Here are some timeless classics from which we all can learn valuable personal-finance lessons
The Kiplinger Washington Editors have selected eight movies whose themes echo lessons of timeless personal-finance wisdom. They’re all about helping you to a prosperous future -- paying yourself first, staying out of debt, protecting your loved ones and giving generously to create a better world. I share their list below.
MAXED OUT: HARD TIMES, EASY CREDIT AND THE ERA OF PREDATORY LENDING (2006)
You’ll never feel so free about forking over a credit card again. And that’s a good thing. This independently made documentary is riveting as it explores America’s dangerous love affair with credit and leveraged debt, presaging the meltdown of 2008. Like being a “preferred” credit-card customer? This movie shows you why “chump” might be more apropos. In one scene, a Las Vegas real estate broker explains why she’s building a 10,000-square-foot home even though she’s not sure she’ll be able to afford it if interest rates go up. “If you look like you’ll make money, I guess eventually you will,” she observes. Priceless. LESSON: Borrow sparingly. Do you know anyone who got into big financial trouble because they didn’t borrow enough money? We don’t.
CONFESSIONS OF A SHOPAHOLIC (2009)
Ditsy Rebecca Bloomwood (played by the incomparable Isla Fisher) has 12 credit cards, all maxed to the hilt. She thinks nothing of using plastic to buy $200 worth of Marc Jacobs underwear because “underwear is a basic human right.” Then, in a plot twist only Hollywood could dream up, she becomes a writer for Successful Saving, a magazine that sounds an awful lot like Kiplinger’s Personal Finance. Coincidence? We like to think not. See how Rebecca erases $16,000 in credit-card debt and finds Mr. Right, without Mr. Right providing a financial bailout. LESSON: Use credit only to buy things of lasting value: a home, an education, maybe a car. For everything else, pay cash.
MR. BLANDING BUILDS HIS DREAM HOUSE (1948)
Tom Hanks and Shelley Long starred in a 1980s remake entitled “The Money Pit.” But we like the original best. Ad man Cary Grant can no longer stand the cramped quarters of his New York City apartment, so he moves wife Muriel (Myrna Loy) and their two daughters to a charming fixer-upper in Connecticut. End of story? Fat chance. Just the beginning of a hilarious saga about the reality of the American Dream. Even Muriel’s quaint request for a “little dry place to repot my plants” turns into an expensive ordeal of ripping out tile floors and installing drains. But there’s a happy ending: Maid Gussie’s declaration “If it ain’t wham, it ain’t ham” serves as the inspiration for a winning (and lucrative) ad campaign that allows Mr. Blanding to enjoy the fruits of country living in his dream house. LESSON: Owning a home comes with a great deal of responsibility, starting with good credit, a substantial down payment and the means to protect your investment.
ENRON: THE SMARTEST GUYS IN THE ROOM (2005)
Before Bernie Madoff, there were Kenneth Lay and Jeffrey Skilling, chief executives of a high-flying Houston “energy” company that was all about appearing to be stable and highly profitable when it was neither. (Enron actually didn’t “do” much of anything other than create impenetrable shell subsidiaries.) As Enron stock prices soared, top execs cashed out stock options worth millions, leaving employees with Enron stock as the only investment option for their 401(k) retirement plans. When the company collapsed, countless investors lost everything, and the retirement savings of thousands of Enron employees was wiped out. It’s a wrenching story that will make you angry. But the movie, which earned a 2005 Academy Award nomination for Best Documentary, is “almost indecently entertaining," observed A.O. Scott of the New York Times. Investors, you must see this movie. LESSONS: (1) If an enterprise seems too good to be true, it probably is. (2) Diversify, diversify, diversify your portfolio. Never put all your eggs in one basket.
WORKING GIRL (1988)
What we most like about this endearing ’80s film is the career advice. Tess McGill (Melanie Griffith in the best role of her career) takes a job with rapid advancement possibilities -- or so her investment-bank boss (Kevin Spacey) claims. She soon realizes all the company wants is a sexy secretary. Watch how Tess combines her business degree (from night school) and acumen with her Staten Island street smarts to engineer a mega-merger deal. There’s the usual sappy, Prince Charming happy ending, with Harrison Ford as Tess’s Wall Street love interest. But it provides an entertaining reminder that if you have something to offer your company and they don’t seem interested, there’s likely a market for your services elsewhere. Note in the final scene how Tess treats her replacement once she makes it to the top -- a good lesson there, too. LESSON: Your earning power, rooted in your education and job skills, is the most valuable asset you’ll ever own. It can’t be wiped out in a market crash. Keep your earning power growing through continuous education, training and personal development.
THE TREASURE OF THE SIERRA MADRE (1948)
Try watching this classic western as a cautionary tale about how not to launch a business venture. In fact, you could take everything that Howard (Walter Huston), Dobbs (Humphrey Bogart) and Curtin (Tim Holt) do in this classic to get rich quickly, do the opposite, and have something close to a credible business plan. LESSON: Don’t swing blindly in pursuit of a home run. In life, as in baseball, you’ll more than likely strike out. Always do your research and, for heaven’s sake, know your business partners.
