End of the Year Tax Planning

With only 2 1/2 weeks of the year left, are there ways you can reduce your 2010 tax bill?

The first question is, will you itemize deductions or use the standard deduction? If you don't itemize, last minute tax strategies are limited. So many of these strategies only apply to itemizers. (The catch: unless you pay home mortgage interest, it usually doesn't pay to itemize.)

Strategy 1: make additional charitable contributions before December 31. Cash contributions are the first thing that comes to mind, but this is a good time to make non-cash contributions, as well. Go through your closets and food pantry to see if you have food or used items to donate.

Remember: the gift must be to a charitable organization recognized by the IRS. Gifts to individuals do not qualify.

You should get a receipt from the organization with a description of the donated property, the date, and the name and address of the charity. Vehicles and items over $500 have additional documentation requirements.

Only items in "good used condition or better" qualify for deduction.

Mileage doing charitable work or delivering charitable gifts is deductible. Keep good records.

IRS Seeks to Return $164.6 Million in Undelivered Checks to Taxpayers

The Internal Revenue Service is looking to return $164.6 million in undelivered refund checks. A total of 111,893 taxpayers are due one or more refund checks that could not be delivered because of mailing address errors.

“We want to make sure taxpayers get the money owed to them,” said IRS Commissioner Doug Shulman. “If you think you are missing a refund, the sooner you update your address information, the quicker you can get your money.”

A taxpayer only needs to update his or her address once for the IRS to send out all checks due. Undelivered refund checks average $1,471 this year, compared to $1,148 last year. Some taxpayers are due more than one check.

If a refund check is returned to the IRS as undelivered, taxpayers can generally update their addresses with the “ Where’s My Refund?” tool on IRS.gov. The tool also enables taxpayers to check the status of their refunds. A taxpayer must submit his or her Social Security number, filing status and amount of refund shown on their 2009 return. The tool will provide the status of their refund and, in some cases, instructions on how to resolve delivery problems.

Taxpayers checking on a refund over the phone will receive instructions on how to update their addresses. Taxpayers can access a telephone version of “Where’s My Refund?” by calling 1-800-829-1954.

While only a small percentage of checks mailed out by the IRS are returned as undelivered, taxpayers can put an end to lost, stolen or undelivered checks by choosing direct deposit when they file either paper or electronic returns. Taxpayers can receive refunds directly into their bank, split a tax refund into two or three financial accounts or even buy a savings bond.

The IRS also recommends that taxpayers file their tax returns electronically, because e-file eliminates the risk of lost paper returns. E-file also reduces errors on tax returns and speeds up refunds. E-file combined with direct deposit is the best option for taxpayers; it’s easy, fast and safe.

The public should be aware that the IRS does not contact taxpayers by e-mail to alert them of pending refunds and that such messages are common identity theft scams. The agency urges taxpayers not to release any personal information, reply, open any attachments or click on any links to avoid malicious code that will infect their computers. The best way for an individual to verify if she or he has a pending refund is going directly to IRS.gov and using the “ Where’s My Refund?” tool.

From: http://www.irs.gov/newsroom/article/0,,id=231551,00.html

Estate planning: DIY or pro?

In this economy, smart consumers are tackling projects they used to turn to pros to handle in an effort to save. Can you do that with estate planning? Experts generally agree that there are a few aspects of estate planning you can take on yourself. But trying to handle others on your own would be supremely unwise.

What you can do
An advanced health care directive, also called a health care proxy, designates who your health care agent -- or who can affect your medical decisions -- will be if you become incapacitated. You can get that online, but it's essential to update it occasionally because it may expire.

Another document you can execute easily is a Health Insurance Portability and Accountability Act, or HIPAA, release. It's really essential so that your family members can speak to your physician about your medical condition without liability to your physician. You can also do that through an online form.

Though a durable power of attorney -- which allows others to control your finances -- may seem like another simple form you can execute yourself, experts have reservations about executing one without legal assistance. Typically, a durable power of attorney "springs" into effect when a specified event triggers it. That event could be your incapacitation, or it could simply be your unavailability for a scheduled real estate closing.

