may appear to be income taxable but are not for qualified military personnel.  These are listed in some detail in IRS Publication 3. Items such as Basic Allowance for Housing and Basic Allowance for Subsistence, Overseas Housing Allowance ,Combat Zone Pay  and, for example family allowances for emergencies
• Travel by Armed Forces Reservists, if unreimbursed, can be a deduction on the 1040 as an adjustement to income without having to meet an “itemized” deduction (Schedule A).

In Summary

The Armed Forces Tax Guide, IRS Pub 3  , has a great deal of very useful information to help Armed Forces men and women with tax matters.  In addition, there is a Taxpayer Advocate Service which might also be helpful.  Your local PRO-TAX office can help military personnel and their dependents.  Contact PRO-TAX at 1-800-809-2829, or click here for a guide to our locations.

• The camp must be a day camp. This is because the IRS allows that the cost of a day camp can be work-related; allowing the parents to work or seek work. Tutoring, summer school, and overnight camps are not considered as work-related expenses.
• The child must be under 13 years old while at the day camp.
• You, and your spouse if you are married, must both be working or seeking work (this creates the need for child care).
• You must be able to supply the provider’s identity. In other words, the name, address and tax ID number of the camp.

If you meet these basic criteria, you can claim a maximum credit of 35% on unreimbursed expenses up to $3,000 for one child or $6,000 for two children. The amount of credit decreases at higher income levels, but does not completely phase out. If your AGI is $43,000 per year or higher, you are still eligible for a 20% credit. So, for example, let’s assume that you are eligible for a 20% credit. This means that if you spend $1,000 on day camp, you will receive a $200 tax credit. Not too bad, right?

You should be aware, though, that this credit for day camp is not in addition to the childcare tax credit. So if you already have more than $3,000 in unreimbursed day care expenses, and are receiving a credit for those, your day camp expenses are not eligible for an additional credit.

As with all tax-related issues, there are a number of additional rules and details to be followed, and for those you can find more information in IRS Publication 503, or contact the nearest PRO-TAX office to speak with a friendly, knowledgeable tax professional.

Unfortunately, his winnings will be taxable. The taxable amount will depend on what type of gambling the winnings are from. If the amount is won on slots he may be able to net the winnings by any slot machine losses from the same day as the winnings. The losses must be documented (receipts or frequent player’s card). If he cannot document the losses or his winnings were from any other type of gambling he cannot net the losses against the income. If the money won cannot be offset, it will have to be reported on the son’s personal return. He should have received a W-2G from the casino because the winnings are over $600.

In the past, the parent was able to claim the student as a dependent because they provided more than half of his upkeep and he was a full-time student. In this case, the amount won will also be used to determine the support test for dependency. If the son spent the entire winnings amount on himself, has a job, and received scholarships, this will all be included to determine dependency. If the total of these amounts constitutes more than half of the amount needed for his upkeep, he cannot be claimed as a dependent by his parents for this tax year. The son would report the education expenses on his return, and he will also use his personal exemption and standard deduction on his return.

If the total of the income is less than half of the upkeep, the son will file a return claiming the gambling winnings and his part-time job. The parents will still keep his dependency exemption and the education credits on their return.

If you have a tax question that is stumping you submit it in the comments and we'll do our best to address it in a future article.

Our basic liberty and independence in this country essentially has its origins in the sacrifices by forbearers who “went to war” to acquire and preserve this country – from the Revolution, the War of 1812 down the years through the Civil War and into the twentieth and twenty-first century with many, too many, conflicts that demanded sacrifice of lives, and the great prices paid by American Families.

Memorial Day was officially proclaimed on 5 May 1868 by General John Logan, national commander of the Grand Army of the Republic, in his General Order No. 11, and was first observed on 30 May 1868, when flowers were placed on the graves of Union and Confederate soldiers at Arlington National Cemetery. It is appropriate to retrieve words from this historic general order.

Recently America celebrated Armed Forces Day, to show honor to those currently serving in the various military units of the United States. These brave men and women are even now helping us maintain our freedom and independence.

That Independence itself will also be celebrated with appropriate observances around the country as the Fourth of July helps us all recall the Freedoms we enjoy.

Such freedom has other costs as well – among them being the taxes we pay to keep this country in existence.  Our expert tax preparers at PRO-TAX stand ready to help you maintain your financial “independence.”  For more information or assistance, please contact your local PRO-TAX office or call 1-800-809-2829.

Multiple Sclerosis, Osteoporosis Awareness, Stroke Awareness, Melanoma/Skin Cancer Detection and Prevention, Arthritis, Mental Health, Asthma and Allergy Awareness, High Blood Pressure Education, Better Hearing, Lupus Awareness, Cancer Research, and many more. 

See the web page for the National Health Information Center for May at THIS LINK.

The Quality of our Nation’s Health is a continuous issue, especially of late.  While we don’t know what the future will bring in terms of Congressional legislation, we do know that even the IRS is interested in your health—to a certain extent.

That is, depending on a number of factors, the IRS will not tax you on some of what you spend for health care.  As a general idea, if your family has substantial costs to maintain or improve your physical and mental well-being, a portion can be deducted from your income.

The IRS provides “standard deductions” to lower your taxable income, and if your medical expenses – among other factors – are significant and more than the standard deduction, they can be listed on the “Itemized Deductions” schedule of the tax return.  For years, this has been called the Schedule A-Itemized Deductions form.

The first four line items on Schedule A deal with medical and dental expenses – note that you have to deduct a portion before the amount becomes part of the total itemized deductions.  Currently, you need to multiply your “adjusted gross income” by 7.5% (.075) and then subtract that from the total medical and dental expenses you entered (on line 1).

What is Included? In short, what are “Medical Expenses”? According to the IRS Publication 502:

• Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes.
• Medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness. They do not include expenses that are merely beneficial to general health, such as vitamins or a vacation.
• Medical expenses include the premiums you pay for insurance that covers the expenses of medical care, and the amounts you pay for transportation to get medical care. Medical expenses also include amounts paid for qualified long-term care services and limited amounts paid for any qualified long-term care insurance contract.
  

Not everything can be included – for example, although vitamins are generally considered quite helpful in maintaining good health, the IRS does not include them on the list of covered expenses – unless a physician has specifically prescribed them! IRS Publication 502  includes detailed information.

When you come to visit your PRO-TAX professional next year, be sure to bring along all the records of the money you spent on health-care related items – this means that starting last January 1, you should be keeping  track of what you’ve spent for caring for you and your family’s health.  In fact, contact your local PRO-TAX office and ask for a special handy tool which will make it easy to keep track of your medical (and other) deductible expenses.

The 2011 Hurricane season is fast approaching. Recent projections (as of April 6, 2011) foresees an above-average Atlantic basin tropical cyclone season in 2011 and anticipate an above-average probability of U.S. and Caribbean major hurricane landfall.

Probabilities for at least one major (Category 3-4-5) hurricane landfall according to the Tropical Meteorology Project of Colorado State University:

• Entire U.S. coastline - 72% (average for last century is 52%)
• U.S. East Coast Including Peninsula Florida - 48% (average for last century is 31%)
• Gulf Coast from the Florida Panhandle westward to Brownsville - 47% (average for last century is 30%)
• Probability for at least one major storm tracking into the Caribbean: 61% (average 42% for the last century).

History teaches that a lack of hurricane awareness and preparation are common threads among all major hurricane disasters. By knowing your vulnerability and what actions you should take, you can reduce the effects of a hurricane disaster.

Hurricane Preparedness Week during 2011 will be held May 25th through May 31st.  During the seven-day Hurricane Preparedness Sales Tax Holiday period, consumers may purchase certain items in preparation for hurricanes and other emergencies exempt of the Retail Sales and Use Tax. The exempt items include: 1) portable generators used to provide light or communications or preserve food in the event of a power outage; and 2) certain other hurricane preparedness other eligible items must be priced at $60 or less for each item. For a specific list of items qualifying for the Hurricane Preparedness Sales Tax Holiday, see this Website.

For additional information, including this year's other sales tax holidays, visit the Virginia Sales Tax Holiday Information Center link.  

For more information or assistance, please contact your local PRO-TAX office or call 1-800-809-2829.  

But do you know exactly how much you can deduct for your charitable contributions of material goods? How much is all the “stuff” you’ve donated worth? You can’t deduct the price you paid for the goods. But the value is what you can deduct.

So, first, you need to get in the habit of keeping track of giving. With regard to cash donations, just keep a little notebook or sheet of paper tucked into your wallet or checkbook and jot down the amounts you donate throughout the year. If you tithe – give 10% of your income – to your place of worship, keep track of in your checking account and request an annual gift letter showing the total amount donated for the year.

When making material donations, you have to make sure donated items are in decent shape (no holes, rips, bad stains, etc.) Be sure to get that receipt from the organization to which you donated the goods. But how do you determine the Fair Market Value of the goods donated, to know what you can deduct? 

If you donate a high dollar item, get an assessment from a professional source. For instance, if you have donated an old car, use the Kelly Blue Book value.

Here are a few more ways to best figure out the Fair Market Value of goods donated:

1. Visit a local thrift shop and try to determine the value from their pricing. Best advice:  choose the lowest price.
2. Visit the Goodwill or Salvation Army valuation websites. Both of these sites offer easy to use tools and lists to determine the value of donated items (clothing and household appliances).
3. Visit the IRS website. IRS Publication 561, Determining the Value of Donated Property, lays out in great detail how to best value your donated property.

And, remember, a tax professional at your local PRO-TAX office can help you with all your charitable giving deduction questions.

You might be able to exclude the cancelled debt from your income using the insolvency exclusion. Taxpayers are considered insolvent when their total liabilities exceed their total assets (ie, they owe more than they own). Normally, a taxpayer is not required to include cancelled debt in income to the extent that the taxpayer is insolvent. The cancelled debt could also qualify for exclusion if the debt was discharged in a Title 11 bankruptcy proceeding or if the debt is qualified farm indebtedness or qualified real property business indebtedness. If the discharged debt was for your mortgage on your primary residence, you will most likely be able to exclude the proceeds using the Section 121 exclusion. There are many other situations that will allow you to discharge the debt.

If you receive a 1099-C for any type of cancelled debt, make an appointment with your tax preparer to discuss what you need to do to prove to the IRS that you are eligible to exclude all or part of the discharged debt from your income. Your preparer will probably ask you to bring a list of your assets (cars, homes, property, stocks, etc.) and how much you still owe to any financial institutions (mortgage, car loan, credit card balances, etc). They can work with you to minimize the tax consequences of debt forgiveness.  

Traditional IRAs

You may still eligible to make deductible contributions to an IRA for tax year 2010 so long as the contributions are made before April 15, 2011.  (However, if you would like the deduction for NEXT year’s taxes, contributions made after January 1 and by April 15 can be so designated.)

Remember, a primary advantage to such retirement savings is that you are not taxed on the money currently – you pay income tax on regular IRA deductions only when the funds are received by you later on, most likely in your retirement years. But if you are under 70-1/2 by the end of 2010 you may still be able to make a deductible IRA contribution.

To get an IRA deduction, generally there must have been some sort of taxable income, such as wages, salaries, commissions, tips, self-employment income for you and/or your spouse.

If you are 50 or older, you may be able to contribute as much as $6,000 to an IRA.  In addition, even if your spouse did not earn any money during 2010, there may be a special Spousal IRA Deduction.

New “Saver’s Credit”

There is a newly-named provision called the “saver’s credit” which is a credit against taxes if you qualify.  It goes on Line 50 of the Form 1040 and is different from the IRA deduction.  The IRA deduction (from Line 32 of the Form 1040) has the effect of reducing the amount of your income that becomes the Adjusted Gross Income (AGI).  The Saver’s Credit would be in addition to an IRA deduction and actually reduces your tax.

First off, however, you must meet the Adjusted Gross Income tests: line 38 from your IRS Form 1040 must be less than $55,000 if you are filing jointly -- $27,750 for filing singly or $$41,625 for head of household. 

How to Proceed

Our ProTax preparers are especially trained to help you with calculating your IRA deductions and the Saver’s Credit. They will use IRS Form 8880 to determine whether you can qualify for this special tax credit.

But if you would like to get more information on your own, you can download a “PDF” version of the IRS Publication 590 “Individual Retirement Arrangement (IRAs)” and also the Form 8880 from www.irs.gov and click on “Forms and Publications.” You can also call 1-800-TAX-FORM (1-800-829-3676).

One way is to declare bankruptcy. This discharges the debt with no tax implications. The law specifies that a discharged debt cannot be collected by any creditor, and this includes tax liabilities. Often the taxpayer has a house that is foreclosed on, and the taxpayer then becomes “upside down” on the mortgage – meaning they owe more than the house is worth. If that debt is forgiven, it too becomes income and must be claimed on the tax return. If the Debtor is in that situation they should consider filing either a Chapter 7 or Chapter 13 bankruptcy, and have the debt discharged instead of reported to the IRS as income.

Federal bankruptcy provides an exception to the taxable income rule when debt is forgiven. In fact, the debt is discharged by the Federal court. Any debt that is forgiven or settled outside of the bankruptcy court is still taxable.

If you are facing foreclosure or bankruptcy, call on two professionals to help you out. First, contact a lawyer to make sure everything is filed in concurrence with Federal guidelines, and that bankruptcy is the best course of action. And then call your tax preparer at PRO-TAX – we will help you file the return to make sure you are not paying additional income tax that could be waived under the Bankruptcy laws.

• The cancelled debt may be taxable.
• You may have a gain on the sale of the house, which in turn may be taxable.

Cancellation of Debt

If your lender cancels or forgives the mortgage you borrowed, you may have to include the canceled amount on your income taxes. Because you were obligated to repay the lender, you were not required to include the original amount that you borrowed as income on your tax return for the year that you began the mortgage. The amount you receive, when that debt is subsequently forgiven, generally means you must report it as income, because you are no longer required to repay the lender. The lender must send you a Form 1099-C, Cancellation of Debt showing the total canceled debt.

For example: You borrow $175,000 and default on the mortgage loan after making payments totaling $25,000. If the lender is unable to collect the remaining balance of the debt from you, a cancellation of debt of $150,000 is created, which could be taxable income to you.

Capital Gain

Even with a foreclosure, you may have still realized a gain on the property. If this occurs you will need to calculate the profits from the foreclosure by subtracting the amount realized from the sale from the adjusted tax basis of the home. The cost of improvements to the property in addition to the original price of the property is your adjusted tax basis. The difference between the gross proceeds and your adjusted basis will be your gain. In a foreclosure the amount realized depends a lot on whether your loan is recourse or non-recourse:

• For recourse loans, if your home is sold at a foreclosure sale, the amount realized is its fair market value, which is generally the sales price minus expenses of the sale, such as court costs, legal fees and real estate commissions. If your mortgage is a recourse loan, you're personally responsible for repaying the bank or mortgage company. If you don't repay the loan, or default, the bank can sue you for the remaining amount due on your loan if the proceeds from a foreclosure sale doesn't cover the amount you owe.
• For non-recourse loans, your amount realized equals the amount you owed on the mortgage plus any interest that comes due up to the time of the foreclosure. if your mortgage is non-recourse, your lender cannot make you pay the loan. The only thing it can do is foreclose and sell your house for payment on the debt.

Gratefully, there are other situations when cancellation of debt may not be taxable:

1. If you have declared bankruptcy, the discharged debt is considered non-taxable.
2. If your total debts are more than the fair market value of your total assets, you are considered to be insolvent and may qualify for an exemption.
3. If you run a farm and the debt was incurred in the operation of it, you may also qualify for an exemption.

The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt that is reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure qualify for this relief. This provision applies to debt forgiven in calendar years 2007 through 2012. The exclusion doesn’t apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.

Visit your local PRO-TAX location to get answers to your foreclosure questions, or any other tax-related questions you may have. Our staff want to help you through this difficult time, and make sure that you are taxed on the appropriate amount of income, and nothing more.

A mismatch between the name(s) shown on a tax return and the Social Security Administration (SSA) records can cause problems in the processing of a return and may even delay a refund.   

Here are some of the issues they can help with, to make preparation of your taxes flawless:

1. If you changed your name as a result of a recent marriage or divorce you’ll want to take the necessary steps to ensure the name on your tax return matches the name registered with the Social Security Administration. If you took your spouse’s last name or if both spouses hyphenate their last names, there may be complications if the SSA isn’t notified. If newlyweds file a tax return using their new last names IRS computers can’t match the new name with their Social Security Numbers (SSN).
2. If you were recently divorced and changed back to your previous last name you’ll also need to notify the SSA of this name change.
3. If you adopted your spouse’s children after getting married you’ll want to make sure the children have a SSN. Taxpayers must provide a SSN for each dependent claimed on a tax return.