MILDRED PIERCE (1945)
In this classic, a determined but misguided middle-class mom (legendary actress Joan Crawford in the lead role) cuts her husband loose and sets out on her own to support her two children. She works her way up from waitress and pie maker to restaurant mogul, but her life becomes all about providing a more lavish lifestyle for her sulky daughter. On the way to the top, Mildred compromises her principles and loses almost everything dear to her. Nominated for six Academy Awards in 1945, this film won Crawford her only Best Actress Oscar. The movie has largely been forgotten. Too bad. It’s a great story about personal finance. (And if you like it, you might also try I Remember Mama (1948), another forgotten classic starring legendary actress Irene Dunne. Make sure you have plenty of Kleenex on hand, though.) LESSON: In your quest for financial success, don’t lose sight of what’s most important in your life. Maintain a lifestyle and budget that protect it all.
IT’S A WONDERFUL LIFE (1947)
This Frank Capra masterpiece, cited by the American Film Institute as one of the 100 greatest films ever made, comes up on virtually everybody’s best list here at Kiplinger, and not just during the holidays. You probably know the story by heart. But why is George Bailey toasted as “the richest man in town” at the end? He’s certainly not a likable fellow throughout the movie. As his dreams are stifled by small-town life, he turns bitter, suicidal and verbally abusive to his wife, children and poor old Uncle Billy. Yet, unlike bitter Old Man Potter, who only sees money as an end in itself, George comes to see it as a means to creating happiness for others. (You might also try Scrooge (1951), starring Alastair Sim. It’s the only movie version of this Charles Dickens classic, A Christmas Carol, worth the watching.) LESSON: When you share your good fortune by donating your money, time and talent to charity, you help create a stronger economy and a healthier, safer world.
Wednesday, December 30, 2009
Tips on Year-End Charitable Giving
To be deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item for which you claim a deduction of over $500 does not have to meet this standard if you include a qualified appraisal of the item with the return.
For all donations of property including clothing and household items, if possible, get a receipt from the charity that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value.
The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds the charity receives from its sale, if the claimed value is more than $500.
To deduct a charitable donation of money, regardless of amount, you must have a bank record or a written receipt from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements, IF they show the name of the charity, the date, and the amount paid. Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction.
Here are a few additional reminders:
• Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2009 count for 2009. This is true even if the credit card bill isn’t paid until 2010. Also, checks count for 2009 as long as they are mailed in 2009 and clear, shortly thereafter.
• Check that the organization is qualified. Only donations to qualified organizations are tax-deductible. IRS Publication 78, available online and at many public libraries, lists most organizations that are qualified to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in Publication 78. Money given directly to an individual is not a charitable contribution.
• For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available if you choose the standard deduction or file a short form (Form 1040A or 1040EZ). Even then, you will have a tax savings only if the total of all itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceeds the standard deduction.
• There are other rules and restrictions governing the deductibility of charitable donations. Please contact me directly if you have questions about how this information affects your specific tax situation.
For all donations of property including clothing and household items, if possible, get a receipt from the charity that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value.
The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds the charity receives from its sale, if the claimed value is more than $500.
To deduct a charitable donation of money, regardless of amount, you must have a bank record or a written receipt from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements, IF they show the name of the charity, the date, and the amount paid. Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction.
Here are a few additional reminders:
• Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2009 count for 2009. This is true even if the credit card bill isn’t paid until 2010. Also, checks count for 2009 as long as they are mailed in 2009 and clear, shortly thereafter.
• Check that the organization is qualified. Only donations to qualified organizations are tax-deductible. IRS Publication 78, available online and at many public libraries, lists most organizations that are qualified to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in Publication 78. Money given directly to an individual is not a charitable contribution.
• For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available if you choose the standard deduction or file a short form (Form 1040A or 1040EZ). Even then, you will have a tax savings only if the total of all itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceeds the standard deduction.
• There are other rules and restrictions governing the deductibility of charitable donations. Please contact me directly if you have questions about how this information affects your specific tax situation.
Tuesday, December 29, 2009
Deductibility of Home Improvements & Home Repairs
Q Can I take a tax deduction for home repairs or home improvements?
A Generally, you cannot deduct home repairs or home improvements on your tax return in the current tax year.
Home improvements add to the value of your home, prolong its useful life, or adapt it to new uses. You add the cost of home improvements to the tax basis of your property, the amount you “have in” your home including purchase price, non-deductible closing costs, and improvements.
“Basis” is the amount you subtract from the home’s selling price to determine how much profit (or loss) you realize on the sale of the home.
Examples of home improvements include putting a recreation room in your unfinished basement, adding another bathroom, or bedroom, putting up a fence, putting in new plumbing or wiring, putting on a new roof, or paving your driveway.
Home repairs maintain your home in good condition. They do not add to its value or prolong its life, and you do not add their cost to the tax basis of your property. Nor can you deduct home repairs on your tax return.
Some examples of home repairs include repainting your house inside or outside, fixing your gutters or floors, repairing leaks or plastering and replacing broken window panes.
The entire job is considered a home improvement, however, if items that would otherwise be considered home repairs are done as part of extensive remodeling or restoration of your home.
One exception is if you are using a portion of your home for a home office. In that case, repairs and improvements specific to the home office space are deductible.
A Generally, you cannot deduct home repairs or home improvements on your tax return in the current tax year.