You can inadvertently grant unlimited access to their finances because if a durable power of attorney isn't filled out properly, it's not springing. Where people also need counsel is determining the proper person to act for them. What attributes does that person need to properly act on your behalf? Just because people are relatives doesn't mean they're the best people to do that.

What may be risky to handle yourself
Many companies sell form wills and trusts you can download and execute yourself. Creating a will on your own is appropriate only in limited circumstances, and doing the same for a trust is truly risky.
Online estate planning documents may work very well if you want to leave your assets outright to one or two people, and those people have virtually no legal or financial problems. Before you do estate planning on your own, attorneys suggests asking yourself these questions:

How big is my estate?
Who am I leaving it to, and are they minors, or do they have issues like angry creditors I need to plan around?
How am I leaving it to them, such as through a will or a trust?


There are some situations in which expert advice is truly necessary. Get professional help in these situations:

Hire a pro if:
Anyone in your family has a disability.
You're in a blended family.
You have assets and insurance in excess of the current estate tax exemption of $3.5 million.
You own real estate outside of your state of residence.

Also ask yourself whether you truly know the intricacies of will-drafting and are willing to take the risk of committing an easy-to-make mistake that will wholly invalidate your will. Many states don't recognize holographic -- or handwritten -- wills. Most states also require one or two witnesses and some evidence that the person making the will is competent and not under duress. You also can't do a videotaped will.

The most important thing to remember about DIY estate planning is that if you make a mistake that invalidates your will, the entire document will be thrown out. Many people think an invalid will still influence(s) where your assets go, but it doesn't. If you have an invalid will because of a failure in the execution of the document, your state's law of intestate succession steps in.

Also be brutally honest with yourself about whether you truly understand what will happen to the proceeds of all the contractual estate planning agreements you've entered into over your lifetime. Contract law covers things like U.S. savings bonds and bank accounts, which are almost always held in joint tenancy with a right of survivorship. There are also pay-on-death accounts in which you open an account, check a box as payable on death and name somebody to receive those funds. Retirement plans, individual retirement accounts and life insurance policies also have beneficiary forms."

Will you know when changes are necessary?

Finally, remember that an expert can help you identify when changes in the law make it necessary to update your estate planning documents. Sometimes people think that when they've done estate planning, they never have to look at those documents again.

Final words of caution: there are a number of people who don't consult estate planning experts because they don't want to spend the money. But estate planning is something that if you make a mistake, there's no way to correct it because you're no longer around. If you don't pay to have estate planning documents done properly now, your heirs will probably pay more than you'll have ever paid a professional to do them. In many ways, the most selfless thing you'll ever do is to make sure your children or heirs will receive your assets in the best and least costly way possible.

From: http://www.bankrate.com/system/util/print.aspx?p=/finance/personal-finance/estate-planning-diy-or-pro-2.aspx&s=br3_b&c=investing&t=guide&e=1&v=1

New Rules Require Rental Property Owners to Issue 1099s

The recently enacted Small Business Jobs Act contained one provision that may have escaped the notice of taxpayers who own rental property, but will affect them starting in January. Under the provision, owners of property who receive rental income will be required to issue Forms 1099 to service providers for payments of $600 or more during the year.

The act subjects recipients of rental income from real estate to the same information-reporting requirements as taxpayers engaged in a trade or business. Thus, rental income recipients making payments of $600 or more to a service provider in the course of earning rental income are required to provide an information return (typically, Form 1099-MISC, Miscellaneous Income) to the IRS and to the service provider. This provision will apply to payments made after Dec. 31, 2010, and will cover, for example, payments made to plumbers, painters or accountants in the course of earning the rental income.

While rental property owners will not actually issue the required 1099s until early 2012, they need to start keeping adequate records of payments starting Jan. 1, 2011, so they will be prepared to issue correct 1099s. They will also need to obtain the name, address and taxpayer identification number of the service provider, using Form W-9 or a similar form.

Exceptions

The law provides exceptions for individuals who can show that the requirement will create a hardship for them. The IRS is directed to issue regulations on this, but has not done so yet, so there is currently no guidance on what constitutes sufficient hardship to qualify for the exception or how a taxpayer would demonstrate that hardship.

