Monday, March 08, 2010
If you itemize your tax return, and own a car, then you can write off a portion of the yearly vehicle registration fees you pay your State.
Only a Portion of the Registration
Unfortunately you cannot deduct your entire registration fee on your tax return. According to IRS Topic 503, “deductible personal property taxes are those based only on the value of personal property such as a boat or car. The tax must be charged to you on a yearly basis, even if it is collected more than once a year or less than once a year."
The exact portion of your total vehicle registration that you can deduct will depend on how your state breaks down the fees. For example, in California only the "Vehicle License Fee" qualifies as a deductible expense, even though you also have to pay registration fees, and air quality fees that are not deductible.
Contact the DMV
If you cannot figure out the deductible amount of your registration fee, or if you lost the paperwork and have no idea what you paid, then you can contact the DMV for help. Checkout DMV.gov to find your local office, and they should be able to help.
Claiming the Deduction
To claim the vehicle registration deduction you will want to include the amount on Schedule A of your IRS Form 1040.
According to the Associated Press, earlier today the head of the International Monetary Fund proposed a new plan for the world’s top nations to raise money needed to deal with climate change. This is a rare step for the IMF, a group that does not usually develop environmental policies.
IMF Managing Director Dominique Strauss-Kahn said the Fund is concerned about the huge amount of funding needed and the effect that will have on the global economy. He added that the proposal may help efforts to reach a binding agreement on climate change later this year.
Strauss-Kahn proposed that countries adopt a quota system similar to the one the Fund uses to raise its own money, which could bring in money faster than proposals to increase carbon taxes or other fundraising methods. He only provided a broad outline of the plan, as the organization will release a paper later this week with full details. It is unclear how the proposal will be received.
The IMF raises funds from its 185 members mainly through a quota system that is based broadly on each country's economic size. The United States is currently the largest shareholder.
"We all know that (carbon taxes and other fundraising methods) will take time and we don't have this time. So we need something which looks like an interim solution, which will bridge the gap between now and the time when those carbon taxes will be big enough to solve the problem," Strauss-Kahn said. "And that is exactly what the IMF proposal is dealing with."
Continued at Google News…
From CNBC.com:
Friday's better-than-expected jobs report, while cheering stock investors, hasn't taken the threat of a double-dip recession off the table.
Even as the jobless rate held steady at 9.7 percent and the 36,000 workers laid off in February was much less than expected, economists and investment analysts said it's still too early to discount the economy's chances of revisiting recession.
"Eight months into the much-touted recovery, the economy should be adding jobs not just losing jobs at a slower pace," University of Maryland economist Peter Morici wrote in an analysis.
"No study of economic history could yield a conclusion other than that the US economy (walks) along the precipice of a double dip recession."
There were two ways to view the Friday jobs report, and Wall Street clearly chose the more optimistic.
Uncertainty over the impact of this season's brutal weather pattern had caused wide disparities in projections, with most economists around the 75,000 mark but some whisper projections as high as 200,000.
Tuesday, March 02, 2010
The medical expense deduction is one of the most commonly overlooked tax deductions, so in this week’s deduction of the week entry we explain it to all of our readers. In order to claim this deduction you need to itemize your return, meaning you do not take the standard deduction.
7.5% Rule
To qualify for the medical expense deduction your total expenses need to total at least 7.5% of your adjusted gross income. This includes any qualifying expenses that you incurred during the tax year, regardless of when the medical services were provided.
Spouse, Children, and Dependents
In addition to your own medical payments, you can also deduct expenses paid for your spouse, children, and dependents. You can deduct the expenses for a dependent even if you are not able to claim them as an exemption on your current tax return. In order to be eligible, the person must qualify as your dependent at the time you paid for their medical expenses.
Travel Costs
One of the most frequently forgotten parts of calculating medical expense deductions are travel costs. The IRS allows you to deduct all expenses related to traveling to and from medical treatments using the standard mileage rate for the year.
Allowable Expenses
The IRS has a whole list of allowable expenses. To view the list download IRS Publication 502.
Claiming the Deduction
When you prepare your federal income tax return you will want to include your total medical expenses (as long as they exceed 7.5% of your adjusted gross income) on Schedule A of your IRS Form 1040.
The federal government offers a couple of tax incentives to taxpayer who chose to adopt a child. These incentives include a tax credit and partial income exclusion. For our readers who might be thinking about adopting, we have put together the following summary on the federal benefits you might be eligible for:
The Basics
There are two main tax incentives for families that adopt, an exclusion and a credit. Taxpayers can take advantage of the credit and exclusion for the expenses of adopting an eligible child. Meaning, you may be able to exclude up to $12,170 (or whatever the limit is for the tax year) from your income, and claim a credit for the same amount. However, you cannot claim both the credit and exclusion for the same expenses.