Home improvements add to the value of your home, prolong its useful life, or adapt it to new uses. You add the cost of home improvements to the tax basis of your property, the amount you “have in” your home including purchase price, non-deductible closing costs, and improvements.
“Basis” is the amount you subtract from the home’s selling price to determine how much profit (or loss) you realize on the sale of the home.
Examples of home improvements include putting a recreation room in your unfinished basement, adding another bathroom, or bedroom, putting up a fence, putting in new plumbing or wiring, putting on a new roof, or paving your driveway.
Home repairs maintain your home in good condition. They do not add to its value or prolong its life, and you do not add their cost to the tax basis of your property. Nor can you deduct home repairs on your tax return.
Some examples of home repairs include repainting your house inside or outside, fixing your gutters or floors, repairing leaks or plastering and replacing broken window panes.
The entire job is considered a home improvement, however, if items that would otherwise be considered home repairs are done as part of extensive remodeling or restoration of your home.
One exception is if you are using a portion of your home for a home office. In that case, repairs and improvements specific to the home office space are deductible.
Unemployment Compensation
Q I received Unemployment Compensation this year. Do I have to pay income tax on that money?
A For 2009, you must include in income all unemployment compensation you received that is more than $2,400. You should receive a Form 1099-G showing in box 1 the total unemployment compensation paid to you in 2009. You must subtract $2,400 from that amount to figure how much of your unemployment compensation is taxable and must be reported on your 2009 Federal Income Tax Return. Do not enter less than zero.
If married filing jointly, also include any unemployment compensation received by your spouse that is more than $2,400.
You can choose to have federal income tax withheld from your unemployment compensation. To make this choice, contact your local Unemployment Office. Tax will be withheld at 10% of your payment.
If you do not choose to have tax withheld from your unemployment compensation, you may be liable for estimated tax. If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty.
A For 2009, you must include in income all unemployment compensation you received that is more than $2,400. You should receive a Form 1099-G showing in box 1 the total unemployment compensation paid to you in 2009. You must subtract $2,400 from that amount to figure how much of your unemployment compensation is taxable and must be reported on your 2009 Federal Income Tax Return. Do not enter less than zero.
If married filing jointly, also include any unemployment compensation received by your spouse that is more than $2,400.
You can choose to have federal income tax withheld from your unemployment compensation. To make this choice, contact your local Unemployment Office. Tax will be withheld at 10% of your payment.
If you do not choose to have tax withheld from your unemployment compensation, you may be liable for estimated tax. If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty.
Alimony & Child Support
Q Do I have to pay income tax on alimony and child support payments I receive?
A Alimony received is generally taxable income on the recipient's tax return in the tax year it is received; and, generally, your spouse or former spouse may deduct alimony paid on his or her tax return in the tax year paid. If the payments are tax deductible to your former spouse on his/her tax return, then they are taxable to you on your tax return.
Alimony is an amount paid by a person to a spouse or former spouse under a divorce or separation agreement. Alimony does not include child support payments or property settlement amounts.
You may state in your divorce decree that alimony is neither taxable to you on your tax return nor tax deductible by your former spouse on his/her tax return; however, this must be included in the decree.
The taxable amount is reported on Form 1040, line 11. You cannot use Form 1040A or Form 1040EZ.
Child support is never deductible by the payer and is never taxable to the recipient. You don't have to report child support payments received on your tax return. If your divorce decree or separate maintenance provides for alimony and child support, and you pay or receive less than the total required, the payments apply first to child support. Any remaining amount is considered alimony.
Any alimony payments that include an element of child support payments are not taxable on your tax return as to the child support payments element. If tax deductible alimony payments include an element of child support payments and partial payments are made, the payments must be credited first to the non tax deductible child support payments.
A Alimony received is generally taxable income on the recipient's tax return in the tax year it is received; and, generally, your spouse or former spouse may deduct alimony paid on his or her tax return in the tax year paid. If the payments are tax deductible to your former spouse on his/her tax return, then they are taxable to you on your tax return.
Alimony is an amount paid by a person to a spouse or former spouse under a divorce or separation agreement. Alimony does not include child support payments or property settlement amounts.
You may state in your divorce decree that alimony is neither taxable to you on your tax return nor tax deductible by your former spouse on his/her tax return; however, this must be included in the decree.
The taxable amount is reported on Form 1040, line 11. You cannot use Form 1040A or Form 1040EZ.
Child support is never deductible by the payer and is never taxable to the recipient. You don't have to report child support payments received on your tax return. If your divorce decree or separate maintenance provides for alimony and child support, and you pay or receive less than the total required, the payments apply first to child support. Any remaining amount is considered alimony.
Any alimony payments that include an element of child support payments are not taxable on your tax return as to the child support payments element. If tax deductible alimony payments include an element of child support payments and partial payments are made, the payments must be credited first to the non tax deductible child support payments.
Monday, December 14, 2009
Keeping a log of business mileage
Q I read the post about the Standard Mileage Rates for 2010. If I use the standard mileage rate, do I have to save my gas receipts, too?
A If you are using the standard mileage rate, all you need to keep is a log of your business-use miles. You only need to save gas receipts if you are deducting actual vehicle expenses (although you still need to keep a log).