The law also contains an exception for individuals who receive rental income of “not more than a minimal amount.” Again, the IRS is directed to issue regulations to determine what constitutes “not more than a minimal amount” but has not done so yet.

If such guidance is not forthcoming before Jan.1, all individuals who receive rental income should start keeping records of payments to service providers so they are prepared to issue 1099s in 2012.

The law also contains an exception for members of the military or employees of the intelligence community if substantially all their rental income comes from renting their principal residence on a temporary basis.

Voters Decide Numerous Tax Measures on Nov. 2 Ballot

Below are a few of the ballot measures decided yesterday:

Washington State
Voters approved a measure to reinstate the previously suspended requirement that tax increases must be approved by a two-thirds majority in the Legislature or receive voter approval. Initiative 1053 (TAXDAY, 2010/07/21, S.30)

Voters rejected a measure to enact the state's first personal income tax (to have been imposed on "adjusted gross income" above $200,000 for individuals and $400,000 for joint filers), reduce the limit on statewide property taxes by 20%, and increase the business and occupation tax credit to $4,800. Initiative 1098 (TAXDAY, 2010/07/21, S.29)

Voters approved a measure to eliminate the sales tax on candy and bottled water and the excise tax on sales of carbonated beverages and reinstate a reduced business and occupation tax rate for processors of certain foods. Initiative 1107 (TAXDAY, 2010/07/30, S.20)

Voters rejected a measure to extend the sales tax on bottled water beyond its scheduled expiration date, in order to fund energy-saving improvements in schools and public buildings. Referendum Bill 52 (TAXDAY, 2010/05/06, S.32)

Florida

Voters approved an amendment to the state constitution to provide an additional homestead property tax exemption for deployed members of the military. Amendment 2

Virginia

Voters approved an amendment to the state constitution to authorize legislation letting localities set their own income or financial worth limitations for property tax exemptions for persons 65 years of age or older or for people permanently and totally disabled. Question 1

Voters approved an amendment to the state constitution to provide a property tax exemption for the principal residence of a disabled veteran or surviving spouse. Question 2

California

Voters approved a measure to change the legislative vote necessary to pass the state budget from two-thirds to a simple majority. It does not affect the existing requirement for a two-thirds vote to raise taxes. Proposition 25

Voters approved a measure to expand the definition of a "tax" that must be approved by a two-thirds vote of the Legislature, or a vote of the electorate in the case of local taxes. It also provides that any state tax adopted since January 1, 2010, that was not adopted in compliance with this requirement is void within twelve months, unless it is reenacted in such compliance. Proposition 26

Voters rejected a measure to impose an $18 annual vehicle license fee to maintain state parks. Proposition 21

Missouri

Voters approved a measure to repeal local authority to enact future earnings taxes and require Kansas City and St. Louis voters to reauthorize continuation of the existing earnings taxes in those cities. Proposition A

Voters approved an amendment to the state constitution to prohibit any new tax on the sale or transfer of real estate. Amendment 3

Voters approved an amendment to the state constitution to exempt from property tax the homestead of a disabled former prisoner of war. Amendment 2

Massachusetts

Voters approved a measure to eliminate the sales tax on sales of alcoholic beverages and alcohol that are already subject to a separate state excise tax. Question 1

Voters rejected a measure to reduce the state sales and use tax rate to 3% from the current 6.25%. Question 3

Important Facts about the Nonbusiness Energy Property Credit

Taxpayers who take energy saving steps this year may get bigger tax savings next year. The Nonbusiness Energy Property Credit, a tax credit for making energy efficient improvements to homes has been increased as part of the American Recovery and Reinvestment Act of 2009.

Here are seven things the IRS wants you to know about the Nonbusiness Energy Property Credit:

1. The new law increases the credit rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 claimed for 2009 and 2010 combined.

2. The credit applies to improvements such as adding insulation, energy-efficient exterior windows and energy-efficient heating and air conditioning systems.

3. To qualify as "energy efficient" for purposes of this tax credit, products generally must meet higher standards than the standards for the credit that was available in 2007.

4. Manufacturers must certify that their products meet new standards and they must provide a written statement to the taxpayer such as with the packaging of the product or in a printable format on the manufacturers' Website.