4. If names have changed, Form SS-5 needs to be filed to notify the SSA of the changes and will ensure that the names and SSNs match when filing the tax return. The form can be accessed on the SSA website by clicking here, or by calling 800-772-1213.  You can also get the form at any local SSA office.
5. If you’ve changed your address as well as your name, Form 8822 needs to be filed with the IRS.  File a Change of Address Form with the U.S. Postal Service as well.
6. Let your employer know that you’ve changed your name and/or address.  This will ensure receipt of your Form W-2, Wage and Tax Statement, after the end of the year.

Your local PRO-TAX can help clarify what you’ll need in order to correct or change the records and to prevent problems or delays. Feel free to call us at 1-800-809-2829.

Being able to claim dependents is tied to a number of related tax benefits. If you have dependents, you can claim an additional personal exemption for each one.  In addition, taxpayers who claim dependents may be eligible to claim the Child Tax Credit, the child And Dependent Care Tax Credit, and the Earned Income Tax Credit. Unmarried taxpayers who support dependents may be eligible to file as Head Of Household. With all these tax benefits tied to claiming a dependent, it’s important to make sure that you really can claim someone you believe to be a dependent on your tax return.

Keep in mind that if you are a divorced parent, you and your ex-spouse cannot both claim the child(ren) you have in common. The way the tax laws are written, only one person can claim a dependent on their tax return. Typically, in cases where two people could be eligible to claim the same child, only the taxpayer with whom the child resided longer throughout the year will most likely claim the child. If the child lived with both taxpayers equally, such as in a joint custody arrangement, the taxpayer with the higher adjusted gross income is entitled to claim the child as a dependent. However, two parents may be able to “share” the tax breaks associated with a child, provided these parents discuss and agree on who is going to file for which credits.

Children are certainly dependents, but can anyone else be a dependent?  The IRS says that a dependent is a qualifying child or an adult who meets certain criteria based on relationship, age, residency status and the amount of support the taxpayer provides.  Here’s a little more detail:

Children

Dependent children must live with the taxpayer for more than half the year, be under age 19 and not provide more than 50 percent of their own support. The child must be related to the taxpayer, either biologically or through adoption. Full-time students under age 24 may be claimed as long as they meet other qualifying criteria. Permanently disabled children may be claimed regardless of their age, as long as they qualify as a dependent.

Relatives

Taxpayers may also claim qualifying adult relatives as dependents as long as the taxpayer provides more than 50 percent of the person's support, and the relative can't make more than $3,650 per year, unless disabled, in order to qualify as a dependent. There are additional criteria for being able to claim adult dependents.

Non-relatives

If you have been supporting a non-relative, you may be able to claim them as a dependent.  You will find information on this in Pub 501 under Member of Household or Relationship Test, which states that the person must either live with you all year as a member of your household, or be related to you in one of the ways listed under “Relatives who do not have to live with you”.  The list they are referring to is very detailed, but read through it to make sure.

Regarding claiming a non-relative as a dependent, there is one caveat, and that is that you cannot claim the non-relative residing with you if at any time during the year the relationship between you and that person violates local law.  So for example, if your girlfriend or boyfriend is living with you, and you have been supporting them because they are unemployed, you may not be able to claim them as a dependent if the state you live in doesn’t recognize common-law partnerships.

Fortunately, the IRS provides us with copious details, tests, and examples to assist us with determining who is a dependent. You can find it all in Pub 501. Or come visit your local PRO-TAX office, where our trained staff can assist you in determining who you can claim as a dependent.

To you and your dependents, Happy Family Day!

There will actually be three Part B premium amounts in 2011. Which one a person pays depends on when they started Part B and their income.  The Part B premium is typically deducted from the monthly payment received by a Social Security beneficiary.

It might seem strange that some pay a different Part B premium for the same coverage. This happens because federal law says the Social Security benefit can’t decrease as a result of a Part B premium going up. This is called the “hold harmless provision.”

Since Social Security benefits are not increased for 2011, Part B premiums also can’t go up if the premium is automatically deducted from a Social Security check.

This is the second year in a row that “hold harmless” applies to most people with Medicare because there’s no increase to Social Security benefits. The result is that most people will keep paying the 2009 standard premium amount. Others will pay the 2010 or the 2011 standard amount.

If Part B was effective in 2010, the premium deduction is $110.50 per month in 2011. People who sign up for Part B during 2011 will have $115.40 deducted from their monthly Social Security checks.

The exception to this rule is people with higher incomes. This Link will lead to the Medicare Interactive web site for important information about the increased premiums – up to a possible $353.60 per month for individual income above $214,000 ($428,000 for couples).   Essentially, individuals with income more than $85,000 ($170,000 for couples) pay more for Part B and aren’t held harmless. Their premiums will increase in 2011.

People who have low incomes may be able to qualify for assistance programs to pay the Part B premiums and certain other benefits – go to this Link for details and more information.

As always, the professional tax preparers at PRO-TAX stand ready to help you find answers to all tax-related issues. Feel free to call us at 1-800-809-2829.

The Making Work Pay(MWP) credit appears on your tax return in the same section as the federal taxes withheld on your W-2.  That is, the MWP appears like a payment you made – reducing taxes you might have to pay, or increasing your refund.

It is calculated at a rate of 6.2 percent of earned income up to $400 for working individuals and up to $800 for married taxpayers filing joint returns, but phases out for taxpayers with modified adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly.

It is possible that there could be an “over withholding” for some taxpayers. Chief among them are college students and others who may be claimed as a dependent on someone else’s return.

If you are claimed as a dependent on someone else’s return, you cannot qualifyfor the MWP Credit.This means that those taxpayers will have to return any credit paid out to them (either in the form of a payment to IRS or a reduced refund) unless an adjustment is made on a form W-4. 

Pensioners (retirees without earned income)do not qualify for the MWP credit, unless they receive earned income. (However, the IRS has provided pension plans with an optional adjustment procedure. If desired, pensioners can adjust their withholding by filing Form W-4P, Withholding Certificate for Pension or Annuity Payments.)

Even if you are self-employed, you can benefit now from the MWP tax credit by evaluating your expected income tax liability, then making an allowance for this tax credit if you’re eligible. If you are eligible you should make the appropriate adjustment in the amount of your regularly scheduled estimated tax payments.

Those who should pay particular attention to their withholding include:

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

Other important information:

• The Making Work Pay Credit is available only for taxpayers with earnedincome.
• To claim the credit, a Schedule M must be completed by you or your PRO-TAX preparer. Form1040-EZ includes a worksheet on the back.
• For people who receive a paycheck subject to withholding, the credit will typically be handled by their employers through automated withholding changes, which may result in an increase in take-home pay.
• Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2010 tax returns.
• It is not necessary to do anything to get the automatic withholding change. However, an employee with multiple jobs or a married couple whose combined income places them in a higher tax bracket should consult the IRS withholding calculator and, if necessary, submit a revised Form W-4, Employee's Withholding Allowance Certificate to your employer,  to ensure enough tax is withheld.. 
• How Do I Adjust My Tax Withholding?(Publication 919), provides additional guidance for tax withholding including a special Making Work Pay worksheet. The worksheet will be especially useful for employees whose situations are only approximated by the worksheets on the paper W-4 – anyone holding more than one job, or couples in which both are employed, those entitled to file as Head of Household and those with several children eligible for the Child Tax Credit.

If you believe your current withholding is not adequate, or you need more information about the MWP credit, you can call PRO-TAX at 1-800-809-2829 Let PRO-TAX deal with the IRS…so you don’t have to

People claiming certain items will need to wait to file their tax returns until tax processing systems are ready, which the IRS estimates will be in mid- to late February.

Taxpayers will need to wait to file if they are within any of the following three categories:

• Taxpayers claiming itemized deductions on Schedule A. Itemized deductions include mortgage interest, charitable deductions, medical and dental expenses as well as state and local taxes. Because of  Congressional action to enact tax law changes, anyone who itemizes and files a Schedule A will need to wait to file until mid- to late February.
• Taxpayers claiming the Higher Education Tuition and Fees Deduction. This deduction for parents and students — covering up to $4,000 of tuition and fees paid to a post-secondary institution — is claimed on Form 8917. However, the IRS emphasized that there will be no delays for millions of parents and students who claim other education credits, including the American Opportunity Tax Credit and Lifetime Learning Credit.
• Taxpayers claiming the Educator Expense Deduction. This deduction is for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250. The educator expense deduction is claimed on Form 1040, Line 23, and Form 1040A, Line 16.
• Taxpayers claiming a Casualty and Theft loss on Form 4684.
• Taxpayers claiming the District of Columbia First-Time Homebuyer Credit on Form 8859

As always, PRO-TAX stands ready to assist you in determining how this delay might affect your particular situation. The IRS will announce a specific date in the near future when it can start processing tax returns affected by the late tax law changes. In the interim we suggest you collect your tax documents and contact the nearest PRO-TAX office.  Click HERE to find locations, or call 1-800-809-2829.

Did you receive a notice from the IRS? If so, don’t panic. Many of these letters can be dealt with simply and painlessly.

There are number of reasons the IRS sends notices to taxpayers. Typically, the notice you receive normally covers a very specific issue about your account or tax return. The notice could request payment of taxes, notify you of a change to your account or request some other additional information.

Each notice offers specific instructions on what is needed to satisfy the IRS’ inquiry.

If you receive a correction notice, you should review the correspondence and compare it with the information 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. First, however, be sure to contact your PRO-TAX office and discuss the letter with your preparer or the Manager. They will help, as needed, so you can write to explain why you disagree. You will need to include any documents and information the IRS needs to consider, along with the bottom tear-off portion of the notice. Our office can help with any needed copies. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Be sure to allow at least 30 days for a response.

Most of these matters can be handled without calling or visiting an IRS office. However, if you have questions, you may call the telephone number listed in the notice. Have the correspondence and a copy of your tax return available when you call. It’s important that you keep copies of any correspondence with your records.

For more information about IRS notices and bills, see Publication 594, The IRS Collection Process. As always, we are here to help!

Maintaining good records now can make filing your return a lot easier and it will help you remember transactions you made during the year.

Keeping well-organized records also ensures you can answer questions if your return is selected for examination.  This will also help you and your PRO-TAX professional to prepare a response if you receive an IRS notice. In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, any and all documents that may have an impact on your federal tax return should be kept.

Three-Year Rule

An individual should usually keep for at least three years anything that supports deduction or credit items on their tax return such as bills, credit card statements, invoices, cancelled checks or other proofs of purchase.  Mileage logs are very important records for those who claim a deduction for mileage.

In addition, if you have sold or otherwise disposed of property, keep for three years anything to do with a home purchase, home improvements or rental property records.  In addition, keep anything related to stock or other investment transactions, or those dealing with IRAs.

Four-Year Records

Small business owners must keep all employment tax records for at least four years after the tax becomes due or is paid, whichever is later.

Here are examples of other important documents business owners should keep:

• Gross receipts: Cash register tapes, bank deposit slips, electronic transfer statements,  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, diary records of business meals, mileage logs
• Documents to verify your assets: Purchase and sales invoices, real estate closing statements and canceled checks or electronic transfer statements
• Car and truck operating and maintaining expenses

For more information about recordkeeping, check out IRS Publications 552, Recordkeeping for Individuals,583, Starting a Business and Keeping Records, and Publication 463, Travel, Entertainment, Gift, and Car Expenses. As always, your PRO TAX offices are here to help! 

Are you, or your spouse, in the military?  Whether it’s moving to a new base or traveling to a duty station, members of the Armed Forces have many experiences that could impact their tax situation. Here are some tax tips to keep in mind to help with filing the 2010 tax return, or even amending last year’s return.

Moving Expenses: You can deduct reasonable expenses incurred if you move.  You need to be on active duty, and you are moving because of a permanent change of station.  This applies to you and members of your household. IRS Form 3903 is required. Additional information is found in IRS Publication 521, page 15, under Members of the Armed Forces.

Combat Pay: If you serve in a combat zone as an enlisted person or as a warrant officer for any part of a month, all your military pay for that month is not taxable and should not be included in wages. Officers’ exclusion from taxation is capped at the highest enlisted pay, plus any hostile fire or imminent danger pay.

Deadlines: The deadline for filing tax returns, paying taxes, filing claims for refund, and taking other actions with the IRS is automatically extended for qualifying members of the military. You can find more on this subject here.

Uniform Cost and Upkeep:  If military regulations prohibit you from wearing certain uniforms when off duty, cost and upkeep of those uniforms is a deductible item. However, if you receive a uniform allowance or reimbursement, you must reduce the amount you can deduct.

Joint Returns:  Joint returns must be signed by both spouses. However, when one spouse is not available due to military duty, a power of attorney IRS Form 2848 may be used to file a joint return. If you do not have this form, and if your spouse is unable to sign a return because he or she is serving in a combat zone or is performing qualifying service outside of a combat zone, you can sign for your spouse. Attach a signed statement to the return that explains that your spouse is serving in a combat zone.

Away From Home Travel Expenses:  You can deduct unreimbursed travel expenses only if they are incurred while you are traveling away from home.  Home is your permanent duty station (which can be a ship or base), regardless of where you or your family live. You are away from home if you are away from your permanent duty station substantially longer than an ordinary day's work and you need to get sleep or rest to meet the demands of your work while away from home. Examples of deductible travel expenses include:

• Expenses for business-related meals, lodging, taxicabs, business telephone calls, tips, laundry, and dry cleaning while you are away from home on temporary or temporary additional duty.
• Expenses of carrying out official business while on “No Cost” orders.

To be deductible, your travel expenses must be work related.  You cannot deduct any expenses for personal travel, such as visits to family while on furlough, leave, or liberty.

(You can find more information about deductions, etc. in IRS Publication 463.)

Reserve Duty Travel:  If you are a member of a reserve component of the Armed Forces and you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you can deduct your travel expenses as an adjustment to income prior to arriving at your adjusted gross income, rather than as a miscellaneous itemized deduction (Schedule A).  

ROTC Students:   Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.  See Tax Information for Students.

Transitioning Back to Civilian Life You may be able to deduct some costs you incur while looking for a new job. Expenses may include travel, resume preparation fees, and outplacement agency fees. Moving expenses may be deductible if your move is closely related to the start of work at a new job location, and you meet certain tests.

Much more detail is provided in IRS Publication 3. Visit your local PRO-TAX office for additional help in understanding all these opportunities for deductions and credits.  Let PRO-TAX deal with the IRS…so you don’t have to!

For taxable years beginning before 2014, the amount of the credit is based on a percentage of the lesser of:

1. The amount of nonelective contributions paid by the eligible small employer on behalf of employees under the arrangement during the taxable year, and
2. The amount of nonelective contributions the employer would have paid under the arrangement if each such employee were enrolled in a plan that had a premium equal to the average premium for the small group market in the State (or in an area in the State) in which the employer is offering health insurance coverage. 

The following table lists the average premium for the 2010 taxable year for the small group market in the states primarily served by PRO-TAX Offices.  Family coverage includes any coverage other than employee-only (or single) coverage. 

State                        Employee-only Coverage                   Family Coverage

Alabama                                 $4,411                                     $11,275

Mississippi                              $4,533                                     $10,501

Tennessee                             $4,611                                     $10,369

Virginia                                  $4,890                                     $11,338

West Virginia                         $4,986                                     $11,611 

(For all states, a copy of the IRS state average-cost table is available here.)

Only premiums paid by the employer for health insurance coverage are counted in calculating the credit. If an employer pays only a portion of the premiums for the coverage provided to employees (with employees paying the rest), only the portion paid by the employer is taken into account—including premiums paid before the Affordable Care Act was passed.

Some states have programs to make payments directly to an insurance company to pay a portion of the premium for coverage of an employee under employer-provided health insurance.  The state is treated as making these payments on behalf of the employer for purposes of determining whether the employer has satisfied the “qualifying arrangement” and these premium payments by the state are treated as an employer contribution under the act for purposes of calculating the credit. However, in no event may the amount of the credit exceed the amount of the employer’s net premium payments.

This provision of the Affordable Care Act has been added as section 45R of the Internal Revenue Code.  More specific qualifying details can be found here.  Make sure to visit your local PRO-TAX and let one of our tax professionals help!

We will lead you through all the tax “Tricks” and will also provide you with the “Treats” of a professionally-prepared tax return. 

Give PRO-TAX a call at 1-800-809-2829 and we’ll begin the process so that you can be ready long before April 15, 2011 – less than six months from now!

If you didn’t include income or take a deduction on your tax return – you can correct it by amending your tax return. You may also elect to amend your 2009 return if you are eligible to claim the first-time homebuyer credit for a "qualified" 2010 home purchase.  The amended tax return will allow you to claim the homebuyer credit on your 2009 return without waiting until next year to claim it on the 2010 return. There is also an interesting article about the changes in the first-time homebuyer credit on the PRO TAX website - click here.

In some cases, you do not need to amend your tax return.  The Internal Revenue Service usually corrects math errors or requests missing forms – such as W-2s or schedules – when processing an original return. In these instances, do not amend your return.