Many small business owners fail to take full advantage of the deduction for business transportation expenses. Here's what you need to know to make sure you aren't missing this important deduction.
If you use your personal vehicle in your business, you can deduct the cost of driving and maintaining that vehicle. These transportation expenses include the ordinary and necessary costs of the following.
• Getting from one workplace to another in the course of your business or profession when you are traveling within the general area that is your tax home.
• Visiting clients or customers.
• Going to a business meeting away from your regular workplace.
• Getting from your home to a temporary workplace when you have one or more regular places of work.
• Other travel that is ordinary and necessary in your particular line of work, including travel to purchase supplies or other items necessary for your business.
You generally have the option of deducting the actual vehicle expenses or using the standard mileage rate to figure your deduction.
Actual expenses include depreciation (or lease payments), gas and oil, tires, repairs, tune-ups, insurance, loan interest, and registration fees. The standard mileage rate for business travel for 2009 has been 55 cents per mile; for 2010 the rate will be 50 cents per mile (reflecting the drop [?] in fuel prices).
If the vehicle is used exclusively for business and you are deducting actual expenses, you must save receipts.
If the vehicle is used exclusively for business and you use the standard mileage rate, all you need is the beginning and ending odometer reading for the year to figure your deduction: you do not need to save any receipts.
If you use the vehicle for both business and personal purposes, your deduction is based on the percentage of business use, and the IRS says you must keep a written log of the business use to determine and document the deduction.
The log can take any form that works for you – day planner, notes on a calendar, spreadsheet, or small notepad in the glove box. The key is to use it! The log should contain the date, number of business miles, and the business purpose of each trip.
The IRS has become increasingly picky about documentation for vehicle expenses. They can deny a deduction based on estimates. So I strongly encourage you to keep good records to document your vehicle expenses.
To start the year off right, make it a New Year’s habits to write down the January 1st mileage on each of your vehicles.
Notes: you can still deduct state and local personal property tax on the vehicle, parking fees, and tolls, whether you claim actual expenses or the standard mileage rate. Commuting for an employee is not deductible, but travel between two jobs in the same day may be.
Please contact me directly for a no-cost consultation to discuss your individual situation.
A If you are using the standard mileage rate, all you need to keep is a log of your business-use miles. You only need to save gas receipts if you are deducting actual vehicle expenses (although you still need to keep a log).
Many small business owners fail to take full advantage of the deduction for business transportation expenses. Here's what you need to know to make sure you aren't missing this important deduction.
If you use your personal vehicle in your business, you can deduct the cost of driving and maintaining that vehicle. These transportation expenses include the ordinary and necessary costs of the following.
• Getting from one workplace to another in the course of your business or profession when you are traveling within the general area that is your tax home.
• Visiting clients or customers.
• Going to a business meeting away from your regular workplace.
• Getting from your home to a temporary workplace when you have one or more regular places of work.
• Other travel that is ordinary and necessary in your particular line of work, including travel to purchase supplies or other items necessary for your business.
You generally have the option of deducting the actual vehicle expenses or using the standard mileage rate to figure your deduction.
Actual expenses include depreciation (or lease payments), gas and oil, tires, repairs, tune-ups, insurance, loan interest, and registration fees. The standard mileage rate for business travel for 2009 has been 55 cents per mile; for 2010 the rate will be 50 cents per mile (reflecting the drop [?] in fuel prices).
If the vehicle is used exclusively for business and you are deducting actual expenses, you must save receipts.
If the vehicle is used exclusively for business and you use the standard mileage rate, all you need is the beginning and ending odometer reading for the year to figure your deduction: you do not need to save any receipts.
If you use the vehicle for both business and personal purposes, your deduction is based on the percentage of business use, and the IRS says you must keep a written log of the business use to determine and document the deduction.
The log can take any form that works for you – day planner, notes on a calendar, spreadsheet, or small notepad in the glove box. The key is to use it! The log should contain the date, number of business miles, and the business purpose of each trip.
The IRS has become increasingly picky about documentation for vehicle expenses. They can deny a deduction based on estimates. So I strongly encourage you to keep good records to document your vehicle expenses.
To start the year off right, make it a New Year’s habits to write down the January 1st mileage on each of your vehicles.
Notes: you can still deduct state and local personal property tax on the vehicle, parking fees, and tolls, whether you claim actual expenses or the standard mileage rate. Commuting for an employee is not deductible, but travel between two jobs in the same day may be.
Please contact me directly for a no-cost consultation to discuss your individual situation.
Friday, December 4, 2009
Tax News: Standard Mileage Rate for 2010
The IRS has released the 2010 optional standard mileage rates that employees, self-employed individuals and other taxpayers can use to compute deductible costs of operating automobiles (including vans, pickups and panel trucks) for business, medical, moving and charitable purposes. The mileage rates are all lower than they were for 2009, reflecting generally lower transportation costs.
The standard mileage rate for business mileage in 2010 will be 50 cents per mile (vs 55 cents per mile for 2009).
The business standard mileage rate is used on a yearly basis, instead of computing actual costs, such as depreciation, lease payments, maintenance and repairs, tires, gasoline, oil, insurance, and license and registration fees. However, the taxpayer may continue to claim separate allowable deductions for parking fees and tolls, interest relating to the purchase of the vehicle, and state and local personal property taxes.
