Not So Taxing with Michelle Greenberg, CPA

Enjoy the calm. Your tax plan has been in place all year…right?

I’m always amused when I am asked, “So what do CPAs do the rest of the year?” Most people seem to think that the majority if not all of our work is during tax season, otherwise termed “busy season” by CPAs, and that we have quite a bit of downtime the rest of the year. Would you be surprised to hear that we actually work year round and work just as hard? “On what?” Well, not just on tax related issues.

We also provide bookkeeping and accounting support, planning for businesses and individuals, business consulting, QuickBooks training and support, audits of financial statements, and a whole range of other accounting and consulting services. Not all CPAs provide all services but all services can be provided by CPAs. In addition, CPAs can keep you current and brief you on emerging tax related developments and act as your qualified professional advisor.

Accounting, planning, and consulting services are all important to tax season though. How? All of these services avail to the business or individual the ability to do tax planning both throughout the year and for year-end. Yep, you heard right, tax related considerations is a year round event . . you’re either doing accounting so that you have current information from which to estimate taxes, whether for estimated taxes or annual taxes, or possibly planning business operations to result in a favorable tax position. So if you suffer from TSS, Tax Stress Syndrome, consulting a CPA may be your best option.

This brings us to the next topic and one most of you are thinking about right about now: Recent tax developments that you can still take advantage of for 2009 as well as highlights of some of the changes that were legislated with the many tax bills passed during 2009.

• First-Time Homebuyer Credit – Originally enacted in 2008 and extended andin the 2009 Recovery Act. The credit reaches 10% of the purchase price, with a cap of $8,000. The $8,000 credit previously available for qualified home purchases after February 16, 2009, and before December 1, 2009 has been extended through April 30, 2010. For homes purchased after April 8, 2008 and no later than December 31, 2008, the maximum credit remains at $7,500 of which this credit must be repaid in equal installments over 15 years. For purchases in 2009 made before February 17, 2009, the credit is limited to $7,500 but the repayment rule does not apply. An additional credit of $6,500 is available to new buyers who have lived in their current residence for five years or more. A first-time homebuyer is any individual who has not held an ownership interest in any principal residence during the three-year period ending on the date of the purchase of the principal residence. Eligibility for credit is restricted by income.

A Win for Same-Sex Married Couples (SSMC) or Domestic Partners – If two or more taxpayers who are not married or recognized as being married purchase a principal residence, the credit may be allocated between the taxpayers using any reasonable method, unlike a husband-wife married couple where each spouse is only entitled to claim one-half of the credit. Allowing the credit to be shared may present an important planning opportunity to SSMCs and domestic partners.

• Property Transfers Between Spouses/Domestic Partners – SSMCs and domestic partners are not subject to certain tax code provisions that disallow losses on sales between related parties, or that re-characterize what would otherwise be capital gain on the sale of depreciable property to a related party as ordinary income. The disallowance of losses on sales to related parties is designed to prevent a taxpayer from claiming a tax loss on property that may have temporarily declined in value, without actually relinquishing the taxpayer’s investment in the asset. For this purpose, if the taxpayer sells the property to a related party, which includes members of the taxpayer’s family (brothers and sisters by whole or half blood, spouse, ancestors, and lineal descendants) and certain related entities, the taxpayer is not considered to have relinquished the investment in the property because of the close connection between the taxpayer and the purchaser.

A Win for Same-Sex Married Couples (SSMC) or Domestic Partners – Same-sex spouses/domestic partners are not, however, considered married for this purpose, which creates the ability for one spouse/domestic partner to sell property at a loss to the other spouse/domestic partner.

• Making Work Pay Credit – This credit was designed to target the lower- and middle-income taxpayers and technically to be claimed on the 2009 (and 2010) tax returns. Congress accelerated the credit by delivering it
in small increments through reduced payroll withholding in 2009 and 2010. However, there are income limitations and higher-income individuals will generally not be eligible for the credit. The credit is reduced 2% of an individual’s modified adjusted gross income that exceeds $75,000 and phases out completely at $95,000. This credit may be problematic to those individuals with high incomes resulting either in smaller refunds or taxes due. If you believe you will be impacted by this reduction in payroll withholding, you may want to adjust your withholding through your employer(s).

• Substantiation Requirements for Charitable Contributions – It is imperative for taxpayers to have all required receipts before filing their return, even if it means extending the return. It is usually the donor who is responsible for requesting and obtaining this documentation. Furthermore, volunteers who incur out-of pocket expenditures must keep detailed records for those expenditures to be deductible. If the total of such expenses is $250 or more for a single charitable activity, the volunteer must have a written acknowledgement from the charity describing the services provided.

• Deduction of Expenses – Charges made on a credit card on or before year-end for business expenses or for personal itemized deductible expenses are deductible even if the credit card bill isn’t paid until the following year. Receipts for all charges are required for substantiation; a credit card bill is not considered substantiation for these purposes.

• Standard Mileage Rates – Beginning January 1, 2010, the standard mileage ratesfor using a vehicle will be 50 cents per mile for business purposes, 16.5 cents per mile formedical or moving purposes, and 14 cents per mile for charitable purposes. For 2009, the rates were 55 cents, 24 cents and 14 cents per miles, respectively.

• Watch Out for AMT (Alternative Minimum Tax)4 – When introduced many years ago, the AMT targeted and normally only applied to high–income taxpayers who, in Congress’ opinion, benefited too much from certain tax breaks. Many more taxpayers are now vulnerable, but especially those who deduct a significant amount of state and local taxes or miscellaneous itemized deductions (like unreimbursed employee business expenses) or claim multiple dependents are especially vulnerable. Individuals must compute their income taxes under two systems–the regular tax system and the AMT system-and pay the higher of the two amounts.

Lastly, A Refund May Be Due to You: The IRS has $123.5 million in undeliverable refunds. The IRS is looking for taxpayers who are due a total $123.5 million from 107,831 refund checks that were returned by the US Postal Service due to mailing address errors. Taxpayers can update their address, check the status of their refund, or initiate a refund trace with the “Where’s My Refund?” tool on www.irs.gov. A telephone version of “Where’s My Refund?” is available at (80) 829-1954.

If you would like more information on any of the above, or other tax developments, or are seeking the services of a CPA, please call us at (813) 334-0433.

Click on image to learn more about
Michelle I. Greenberg, CPA, PA

Disclaimer:
Information provided in this editorial is for informational purposes only and is not intended to be legal, accounting, tax, investment, or other professional advice. Prior to making any decision or taking any action that might affect your personal finances or business, we recommended that you consult with or seek advice from a qualified professional advisor who understands your particular factual situations.