5. Qualifying improvements must be placed into service after December 31, 2008, and before January 1, 2011.

6. The improvements must be made to the taxpayer's principal residence located in the United States.

7. To claim the credit, attach Form 5695, Residential Energy Credits to either the 2009 or 2010 tax return. Taxpayers must claim the credit on the tax return for the year that the improvements are made.

Homeowners who have been considering some energy efficient home improvements may find these tax credits will get them bigger tax savings next year. (IRS.gov)

Eight Small Business Tax Cuts Providing Immediate Incentives to Invest:

Below are eight new tax cuts that affect small businesses.

1. Zero Taxes on Capital Gains from Key Small Business Investments: Under the Recovery Act, 75 percent of capital gains on key small business investments this year were excluded from taxes. The Small Business Jobs Act temporarily puts in place for the rest of 2010 a provision called for by the President – elimination of all capital gains taxes on these investments if held for five years. Over one million small businesses are eligible to receive investments this year that, if held for five years or longer, could be completely excluded from any capital gains taxation.

2. Extension and Expansion of Small Businesses’ Ability to Immediately Expense Capital Investments: The bill increases for 2010 and 2011 the amount of investments that businesses would be eligible to immediately write off to $500,000, while raising the level of investments at which the write-off phases out to $2 million. Prior to the passage of the bill, the expensing limit would have been $250,000 this year, and only $25,000 next year. This provision means that 4.5 million small businesses and individuals will be able to make new business investments today and know that they will earn a larger break on their taxes for this year.

3. Extension of 50% Bonus Depreciation: The bill extends – as the President proposed in his budget – a Recovery Act provision for 50 percent “bonus depreciation” through 2010, providing 2 million businesses, large and small, with the ability to make new investments today and know they can receive a tax cut for this year by accelerating the rate at which they deduct capital expenditures.

4. A New Deduction of Health Insurance Costs for Self-Employed: The bill allows 2 million self-employed to know that on their taxes for this year, they can get a deduction for the cost of health insurance for themselves and their family members in calculating their self-employment taxes. This provision is estimated to provide over $1.9 billion in tax cuts for these entrepreneurs.

5. Tax Relief and Simplification for Cell Phone Deductions: The bill changes rules so that the use of cell phones can be deducted without burdensome extra documentation – making it easier for virtually every small business in America to receive deductions that they are entitled to, beginning on their taxes for this year.

6. An Increase in the Deduction for Entrepreneurs’ Start-Up Expenses: The bill temporarily increases the amount of start-up expenditures entrepreneurs can deduct from their taxes for this year from $5,000 to $10,000 (with a phase-out threshold of $60,000 in expenditures), offering an immediate incentive for someone with a new business idea to invest in starting up a new small business today.

7. A Five-Year Carryback Of General Business Credits: The bill would allow certain small businesses to “carry back” their general business credits to offset five years of taxes – providing them with a break on their taxes for this year – while also allowing these credits to offset the Alternative Minimum Tax, reducing taxes for these small businesses.

8. Limitations on Penalties for Errors in Tax Reporting That Disproportionately Affect Small Business: The bill would change, beginning this year, the penalty for failing to report certain tax transactions from a fixed dollar amount – which was criticized for imposing a disproportionately large penalty on small businesses in certain circumstances – to a percentage of the tax benefits from the transaction.

One-Time Filing Relief for Small Organizations that Failed to File

The Internal Revenue Service announced today that small nonprofit organizations at risk of losing their tax-exempt status because they failed to file required returns for 2007, 2008, and 2009 can preserve their exempt status by filing returns by October 15, 2010.

Two types of relief are available for small exempt organizations -a filing extension for the smallest organizations required to file Form 990-N, Electronic Notice (e-Postcard), and a voluntary compliance program (VCP) for small organizations eligible to file Form 990-EZ, Short Form Return of Organization Exempt From Income Tax.

Find more information about the filing relief program on IRS.gov.

Tax Benefits for Job Seekers

Did you know that you may be able to deduct some of your job search expenses on your tax return?

Many taxpayers spend time during the summer months updating their résumé and attending career fairs. If you are searching for a job this summer, you may be able to deduct some of your expenses on your tax return. Here are six things the IRS wants you to know 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 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.