The standard business mileage rate may not be used for automobiles used for hire (such as taxicabs) or when five or more automobiles are owned or leased and used simultaneously by the taxpayer (such as in fleet operations).
The standard mileage rate for medical and moving expenses will be 16.5 cents per mile.
The standard mileage rate for charitable purposes will remain at 14 cents per mile.
The updated rates are effective for deductible transportation expenses paid or incurred on or after January 1, 2010.
The standard mileage rate for business mileage in 2010 will be 50 cents per mile (vs 55 cents per mile for 2009).
The business standard mileage rate is used on a yearly basis, instead of computing actual costs, such as depreciation, lease payments, maintenance and repairs, tires, gasoline, oil, insurance, and license and registration fees. However, the taxpayer may continue to claim separate allowable deductions for parking fees and tolls, interest relating to the purchase of the vehicle, and state and local personal property taxes.
The standard business mileage rate may not be used for automobiles used for hire (such as taxicabs) or when five or more automobiles are owned or leased and used simultaneously by the taxpayer (such as in fleet operations).
The standard mileage rate for medical and moving expenses will be 16.5 cents per mile.
The standard mileage rate for charitable purposes will remain at 14 cents per mile.
The updated rates are effective for deductible transportation expenses paid or incurred on or after January 1, 2010.
Thursday, December 3, 2009
Requesting tax return copies and tax transcripts
Q How can I get a copy of a prior year’s tax return?
A Form 4506 can be used to request copies of previously filed tax returns or Form W-2 only. The IRS cannot provide copies of information returns such as Form 1099. Form 4506 can also be ordered by calling 1-800-829-3676. There is a charge of $23.00 for a copy of the tax return for each tax period requested.
The IRS also provides tax return transcripts at no charge. A tax return transcript shows most line items from the original tax return, including accompanying tax forms and schedules. It does not reflect any changes you or the IRS made to the original tax return. Tax return transcripts of Form 1040, Form 1040A, or Form 1040-EZ are available for tax years after 1991.You may request a tax return transcript by telephone, by personally visiting your local IRS office, or by using Form 4506. A tax return transcript is accepted by most lenders, as well as by Federal student loan offices.
Once you complete the Form 4506, mail it to the IRS service center where you originally filed the tax return. The same Form 4506 can be used to request tax returns for up to four tax periods from the same IRS Service Center. However, you must use a separate Form 4506 for each IRS Service Center from which you are requesting information.
After the tax return request is filed with the IRS, you should allow up to 60 days to receive copies of tax returns, or 10 business days for a tax return transcript, if you request that the information be mailed to you.
However, if you request a tax transcript by phone, you can have it faxed the same day.
A Form 4506 can be used to request copies of previously filed tax returns or Form W-2 only. The IRS cannot provide copies of information returns such as Form 1099. Form 4506 can also be ordered by calling 1-800-829-3676. There is a charge of $23.00 for a copy of the tax return for each tax period requested.
The IRS also provides tax return transcripts at no charge. A tax return transcript shows most line items from the original tax return, including accompanying tax forms and schedules. It does not reflect any changes you or the IRS made to the original tax return. Tax return transcripts of Form 1040, Form 1040A, or Form 1040-EZ are available for tax years after 1991.You may request a tax return transcript by telephone, by personally visiting your local IRS office, or by using Form 4506. A tax return transcript is accepted by most lenders, as well as by Federal student loan offices.
Once you complete the Form 4506, mail it to the IRS service center where you originally filed the tax return. The same Form 4506 can be used to request tax returns for up to four tax periods from the same IRS Service Center. However, you must use a separate Form 4506 for each IRS Service Center from which you are requesting information.
After the tax return request is filed with the IRS, you should allow up to 60 days to receive copies of tax returns, or 10 business days for a tax return transcript, if you request that the information be mailed to you.
However, if you request a tax transcript by phone, you can have it faxed the same day.
Filing joint tax returns for same-sex couples
Q I live in a state that recognizes same-sex marriage. Can my partner and I file a joint income tax return?
A The Defense of Marriage Act, signed into federal law in 1996, defines marriage as between one man and one woman, prohibiting federal recognition of same-sex couples. And since only married couples can file joint federal tax returns, all gay and lesbian couples must file federal taxes as individuals.
Most civil union and domestic partnership laws provide some benefits of marriage, but fall short at tax benefits for same-sex couples. Civil union and domestic partnership laws also vary state-by-state.
In Massachusetts, Washington DC, Connecticut, New Jersey and in some cases New York, California and Oregon, same-sex couple unions are legally recognized and therefore legally married gay and lesbian couples can file joint state taxes. The State of Washington, while allowing same-sex unions, does not allow domestic partners to file joint returns.
However, for Federal Income Tax purposes, gay and lesbian couples must still file as individuals on their federal returns for the reasons mentioned above.
Be sure to consult a tax professional before preparing and filing your returns to avoid any filing errors.
A The Defense of Marriage Act, signed into federal law in 1996, defines marriage as between one man and one woman, prohibiting federal recognition of same-sex couples. And since only married couples can file joint federal tax returns, all gay and lesbian couples must file federal taxes as individuals.