However, you should file an amended return if any of the following were reported incorrectly:

• Your filing status (Example: you filed single, but should have filed Qualifying Widow(er)).  The only time you CAN’T change your filing status when amending a return is from Married Filing a Joint return to Married Filing Separately.  If you were married when you originally filed, you’re married when you amend – whether you like it or not!
• Your dependents (Just because your child no longer qualifies you for the Child Tax Credit doesn’t mean you should claim him/her for a dependency exemption)
• Your total income
• Your deductions or credits

The newly revised Form 1040X(Rev. January 2010) now has only one column used to show the corrected figures. There is an area on the front of the form where you explain why you are filing Form 1040X.

Generally, to claim a refund, you must file Form 1040X within three years from the date of the original return or within two years from the date you paid the tax, whichever is later.

We suggest contacting your local PRO TAX office for assistance.  Although the form has been simplified by the IRS, there remain some details that need careful attention.

Here are some important points that might be helpful about deducting costs related to your job search:

• To qualify for a deduction, 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.  You also cannot deduct job search expenses if you are looking for a job for the first time. 
• Employment and outplacement agency fees you pay while looking for a job in your present occupation can also be a deduction. If your employer pays you back in a later year for employment agency fees, you will need to include the amount you receive in your gross income up to the amount of your tax deduction in the earlier year. But, if your employer pays the fees directly to an employment agency and you are not responsible for them, you do not include them in your gross income.
• You also should deduct amounts you spend for preparing, printing and mailing your résumé to prospective employers as long as you are looking for a new job in your present occupation. 
• You may be able to deduct travel expense if you travel to look for a new job in your present occupation. You can only deduct the travel expenses if the trip is primarily to look for a new job. Even if you cannot deduct the travel expenses to and from an area, you can deduct the costs of looking for a new job in your present occupation while you are in that area.
• 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 personal or is primarily to look for a new job.
• However, if there was a substantial break between the end of your last job and the time you begin looking for a new one, you cannot deduct job search expenses.

For more information about deducting job search expenses, contact your local Pro Tax office – also, see IRS Publication 529, Miscellaneous Deductions.

Although you may have heard the only two certainties of life are death and taxes, it seems like divorce is gaining on them. It is estimated that 50% of all marriages in America end in divorce. Although that figure sounds disheartening, the true percentage is somewhat less because of the number of people getting married four, five, or MORE times. For example, the famous actress Zsa Zsa Gabor got hitched nine times, and Larry King, the talk show “king”, just recently got out of marriage number eight!

But Zsa Zsa and Larry are not close to the World Record holders. Linda Wolfe of Indiana holds the record as the most married woman in history.  She’s said “I do” 23 times. And in 1996, as part of a publicity stunt, Linda married Glynn “Scotty” Wolfe in Arizona.  Scotty just happened to be the most married man in the world and Linda became wife number 29 for him.  At last count, that is (at least) 52 marriages between them!

Just as a marriage can complicate your tax return so can a divorce. If you are facing separation or recently got divorced, you should understand the tax implications of your situation.

There are several aspects of a divorce decree that can increase, lower or have no affect on your tax burden. The tax changes you face will be related to the details of your divorce decree. Obviously, it would be wise to completely understand this document and how it affects you. Professional legal counsel is highly advised in these situations.

Transfer of Property

When property is transferred between spouses in divorce there will generally be no income tax consequences, but this is not always the case. If property is transferred to a trust, third party or the property is used for a different purpose after the divorce, there could be tax implications. For example, if property is used for business purposes during marriage and then is only used for personal use after the divorce.

Alimony Payments and Receipts

Alimony is payments from one spouse to the other and is tax deductable by the payer. The recipient MUST claim it as income in the year received. Unlike some other deductions, the payer need not itemize on Schedule A to deduct alimony. Alimony is deducted “above the line” which simply means it is deducted before figuring Adjusted Gross Income. Unlike some other taxable income people receive (like wages from an employer), the IRS does not receive any estimated payments nor are taxes withheld from alimony payments, so the recipient may need to make quarterly estimated tax payments. 

Unlike interest or dividend income, alimony payments are considered earned income for the eligibility requirements for contributing to an IRA. 

The IRS has set up certain requirements that alimony MUST meet to be considered tax deductible to the payer. 

• Payment must be made in cash. (Can’t pay by mowing the lawn or painting the house)
• Must file separate returns
• Not part of same household
• No liability (to survivors) after the death of the recipient
• Payment cannot be considered child support or count as reduction in child support liability

Child Support

Child support isn't deductible by the payer, and it's not considered income to the recipient. Your decree should include a definitive ending period for child support not related to the age or any life changes of your children. 

Claiming of Exemptions

A special rule applies for determining who gets the exemption for a child in the case of a divorce or legal separation. If you're the custodial parent, you can claim the child as a dependent. However, the noncustodial parent can claim the Dependent Exemption and the Child Tax Credit, if applicable for the child if they have the consent of the custodial parent. The custodial parent can sign a release for the child for this purpose using IRS Form 8332.

The custodial parent may still qualify as Head of Household, and may be eligible for the Child Care Credit, Exclusion for Child Care Benefits and Earned Income Credit for that child. The noncustodial parent can't claim these benefits even though they can claim the exemption. It’s important for the divorce decree to clearly spell out the custody rights of each parent. 

Head of Household Status

There are several factors used to determine if you're eligible to file as Head of Household.

• You must be either unmarried (see below) or can be considered unmarried as defined by the IRS Tax Code on the last day of the year
• Have at least one qualifying child (See IRS Pub. 501 for the rules on of qualifying persons other than a child)
• Paid more than half the cost of upkeep of your home for the year

To be considered unmarried (in the eyes of the IRS):

• File a separate tax return from your spouse
• Lived separate from your spouse the last 6 months of the tax year
• Paid over half the cost of keeping up your home for the year
• Your home must have been the main home of your child for more than half the year
• You are able to claim an exemption for the child (An exception is if the noncustodial parent is claiming the exemption for the child because you signed Form 8332 you will still qualify)

Qualified Domestic Relations Orders

Retirement accounts are marital assets that will be divided according to your divorce decree. A separate agreement called a Qualified Domestic Relations Order (QDRO) is necessary for proper distribution of IRAs and/or any employer-provided retirement plans.

The QDRO is a decree, judgment or court order that relates to benefits paid to your child, spouse, former spouse or dependent. To be considered a QDRO, a document must meet specific requirements. Failure to meet these requirements can result in negative tax consequences.

Divorce can be a stressful and potentially expensive process. PRO-TAX can’t smooth over every area of a divorce, but we can help guide you through income tax and filing status changes. For more information about divorce and its impact on your income taxes, call PRO-TAX at 1-800-809-2829. You may also want to go to the IRS website and refer to IRS Publication 504-Divorce and Separated Individuals.

Possibly because there has been more than a little bit of misinformation sent around, the Internal Revenue Service issued guidance reflecting statutory changes regarding the use of certain tax-favored arrangements, such as flexible spending arrangements (FSAs), to pay for over-the-counter medicines and drugs.  The guidance also addresses other misunderstood aspects about the new legislation.

The Affordable Care Act, enacted in March, established a new uniform standard that will be effective January 1, 2011.   It applies to FSAs and Health Reimbursement Arrangements (HRAs). Under the new standard, the cost of an over-the-counter medicine or drug cannot be reimbursed from the account unless a prescription is obtained.

The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles. The new standard applies only to purchases made on or after January 1, 2011.  Claims for medicines or drugs purchased without a prescription in 2010 can still be reimbursed in 2011, if allowed by the employer’s plan.

A similar rule goes into effect on January 1, 2011 for Health Savings Accounts (HSAs), and Archer Medical Savings Accounts (Archer MSAs).

Employers and employees should take these changes into account as they make health benefit decisions for 2011. The new small business health care tax credit is effective now as part of the Affordable Care Act, which became law this year.

Who’s eligible for the credit?

The credit is targeted to help employers with low and moderate income workers afford to offer employees health insurance coverage. Generally, employers that have fewer than 25 full-time equivalent (FTE) employees and pay wages averaging less than $50,000 per employee per year may qualify for the credit. Because the eligibility formula is based in part on the number of FTEs, not the number of employees, employers that have more than 25 individual workers may also qualify if some of their workers are part-time.

Another bit of misunderstood information

The changes include the information about employers having to report on employees’ Form W-2 the cost they pay for employee health insurance.  Starting in tax year 2011, the Affordable Care Act requires employers to report the value of the health insurance coverage they provide employees on each employee's annual Form W-2.  This reporting is for informational purposes only, to show employees the value of their health care benefits so they can be more informed consumers.

Section 106 of the act specifically provides that the gross income of an employee does not include employer-provided coverage under an accident or health plan. This appears to be one of the major pieces of mis-information that has been circulating, largely through emails. The amount reported does not affect tax liability, as the value of the employer contribution to health coverage continues to be excludible from an employee's income and it is not taxable.

For details on current rules, see Publication 969 , Health Savings Accounts and Other Tax-Favored Health Plans. Updates on this and other health care reform provisions can be found on the Affordable Care Act page on IRS.gov. An interesting brochure which clarifies some of these items can be found here.

Many other changes can dramatically affect family health coverage.  For example, Health coverage for an employee's children under 27 years of age is now generally tax-free to the employee.

For more information or assistance, please contact your local PRO-TAX office by calling 1-800-809-2829.

But whether you are honoring Juno or just taking advantage of nice weather, if you are getting married anytime soon, you need to know how it could affect your tax bill (for better or worse).

The Marriage Penalty

Depending on you and your new spouse’s circumstances you could be subject to the marriage penalty. The marriage penalty has nothing to do with irritating in-laws and is not an actual penalty per se. It’s more of a quirk in our tax system where some married couples pay MORE taxes by filing a joint return with their spouse than when they were single.

Although the “penalty” of marriage seems to get all the attention, you could receive a “tax bonus” for being married and filing a joint return. Whether you benefit or are penalized for marriage depends on both your income levels and filing status.

If you and your spouse both earn higher than average incomes ($80,000+) you could pay a higher total tax bill for filing jointly. Your joint incomes could bump you into a higher marginal tax bracket than when you filed single. On the other hand, you could receive a marriage bonus if you have disparate incomes.

Tax laws in recent years have eliminated the marriage penalty for most tax payers in lower brackets. The legislation that eliminated the marriage penalty for lower brackets is in effect only through the year 2010 and must be approved by Congress to continue.

Choosing Your Filing Status

Your status on the last day of the year determines your tax filing status for the entire year (even if you get married on New Year’s Eve.) You and your spouse have the option to choose whether to file joint or separate returns. When you file at PRO-TAX, we automatically calculate your return both ways to see which filing status benefits you the most. 

Here are the differences to consider when filing jointly or separately:

Filing a joint return:

• You report your combined income and deduct your combined allowable expenses.
• Your tax may be lower than your combined tax for the other filing statuses.
• You may qualify for tax benefits that would not apply if you filed separately.

Filing separate returns:

• You generally report only your own income, exemptions, credits and deductions on your individual return.
• You claim an exemption for your spouse if your spouse had no gross income and was not the dependent of another person.
• You generally pay more total tax on two separate returns than on a joint return because you are not allowed to claim certain credits and deductions.

The Loss of Excess Capital Losses

If it isn’t bad enough to lose money on marginal rates, another “marriage penalty” comes when a married couple has Excess Capital Losses (like from the stock market). A single tax payer is allowed to offset capital gains against any capital losses, and deduct any “excess capital loss” up to $3,000. Two single people with excess capital losses can deduct up to $3,000 each (or $6,000 total), but a married couple can only deduct $3,000.

Deductions: Standard or Itemized

To minimize your tax bill, you should use the deduction method that offers you the largest tax break. The basic idea is to itemize your deductions when they exceed the Standard Deduction.  PRO-TAX will be happy to assist you in deciding which method “keeps the most money in your pocket.”

What You Should Do Before Saying “I Do”

If you would like to know how marriage will affect your future tax bill, you should schedule an appointment with PRO-TAX to review your prior year's tax returns. We will provide you a Free Tax Analysis of your situation and will also review your return for any errors or mistakes. To schedule your Free Tax Analysis, call PRO-TAX today at 1-800-809-2829.

Gross Income: Certain disability income payments should be excluded from your gross income and are not taxable.  For example, Veterans Administration disability benefits and Supplemental Security Income (SSI) may be excluded from your gross income. IRS Pub 525 is a good source of information, together with IRS Pub 907.  

Disability Income: For example, benefits from an employer’s disability plan are considered earned income until you attain minimum retirement age, much the same as “sick pay” is taxable. However, disability income payments received from an insurance policy that you have paid for yourself are not reportable income for tax purposes. 

Long-Term Care Insurance Contracts are generally treated the same as other health insurance contracts for taxation purposes.  That is, benefits you receive from a plan that you have paid for yourself would not need to be reported as income.  However, if an employer paid the premiums, benefits may be reportable as income. (The employer will provide you with a statement of your taxable income.) 

Workers Compensation payments are generally not taxable if they are paid as a result of work-related injury or sickness. 

Government Disability Benefits for the most part are exempt from income taxes. If the only income you received was your social security (or equivalent railroad retirement) benefits, generally those benefits are not taxable.  However, if you also received other income during the year, part of your benefits may be subject to tax if half of these benefits plus all of the other income are more than:

• $32,000 if you are married filing jointly
• $25,000 if you are single, head of household or married filing separately and lived apart from your spouse
• $0 if you are married filing separately but lived with your spouse any time during the year 

Other Payments:   Benefit payments from a public welfare fund such as payments due to blindness are not taxable. Similarly, compensatory damages for physical injury or sickness, and disability benefits under an auto policy for loss of income or loss of earning capacity as a result of injuries are not taxable income. Compensation for permanent loss or loss of use of part or function of your body or permanent disfigurement is not taxed. 

Standard Deduction: Taxpayers who are legally blind receive an increased standard deduction in case they do not have itemized deductions. Generally, you add $1,100 to the regular standard deduction for anyone who is blind – or $1,400 if you are single or file as head of household. This directly reduces your “adjusted gross income.” 

Earned Income Tax Credit (EITC):  This is a tax credit for certain people who work and have low earned income. Many working individuals with a disability that have no qualifying children, who are at least 25 years of age but under 65 years of age, qualify for EITC. The EITC reduces the amount of tax you owe and may also give you a refund.  You may qualify for this credit if you have a qualifying child who is permanently and totally disabled, regardless of age, as long as you meet the other requirements.   

Credit for the Elederly or Disabled:  You may be able to claim this credit if you are 65 or older, or if under 65 you are retired on permanent and total disability.  The credit can actually reduce your taxable income. See IRS Pub 524  for details. 

There are a number of other possible credits that you may be eligible for. The Internal Revenue service has produced a two-page flyer that lists a series of informational publications dealing with living and working with disabilities.  Find it at IRS Pub 3966. Or, if you would like the assistance of a professional who has years of experience in this area, contact your local PRO-TAX office. 

The “donut hole” is a coverage gap that most Medicare Part D plans have – during that period the beneficiary has to pay all costs for prescriptions.  The new law, signed by President Obama, authorizes Medicare to send beneficiaries a one-time $250 rebate check after they reach the coverage gap in 2010. 

The Explanation of Benefits notice, which your drug plan mails to you each month when you fill a prescription, will tell you how much you’ve spent on covered drugs and whether you’ve entered the coverage gap. 

It is important to note that this payment will be automatic --   there are no forms to fill out and Medicare will automatically send the $250 check, made payable to the beneficiary. You can expect to receive the check within 45 days after you reach the gap. (Individuals receiving Medicare Extra Help will not receive a rebate check.)

If you don’t get your rebate check, contact Medicare -- 1-800-MEDICARE, or http://www.medicare.gov. 

You don’t need to provide any personal information like your Medicare, Social Security, or bank account numbers to get the rebate check. Don’t give your personal information to anyone who calls you about the $250 rebate check. There continue to be many instances of fraud especially relating to Medicare Beneficiaries.  If you detect suspected fraud, contact Medicare at 1-800-MEDICARE or go to this website

http://www.stopmedicarefraud.gov/

Although no one can conclusively determine if this new legislation will “fix” our healthcare system. We do know it will affect virtually every American in some way; and could significantly impact YOUR income taxes in the future.  

Penalty For Not Being Insured –Beginning in 2014, some taxpayers will be assessed a tax penalty for failing to maintain minimum essential coverage. This penalty will be phased-in from 2014 to 2016 and will be the greater of:

A. 2.5% of household income over the threshold required for income tax filing, or
B. $695 (indexed for inflation after 2016) per uninsured adult in the household ($348 if under age 18).

Maximum Penalty – The total household penalty cannot exceed 300% of the per-adult penalty ($2,085) or national annual premium for the “bronze level” health plan offered through the Insurance Exchange that year based on the household size.  Penalties are prorated based upon the months that the required insurance is not in force.

Taxpayers Exempt from the Penalty – Individuals are exempt from the penalty if either their employer’s sponsored coverage or the lowest cost “bronze” coverage exceeds 8% of household income.  Also exempt are individuals residing outside of the U.S., those exempted for religious purposes, and those whose income is below the required threshold for having to file a return.