You can deduct amounts you spend for preparing and mailing copies of your résumé to prospective employers as long as you are looking for a new job in your present occupation.

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.

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, and 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 IRS.gov or by emailing me at lancewgurel@gurelcpa.com

Getting Married? Don't forget the IRS.

Getting married? Newlyweds can help make the wedded bliss last longer by doing a few things now to avoid problems at tax time.

First, report any name change to the Social Security Administration before you file your next tax return.

Next, report any address change to the Postal Service, your employer and the IRS to make sure you get tax-related items.

Finally, use the Withholding Calculator at IRS.gov to make sure your withholding is correct now that there are two of you to consider.

Estimated Tax Payments

Estimated tax is the method used to pay tax on income that is not subject to withholding. This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes and awards. You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough.

Estimated tax is used to pay both income tax and self-employment tax, as well as other taxes and amounts reported on your tax return. If you do not pay enough through withholding or estimated tax payments, you may be charged a penalty. If you do not pay enough by the due date of each payment period you may be charged a penalty even if you are due a refund when you file your tax return.

You must pay estimated tax for 2010 if you had a tax liability for 2009 and both of the following apply: you expect to owe at least $1,000 in tax for 2010 after subtracting your withholding and credits, and you expect your withholding and credits to be less than the smaller of 90% of the tax to be shown on your 2010 tax return, or 100% of the tax shown on your 2008 tax return.

To figure your estimated tax, you must figure your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year.

When figuring your 2010 estimated tax, it may be helpful to use your income, deductions, and credits for 2009 as a starting point. Use your 2009 federal tax return as a guide. You can use the worksheet in Form 1040-ES (PDF) to figure your estimated tax. If you estimated your earnings too high, simply complete another Form 1040-ES worksheet to refigure your estimated tax for the next quarter. If you estimated your earnings too low, again complete another Form 1040-ES worksheet to recalculate your estimated taxes for the next quarter. You want to estimate your income as close as you can to avoid penalties.

For estimated tax purposes, the year is divided into four payment periods. Each period has a specific payment due date. Generally, estimated tax payments are due on April 15, June 15, September 15, and January 15. If you do not pay enough tax by the due date of each of the payment periods, you may be charged a penalty even if you are due a refund when you file your income tax return.

Using the EFTPS system is the easiest way to pay your federal taxes for individuals as well as businesses. Make ALL of your federal tax payments including federal tax deposits (FTDs), installment agreement and estimated tax payments using Electronic Federal Tax Payment System (EFTPS). If it is easier to pay your estimated taxes weekly, bi-weekly, monthly, etc. you can, as long as you have paid enough in by the end of the quarter. Using EFTPS, you can access a history of your payments, so you know how much and when you made your estimated tax payments.

Please contact me for a free consultation and evaluation of your need to pay estimated tax payments.

Did you have a Net Operating Loss (NOL) in 2009?

Did you experience a loss from your business last year? If so, you may have a Net Operating Loss (NOL).

In certain situations, the IRS allows taxpayers to use the losses in one year to offset the profits of other years. This provision is achieved through the carryback (as far back as 5 years per the American Recovery and Reinvestment Act of 2009 ) and carryforward of NOLs. In other words, you can deduct an NOL from one year from your income in another year or years.

For example, if you had an NOL from 2009, your Adjusted Gross Income (AGI) was negative and you did not pay any income tax for 2009. But if you had higher income in 2004, 2005, 2006 or 2007, you can 'carryback' and net the 2009 NOL with the income from the previous year and receive a refund of taxes you paid in the previous year.

Or you can elect to carryforward the NOL, in which case you net the NOL with your 2010 income. If the NOL is not completely taken up by your 2010 income, it carries forward to 2011 and so forth, up to 20 years, until the entire NOL is used.
Please contact me for a full, free consultation to see if you have an NOL.

Online Payment Agreements with the IRS

Paying your taxes in full and on time avoids unnecessary penalties and interest. However, if you cannot pay your taxes in full, you may request a payment agreement.

Individuals who owe $25,000 or less in combined tax, penalties, and interest can use the Online Payment Agreement (OPA) application to request a payment agreement. This application will allow you (or your authorized representative if you have given power of attorney) to qualify, apply for an installment agreement, and receive immediate notification of approval. There are fees to pay by installment agreement.