Most civil union and domestic partnership laws provide some benefits of marriage, but fall short at tax benefits for same-sex couples. Civil union and domestic partnership laws also vary state-by-state.
In Massachusetts, Washington DC, Connecticut, New Jersey and in some cases New York, California and Oregon, same-sex couple unions are legally recognized and therefore legally married gay and lesbian couples can file joint state taxes. The State of Washington, while allowing same-sex unions, does not allow domestic partners to file joint returns.
However, for Federal Income Tax purposes, gay and lesbian couples must still file as individuals on their federal returns for the reasons mentioned above.
Be sure to consult a tax professional before preparing and filing your returns to avoid any filing errors.
Saturday, November 28, 2009
Using a business loss to get a refund of prior year taxes
Q We lost money in our business this year, but we made money and paid some high taxes the last couple of years. We heard about using our 2009 loss to get a refund of prior year taxes. How does that work?
A Most businesses may use losses incurred during the economic downturn to reduce income from prior tax years, under a revenue procedure issued by the Internal Revenue Service.
The relief provided under the Worker, Homeownership, and Business Assistance Act of 2009 differs from similar relief issued earlier this year in that the previous relief was limited to small businesses. The current relief is applicable to any taxpayer with business losses, except those that received payments under the Troubled Asset Relief Program.
Taxpayers under the procedure may elect to carry back a net operating loss (NOL) for a period of three, four or five years, or a loss from operations for four or five years, to offset taxable income in those preceding taxable years. An NOL or loss from operations carried back five years may offset no more than 50 percent of a taxpayer's taxable income in that fifth preceding year. This limitation does not apply to the fourth or third preceding year.
The procedure applies to taxpayers that incurred an NOL or a loss from operations for a taxable year ending after Dec. 31, 2007, and beginning before Jan. 1, 2010.
To find out more, please email me privately with the details of your situation.
A Most businesses may use losses incurred during the economic downturn to reduce income from prior tax years, under a revenue procedure issued by the Internal Revenue Service.
The relief provided under the Worker, Homeownership, and Business Assistance Act of 2009 differs from similar relief issued earlier this year in that the previous relief was limited to small businesses. The current relief is applicable to any taxpayer with business losses, except those that received payments under the Troubled Asset Relief Program.
Taxpayers under the procedure may elect to carry back a net operating loss (NOL) for a period of three, four or five years, or a loss from operations for four or five years, to offset taxable income in those preceding taxable years. An NOL or loss from operations carried back five years may offset no more than 50 percent of a taxpayer's taxable income in that fifth preceding year. This limitation does not apply to the fourth or third preceding year.
The procedure applies to taxpayers that incurred an NOL or a loss from operations for a taxable year ending after Dec. 31, 2007, and beginning before Jan. 1, 2010.
To find out more, please email me privately with the details of your situation.
Wednesday, November 25, 2009
From the IRS: 10 Important Facts about the Extended First-Time Homebuyer Credit
If you are in the market for a new home, you may still be able to claim the First-Time Homebuyer Credit. Congress recently passed The Worker, Homeownership and Business Assistance Act Of 2009, extending the First-Time Homebuyer Credit and expanding who qualifies.
Here are the top 10 things the IRS wants you to know about the expanded credit and the qualifications you must meet in order to qualify for it.
1. You must buy – or enter into a binding contract to buy a principal residence – on or before April 30, 2010.
2. If you enter into a binding contract by April 30, 2010 you must close on the home on or before June 30, 2010.
3. For qualifying purchases in 2010, you will have the option of claiming the credit on either your 2009 or 2010 return.
4. A long-time resident of the same home can now qualify for a reduced credit. You can qualify for the credit if you’ve lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the new home is purchased and the settlement date is after November 6, 2009.
5. The maximum credit for long-time residents is $6,500. However, married individuals filing separately are limited to $3,250.
6. People with higher incomes can now qualify for the credit. The new law raises the income limits for homes purchased after November 6, 2009. The full credit is available to taxpayers with modified adjusted gross incomes up to $125,000, or $225,000 for joint filers.
7. The IRS will issue a December 2009 revision of Form 5405 to claim this credit. The December 2009 form must be used for homes purchased after November 6, 2009 – whether the credit is claimed for 2008 or for 2009 – and for all home purchases that are claimed on 2009 returns.
8. No credit is available if the purchase price of the home exceeds $800,000.
9. The purchaser must be at least 18 years old on the date of purchase. For a married couple, only one spouse must meet this age requirement.
10. A dependent is not eligible to claim the credit.
For more information about the expanded First-Time Home Buyer Credit, visit IRS.gov/recovery.
Here are the top 10 things the IRS wants you to know about the expanded credit and the qualifications you must meet in order to qualify for it.
1. You must buy – or enter into a binding contract to buy a principal residence – on or before April 30, 2010.
2. If you enter into a binding contract by April 30, 2010 you must close on the home on or before June 30, 2010.
3. For qualifying purchases in 2010, you will have the option of claiming the credit on either your 2009 or 2010 return.
4. A long-time resident of the same home can now qualify for a reduced credit. You can qualify for the credit if you’ve lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the new home is purchased and the settlement date is after November 6, 2009.
5. The maximum credit for long-time residents is $6,500. However, married individuals filing separately are limited to $3,250.