Low-Income Health Exchange Participation Credits -Beginning in 2014, tax credits will be available for low-income individuals and families with incomes up to 400% of the federal poverty level that are  available for Medicaid, employer-sponsored insurance, or other acceptable coverage.  Based upon the current poverty levels, the credit would phase-out at $42,420 for individuals and at $88,200 for a family of four.  In addition, a cost-sharing subsidy will be provided for low-income individuals to help pay for their coverage.

Free Choice Vouchers -Beginning in 2014, employers who offer minimum essential coverage through an eligible employer-sponsored plan and pay a portion of that coverage will be required to offer an equivalent value voucher, allowing a qualified employee the option of purchasing coverage through the Insurance Exchange.  An employee qualified to make this choice is an individual with a required contribution to the employer plan that exceeds 8%, but does not exceed 9.5% of the household income and has income that does not exceed 400% of the poverty line for the family.

Dependent Coverage – Effective March 23, 2010, any dependent children who have not attained age 27 as of the end of the tax year and provided the child also is eligible to be claimed as a dependent under their parents return for tax purposes will be eligible for coverage under their parents employer-provided health or accident plan.

Additional Taxes For Those Earning Over $200,000 – Beginning in 2013, higher-income taxpayers will be subject to the following additional taxes:

Additional Hospital Insurance Tax - The Hospital Insurance (HI) tax rate (currently at 1.45%) will increase by 0.9 percentage points on an individual taxpayer earning over $200,000 ($250,000 for married filing jointly).

Surtax on Unearned Income – A 3.8% surtax, called the Unearned Income Medicare Contribution, would be placed on the net investment income of a taxpayer earning over $200,000 ($250,000 for a joint return).  Net investment income includes interest, dividends, royalties, rents, gross income from a trade or business involving passive activities, and net gain from the sale of property (other than property held in a trade or business).  “Net” investment income is investment income reduced by allowable investment expenses. Earned income, distributions from qualified retirement plans and IRAs will not be subject to the surtax.

Employer Flexible Health Spending Plan Contributions Limited – Beginning in 2013, the maximum contribution to an employer’s health flexible spending accounts (FSAs) will be limited to $2,500 per year. This amount will be indexed for inflation after 2013.

Over-the-Counter Medication Restriction for Employer-Provided Plans – Beginning in 2011, over-the-counter medications, except for doctor prescribed over-the-counter medication and insulin will no longer qualify for reimbursement.  This restriction applies to health reimbursement accounts, health flexible savings accounts, health savings accounts, and Archer medical savings accounts.

Increased Tax on Non-qualifying HSA or Archer MSA Distributions – Beginning in 2011, the additional tax for Health Savings Account withdrawals other than for qualified medical expenses before age 65 are increased from 10% to 20%, and the additional tax for Archer Medical Savings Account withdrawals  other than for qualified medical expenses is increased from 15% to 20%.

Medical Itemized Deductions Limited – Beginning in 2013, the threshold for claiming medical expenses on a taxpayer’s Schedule A is increased from 7.5% to 10% of Adjusted Gross Income, which is the same as the current alternative minimum tax (AMT) rate.  Individuals (and their spouses) age 65 and older will still be able to use the 7.5% of AGI rate through 2016.

Adoption Credit Limit Raised, Made Refundable and Extended – One of the non-health care related items included in the new law is an increase in the the adoption credit up to $13,170 (adjusted for inflation after 2010) and an extension of the credit through 2011. The credit also is changed from being nonrefundable to a refundable credit.

The above provisions can be found with more information about the Healthcare Reform Bill at www.healthreform.gov.

Many of the tax-related provisions of the Healthcare Reform Bill will not take effect for several years, but you can takes steps NOW to reduce your tax liability to the legal minimum. 

Here are five important facts you should know about your unemployment benefits:

• Unemployment compensation typically includes state unemployment insurance benefits, railroad unemployment compensation benefits and benefits paid by a state or the District of Columbia from the Federal Unemployment Trust fund.  It does not include workers compensation.  
• Under the Recovery Act the first $2,400 of unemployment benefits are excluded from taxable income.
• If you filed Married Filing Jointly each taxpayer on the return is eligible for the exclusion.   Single = $2,400 and Married Filing Jointly = $4,800
• Box 1 of the 1099G shows total unemployment compensation paid in 2009
• Subtract $2,400 from Box 1 to figure the taxable unemployment compensation amount reportable on your tax return

The Virginia August Sales Tax Holiday takes place on August 6-8, 2010. 

What's Exempt?:

During this three-day period, purchases of qualifying school supplies selling for $20 or less per item, and purchases of qualifying clothing and footwear selling for $100 or less per article will be exempt from sales tax. Retailers may also choose to absorb the tax on other items during the holiday period, but they are responsible for paying the tax on those items to the Department of Taxation. 

What items are included under school supplies?: 

Virginia defines school supplies as items that are commonly used by a student in a course of study. The list of items that are included in the exemption includes virtually all “school supplies." However, computers and peripherals do not qualify for the exemption. 

For the school supplies exemption, must the item be intended for use in school or in connection with a school activity to receive the exemption?: 

No. The item need not be intended for use in school, nor must the item actually be used in school activities to qualify for the school exemption. So long as the item is one of the exempt items and does not exceed the threshold cost, and is purchased during the sales tax holiday period for clothing and school supplies, the purchase will not be subject to sales tax and use tax. 

What items are included under clothing?:

Clothing means any article of wearing apparel and typical footwear intended to be worn on or about the human body. Clothing does not include sporting equipment or footwear designed primarily for athletic activity or protective use and not usually considered appropriate for everyday wear. Clothing accessories are not exempt, as are most sports items. 

Will sneakers and running shoes qualify for the sales tax holiday exemption, or are they considered sports equipment?:

Both sneakers and running shoes will qualify for the sales tax holiday, provided they fall within the $100 threshold. 

For more information and lists of specific items and articles, visit the official Virginia site.  If you are not from Virginia, you can find information about sales tax holidays for other states here.  

The long-term impact of these changes (along with how the Government will pay for these enhancements) is yet to be seen. But there is no doubt that every American will be affected in some way by these new laws. Some of the provisions of the bill won’t begin for several years, but Americans can expect a significant number of changes within the next year. 

Here are the key provisions that take effect between now and January 1, 2011. 

• SMALL BUSINESS TAX CREDITS—Offers tax credits to small businesses to make employee coverage more affordable.  Tax credits of up to 35 percent of premiums will be available to firms that choose to offer coverage.  Effective beginning calendar year 2010.  (Beginning in 2014, the small business tax credits will cover 50 percent of premiums.)
• NO DISCRIMINATION AGAINST CHILDREN WITH PRE‐EXISTING CONDITIONS—Prohibits new health plans in all markets plus grandfathered group health plans from denying coverage to children with pre‐existing conditions.  Effective 6 months after enactment (3/23/10).  (Beginning in 2014, this prohibition would apply to all persons.)
• HELP FOR UNINSURED AMERICANS WITH PRE-EXISTING CONDITIONS UNTIL EXCHANGE IS AVAILABLE (INTERIM HIGH‐RISK POOL)—Provides access to affordable insurance for Americans who are uninsured because of a pre‐existing condition through a temporary subsidized high‐risk pool.  Effective in 2010.
• ENDS RESCISSIONS—Bans insurance companies from dropping people from coverage when they get sick.  Effective 6 months after enactment (3/23/10).
• BEGINS TO CLOSE THE MEDICARE PART “D” DONUT HOLE—Provides a $250 rebate to Medicare beneficiaries who hit the donut hole in 2010.  Effective for calendar year 2010.  (Beginning in 2011, institutes a 50% discount on prescription drugs in the donut hole; also completely closes the donut hole by 2020.)
• FREE PREVENTIVE CARE UNDER MEDICARE—Eliminates co‐payments for preventive services and exempts preventive services from deductibles under the Medicare program.  Effective beginning January 1, 2011.
• EXTENDS COVERAGE FOR YOUNG PEOPLE UP TO 26TH BIRTHDAY THROUGH PARENTS’ INSURANCE—Requires new health plans and certain grandfathered plans to allow young people up to their 26th birthday to remain on their parents’ insurance policy, at the parents’ choice.  Effective 6 months after enactment(3/23/10).
• HELP FOR EARLY RETIREES—Creates a temporary re‐insurance program (until the Exchanges are available) to help offset the costs of expensive premiums for employers and retirees for health benefits for retirees age 55‐64.  Effective in 2010.
• BANS LIFETIME LIMITS ON COVERAGE—Prohibits health insurance companies from placing lifetime caps on coverage.  Effective 6 months after enactment(3/23/10).
• BANS RESTRICTIVE ANNUAL LIMITS ON COVERAGE—Tightly restricts the use of annual limits to ensure access to needed care in all new plans and grandfathered group health plans.  These tight restrictions will be defined by HHS.  Effective 6 months after enactment(3/23/10).  (Beginning in 2014, the use of any annual limits would be prohibited for all new plans and grandfathered group health plans.)
• FREE PREVENTIVE CARE UNDER NEW PRIVATE PLANS—Requires new private plans to cover preventive services with no co‐payments and with preventive services being exempt from deductibles.  Effective 6 months after enactment(3/23/10).
• NEW, INDEPENDENT APPEALS PROCESS—Ensures consumers in new plans have access to an effective internal and external appeals process to appeal decisions by their health insurance plan.  Effective 6 months after enactment(3/23/10).
• ENSURES VALUE FOR PREMIUM PAYMENTS—Requires plans in the individual and small group market to spend 80 percent of premium dollars on medical services, and plans in the large group market to spend 85 percent.  Insurers that do not meet these thresholds must provide rebates to policyholders.  Effective on January 1, 2011.
• COMMUNITY HEALTH CENTERS—Increases funding for Community Health Centers to allow for nearly a doubling of the number of patients seen by the centers over the next 5 years.  Effective beginning in fiscal year 2011.
• INCREASES THE NUMBER OF PRIMARY CARE PRACTITIONERS—Provides new investments to increase the number of primary care practitioners, including doctors, nurses, nurse practitioners, and physician assistants.  Effective beginning in fiscal year 2011.
• PROHIBITS DISCRIMINATION BASED ON SALARY—Prohibits new group health plans from establishing any eligibility rules for health care coverage that have the effect of discriminating in favor of higher wage employees.  Effective 6 months after enactment(3/23/10).
• HEALTH INSURANCE CONSUMER INFORMATION—Provides aid to states in establishing offices of health insurance consumer assistance in order to help individuals with the filing of complaints and appeals.  Effective beginning in fiscal year 2010.
• HOLDS INSURANCE COMPANIES ACCOUNTABLE FOR UNREASONABLE RATE HIKES—Creates a grant program to support States in requiring health insurance companies to submit justification for all requested premium increases, and insurance companies with excessive or unjustified premium exchanges may not be able to participate in the new Health Insurance Exchanges.  Starting in plan year 2011. 

The above provisions can be found with more information about the Healthcare Reform Bill at www.healthreform.gov.

In our next article, we will deal with the tax implications of this bill.  

Although many of the tax-related provisions of the Healthcare Reform Bill will not go into effect for several years, you can takes steps NOW to reduce your tax liability to the legal minimum.

Here are five facts to know about a tax credit available for child care expenses. The Child and Dependent Care Credit is available for expenses incurred during the summertime (and throughout the rest of the year).

1. The cost of day camp may count as an expense towards the child and dependent care credit.
2. But, expenses for overnight camps do not qualify.
3. If your childcare provider is a sitter at your home or a daycare facility outside the home, you'll get some tax benefit if you qualify for the credit.
4. The actual credit can be up to 35 percent of your qualifying expenses, depending upon your earned income.
5. You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit. 

Keep in mind that amounts a child earns in a summer job are his or her gross income. This is true even if under local law the child's parents have the right to the earnings and may actually have received them. If the child does not pay the tax due on this income, the parent is liable for the tax. 

Also, remember that there are six tests that must be met for a child to be your Qualifying Child

The six tests deal with:

1. Relationship,
2. Age,
3. Residency,
4. Support,
5. Joint return, and
6. Special test for qualifying child of more than one person. 

The qualifying child tests are explained in detail in IRS Publication 501, Exemption, Standard Deduction and Filing Information.

For more information contact your local PRO-TAX office or check out IRS Publication 503, Child and Dependent Care Expenses. 

The first of these credits really targets the type of conventional improvements that you might be making: storm windows, exterior doors, new insulation, a new furnace, or a new water heater.  If you make improvements of that type to your home, you can claim a credit of 30% of the qualifying expenditures. 

The credit limit is $1, 500, or 30% of the amount you spend. That means if you spend at least $5,000 in qualifying expenditures, you would get the maximum $1,500 credit.  Now, this is a $1,500 maximum over a two-year period.  So if you spent all of that in 2009, you can't do it again in 2010. In order for an item to qualify, it has to be even more energy-efficient than it was under the old law.  This means that, in order to get the credit, you have to place the item into service after February 17, 2009. 

The second credit really targets alternative-energy investments, such as solar, wind and geothermal heat pumps.  If you buy qualifying equipment and install it in your home, there's a 30% credit.  But there's no limit on the amount that you can spend for qualifying solar electric, solar water heating, small wind energy and geothermal property costs.   So as long as it is for qualifying expenditures, you get the credit.

These credits are only available for energy-efficient improvements that you make, and that means they have to meet certain energy-efficiency standards.  The best way to confirm that is to check the tax-credit certification on the manufacturer's Website, perhaps the retailer or distributor's Website, or look at that tax-credit certification on the packaging of the product.  The IRS cautions that the manufacturer’s certification is different from the Department of Energy’s Energy Star label, and not all Energy Star labeled products qualify for the tax credits.

You can claim the credits for the tax year when you actually made the purchase or improvement.  That is, if the work was done and paid for in 2009, the credit should be  claimed on your 2009 Tax Return.  If you're going to make improvements that qualify sometime during this calendar year, make a note of it, keep good records, and claim it on your 2010 return.  

Eligible homeowners can claim both of these credits when they file their federal income tax return. Because these are credits, not deductions, they increase a taxpayer’s refund or reduce the tax he or she owes. An eligible taxpayer can claim these credits, regardless of whether he or she itemizes deductions on Schedule A. For more information, click here  for the form and instructions or contact your local PRO-TAX office for assistance. 

You still need to have signed a contract before May 1, 2010. 

Reminders about the Credit:

• To be considered a first-time homebuyer, you and/or your spouse must not have owned another principal residence during the three years prior to the date of purchase.
• To be considered a long-time resident homebuyer, your settlement date must be after November 6, 2009 and you and your spouse – if you are married – must have lived in the same principal residence for any consecutive five-year period during the eight-year period that ended on the date the new home is purchased.
• The maximum credits remain: for a first-time homebuyer is $8,000 and for a long-time resident homebuyer is $6,500.
• To claim the credit you must file a paper return and attach IRS Form 5405 along with all required documentation. 

You are not able to claim the credit if:

• The purchase price is greater than $800,000
• You can be claimed as a dependent on someone else’s return
• You and your spouse are under 18 as of the purchase date
• You acquired the house from a relative  

With the new law you might be eligible to file an amended 2009 Tax Return to qualify for the credit! For more information contact your local PRO-TAX office or visit IRS.gov/recovery.  

If Social Security is your only source of income, then you should have no tax due. However, if you have other forms of income (such as a pension, dividends and interest), some of your Social Security income may be taxable. A tax preparer can work the calculations for you to see how much would be taxable. But even if you have no tax due, you should still file – you may be entitled to additional credits.

Don’t forget that you must start taking distributions from your Traditional IRA by April 1st of the year following the tax year during which you reach age 70 ½. If you don’t, you may have to pay a 50% excise tax on the required distribution. Be careful with Roth IRAs. It may not be in your best interest to convert from a traditional to a Roth IRA as this conversion requires all taxes be paid in the year of the change. The Roth IRA will accumulate earnings tax free, but often for seniors these earnings don’t exceed the taxes paid.

Medical expenses add up quickly. Keep track of all medical expenses paid during the year. Have a folder or envelop to keep all of your medical-related receipts. Bring them with you for your tax preparer. Most pharmacies will provide you with a list of all prescriptions purchased during the year, and often doctors’ offices will provide you with an end-of-year statement if you are unable to find your receipts. Don’t forget to keep receipts for medical devices (canes, eyeglasses, etc) and dental visits too.

If you do not itemize your deductions, you can get a higher standard deduction amount if you and/or your spouse are 65 years old or older. You can get an even higher standard deduction amount if either you or your spouse is blind.

You may also be eligible to receive the Credit for the Elderly or Disabled. The Credit is based on your age, filing status and income. You may be able to take the Credit if you and/or your spouse are either 65 years or older; or under age 65 years old and are permanently and totally disabled, dependent upon your income and filing status.