The online payment agreement process is fairly easy, but you also have the option to apply for an agreement by telephone.

The IRS will usually accept a payment arrangement that provides for paying your tax bill within five (5) years, so that is a good amount to suggest as a payment. (Divide your tax bill by 60 to arrive at a monthly payment amount.)

Notes: you must file all tax returns and pay all taxes when due if you are in a payment agreement.

Increase your take-hope pay with Advance Earned Income Tax Credit Payments

If you expect to be eligible for the EIC this year (2010) and have a qualifying child, you can choose to get payments of the EIC in your paycheck now instead of waiting to get your EIC all at once in 2011 when you file your tax return for the year 2010. These payments are called Advance EIC payments.

To be eligible receive Advance EIC, you must be eligible for Earned Income Tax Credit payments for 2010, you must have at least one qualifying child, and you must expect that your 2010 earned income and adjusted gross income (AGI) will each be less than $35,535 ($40,545 if you expect to file a joint return for 2010).

You may get only part of your EIC during the year in advance payments - no more than $1,830 throughout 2010. You will get the rest of any EIC you are entitled to when you file your 2010 tax return and claim the EIC. You will get the rest of the EIC you are entitled to when you file your tax return in 2011 and claim the EIC.

How do you begin receiving Advance EIC through your paycheck? Fill out Form W-5 and give it to your employer. You may have only one Form W-5 in effect at one time. If you and your spouse are both employed, you should file separate Forms W-5. This Form W-5 expires on December 31, 2010. If you are eligible to get advance EIC payments for 2011, you must file a new Form W-5 next year.

If you receive advance payments of EIC in 2010, you must file a 2010 tax return (even if you would not otherwise have to file) to report the payments and claim any additional EIC. Box 9 of your Form W-2 will show the amount you received. See the instructions for Form 1040 or Form 1040A for the line number on which you report advance payments of EIC.

If you receive advance payments of EIC in 2010, and you later find out that you are not eligible for some or all of them, you still must report them on your tax return.

Email me today for more information or a copy of Form W-5. Form W-5 is also available at http://www.irs.gov/pub/irs-pdf/fw5.pdf

Don’t Panic! Things to Know If You Receive an IRS Notice

The Internal Revenue Service sends millions of letters and notices to taxpayers every year. Here are some things you should know about IRS notices – just in case one shows up in your mailbox.

First, don’t panic. Many of these letters can be dealt with simply and painlessly.

There are a number of reasons why the IRS might send you a notice. Notices may request payment of taxes, notify you of changes to your account, or request additional information. You may receive a notice if a W-2 or 1099 was issued to you, but you did not include the income on your tax return. The notice you receive normally covers a very specific issue about your account or tax return. Each letter and notice offers specific instructions on what you are asked to do to satisfy the 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, then usually no reply is necessary unless a payment is due or the notice directs otherwise.

If you do not agree with the correction the IRS made, it is important that you respond within the time limit specified on the letter. If you do not respond in a timely manner, you may lose some of your rights to appeal or contest the correction.

Often, a simple phone call is all that is needed.

But, most importantly, do not ignore the IRS. They will not go away just because you ignore them.

If you would like help responding to an IRS notice, contact me immediately for a free consultation on your options.

Net Operating Losses

Q - I suffered a business loss in 2009. Please explain the options to carryback or carryforward the loss?

A - Here is the situation and the choices you have with your 2009 Net Operating Loss (NOL):

You can carryback the NOL two years. This is the default if you do not elect to forgo the carryback and only carryforward. Any of the NOL not taken up by the 2nd previous year (2007 for a 2009 NOL) carries forward to the 1st previous year (2008), then carries forward to 2010 and on for 20 years if not taken up.

If you carryback, you must carry back to the 2nd previous year first: you cannot begin the carryback with 2008 for a 2009 NOL.

Or,

You can elect to forgo the carryback and instead carryforward 20 years beginning with 2010.