Credit Amounts
The value of the credit for the past few years is listed below. It is important to note that the credit was expanded in 2001 as part of the Economic Growth and Tax Relief Reconciliation Act of 2001, which is due to expire at the end of 2010. Unless Congress extends the package the value of the credit will be reduced by at least 50%.
- 2011: $6,000 or less
- 2010: $12,170
- 2009: $12,150
- 2008: $11,650
- 2007: $11,390
- 2006: $10,960
Income Phase Outs
As with most federal tax credits and deductions, the value of the adoption credit phases out when your income reaches a certain level. The phase out ranges are listed below for the past few tax years. The IRS also provides a worksheet for figuring out your credit value in the Instructions for Form 8839.
- 2010: $182,520 - $222,520
- 2009: $182,180 - $222,180
- 2008: $174,730 - $214,730
- 2007: $170,820 - $210,820
- 2006: $164,410 - $204,410
Eligible Expenses
According to the IRS, for both the credit or the exclusion, qualifying expenses include adoption fees, court costs, attorney fees, traveling expenses (including amounts spent for meals and lodging while away from home), and other expenses directly related to the legal adoption of an eligible child.
Expenses that are NOT Covered
The credit can be applied to dozens of allowable expenses, but there are certain expenses that do not qualify for the credit. Including any expenses that violate state or federal laws, fees paid to a surrogate, expenses associated with adopting a spouse’s child, and any expenses that you have already been reimbursed for.
Qualifying Children
In order to claim the adoption credit you need to adopt an eligible child, and pay for the expenses out of your own pocket. In order to be considered eligible the child needs to be under the age of 18 at the time of the adoption.
Claiming the Credit
The year you claim the credit is going to depend on when the adoption was finalized. For expenses paid relating to an adoption that has not yet been finalized you will have to wait a year to claim the credit. However, for expenses paid during the year, or the year after the adoption became final you can take the credit in the same year the expenses were paid.
Other Incentives
While you are going through the adoption process, be sure to check around for other financial incentives. Lots of local government agencies have tax breaks for families that adopt, and you should also ask your employer about assistance as many companies offer reimbursement programs for employees that adopt.
Monday, February 22, 2010
In this new deduction of the week blog entry we are going to explain how you can use early withdrawal penalties to reduce your adjusted gross income.
Withdrawal Penalties
Generally speaking, when you withdraw money from a certificate of deposit or another time-sensitive account – such as a 401(k) – before it has reached maturity, you will incur a penalty for early withdrawal. These penalties are typically charged by the financial institution and withheld directly from your proceeds.
Notification
Depending on how old the account is, you will receive either Form 1099-INT or Form 1099-OID from the issuing bank. You should expect to receive this in the mail during the first part of the year and it will show the exact amount you can deduct.
Claiming this Deduction
Copy the amount listed in Box 2 of your Form 1099-INT or 1099-OID (which shows the total penalties you were charged) to line 32 of your Form 1040 while preparing your tax return to claim this deduction.
In their newest press release, the IRS is reminding taxpayers that the deadline to make 2009 tax year deductible contributions to Haitian relief is only a week away.
Individuals and corporations have until midnight on Sunday, Feb. 28, to make cash contributions to charities providing earthquake relief in Haiti. These contributions can be claimed on either a 2009 or 2010 return, but not both. Contributions made after that date but before the end of the year can only be claimed on a 2010 return.
Contributions made by text message, check, credit card or debit card qualify for this special option. Donations charged to a credit card before the end of February count for 2009. This is true even if the credit card bill isn’t paid until after Feb. 28. Also, checks count for 2009 as long as they are mailed by the end of this month and clear your financial institution shortly thereafter.
Taxpayers can benefit from their donations most quickly by filing their 2009 returns early, filing electronically and choosing direct deposit. Refunds take as few as ten days and can be directly deposited into a savings, checking or brokerage account, or used to purchase Series I U.S. savings bonds.
This special provision, enacted Jan. 22, does not apply to contributions of property. Eligible contributions must be made specifically for the relief of victims in areas affected by the Jan. 12 earthquake in Haiti. Gifts made directly to individual victims are not deductible. Notice 1396 a one-page notice describing this provision, is available on IRS.gov and is printed in English, Spanish, French and Haitian Creole.
To get a tax benefit, individuals must itemize their deductions on Schedule A. Those who claim the standard deduction, including all short-form filers, are not eligible.