You may be able to exclude from tax any gain up to $250,000 ($500,000 on a joint return in most cases) on the sale of your main home. Make sure you keep any receipts for upgrades to your home, including any improvements made for disabilities (grab bars, chair lifts, etc). They may be used to offset the gain.

Long-term care insurance contracts generally are treated as accident and health insurance contracts. Amounts you receive from them (other than policyholder dividends or premium refunds) generally are excludable from income as amounts received for personal injury or sickness. However, the amount you can exclude may be determined by your income level.

Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract. If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Generally you receive an amount that is equal to or less than the amount you paid in.

A reverse mortgage is a loan where the lender pays you (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home. Depending on the plan, your reverse mortgage becomes due with interest when you move, sell your home, reach the end of a pre-selected loan period, or die. Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. Any interest (including original interest discount) accrued on a reverse mortgage is not deductible until you actually pay it, which is usually when you pay off the loan in full.

A tax account transcript shows any later adjustments either you or the IRS made after the tax return was filed.  This transcript shows basic data, including marital status, type of return filed, adjusted gross income and taxable income.  

Once you have a SSN for your child, you will be able to claim them as a dependent on your tax return (assuming you meet all the other eligibility requirements). You may also qualify for additional credits:

• Child Tax Credit - This gives you a credit of up to $1,000 per child, depending on your Adjusted Gross Income (AGI).
• Child and Dependent Care - Again, depending on your AGI, you may be eligible to deduct child care expenses.
• Earned Income Credit - Having a child can qualify you for a larger credit. 
• Adoption Credit - If you adopted the child, you may be able to deduct certain expenses (such as legal fees and travel).
• Medical Expenses. If you had out-of pocket expenses related to the birth of the child, you may be able to use these to get a higher itemized deduction.

Visit your local PRO-TAX office to meet with a trained tax preparer. They can help you determine if you will be eligible for any of these credits, and can give you the guidelines on what paperwork needs to be filed.

Note:  Payments by the Railroad Retirement Board to retirees are treated substantially the same for IRS purposes as regular social security income.  

More often than not, Social Security Income Benefits will not surpass the threshold that requires taxes be withheld. However, it will depend on both your filing status and your total income to ascertain for sure, what if anything is taxable. How much - if any- of your Social Security benefits are taxable depends on your total income and marital status.  

Generally, if Social Security benefits were your only income they are not taxable and you probably do not need to file a federal income tax return.  

1. Add one-half of the total Social Security you receive to all your other income, including any tax exempt interest and other exclusions from income.
2. Compare the total to the thresholds for your filing status, as listed below. If the total is more than your threshold, some of your benefits may be taxable. 

• If you are married and filing a joint return, you may have to pay taxes on 50% of your benefits, if your combined income is between $32,000 and $44,000.
  
  If your combined income is more than $44,000, up to 85% your Social Security benefits are subject to income tax.
• If you file a federal tax return as an "individual" and your combined income is between $25,000 and $34,000, you may have to pay income tax on 50% of your Social Security benefits.
• If your combined income is above $34,000, up to 85% your Social Security benefits are subject to income tax.
• If you are married and file separate tax returns, you will likely need to pay taxes on a portion of your benefits regardless of how much you and your spouse earned. 

If in doubt about how much you may owe or if you even need to file an income tax return, consult your tax professional or for more details about Social Security Benefits and their tax implications see IRS Publication 915.

Forecasters expect an above-average hurricane season for 2010, with 15 named storms and at least eight expected to be hurricanes and four major hurricanes (categories 3-4-5). 

The probability of a U.S. major hurricane landfall is estimated to be 130 percent of the long range average.  For specific information about the forecasts, click here:  

History teaches that a lack of hurricane awareness and preparation are common threads among all major hurricane disasters. By knowing your vulnerability and what actions you should take, you can reduce the effects of a hurricane disaster.

Hurricane Preparedness Week during 2010 will be held May 23rd through May 29th. The goal of this Hurricane Preparedness Web site is to inform the public about the hurricane hazards and provide knowledge which can be used to take ACTION. This information can be used to save lives at work, home, while on the road, or on the water. For more information, please click here.

Virginia Tax Holiday

The hurricane preparedness sales tax holiday is a recurring event, beginning each year on May 25 at 12:01 a.m. and ending at 11:59 p.m. on May 31. During the Hurricane Preparedness Sales Tax Holiday period, consumers may purchase certain items in preparation for hurricanes and other emergencies exempt of the Retail Sales and Use Tax.

The exempt items include: 1) portable generators used to provide light or communications or preserve food in the event of a power outage; and 2) certain other hurricane preparedness equipment.  Included are batteries, self-powered light sources like flashlights or lanterns, radios such as weather radios to track NOAA forecasts, tarpaulins, first aid kits, etc.   For a list of items qualifying for the Hurricane Preparedness Sales Tax Holiday, please click here.

The sales tax exemption applies to only those portable generators with a selling price of $1,000 or less per item, and each article of other hurricane preparedness equipment, as set forth above, with a selling price of $60 or less. Dealers are also permitted to absorb the sales and use tax on all other items sold during the same time period, thereby relieving purchasers of the obligation to pay the tax.

Frequently asked questions are listed here.

Other Source are here.

In addition to the Hurricane Preparedness Sales Tax Holiday, there will be other VA Sales Tax Holidays this summer/fall.  They are August 6-8 for school supplies and clothing, and October 8-11 for Energy Star and Water Sense Qualified products.

Releasing personal and financial data to any entity in any form carries some element of risk. Whether you are filing by yourself online, using an old-fashioned paper form, or using a professional preparer like PRO-TAX, keeping your personal information protected is critical.

PRO-TAX is committed to protecting client information in every way possible. You may not immediately notice how the PRO-TAX office security differs from our competitors’. But we have carefully included a number of best practices to ensure client information safe.  Some of these are proprietary, but here are a couple of examples.  We make sure all files are kept secure and locked when not in use. No one is allowed in the preparation area if they are not escorted by a staff member. And for this same reason, we do not allow clients (or anyone walking off the street) to use our bathroom facilities because of the chance for identity theft.

We know criminals use many methods to steal personal information but they will need to find an easier target than PRO-TAX. We are aware that some of our office procedures may create minor inconveniences for clients, but you can rest assured that your information is secure when you file with PRO-TAX.

To help protect you from some of the more common methods criminals use to steal your information, we have listed 10 things the IRS wants you to know about identity theft so you can avoid becoming the victim of a scam artist.

1. Identity thieves get your personal information by many different means, including stealing a wallet or purse or accessing information you provide to an unsecured Internet site. They even look for personal information in your trash. They also pose as someone who needs information through a phone call or e-mail.
2. The IRS does not initiate contact with a taxpayer by e-mail.
3. If you receive an e-mail scam, forward it to the IRS at phishing@irs.gov.
4. If you receive a letter from the IRS leading you to believe your identity has been stolen, respond immediately to the name, address or phone number on the IRS notice.
5. Your identity may be stolen if a letter from the IRS indicates more than one tax return was filed for you or the letter states you received wages from an employer you don’t know.
6. If your Social Security number is stolen, it may be used by another individual to get a job. That person’s employer would report income earned to the IRS using your Social Security number, making it appear that you did not report all of your income on your tax return.
7. If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost wallet, questionable credit card activity, or credit report, you need to provide the IRS with proof of your identity. You should submit a copy of your valid government-issued identification – such as a Social Security card, driver's license, or passport – along with a copy of a police report and/or a completed Form 14039, IRS Identity Theft Affidavit.
8. Show your Social Security card to your employer when you start a job or to your financial institution for tax reporting purposes. Do not routinely carry your card or other documents that display your SSN.
9. If you have previously been in contact with the IRS and have not achieved a resolution, please contact the IRS Identity Protection Specialized Unit, toll-free at 1-800-908-4490.

For more information about identity theft – including information about how to report identity theft, phishing and related fraudulent activity – contact PRO-TAX at 1-800-809-2829 or visit the IRS Identity Theft Resource Page at www.IRS.gov. 

You can call the IRS directly for assistance if you don’t understand what they are looking for. Better yet, visit your local PRO-TAX office. We can get on the phone with you and translate the IRS requests into plain English. We will know what questions to ask and can help you send the correct information to the IRS to deal with the issue in a timely manner. Most letters can be taken care of without having to visit the IRS office. Our tax professionals can help you gather the documentation needed, and also help you fill out any additional forms to be sent to the IRS.

If after talking with the IRS, you do not agree with their decision, you still need to respond to the letter. You need to send a written explanation of why you disagree and include any backup, 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.

This deduction is in addition to the state and local sales taxes paid and state and local income tax withheld. To qualify, a taxpayer must have purchased the new vehicle between February 17 and December 31, 2009. The vehicle must be either (1) a passenger vehicle, light truck, or motorcycle with a gross weight of no more than 8,500 pounds, or (2) a motor home. Deductible taxes can’t exceed the portion attributable to the first $49,500 of the price paid for any single vehicle. Phase-outs start for individuals with AGI greater than $125,000 ($250,000 for MFJ).

Purchases made in states without a sales tax — such as Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon — may also qualify for the deduction. Taxpayers in these states may be entitled to deduct other qualifying fees or taxes imposed by the state or local government.

For taxpayers taking the standard deduction, this credit should be claimed on Schedule L, Standard Deduction for Certain Filers. For itemizers, use Schedule A, Itemized Deductions, Line 7.

For tax year 2009, taxpayers may be able to claim up to $5,657 in EITC credit. However, one in four taxpayers eligible for the credit fail to claim it. Taxpayers who have earned income but are not required to file miss out on this credit.

Things you need to know…

• Your filing status cannot be Married Filing Separate (MFS).
• You (and your spouse and children) must have a valid Social Security Number (SSN).
• You (or your spouse) must have earned income from a job or self-employment.
• You don’t have to have kids to qualify. However, the income limit is much lower for taxpayers without children and age limits apply.
• If you are a member of the military, you can claim your nontaxable combat pay as earned income.
• You must be a U.S. citizen or resident alien all year, or a nonresident alien married to a U.S. citizen or resident alien and filing a joint return.
• You cannot be a qualifying child of another person.
• You cannot file Form 2555 or 2555-EZ (Foreign Income).
• You cannot have investment income more than $3,100 during the tax year.

EIC has separate residency rules:  the taxpayer must be a citizen or resident of the United States for the ENTIRE year.  Qualifying child must have lived with the taxpayer IN THE US for at least half of the year (except for illness, school attendance, business, vacation, military service and detention in a juvenile facility).

As with any credit, taxpayers are encouraged to seek out experienced tax preparers to guide them through their returns. Preparers have been trained on the IRS rules, and can answer your questions to ensure an accurate tax return. Preparers can easily calculate the amount of EITC that you are eligible for.

• Only cash contributions made to these charities after January 11, 2010, and before March 1, 2010, are eligible.  A cash contribution is considered to be a text message, cash, check, credit card or debit card charge.  
• The contributions must be made specifically for the relief of vicitims in areas affected by the January 12 earthquake in Haiti.  
• You may deduct these contributions on either your 2009 or 2010 returns, but not both.
• You must itemize your deductions on Schedule A.
• You must keep a record of any deductible donations you make.  Telephone records, receipts from the charity, cancelled checks and credit card statements will qualify as records.  

Make sure your contribution goes to a qualified charity.  Contributions to foreign organizations generally are not deductible.  Most organizations eligible to receive tax-deductible donations are listed in a searchable, online database available under "Search for Charities".  Some organizations, such as churches or governments, may be qualified even though they're not listed on IRS.gov.  

Here’s something interesting… Almost every state that is close to Virginia has to file by April 15 as well.  EXCEPT Virginia and Delaware!  Virginia and Delaware have filing due dates of May 1 and April 30, respectively.  But, Alabama, Kentucky, Maryland, North Carolina, Pennsylvania, Tennessee and West Virginia all have filing due dates of April 15.

You’d be surprised at how many people e-file their Federal return and decide they’ll wait to file their State – especially in Virginia where the due-date is later than the Federal.  You’d also be surprised how many people FORGET to file their state return in time because of this.  If you are waiting to file because you owe state taxes, well, filing early doesn’t mean you have to pay early.  You can simply hold your payment until the due date!  And if you forget to file, then you’ll owe not only the tax, but also interest and penalties.

Best practice?  File your state with your federal return.  See below to find your state’s Department of Revenue due-date.

Where’s My Refund? or Donde esta mi reembolso? Are interactive tools available on the IRS.gov website, that gives you online access to your refund information 24 hours a day, 7 days a week.

• Your Social Security Number or Individual Taxpayer Identification Number.
• You must know which filing status you used (eg. Single, Married Filing Jointly, etc.)
• You must know the exact amount of your refund.

• An acknowledgement that your return was in fact received for processing.
• A proposed mailing date or direct deposit date to your bank account.
• A special notice that your refund is delayed for some reason or reduced due to a debt.
• A proposed date that your refund check is to be mailed.

If for some reason you do not receive your refund within 28 days, the website can help you trace your refund online and to resolve other issues that might be causing a delay. Keep in mind, one frequent cause of delays is a Federal debt, of some kind. The Financial Management Services (FMS) may have become involved in a collection on your account.

If you prefer to access your refund status via the telephone, or don’t have access to the internet, you can call the IRS TeleTax System at 1-800-829-4477 or the IRS Refund Hotline at 1-800-829-1954. Just as when accessing Where’s My Refund? via the internet, you will need to know your SS#, filing status and refund amount, to obtain information, so it is a good idea to have a copy of your tax return handy.

As with any change to the American income tax system, there are some problems with the “Making Work Pay” that could affect you now or when you file your 2009 taxes.  

One problem is that some people may find the changes built into the withholding tables result in less tax being withheld than they prefer, resulting in a lower refund.   

If you're NOT eligible for the “Making Work Pay” tax credit, withholding changes could mean a smaller refund when you file. Some tax payers, including those who usually receive very small refunds, could in some situations owe a small amount rather than receiving a refund.

Those who should pay particular attention to their withholding include:

• Pensioners/Retirees with no earned income
• Married couples with two incomes
• Individuals with multiple jobs
• Dependents
• Some Social Security recipients who work
• Workers without valid Social Security numbers

How Much Should You Receive?

The “Making Work Pay” tax credit provides a maximum of $400 for working individuals and $800 for working married couples, and is reduced by the amount of any Economic Recovery Payment ($250 per eligible recipient of Social Security, Supplemental Security Income, Railroad Retirement or Veteran's benefits) or Special Credit for Certain Government Retirees ($250 per eligible federal or state retiree) that you receive. If you are affected by this reduction, you should review your withholding to ensure that sufficient funds have been withheld to meet your tax obligation. 

This tax credit will be calculated at a rate of 6.2 percent of earned income and will phase out for taxpayers with modified adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly.

For people who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes which occurred in early spring. These changes should have resulted in an increase in take-home pay (even if you barely noticed it). The amount of the credit will be computed on the employee's 2009 income tax return filed in 2010. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return.

If you believe your current withholding is not adequate, you can check with your employer or by calling PRO-TAX at 1-800-809-2829. Adjustments can be made by filing a revised Form W-4 or Employee's Withholding Allowance Certificate, with your employer. 

Special Situations:

Pensioners (Retirees without earned income)

Pensioners do not qualify for the “Making Work Pay” credit, unless they receive earned income. However, because the February withholding tables also apply to pensioners, the IRS has provided pension plans with an optional adjustment procedure. If desired, pensioners can adjust their withholding by filing Form W-4P, Withholding Certificate for Pension or Annuity Payments.

Self-Employed

Even if you are self-employed, you can benefit now from the “Making Work Pay” tax credit by evaluating your expected income tax liability, then making an allowance for this tax credit if you’re eligible. If you are eligible you should make the appropriate adjustment in the amount of your regularly scheduled estimated tax payments.

If you have any questions regarding the “Make Work Pay” tax credit or any other tax questions, please call PRO-TAX at 1-800-809-2829. Let PRO-TAX deal with the IRS…so you don’t have to!

We Americans LOVE our credit cards! But for many of us, this relationship has become a strained one at best.  By the end of 2008, the average credit card balance per household in America was $8,329 and the average balance per card was up 11 percent over the previous year to $1,157. 

Here are two reasons to start managing your credit debt now: If you should ever not pay a credit card balance, it stays on your credit record and can prevent you from getting a car loan, mortgage or even a department store credit card. And if you declare bankruptcy, it will be on your credit record and affect your ability to borrow for up to 10 years.

To help you stay ahead of the debt game, here are six (and a 1/2) strategies you should consider:

1. Pay more than the minimum payment each month if you ever hope to pay off your credit card debt.

You may already know this (or have experienced this), but if you only pay the “minimum payment” each month, your bill could continue to INCREASE, even if you completely stop using your card. This is called “negative amortization” where you think you are paying on your debt but the additional fees and finance charges are more than the minimum payment. The bottom line is: Pay more than your minimum or you will eventually be in debt over your head.  