6. People with higher incomes can now qualify for the credit. The new law raises the income limits for homes purchased after November 6, 2009. The full credit is available to taxpayers with modified adjusted gross incomes up to $125,000, or $225,000 for joint filers.
7. The IRS will issue a December 2009 revision of Form 5405 to claim this credit. The December 2009 form must be used for homes purchased after November 6, 2009 – whether the credit is claimed for 2008 or for 2009 – and for all home purchases that are claimed on 2009 returns.
8. No credit is available if the purchase price of the home exceeds $800,000.
9. The purchaser must be at least 18 years old on the date of purchase. For a married couple, only one spouse must meet this age requirement.
10. A dependent is not eligible to claim the credit.
For more information about the expanded First-Time Home Buyer Credit, visit IRS.gov/recovery.
Friday, November 20, 2009
Year-end tax strategies
Q Is it true that I can prepay some of my 2010 expenses and deduct them on my 2009 tax return?
A Yes. There are several things you can do. If you don't think your personal income tax bracket will be higher next year, and you're not affected by the alternative minimum tax, you can make state and/or local tax payments before the end of this year so you can take a deduction this year. This includes property taxes and quarterly estimated state income taxes.
If you're self-employed, stock up: This is the time to buy all of the business equipment and supplies you haven't yet purchased. Make sure to mark and save your receipts.
And, you can pay your January 1st mortgage payment on or before December 31st: This allows you to take an additional deduction for interest paid. Remember to add the interest amount to the amount reported by your lender when they send you a 1098 form.
Also, you may be able to defer income: Unless you have reason to believe that next year will bring you a higher income and move you into a higher personal income tax bracket, you may want to defer income until after the first of the year. If you are self-employed, for example, send the last invoices out late in December so you will more likely receive payment in January.
A Yes. There are several things you can do. If you don't think your personal income tax bracket will be higher next year, and you're not affected by the alternative minimum tax, you can make state and/or local tax payments before the end of this year so you can take a deduction this year. This includes property taxes and quarterly estimated state income taxes.
If you're self-employed, stock up: This is the time to buy all of the business equipment and supplies you haven't yet purchased. Make sure to mark and save your receipts.
And, you can pay your January 1st mortgage payment on or before December 31st: This allows you to take an additional deduction for interest paid. Remember to add the interest amount to the amount reported by your lender when they send you a 1098 form.
Also, you may be able to defer income: Unless you have reason to believe that next year will bring you a higher income and move you into a higher personal income tax bracket, you may want to defer income until after the first of the year. If you are self-employed, for example, send the last invoices out late in December so you will more likely receive payment in January.
Update on Homebuyers' Tax Credit
Q Is it true that the First-time Homebuyer’s Tax Credit is continuing beyond December?
A Yes. President Obama signed an extension and expansion of the first-time homebuyer’s tax credit recently. The $8,000 credit was scheduled to lapse on Dec. 1, 2009, but will now be in effect through the end of June 2010. Homebuyers must sign a contract before April 30 and close by June 30, 2010. The income limits were also raised: Single buyers can now earn up to $125,000 and still get the full credit while a married couple can earn $225,000.
The bill also made more homeowners eligible to claim the credit on their taxes. First-time buyers -- those who have not owned a home in the past three years -- still qualify for an $8,000 rebate. But now people who want to trade up can also qualify. Those who have owned and occupied a residence for at least five years out of the past eight can claim a $6,500 tax credit if they close on a purchase by the end of June.
Homebuyers who purchase a home in 2009 or 2010 (or purchased a home in 2008) may be able to take advantage of the first-time homebuyer credit. The credit:
- Applies only to homes used as a taxpayer's principal residence.
- Reduces a taxpayer's tax bill or increases his or her refund, dollar for dollar.
- Is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.
Monday, July 13, 2009
Hiring Your Children
Q My wife and I are sole proprietors of a small business. Is it true that we get a tax break if we hire our own children?
A Yes, it is. No Social Security tax is due when sole proprietors or husband-wife partnerships hire their under-age-18 kids. And Federal unemployment tax isn’t owed on the kids’ pay until they reach 21. The children must actually work and perform services for the business.
Be aware, however, that your children’s’ unearned income may become taxable at your marginal tax rate if their unearned income is above $1,800.
A Yes, it is. No Social Security tax is due when sole proprietors or husband-wife partnerships hire their under-age-18 kids. And Federal unemployment tax isn’t owed on the kids’ pay until they reach 21. The children must actually work and perform services for the business.
Be aware, however, that your children’s’ unearned income may become taxable at your marginal tax rate if their unearned income is above $1,800.
Sunday, July 12, 2009
Getting a Tax Return Copy from the IRS
Q I need a copy of my 2007 tax return. How can I order one?
A If you need an exact copy of a previously filed and processed tax return and all attachments (including Form W-2), you should complete Form 4506 (PDF), Request for Copy of Tax Return, and mail it to the address listed in the instructions, along with a $57.00 fee for each tax year requested. The check or money order for the fee should be made payable to the "United States Treasury". Copies are generally available for returns filed in the current and past six years. Copies of jointly filed tax returns may be requested by either spouse and only one signature is required. Allow 60 calendar days to receive your copies.