Wednesday, February 17, 2010
Now that tax season is here, people across the country are worrying about getting their tax return prepared and filed with the IRS. However, there is another issue that taxpayers have to worry about: tax-related identity theft. Fortunately, you can prevent becoming an identity theft victim by following a few instructions. The good news is, even if your identity is stolen the IRS will work with you to resolve the matter as quickly as possible.
Increased Risk
A few years ago, Nina Olson, the National Taxpayer Advocate made the startling revelation that between 2004 and 2007, the number of tax-related identity theft problems rose by 644%.
Erroneous Returns or Stolen Refunds
If you get a notice from the IRS indicating that more than one return was filled using your social security number (SSN), you will want to contact them immediately to find out if you are a victim of identity theft. Using erroneous returns, thieves can obtain refunds from the IRS in your name, a common tactic used by tax scammers. The IRS will work with you to resolve the problem, but it is important to contact them as soon as possible.
Employment Identity Theft
Double check your W-2 information. If you get a W-2 from an unknown employer or see wages that you did not earn on a notice from the IRS, you may .have a problem. If some one is working using your social security number and identity then you may be liable for any unpaid employment taxes. Again, contact the IRS Identity Theft Resource Center as soon as possible.
IRS Warnings
The IRS reminds taxpayers every year that they do not initiate communications through e-mail. They will send letters, and attempt to reach you over the phone, but they will never e-mail you asking for personal information. If you receive an e-mail from someone claiming to be the IRS, do not reply, do not open any attachments and do not click any links.
Phishing
The act of sending an e-mail to someone claiming to be an established enterprise (often the IRS) in an attempt to steal their identity is known as “phishing.” If you ever get an email from the IRS requesting information about your finances, immediately forward the message to phishing@irs.gov.
Help from the IRS
Since tax-related identity theft has become such a serious issue for American taxpayers, in April of 2009 the IRS released IRS Form 14039 for taxpayers who have either experienced – or are at risk of – identity theft. It ensures that victims are not held responsible for fraudulent tax liabilities, minimizes the burden on the victim, and helps minimize the time to resolve the case. The IRS asserts that most cases are resolved in less than two months.
Prevention
As they say, prevention is always the best medicine. To help protect yourself against tax-related identity theft you can take the following actions.
- Do not carry your social security card in your wallet. Instead, leave it in a safe and secure place.
- Only give out your SSN when absolutely necessary. Always find out why someone is requesting your SSN before just giving it to them.
- Before giving your SSN out, always ask if another type of identifier can be used.
- Shred any financial documents that you no longer need, do not just throw them into the garbage.
- Make sure that your computer and Internet connection are both secure, especially if you plan to file your return online.
In our newest deduction of the week entry we are going to take a deeper look at the charitable contributions. For those of you that may not already know, donations made to qualifying charities can be deducted on your tax returns.
Qualifying Charities
In order to deduct a donation on your tax return it has to be made to a non-profit §501(c)(3) charitable organization. Most donations to churches, or non-profit groups will be deductible, but it never hurts to double check. Additionally, most donations to lobbying groups and political campaigns do not qualify as charitable contributions on your tax return.
General Rules
In order to be considered tax-deductible your donation must meet a few restrictions:
- You actually have to donate the cash or property; a pledge or promise to pay does not count as a deduction until it is actually paid.
- You must itemize your return in order to claim the deduction. Taxpayers taking the standard deduction cannot deduct charitable contributions.
- You have to meet the IRS’ record keeping requirements, and will need to keep all receipts, canceled checks, acknowledgement letters, and appraisals for donated property.
Cash Donations
All monetary contributions made either by check, money order, credit card, or electronic funds transfer, etc. to qualified nonprofit groups can be deducted on your tax return. Just be sure that you have adequate records for all contributions.
Non-Cash Donations
Non-cash donations or donations of personal property can also be deducted on your tax return. However they are subject to strict record keeping and substantiation rules. Meaning, you must be able to substantiate the market value of the items donated, and keep written acknowledgements from the charity. If your total non-cash contributions total more than $500 you will also need to attach IRS Form 8283 to your tax return, and if the value of any item exceeds $5,000 then you must obtain a written appraisal of fair market value.
Claiming the Deduction
If you itemize your tax return, you can include charitable contributions along with the rest of your deductions on Schedule A of IRS Form 1040.
Limits on Contributions
The IRS imposes a few limits on the amount of contributions you can deduct. Generally, you can deduct cash contributions in full up to 50% of your adjusted gross income, and donations of property up to 30%.