2. Use a system for credit card debt reduction.

People with debt problems love to ignore them. With online banking and automatic payment options, there is no excuse these days for missing a bill or being late with a payment and being assessed a late fee. If you feel you can’t manage all your bills by pen and paper, there are several good software programs available for keeping track of your financial records. 

3. You can negotiate with your credit card company.

Contrary to what you see on TV ads, you do not need to be an attorney or other professional to negotiate with your credit card company (You will need patience and persistency though). The rising amount of consumer debt in this country has made creditors realize that if they need to be more understanding of their customers’ needs if they hope to get any money back. If you file bankruptcy they are only going to get pennies on the dollar, so they are willing to make deals.

Here are some examples:

First Option: You tell the company's collection department that you're having financial difficulties and need to have your interest rate lowered, simple as that. They say, "What can you manage?" You tell them. Don’t expect them to lower your interest rate to 0% but they could cut your rate in half or more.

Second Option: A different credit card company has offered to pay off all your old credit card debt at nine percent (or lower) if you switch. Call your companies where you have a balance and tell them the deal you've been offered; ask if they can do better, and go with whoever is lowest.

NOTE: You can also negotiate with many of your other creditors, not just credit card companies. For example, if you owe medical bills, you may want to contact the accounts payable department and ask them if they will take a reduced payment if you pay the negotiated amount immediately (assuming you have the money available). Many times businesses are happy to take the reduced payment even if you cannot pay the full amount. The key to maintaining control is staying in contact with your debtors. No matter how much you ignore your bills, they will not go away.

4. Write letters to each of your creditors acknowledging your debt and the situation, and tell each one when you can begin repayment.

Usually credit card companies get ignored and end up sending delinquent files to a collections agency. So they'll actually appreciate your openness in contacting them and may be more understanding of your situation. Proactively dealing with your debt problem rather than hiding will not only help your financial problem but make you feel better about yourself.

5. Keep track of what you are able to pay each creditor each month.

If you are not able to pay the full amount of your credit each month, you still should still pay something to stay on top of it. You should work off a written budget so you know exactly where you stand.  Some experts suggest that you divide your monthly debt budget by the percentage of each bill makes of the total and pay that amount. Here’s an example: If you owe a total of $1,000 and one credit card is $800 and the other is $200 and you only have $100 available to pay for that month. You should pay $80 on the $800 balance, and $20 on the $200 balance. This way you are reducing each debt by the same percentage.  

6. Be tough, don’t be intimidated.

No matter how forthcoming and honest you are, some creditors have been taught to be mean and downright nasty. Hang in there and don't let this tactic intimidate you. 

 6 ½. You can always move To Lincoln, Neb. (Just joking!)

If you believe surveys, where you live may have a bearing on the amount of debt you owe. According to a recent survey in Men’s Health Magazine, Lincoln, Nebraska has the lowest credit card debt in the nation. You’ll want to avoid Anchorage, Alaska because according to the same survey it has the highest debt.

No matter where you live, controlling your debt burden is vitally important to maintaining your financial health. Along with these debt-elimination strategies, you should always consider ways to reduce your tax bill. PRO-TAX will be happy to assist you in reducing your taxes to the absolute minimum allowed by law. Plus we will review up to three years previous returns to see if you overpaid the IRS for some reason. Call us today at 1-800-809-2829 and press #5 to set up your free tax reduction consultation.

We're not positive…but we'd be willing to bet its GREEN!

It’s no secret that our leaders in DC want you to go green… and we don’t mean by eating warm potato salad for Labor Day!

We all know America needs to reduce its dependency on foreign energy. We also need to decrease our negative impact on the environment.

Here's the great thing…the gang on Capitol Hill is willing to put some extra cash in your pocket when you’re nice to the environment.

In the 2009 Recovery Act, there are several new and updated provisions to encourage businesses and individuals to join the “green movement” and become more energy efficient. Of course, with these incentives the government is also encouraging you to spend a little of your green cash which should stimulate the economy.

Plug-In and fill up your wallet!

There was already a tax credit for plug-in electric vehicles but the new legislation increases the amount to a maximum of $7,500. They also expanded the definition of what types of vehicles qualify to include electric motorcycles, three-wheel vehicles, “neighborhood electric vehicles” and cars that have been converted from gas to electric.

There’s No Place Like Home (or the Residential Energy Property Credit)!

Under the stimulus package, the Residential Energy Property Credit allows a tax credit for eligible property renovations and improvements made during calendar years 2009 and 2010. If you have considered making some energy-saving improvements, now would be a good time to start because the government is willing to help with some of the cost. (Oh, like I need another excuse to spend Saturday morning at the local home improvement store.)

Here are some of the modifications:

• Increase of the residential energy property tax credit to 30% (from 10%)
• Increase of the maximum cap to $1,500 aggregate amount for 2009 and 2010 installations
• Elimination of the $500 lifetime cap

The list of eligible expenses has been expanded to include insulation materials, exterior windows and doors, central air conditioners, natural gas, propane or oil water heaters and furnaces, hot water boilers, electric heat-pump water heaters, certain metal roofs and stoves, and advanced main air-circulating fans.

A related credit is the Residential Energy-Efficient Property Credit which has been modified to include removal of individual dollar caps under credit regulations for solar hot water property, geothermal heat pumps, and wind energy property. A $500 tax credit cap is placed on all qualified fuel cell property expenses.

Love That New Car Smell!

While this tax incentive is technically not a part of the “green movement”, you can receive a deduction for sales and excise taxes for purchasing a new car/truck/SUV/motorcycle/RV with a cost of up to $49,500.

So, if you’re looking to trade in your old gas-guzzler for a more fuel efficient model, you could “double dip” by taking advantage of both the sales/excise tax deduction AND save up to an additional $4,500 with the Cars Allowance Rebate System. 

Plan For These Tax Breaks and Others

The key to reducing your income taxes is to know where you currently stand and what tax breaks you may receive from the recent law changes. Planning is the key when it comes to minimizing your tax burden.  

If you have questions concerning your eligibility for these a credits and incentives, please give PRO-TAX a call at 1-800-809-2829.

1. File form SS-5 with the Social Security Administration(SSA).  This will notify the SSA that you’ve changed your name and will ensure that your name and SSN match when you file your tax return.  You can access this form on SSA’s website by clicking here, or by calling 800-772-1213.  You can also receive the form at any local SSA office.
2. If you’ve changed your address as well as your name, file form 8822 with the IRS.  This will let the IRS know that you have a new address.  You can download this form here, or order it by calling 800-TAX-FORM (800-829-3676).
3. File a Change of Address Form with the U.S. Postal Service.
4. Let your employer know that you’ve changed your name and/or address.  This will ensure receipt of your Form W-2, Wage and Tax Statement after the end of the year.
5. The IRS offers a FREE Withholding Calculator online.  To access the calculator click here.  Your income combined with your spouse’s may place you in a higher tax bracket. The Withholding Calculator will assist you in determining the correct amount of withholding needed for your new filing status and it will provide you with a new Form W-4, which you can print out and give it to your employer so they can withhold the correct amount from your pay.

What Does PRO-TAX’s Bathroom Have To Do With Identity Protection?

(Hint: It has nothing to do with “Squeezin’ The Charmin”)

How PRO-TAX Protects Your Personal Information…And You Can Too!

If you have ever been to a PRO-TAX office and asked to use our bathroom, you probably wondered why we said “no.” It has nothing to do with us being “picky” about who uses our facilities, but it has everything to do with limiting public access to any area where our client’s personal information could be compromised.

Few businesses understand the importance of protecting their client’s identity more than PRO-TAX. We deal with some of our client’s most important information every day and we know you trust us to safely file your taxes.   

I’m sure you have seen dozens if not hundreds of stories about someone having their identity stolen and how much money it cost them.

The IRS has set an ambiguous set of guideline for all tax filing business to follow in an effort to protect your personal and financial information. The problem is the IRS allows each individual tax businesses to design their own client information regulations without much, if any, oversight. This is ONE TIME we think the IRS doesn’t offer enough laws to help the American taxpayer.

At PRO-TAX we feel the direction from the IRS does little to protect you so we set up additional safeguards to reinforce your security. Unfortunately by making extra effort to protect personal information you may have a little less convenience for some of your requests. Besides only allowing limited facilities access, PRO-TAX will not fax or email any tax information without written authorization from our client. We know many clients want the convenience of calling us to fax or mail a copy of tax forms to financial institutions for a loan or mortgage. But we must be absolutely sure our client (YOU) is the one requesting this info.

Here are some other methods PRO-TAX uses to protect your personal information:

• Thorough background checks on all employees regardless of whether they are preparing taxes or answering the phone
• Remote document storage to protect against theft or damage
• Masking social security numbers in all possible areas
• Strict computer access- Only authorized employees have computer-use credentials
• No public access to preparation areas
• Secure and Professional disposal of any old client files or documents. You will never find our client information in a dumpster. We have them shredded on site.

In reality, your information is much safer than when it’s sitting in your own home. We are very proud of the fact that PRO-TAX has never had an employee breach of client information in the history of our company.

PRO-TAX goes to great lengths to protect your identity but there is more you can do to protect your information.

Awareness is an effective weapon against many forms of identity theft. Learn how information is stolen and what you can do to protect yours, monitor your personal information to uncover any problems quickly, and know what to do when you suspect your identity has been stolen.

We highly recommend you visit the Federal Trade Commission’s identity theft site to get more information and tips. 

Armed with the knowledge of how to protect yourself and take action, you can make identity thieves' jobs much more difficult. You can also help fight identity theft by educating your friends, family, and members of your community. The FTC site has a collection of easy-to-use materials to enable anyone regardless of existing knowledge about identity theft to inform others about this serious crime.

You know PRO-TAX will protect you from the IRS, but you may not realize we are just as committed to keeping identity thieves out of your pocket too. 

The CTC is not a reimbursement of funds, but rather a credit that can further reduce the amount of your taxable income. Not everyone is eligible to take this credit and you must meet both the eligibility and income criteria to qualify.

Eligibility

In order to be eligible to take this credit, you must have a qualifying child. A qualifying child must meet certain requirements:

1. They must be 17 years old or younger at the end of the tax year. year.
2. They must be your son or daughter, either naturally or through adoption or marriage, or a foster child, brother sister, stepbrother, stepsister or the progeny of any of these people. The qualifying child, must also have lived with you for the entire year as a member of the family.
3. The child must be a U.S. citizen, U.S. national or resident of the U.S.
4. You must provide more than half of the funds to support the child.
5. The child must have lived with you for more than half the year, although there are exceptions to this rule. See IRS Publication 972, p.2 for circumstances under which an exception can be made.

Limits on Income

Depending on your filing status and AGI the child tax credit may be limited, reduced or complete disallowed. The phase-outs for the CTC begin at:

·         $100,000 if Married Filing Joint

·         $55,000 if Married Filing Separately

·         $75,000 for Single, HOH and all others

In addition to the credit for a qualifying child, you may be able to take advantage of the Additional Child Tax Credit, if you owe less income tax than the amount of your Child Tax Credit. When this occurs, you may be able to generate a refund, despite the possibility that you have no tax liability.

Although, unexpected and sometimes disquieting, a letter or notice from the Internal Revenue Service, can more often than not, be dealt with quickly and efficiently.  Most letters are seeking to correct or corroborate something very specific about your account or your tax return. The letter will contain specific instructions about what you need to do, who you may need to contact and where you may need to send further details or payments. If you had previously sought out a tax professional to prepare your return, contacting them again with the details of an IRS letter or "correction notice" could be the best option. They will be able to supply you with the necessary forms, instructions, information and expertise to take care of the problem with minimal angst.

• If you agree, the correction will stand, as is, and unless a payment is required, you may not even need to reply.
• If you disagree, the correction that the IRS has made will need your full attention, in some form of a reply. You should draft a letter explaining why you disagree and provide any substantiating evidence in the way of documents and information you feel the IRS needs to be aware of. Put this together with the detachable bottom portion of the original notice, so the IRS can better track the issue. Before mailing the documents or information, be sure to make copies for your records. Send the complete information to the IRS address provided on the notice and allow a minimum of 30 days for a response.

You can be certain, that most of these notices and letters from the IRS will not require you to visit a local office or even contact them by telephone. However, if you have concerns or questions you can feel free to call them at the number provided on the letter. It would be a good idea to have a copy of your tax return handy, as well as the information provided in the notice or letter.

For more information about IRS notices and bills, see Pub. 594 What You Should Know about the IRS Collection Process.

This year’s Sales Tax Holiday in Virginia is this weekend – August 8 and 9!

Below is a list of items from the Virginia Sales Tax Holiday Information Center.  These items are included as “school supplies” and are exempt from tax during this weekend, provided their sales price is $20 or less per item.

• Binder pockets
• Binders
• Blackboard chalk
• Book bags
• Calculators
• Cellophane tape
• Clay and glazes
• Compasses
• Composition books
• Crayons
• Dictionaries and thesauruses
• Dividers
• Erasers (including dry erase marker erasers and dry erase marker cleaning solution)
• Folders: expandable, pocket, plastic, and manila
• Glue, paste, and paste sticks
• Highlighters
• Index card boxes
• Index cards
• Legal pads
• Lunch boxes
• Markers (including dry erase markers and dry erase marker kits)
• Musical instruments, musical instrument accessories, and replacement items for musical instruments
• Notebooks
• Paintbrushes for artwork
• Paints (acrylic, tempera and oil)

Happy Shopping!

If you’ve been thinking of buying that new car you’ve always wanted, this year, the IRS is offering to make that possibility a reality, by making it somewhat more affordable. A special deduction will be available on your 2009 individual tax return, next year, whether you itemize deductions or not.

No matter whether you purchase a new car, light truck, motor home or motorcycle, this deduction will be limited to the state and local sales and excise taxes paid on up to $49,500 of the original purchase price of the vehicle. According to the IRS, this deduction will enable you to buy now and get cash back later on your 2009 tax return.

Following adoption of the Fair Minimum Wage Act of 2007, many states voted to tie their own minimum wage rate to changes in the federal rate. Some states, such as West Virginia, whose minimum wage increases brought them up to $7.25 per hour as of July 2008, moved quickly to make this increase. Most recently, Kansas and Alaska increased their rates. California, Colorado, Connecticut, the District of Columbia, Illinois, Massachusetts, Michigan, Nevada, New Mexico, Ohio, Oregon, Rhode Island, Vermont and Washington will continue to have higher minimum wage rates than the federal, with Oregon, at $8.40 per hour, and Washington, at $8.55 per hour, having the highest wage rates in the nation.

Only Arkansas, Georgia, Kansas, Minnesota and Wyoming will have lower wage rates come this July 24. However, for Kansas - which historically has had the lowest minimum wage at $2.65 per hour - those businesses and organizations subject to federal law will see an increase to $7.25 an hour on July 24, and then the state minimum wage rate for all others will be set at $7.25 per hour on January 1, 2010.

For more information on minimum wage rates, check out the DOL’s website section on this topic.

Because The New Federal “Cash For Clunkers” Program
Could Actually Make Your Next Car Purchase MORE Expensive!

The Federal Government has a new program offering you up to $4,500 off the purchase (or lease) of a new vehicle if you trade in your old “clunker.”

This program is designed to achieve several goals:

1. Help you purchase a new, more fuel efficient vehicle when you trade in a less fuel efficient vehicle.
2. Reduce greenhouse gas emissions
3. Help stimulate the economy and auto industry
4. Help get less fuel efficient vehicles off the road to reduce our dependency on foreign oil
5. Increase energy sustainability

Sounds great! We agree with ALL these objectives!

So…Everyone should head down to the dealership…right?

Not necessarily. Why don’t you leave the parking brake on while we look at the issue a little closer?

President Obama recently signed into law a program the National Highway Traffic Safety Administration (NHTSA) calls the Car Allowance Rebate System (CARS). You may have also heard this law referred to as the “Cash For Clunkers” Program.

While the CARS/Clunker Act makes transactions on or after July 1 potentially eligible for up to $4,500 ($3,800 for work trucks) in credits, interested consumers may want to wait until all of the issues for implementation are resolved and the final rule is issued. This is expected to occur around July 24.

There are several points to consider before signing for your new vehicle:

• Your vehicle must be less than 25 years old on the trade-in date(work trucks must be manufactured before the 2001 model year)

• Only purchase or lease of NEW vehicles qualify (work trucks must be traded in for a category 2 or 3 vehicle that is of similar size or smaller)

• Generally, trade-in vehicles must get 18 or less MPG (some very large pick-up trucks and cargo vans have different requirements)

• Trade-in vehicles must be registered and insured in YOUR name continuously for the full year preceding the trade-in  

• You don't need a voucher; dealers will apply a credit at purchase

• Program runs through Nov 1, 2009 or when the funds are exhausted, whichever comes first

• IMPORTANT: The vehicle that you are trading in is required to be destroyed. Since the dealership cannot resell it, the value you negotiate with the dealer for your trade in is not likely to exceed its scrap value. The law requires the dealer to disclose to you an estimate of the scrap value of your trade-in vehicle. You may come out ahead by foregoing the CARS credit by doing a normal trade-in of your old vehicle. Ask the dealership to figure the transaction both ways. The “Cash For Clunkers” credit makes more financial sense when trading older cars with lower trade-in values (ideally close to the scrap value).