Most needs for tax return information can be met with a computer print-out of your return information called a "transcript". A transcript may be an acceptable substitute for an exact copy of a return for most government agentcies, student loans, and mortgages. A "tax return transcript" will show most line items contained on the return as it was originally filed.
If you need a statement of your tax account which shows changes that you or the IRS made after the original return was filed, however, you must request a "tax account transcript".
Both transcripts are generally available for the current and past three years and are provided free of charge. The period in which you will receive the transcript varies from within ten to thirty business days from the time the IRS receives your request for the tax return or tax account transcript.
You can obtain a transcript by calling 800–829–1040 and following the prompts in the recorded message or by completing and mailing Form 4506-T (PDF), Request for Transcript of Tax Return, to the address listed in the instructions. Forms can be downloaded at www.irs.gov.
A If you need an exact copy of a previously filed and processed tax return and all attachments (including Form W-2), you should complete Form 4506 (PDF), Request for Copy of Tax Return, and mail it to the address listed in the instructions, along with a $57.00 fee for each tax year requested. The check or money order for the fee should be made payable to the "United States Treasury". Copies are generally available for returns filed in the current and past six years. Copies of jointly filed tax returns may be requested by either spouse and only one signature is required. Allow 60 calendar days to receive your copies.
Most needs for tax return information can be met with a computer print-out of your return information called a "transcript". A transcript may be an acceptable substitute for an exact copy of a return for most government agentcies, student loans, and mortgages. A "tax return transcript" will show most line items contained on the return as it was originally filed.
If you need a statement of your tax account which shows changes that you or the IRS made after the original return was filed, however, you must request a "tax account transcript".
Both transcripts are generally available for the current and past three years and are provided free of charge. The period in which you will receive the transcript varies from within ten to thirty business days from the time the IRS receives your request for the tax return or tax account transcript.
You can obtain a transcript by calling 800–829–1040 and following the prompts in the recorded message or by completing and mailing Form 4506-T (PDF), Request for Transcript of Tax Return, to the address listed in the instructions. Forms can be downloaded at www.irs.gov.
Saturday, July 11, 2009
IRS Online Withholding Calculator
Q I have been working all year. My husband did not work during the first months of the year, but he just started a new job. How do I know if we are having the correct amount of federal income tax withheld from our checks?
A The IRS has a great ‘Withholding Calculator’ on their website at:
http://www.irs.gov/individuals/article/0,,id=96196,00.html?portlet=7
The purpose of the calculator is to help employees to ensure that they do not have too much or too little income tax withheld from their pay. It is not a replacement for Form W-4, but most people will find it more accurate and easier to use than the worksheets that accompany Form W-4.
With the information from the calculator, you can complete a new Form W-4, which you will submit to your employer.
A The IRS has a great ‘Withholding Calculator’ on their website at:
http://www.irs.gov/individuals/article/0,,id=96196,00.html?portlet=7
The purpose of the calculator is to help employees to ensure that they do not have too much or too little income tax withheld from their pay. It is not a replacement for Form W-4, but most people will find it more accurate and easier to use than the worksheets that accompany Form W-4.
With the information from the calculator, you can complete a new Form W-4, which you will submit to your employer.
Friday, July 10, 2009
Personal use of 'work' cell phone
Q My employer provides me with a cell phone as part of my job. Do I have to keep track of my personal use of my ‘work’ cell phone and pay taxes on it?
A No. IRS Commissioner Doug Shulman recently released a statement saying that the IRS is taking the position that there will be no tax consequence to employers or employees for personal use of work-related devices such as cell phones provided by employers. “The passage of time, advances in technology, and the nature of communication in the modern workplace have rendered this law obsolete.”
A No. IRS Commissioner Doug Shulman recently released a statement saying that the IRS is taking the position that there will be no tax consequence to employers or employees for personal use of work-related devices such as cell phones provided by employers. “The passage of time, advances in technology, and the nature of communication in the modern workplace have rendered this law obsolete.”
Deducting job search expenses
Q I’ve been spending a lot of time this summer polishing my résumé and attending career fairs. Can I deduct some of my job search expenses on my tax return?
A Here are the top six things the IRS wants you to know about deducting costs related to your job search.
1 In order to deduct job search costs, 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.
2 You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year.
3 You can deduct amounts you spend for preparing and mailing copies of a résumé to prospective employers as long as you are looking for a new job in your present occupation.
4 If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can only deduct the travel expenses if the trip is primarily to look for a new job. 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 primarily personal or is primarily to look for a new job.
5 You cannot deduct job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one.
6 You cannot deduct job search expenses if you are looking for a job for the first time.
For more information about job search expenses, see IRS Publication 529, Miscellaneous Deductions. This publication is available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676).
A Here are the top six things the IRS wants you to know about deducting costs related to your job search.
1 In order to deduct job search costs, 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.
2 You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year.
3 You can deduct amounts you spend for preparing and mailing copies of a résumé to prospective employers as long as you are looking for a new job in your present occupation.
4 If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can only deduct the travel expenses if the trip is primarily to look for a new job. 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 primarily personal or is primarily to look for a new job.
5 You cannot deduct job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one.
6 You cannot deduct job search expenses if you are looking for a job for the first time.
For more information about job search expenses, see IRS Publication 529, Miscellaneous Deductions. This publication is available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676).
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