Although the Car Allowance Rebate System is a good idea and it will provide the best trade-in deal for many consumers, it’s not really “free money” for you to buy a car. You still need to do your homework by negotiating the best trade-in value for your “clunker” and then see if the CARS program works in your favor. Don’t assume the $4,500 will be your best option.

For more information about the CARS/”Cash For Clunker” law click here or call PRO-TAX at 1-800-809-2829.

Single                            $5,450
Married Filing Jointly            $10,900
Married Filing Separately     $5,450
Head of Household               $8,000

• Many things can influence your filing status and the decision to file using the standard deduction. You must assess what status best fits your circumstances and gives you the best outcome on your return. For example: You may be older than 65, or have a disability such as blindness, or maybe you’ve suffered a disaster loss from a federally declared disaster zone. If any of these fit your scenario, it benefit you to file using the standard deduction.
• It is imperative to figure out the amount you paid over the course of the year for such items as mortgage interest, state and local taxes, medical expenses and donations to charity. If this amount is less than the standard deduction, you should take the standard deduction. One other benefit to taking the standard deduction is that it simplifies your return and eliminates the need to keep track of all possible deductions, including and retaining necessary receipts.
• If your AGI is $79,975 and you’re filing married filing separate or $159,950 filing joint, your itemized deductions could be limited. If you and your spouse decide to file Married Filing Separately and one spouse opts to itemize deductions, the other spouse must itemize their deductions as well. One of the spouses cannot file using the standard rate, when the other does not.
• If you are a nonresident alien, dual-status alien or taxpayer filing a return for less than 12 months, you must file with an itemized schedule and cannot take the standard deduction.

In order to itemize your deductions, you will need to use Form 1040, U.S. Individual Income Tax Return, plus Schedule A, Itemized Deductions. A simple way to see if you are better off itemizing, is to use the Schedule A as a guide to list all of your allowable expenses. If this adds up to more than the standard deduction, then you would benefit from itemizing.

Remember: Although both kinds of deductions help to reduce your tax liability, always choose the one that will reduce your tax liability the most and save you money!

The new rates for business, medical and moving purposes are slightly lower than rates for the second half of 2008 that were raised by a special adjustment mid-year in response to the spike in gas prices. The rate for charitable purposes is set and is unchanged from 2008.

The business mileage rate was 50.5 cents in the first half of 2008 and 58.5 cents in the second half. The medical and moving rate was 19 cents in the first half and 27 cents in the second half.

The mileage rates for 2009 reflect generally higher transportation costs compared to a year ago, but the rates also factor in the recent reversal of rising gasoline prices. While gasoline is a significant factor in the mileage rate, other fixed and variable costs, such as depreciation, enter into the calculation.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study.

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.

The new rates are contained in Revenue Procedure 2008-72 which contains additional information on these standard mileage rates.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Mileage Rate Changes

On this day, there are always an infinite number of possible places to go, things to do, people to see, great food to eat, baseball games to watch, and fireworks to cheer over (or under, as the case may be.) Above all else, the 4^th of July is a birthday. It is a day to celebrate our nations birth, the American way of life and to give thanks for the many blessings of living in these United States; the land of the free and the home of the brave.

Although we may spend many other days of the year complaining, criticizing and badgering the government about how they are taxing us to death, shouting catchy slogans such as, ”Taxed Enough Already” and “Let’s Fight For Fair Taxes,” the fourth of July is not a day for crying about taxation. After all, there’s no crying on Independence Day!

As you proudly dress yourself, your car, and maybe even your pet in red, white and blue this holiday, remember that the green in your pocket still goes a long way. Despite the fact that Uncle Sam routinely helps himself to a sizeable chunk of your greenbacks on April 15^th each year, there are many tax-friendly deductions you can capitalize on during the year, in your quest for the American Dream.

For starters, the government allows for a whole range of deductions that help to reduce your overall taxable liability. The result is, less taxable income which equals less tax, which leaves more of your hard earned cash remaining where you want it; in your pocket!

Deductions

The following are just a few of the many deductions that can reduce your taxable earnings and get you off on the right foot:

1. The best strategy for reducing your taxable income is to itemize your deductions! Deduct your mortgage interest, points, personal property taxes, state and local taxes, gifts to charity, job-related expenses, tax preparation fees, health care, and investment-related expenses.

2. Take advantage of the $3,000 per child credit for child and dependent care.
3. Open a 529 plan or a Coverdell, and save for your child’s future education. You can deduct as much as $2,500 in interest each and every year, while they are growing.
4. Save for retirement through a 401(k) at work.
5. Open an Individual Retirement Account, (IRA).

Consult with your tax professional to get the most out of these income lowering vehicles and many other things you can deduct.

Credits

Once you’ve exercised all avenues in reducing your taxable income, you are ready to take advantage of the various tax credits. Instead of reducing your taxable income, credits reduce your tax. There are tax credits for college expenses, for saving for retirement and even for adopting children.

1. The Hope Credit is available for up to $1,800 for students in their first two years of college.
2. The Lifetime Learning Credit is for anyone taking college classes. The classes do not have to be related to your career.
3. Depending on your tax bracket, the Earned Income Credit can generate a tax refund even if you bring your taxable income down to zero.
4. The Child Tax Credit is a $1,000 per child credit designed to lessen the impact of income taxes for families raising children.
5. A First-time Homebuyer’s Credit of up to $8000 is available for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009.

All of these tax advantages and more, are available to you and with a little research and the assistance of a qualified professional, you can help yourself down the road to financial independence. By utilizing our tax system to the maximum, you will be living up to the vision that our forefather’s held when they stated, … all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.

Before you start taking deductions for your own or your child's higher education tuition and fees, there are some things you should understand:

1. In order to take a deduction for Tuition and Fees, you do not have to itemize. This deduction is not taken on a Schedule A, but rather on the Form 8917, which you will file with your Form 1040.
2. If you are a business owner or self-employed you may be able to claim the Hope or Lifetime Learning credit as a business expense.
   
3. If you are filing your return as Married Filing Separately, you will not be able to take a deduction for Tuition and Fees.
   
4. If someone else has claimed you on their return or is planning to, you will not be able to take the deduction on your own return.
   
5. Depending on your filing status, if you earn a large sum of money, you may not be able to take the deduction.
   
6. If another taxpayer has already claimed the Hope or Lifetime Learning credit on a student, no one else will be able to take the deduction. As the saying goes, "There is no double-dipping allowed."
   
7. If you take the deduction as a business expense, you cannot take the deduction as a non-business expense.
   
8. If you or your child is a recipient of a tax-free scholarship, fellowship, grant or education savings account like a Coverdell education savings account, tax-free savings bond or employer-provided education assistance, you cannot take a deduction.
   
9. When you pay with a tax-exempt distribution from a qualified tuition plan, you can deduct qualified expenses you pay with the part of the distribution that is a return on your contribution to the plan. However, you cannot take a deduction with tax-free savings bond or employer-provided education assistance.

See Publication 970, Tax Benefits for Education for more details about special rules and further instructions about how best to take advantage of these great tax breaks.

When you think of your “Most Valuable Asset” what is the first item that comes to mind?

Your Car?

Your Retirement Account?

Your Home?

Now granted all these can be precious possessions, but I doubt they are your most valuable asset.

Think about it: What gives you the ability to own these in the first place (and without it you could lose them very quickly)?

How about…your ability to WORK and earn a PAYCHECK?

What would happen if that suddenly ENDED TODAY and you had no income?

Most Americans are not prepared for a long-term disability because they think it will NEVER happen to them or they believe they are already covered. There is also the common belief that Social Security or their employer will pay them if they get hurt.

Sometimes your employer’s Worker’s Compensation and/or Social Security disability coverage WILL pay a portion of your income for a long-term disability. But what happens when you get sick or hurt off the job and DON’T qualify for Social Security?

Surveys show that the average American worker is only a month or two from bankruptcy, and it takes almost six months for Social Security to kick-in (that is, if you qualify; over 60% are turned down). As a nation, we spend like there is no tomorrow, put back little, if any, savings, and are not prepared for unexpected bumps in the road; let alone potential catastrophes like a long-term disability.

This is NOT meant to scare you, but here are the sobering facts about the risks of a long-term disability:

• In the last 10 minutes, 498 Americans became disabled.
  - National Safety Council^®, Injury Facts^® 2008 Ed.
• There is a death caused by a motor vehicle crash every 12 minutes; there is a disabling injury every 13 seconds.
  - National Safety Council^®, Injury Facts^® 2008 Ed.
• Over 85% of disabling accidents and illnesses are not work related, and therefore not covered by workers' compensation.
  - National Safety Council^®, Injury Facts^® 2008 Ed.
• 51.2 million Americans have some level of disability. They represent 18% of the population.
  - U.S. Census Bureau, July, 2006.
• The average duration of a long-term disability is 30 months.
  - JHA Disability Fact Book, 2006
• Nearly 1 in 5 Americans will become disabled for 1 year or more before the age of 65.
  - Life and Health Insurance Foundation for Education. November 2005
• Less than half - 39% - of the 2.1 million workers who applied for Social Security Disability Insurance (SSDI) benefits in 2005 were approved.
  - Social Security Administration, Office of Disability and Income Security Programs
• The average monthly SSDI benefit is only $1,004. Social Security Administration, Fact Sheet 2008

At PRO-TAX, we help thousands of families with their taxes every year, but since the effects of a long-term disability are so devastating and most Americans do NOT have disability protection (other than Social Security), we thought we should bring this important message to your attention.

We recommend that you set aside some time to determine exactly what kind and how much disability coverage you have, and through what sources. This is vital information and you DON’T want to find out you have little or no coverage AFTER you’re hurt or sick.

There are many different types of disability coverage ranging from “accident only” to top-of-the-line plans which cover you for life if you cannot perform your specific occupation. If you have any questions about the type of coverage you have please contact your employer, insurance agent, or call PRO-TAX at 1-800-809-2829 x4480. As an added benefit to PRO-TAX customers, we have a Certified Financial Planner on staff to answer your insurance questions at NO CHARGE.

To begin with, if you are frustrated with trying to keep your head above water, it is a good idea to remember why you are paying the Internal Revenue Service estimated taxes. The greatest motivator for making your payments in a timely manner is the threat that the IRS will charge you a penalty if you haven't paid 90% of what you owe for the tax year or an amount equal to 100% of your tax liability for the prior year. So, if you are self-employed, own a business or make substantial amounts of money through your investments, it is a good idea to take heed.

If you are newly self-employed, you may be wondering why you have to pay estimated taxes, to begin with? Well understand that the majority of people have little self-control and even less capability of setting aside money to pay tax debts. Given half a chance, they would spend it on other things. In addition, the government needs your money throughout the year for services, and if they didn’t receive your estimated taxes they’d be forced to borrow the necessary funds. This in turn would drive your taxes up, to cover the interest they'd have to pay. Keep in mind, we have a pay-as-you-go tax system, which if paid on schedule, will help to keep you floating and the IRS happy and out of your business as much as possible. If it helps, the best way to look at estimated tax payments is to see them as the equivalent to W-2 withholdings being deducted from your earnings every paycheck, if you had been working for someone else instead of yourself.

So how do you estimate what to pay? The best rule of thumb is to pay 100% of last year’s tax bill (110% if your gross income was over $150,000). Following these guidelines, you will not owe any penalties come April, even if it turns out that you do owe more than that amount. If you have been in business for several years and expect to earn more money this year because your business is growing, pay what your total tax was last year, broken into four equal, quarterly installments.

For example: If you paid $4,000 in taxes last year, in four quarterly payments of $1,000 as long as you send the IRS $1000 every quarter, you won't owe any penalties even if you owe $8000 in tax this year. Keep in mind, you will still need to come up with that extra 4,000 when April of next year, rolls around, so it's best not to run out and buy that wide-screen t.v. just yet. If you don't want to owe the additional $4,000 you would just increase each of the quarterly payments by $1,000 so your total estimates for the year equal $8,000. 

By the way, if you don’t expect to owe more than $1,000 in taxes for the entire year, you do not need to make estimated tax payments. 

So, finally, how do you pay your estimated taxes? If you have had your taxes prepared by a tax professional, they should be able to make accurate recommendations for your quarterly payments with the information contained in last year’s return. They will also be able to print the necessary vouchers that you should attach to your payments, in order to keep the IRS content. 

If you prefer, you can download Form 1040-ES from the IRS website. The form includes a worksheet that walks you through figuring out how much estimated tax you should be paying. You’ll need to have your prior year’s tax info handy including adjusted gross income and deductions. 

To pay your estimated taxes online and avoid the payment vouchers you can sign up for the “Electronic Federal Tax Payment System” (EFTPS), in order to pay your estimated taxes via direct debit.  Keep in mind that once you sign up, you will need to allow for 15 days, in order to receive your PIN information before you can actually make a payment. So either plan well in advance of a payment or fill out the estimated tax vouchers and mail them on or before the due dates of:

• April 15
• June 15
• September 15
• January 15 (next year)

Remember: The payments are NOT every 3 months, but are spaced unevenly. Don’t let one of them catch you by surprise! 

For more information about making estimated tax payments see IRS Publication 505 or consult with your tax professional.

No?

Well, I can tell you it’s NOT one more than “Double-Jeopardy”…nor one less that the “Four Horsemen of the Apocalypse.”

Ok, I must confess I just made the term up. But I believe it accurately describes what happens if you take an early distribution from your individual or company retirement plan because of a job change or layoff.

Let me explain…

The IRS and Congress designed retirement plans to encourage people to save for the long-haul because our Government recognizes that Social Security will not pay all the bills. Retirement plans were never designed as savings account to use whenever you feel like it, but there are special provisions to access the money early under certain circumstances. If you would like to see if you qualify for one of these special provisions, please contact your local PRO-TAX office or call 1-800-809-2829 and we will be glad to assist you.

Since the Government doesn’t want to be completely responsible for you in your Golden Years, the IRS “encourages” you to not touch your retirement money early (before age 59 ½) by penalizing you if you do.

Whammy #1

The first is a 10% PENALTY on any premature distributions (before age 59 ½) not covered by one of their exclusions.

Whammy #2

The second penalty is that you will be taxed on the full distribution in the year taken. At first this may not be seen as a penalty, BUT you earned this money over many years and relatively small deductions. Now you are taking a distribution of more than one year’s contribution but must pay the taxes as if you earned it all in one year, which could dramatically increase the amount of taxes you pay on these funds.

Here’s a simple example:

You took a tax deduction for $2,000 for money invested in your retirement account.  You earn $30,000 per year so you’re in the 15% Federal Tax bracket. Your tax savings for that contribution is $300. Not bad right?

Fast forward 10 years, your account has $30,000 (contributions plus interest) in it and your income has gone up to $40,000. Then, as your company struggles in a tough economy, you get laid off and decide you need to use the money to pay down your mortgage and keep up with your bills.

Get ready, because here’s when you get hit HARD!

You take a distribution of $30,000. (I know you needed the money and you’re being responsible for your bills.)

You receive a 10% penalty $3,000. (Which doesn’t seem too bad…right? You can tell yourself that’s just part of your interest, not YOUR contributions.)

But you end up paying taxes on the full distribution all in one year so your total income is $70,000 ($40,000 income plus $30,000 from your retirement plan) which now puts you in the 25% marginal tax rate, so you must pay Federal taxes of $7,500 plus the $3,000 early withdrawal penalty, leaving you with a net of only $19,500.

Well…$19,500 is still pretty good…right?

Not for YOU…but it’s GREAT for the Government.

Wait…we’re not done!

Whammy #3

Over the last year, the MOST PAINFUL “whammy” is the fact that most retirement accounts tied to the stock market may have lost from 25%-50% (or more!) of their value.

The BOTTOM LINE is this…Don’t take an early distribution from your retirement account unless you absolutely must!

You have many options to avoid taking an early distribution from your retirement plan, plus you also have several exclusions where the 10% penalty is waived. Contact your local PRO-TAX office or call 1-800-809-2829 if you have any questions about a retirement plan distribution or possible tax consequences.

PRO-TAX also offers a FREE Retirement Plan Tax Estimator for any retirement plan distribution or contributions. Call your local PRO-TAX office today, BEFORE you take a distribution and we’ll make sure you avoid the “Triple-Whammy.”

1.   Vehicle Expenses

If you use your vehicle for business related activities, such as picking up supplies, attending meetings, or entertaining clients, you can take advantage of the mileage deduction, but remember to keep track of your miles driven.

If you don’t take a mileage deduction you can, instead, take a deduction for the maintenance of your vehicle by subtracting such expenses as fuel, parts, labor and repairs, in addition to which you may also depreciate the vehicle itself, over a period of 5 years.

2.    Education Expenses 

Any seminars, workshops or classes that you take to improve your business or knowledge of the business, are tax deductible, as are the travel costs included in the excursions.

3.    Travel Expenses 

Tolls, airfare, hotels, parking, taxi fees, as well as cleaning costs and a portion of meals, are all allowable deductions. Make sure you retain your receipts and keep accurate records so that you can document the expenses; creating a log of sorts to track the expenses, even without all your receipts, is tremendously helpful come tax time.

4.    Communication Expenses 

Your phone lines, cellular phones, long distance charges, your internet hook-up and fax line are all deductible expenses.

5.    Advertising and Other Business Expenses 

Also part of your business expenses for maintaining and promoting your business, can be deducted. While large deductions are nice, don’t forget all the small things you need to keep your business afloat. Don’t overlook such things as coffee and beverage service, postage, paper clips and other desk supplies, gifts to clients, fees to banking services, dues to business organizations, business-related publications, tax preparation fees and even labor performed by family members or children, such as hanging posters or stuffing envelopes. All of these small things can add up in a hurry and expand the range of your business deductions.

6.    Home Office Expenses 

Don’t forget you can take a lucrative deduction for having a separate room in your home where you consistently conduct your business affairs. A percentage of your mortgage interest, homeowners insurance, property and real estate taxes, as well as repairs and maintenance, can be taken on the portion of the home placed in business use.

7.    Self-Employed Health Insurance Premiums

As a self-employed business owner, taking full advantage of group health benefits can be tremendously advantageous. The benefits provided to employees and their dependents are generally deductible, though subject to limitations. Your own health benefits under the plan are also 100% deductible.

If you are a sole proprietor, you might consider obtaining a health insurance policy in your own name rather than the name of your business. In this way your health insurance benefits will also be deductible.

Insurance for fire, accident and theft as well as liability, worker’s comp and malpractice insurance premiums are also deductible.

8.    Sales Taxes 

You can deduct all sales tax you pay on business property or new equipment, if you are incorporated. Just as the items you purchase are tax deductible, so are the taxes you pay.

9.    Retirement Plans

Contributions you make to your own IRA or 401K plan, SEP IRA, or SIMPLE IRA, as well as employee contributions are deductible on your business tax return. See the IRS Publication 560, for specific details about how to make the most out of contributions to such plans.

10. Upfront Depreciation 

You can take a Section 179 deduction to claim a deduction up to $125,000 on depreciable property, such as equipment, furniture, machinery, fixtures and even storage units.

Your small business deserves every dollar it gets, take the time to explore and claim everything you can, and should claim, on your next tax return. By determining what tax breaks you can take advantage of, you will increase your bottom-line. Your sales will have the opportunity to increase while your costs of doing business will decrease, making for the most lucrative business asset possible.

With the Government bailing-out huge conglomerates, many individual taxpayers have the attitude of… “I’m in over my head. All these poorly-run, greedy companies are getting billions and no one is bailing ME out. I think I’ll walk away from these huge bills (or at least get it reduced to pennies on the dollar.)”

Well, “hold yer’ horses partner” before you go riding off into that debt-free sunset.

It’s important to realize that there may be tax implications when you are given “Debt-Forgiveness” or “Debt-reduction.”  

Basically, debt-forgiveness or reduction is when you or someone you hire convinces the loan company that you can’t pay the full amount of your debt; so they’re willing to settle for less. They know if you are forced into bankruptcy court, they may get nothing.

Here’s an example: let’s assume the lender forgives $30,000 of your debt. This amount may include money you actually received along with penalties, fees, and interest.  

Sounds great, right?

Well, the credit company can’t just “eat” this loss. So for them to “write off” all $30,000, they need to “charge” the same amount as income to someone. (When the IRS giveth to one, they taketh from another.) 

Guess who that someone is?

That’s right…YOU!

The IRS considers forgiveness of debt as taxable income to YOU. As a result of this “write off”, by law, the company forgiving the debt MUST send you a 1099-C (or Cancellation of Debt) form showing miscellaneous income of $30,000 in the year forgiven. You then must list this as other income on Line 21 of the 1040 tax form. Now with this additional income, you may owe significantly more taxes than expected!

If this all seems like your debt wasn’t really “forgiven” but just transferred to the IRS, you’re partially correct.

There’s good news and bad news!

The good news is that the total you now owe (remaining debt plus taxes due) IS less than your previous debt, but the bad news is you may now owe one of the toughest bill collectors known to mankind…the Internal Revenue Service.

So if you have received or plan to receive some type of loan forgiveness or reduction, be aware that this form is coming, and be prepared for the additional tax burden. If you need help understanding the tax implications of loan forgiveness, please contact your local PRO-TAX office today or call us at 1-800-809-2829.

Now before you start screaming this is “not fair”; you’re right and Congress realized they need to “level the playing field” for some taxpayers. To help they created some tax exclusions where the forgiven debt will NOT be considered taxable income.

Bankruptcy

The exclusions include debts discharged during bankruptcy and debts of consumers who are insolvent (meaning their liabilities exceed their assets) prior to the cancellation of debt. However, the exclusion applies only up to the amount by which consumers are insolvent. That means if $5,000 in debts were forgiven and liabilities exceeded assets by $2,000; then the $2,000 would be excluded as income. The remaining $3,000 would be reported as “other income.”

Mortgage Forgiveness

Homeowners who default on mortgage loans may also qualify for exclusion of their foreclosures under the Mortgage Forgiveness Debt Relief Act, which took effect Dec. 20, 2007, to help homeowners caught in the mortgage crisis.

Other Exclusions

Other exclusions may include certain farm debt, student loans and real property business debts. Contact your local PRO-TAX office or call us at 1-800-809-2829, to see if you qualify for any exclusions.

Taxpayers may qualify for one of several exclusions that allow them to reduce taxable income from canceled debts. If the exclusions apply, they must file an IRS Form 982 in addition to the 1099-C. PRO-TAX will be happy to assist you with any of these forms.

Debt Forgiveness can give you a little breathing room to get your finances back in order, but don’t let an unexpected tax bill catch you off guard. Call PRO-TAX today at 1-800-809-2829 if you have any questions or would like to see how debt forgiveness may affect your tax bill.

If you are among the 50 million individuals who receive Supplemental Security Income, Railroad Retirement Benefits or Veteran’s Disability checks, you are about to see some extra cash flowing your way, thanks to President Obama’s American Recovery and Reinvestment Act.

Although, you won’t exactly be rolling in the dough, the receipt of an extra $250 per person will surely generate some glee and will be, no doubt, a little welcome relief during these tough times.  Perhaps the best thing about this year’s stimulus to retirees, is that the payments will be mailed or deposited directly into your bank account, by the Social Security Administration, themselves. As a consequence, and instead of dealing with the bureaucracy of the Department of Treasury, mingled with the regulations of the Railroad Retirement Board and the rules of the Department of Veterans Affairs, the delivery process can be expected to go more smoothly this year. Cause for celebration you say?

Can we dare to believe that the federal government is actually getting smarter, by allowing the agencies who generally pay you your benefits, to be able to deliver these funds to you as well? Say it isn’t so! Does this mean that those poor folks who only filed a tax return last year to get their share of the stimulus money, will be spared that same hassle this year? For sure, it will be nice to know that the Internal Revenue Service is spending their time, this summer, processing last year’s returns and issuing refund checks, instead of dealing with a glut of unnecessary papers and tax returns. You might say, this year’s delivery system is an unexpected, but welcome change and a definite win-win situation for all parties concerned.

The Rest of Us

And, what about the rest of us? Are you a non-retired taxpayer, looking for some relief too? Where is your stimulus payment coming from this year, you ask? Thanks to the Making Work Pay Credit, you should be seeing a few extra dollars in your paycheck and if you aren’t, it’s time to speak to your office’s payroll department. Instead of receiving a stimulus check this year in one lump sum, the American Recovery and Reinvestment Act, has enabled businesses to pay you a small portion of the funds in each paycheck, thereby spreading the stimulus out over time. After the failure of last year’s payments to generate a stimulus in our economy, the federal government hopes those few extra dollars in your pocket each month, will encourage us all to turn around and immediately reinvest it in the system.

The Self-Employed

If you are self-employed, you might be wondering how all this will affect you. You could say, you have the most control over how you receive that little bit extra this year. In other words, it will be up to you to decide, if you want to reduce your quarterly estimated tax payments or leave them alone in hopes of a potentially bigger refund next year. If you are expecting an increase in income this year, or even just have high hopes, it might be worth-your-while to leave a bit of a buffer around you, in order to avoid having to pay Uncle Sam next spring.

Regardless, of how you receive your piece of this year’s economic stimulus, be assured that the continued downturn in our economy will not last forever. In doing whatever you can to keep yourself afloat, bear in mind that our federal government is continuing to do its part to help you.

When you owe the IRS and need to send payments with or without your tax return, there are some things you should keep in mind. Since what you owe the IRS is subject to interest and a monthly late payment penalty, it is in your best interests to pay-off the full amount as quickly as possible to minimize the extra charges. Penalties will also be assessed for failure to file a tax return, so remember, even if you cannot pay your balance right away, you must file your return.

1. Never send cash.
2. You can authorize an electronic funds withdrawal through your tax provider, at the same time that you e-file your return.
3. Whether you file electronically or on paper, you can pay online or over the phone using your credit card. To pay by phone call 1-800-2PAY-TAX, or pay online at officialpayments.com. A small convenience fee, beginning at $1.00, will be charged by the service provider, not the IRS, when authorizing a payment by phone or on the internet.
4. If you itemize, you may be able to deduct the convenience fee charged for paying individual income taxes with a credit or debit card as a miscellaneous itemized deduction. The deduction is subject to the 2 percent limit on Form 1040, Schedule A, Itemized Deductions.
5. As an alternative to paying taxes or user fees by check or money order, you can make payments 24 hours a day, seven days a week.  Refer to Publication 3611, e-File Electronic Payments for more details.
6. Do not staple or otherwise attach your payment to the actual paper Form 1040 or Form 1040-V Payment voucher. Instead, put them loose in the envelope.
7. Make money orders or checks payable to “United States Treasury.”
8. Include on your check your full legal name, address, main Social Security number (the first SS# on the tax form,) your daytime telephone number, the tax year and the form number, (eg. 2008 F-1040.)
9. When sending your payment and tax return to the IRS, complete and include Form 1040-V, Payment Voucher. The inclusion of this form helps the IRS process your payment accurately and efficiently.

• Direct Debit from your bank account
• Payroll Deduction from your employer
• Payment via check or money order
• Electronic Federal Tax Payment System.
• Payment by credit card via phone or Internet
• Online Payment Agreement

Call your tax professional for assistance or for additional information about payments refer to Electronic Payments,  Form 1040-V - Payment Voucher, Form 1040-ES - Estimated Tax for Individuals, Publication 17 - Your Federal Income Tax.

April 15th is just around the corner.  Here are some guidelines to follow, if you are still trying to complete your tax return.

1. Use electronic filing - Instead of trying to mail your return with a date cancel stamp on or before the deadline, consider e-filing your return. You will find e-filing assures you that the return is complete and correct.
2. Check tax ID numbers - Check and re-check for accuracy, any I.D. numbers contained within your return. Any inaccuracies or illegible numbers, be they Social Security, tax ID, or employer numbers will delay or potentially subtract from your tax refund.
3. Review your figures - Review the figures on your W2s and 1099s, whether you e-file or mail your return, it is vital that you transfer the amounts accurately.
4. Double-check your math - Confirm you are using the correct amount from the tax tables and that you have performed all computations for a refund or balance due correctly.
5. Don't forget to date and add your signature - If you are filing a joint return, both you and your spouse must make sure to sign. It doesn't matter if one spouse has no income, both of you must sign the return. If you had your return prepared by someone else, that person must also sign the return.
6. No refund by check - Try to Direct Deposit the refund to your bank account; this can speed up the receipt of you refund, by a significant period of time.
7. Pay your balance due - Make your check out to "United States Treasury," and send it together with the Form 1040-V, the Payment Voucher. Do not staple it to the form! Include your name, address, SSN, telephone number, tax year and form number on the check or money order.
8. Request an extension - If you have been unable to complete your return as April 15th draws near, make sure to request an extension of time to file. 
9. Use Web site access - Visit the IRS.gov website for any number of helpful brochures, publications, forms and information 24 hours a day.
10. Read it one more time - Just when you think you're all done with your return, read through it one more time for accuracy. If you catch small errors before you mail the return or push the send button, you will avoid any costly delays in processing your return and receiving the biggest refund possible.

April 15 is the filing deadline for a federal tax return.  If you need more time to get your paperwork complete, make sure you file Form 4868, Automatic Extension of Time to File, with the IRS by the end of the day on the 15th.  This gives you an automatic six-month (October 15, 2009) extension of time to file.  

NOTE:  An Extension of Time to File is not an “Extension of Time to Pay.”  The Extension gives you an automatic six months of additional time to get your paperwork together and file that return.  But, if you owe more than what you paid with your estimate, you’ll be accumulating penalties and interest on the difference, so don’t take the entire six months to do this. 

When filing your Extension of Time to File, you should estimate what you think you owe to the IRS.  This should not be “pulling numbers out of thin air.”  You still need to go through your receipts and tax documents and get them somewhat organized.  From here, you can estimate both your income and your expenses, and then approximate what you owe Uncle Sam.  Keep in mind that this is an ESTIMATE.  And, you should pay what you estimate you owe at the time you file Form 4868.

There are three ways to file Form 4868:

1. Electronically; we are happy to help you with this
2. By paying part or all of your taxes due with a credit card by calling the provider listed on the form
3. By mailing in the Form with payment 

If you have questions, or need assistance completing Form 4868, please visit your local PRO-TAX office.  We would be happy to help you file the extension correctly and on-time.

An IRA is defined as a personal retirement plan whereby a limited amount of annual earned income may be saved or invested in specially designated accounts.  

Traditional IRAs 

Contributions to a traditional IRA are completely tax deductible, unless your income exceeds a certain level, where phase-outs begin. Although you can still make a contribution, if you are in the higher tax brackets, you will be unable to deduct those contributions on your tax return. You can begin to take distributions from a traditional IRA at the age of 59 ½ without penalty and you must start taking distributions by 70 ½, even if you don’t want to. If you end up having to withdraw money prior to the age of 59 1/2, you will generally have to pay a 10% penalty. When you receive money from this kind of IRA, be prepared to pay taxes, because although your money has been growing tax free, now that you have withdrawn some, the funds become taxable income. There are no income restrictions when it comes to contributing to a Traditional IRA.

Roth IRAs 

In 2009, to qualify for a Roth conversion, your adjusted gross income may not exceed $100,000, whether you are single or married. 

However, one important thing to keep in mind, if you only qualify to open a traditional IRA or already have one, in 2010 the income restrictions on Roth IRA conversions expire, meaning anyone will be able to convert the funds in a traditional IRA to a Roth. Despite the fact that you will have to pay taxes on the amount you convert, the 2010 conversion amount may be included as taxable income in 2011 and 2012. The ability to spread the possible heavy tax burden over more than one year may make it possible for you to take advantage of this fabulous opportunity.

Divorce can involve many potential tax traps and pitfalls. You will be changing your tax status and that alone, can have quite an effect on your financial life. Here are some things to be aware of:

When splitting other marital assets, income such as interest and dividends, can also have a dramatic impact on your finances. Assuming one of the parties wishes to remain in their home, mortgage interest can be divided or eliminated completely depending on who retains ownership. The equity in the home can be divided between the two parties and the spouse remaining in the home can arrange a new mortgage, as sole owner. This relieves any responsibility to mortgage payments owed by the spouse who chooses to remove themselves from the home.

Likewise, additional assets, such as rental property, will also be divided, and the tax burden will fall upon the person retaining ownership of that property.

In the long run, as a divorcing couple, as long as you negotiate and honor your agreements in good faith, you will save yourselves money and aggravation. Whatever your circumstances and despite the stressfulness and anguish of this emotional time; working together with your partner during and after a divorce, can eventually lead to an equitable place, where the needs of all parties, including your children, are met.

• If your return was filed by PRO-TAX, simply bring the FMS notice to the PRO-TAX office that prepared your original return. Our representative will help you file a claim with the agency that claimed you owed a debt.
• Otherwise, contact the agency claiming the debt. Its name and contact information are on the notice you received from the FMS. Remember, only contact the IRS if you are disputing the original refund amount as shown on the FMS notice.

One more thing: If you filed your income tax jointly but you are not responsible for the debt that was deducted, you may be entitled to receive your full portion of the original refund. You will need to fill out Form 8379. Attach form 8379 to your original tax filing form if you know in advance that there may be a claim against your spouse’s refund, and write “INJURED SPOUSE” on the upper-left corner of the tax filing form. If you receive an FMS notice of such a claim after you filed, just submit the 8379 form by itself. Processing of these claims can take 11-14 weeks.

If you have questions not answered here, contact your PRO-TAX office or the FMS directly at 800-304-3107.