Or,

You may be able to elect a carryback of 3, 4, or 5 years under special rules for 2008 and 2009 NOLs. To make this election, you must have made the election with your filed 2009 tax return. If you already filed your 2009 tax return, you will need to amend your 2009 tax return to make the election. There is a limit of 50% of income offset for carrybacks to the 5th year (2004, for a 2009 NOL). There are other restricts to the 3, 4 or 5 year carryback, which I will be happy to discuss with you.

So, you may be able to begin the NOL in 2004, 2005, 2006, 2007, or 2010, whichever suits your tax situation best.

Here’s What Happens After You File - Refund Information

You can go online to check the status of your 2009 refund 72 hours after IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after you mail a paper return.

Be sure to have a copy of your 2009 tax return available because you will need to know your filing status, the first Social Security number shown on the return, and the exact whole-dollar amount of the refund.

You have two automated options for checking on your refund:
• Go to IRS.gov, and click on "Where’s My Refund" or "¿Dónde está mi reembolso?"
• Call 1-800-829-4477 24 hours a day, seven days a week for automated refund information

What Records Should I Keep?
Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRAs and business or rental property — should be kept longer.
You should keep copies of tax returns you have filed and the tax forms package as part of your records. They may be helpful in amending already filed returns or preparing future returns.

Change of Address
If you move after you filed your return, you should send Form 8822, Change of Address to the Internal Revenue Service. If you are expecting a refund through the mail, you should also file a change of address with the U.S. Postal Service.

Email me with questions or visit IRS.gov for more information on refunds, recordkeeping, and address changes.

Keeping Tax Records

Q - How long should I keep tax records?

A - There are many records you have that may help document items on your tax returns. You’ll need this documentation should the IRS select your return for examination.

Normally, tax records should be kept for three years.

Some documents — such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property — should be kept longer. You should keep documents related to long lived assets for as long as you own the asset.

In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your federal tax return for at least three years beyond the date the tax return was originally due.

Records you should keep include bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return.

For more information on what kinds of records to keep, see IRS Publication 552, Recordkeeping for Individuals, which is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Ways to Pay Your Federal Income Tax

Q - I can't pay the entire amount I owe for income taxes by April 15. What are my options?

A - People who owe taxes but can’t pay the full amount owed by the April deadline should still file their return on time and pay as much as they can to avoid penalties and interest.

If you can’t pay the full amount, you can contact the IRS to ask about alternative payment options. Here are some of the alternative payment options you may want to consider.

Based on your circumstances, you may be granted a short additional time to pay your tax in full. A brief additional amount of time to pay can be requested through the Online Payment Agreement application at IRS.gov or by calling 800-829-1040.

Taxpayers who request and are granted an additional 30 to 120 days to pay the tax in full generally will pay less in penalties and interest than if the debt were repaid through an installment agreement over a greater period of time.


Or, you can apply for an IRS installment agreement using the Web-based Online Payment Agreement application on IRS.gov. This Web-based application allows taxpayers who owe $25,000 or less in combined tax, penalties and interest to self-qualify, apply for, and receive immediate notification of approval. Generally, the IRS with accept a payment amount that will pay off your tax debt in five years. (Divide the amount you owe by 60 months to arrive at the suggested minimum monthly payment.)

You may make additional, unscheduled payments when you are on an installment payment agreement, and you can pay the full amount off early at any time.

This option provides you with a simple and convenient way to establish an installment agreement and eliminates the need for personal interaction with IRS and reduces paper processing.

You may also complete and submit a Form 9465, make your request in writing, or call 1-800-829-1040 to make your request. For balances over $25,000, you are required to complete a financial statement to determine the monthly payment amount for an installment plan.

I will be happy to help you with any of these options.


You can charge your taxes on your American Express, MasterCard, Visa or Discover credit cards. Additionally, you can pay by using your debit card. There is no IRS fee for credit or debit card payments, but the processing companies charge a convenience fee or flat fee. Do not add the convenience fee or flat fee to your tax payment.

I will File your Income Tax extension for FREE with no obligation

April 15 is around the corner. I will file your automatic six month extension with the IRS for your individual income tax return for FREE with no obligation for me to prepare your tax return.

We can do this online or from your smart phone...it's easy and it will save expensive failure-to-file penalties.

Remember: if you owe money, you are required to estimate and pay what you owe by April 15, even if you have an extension. An extension will not relieve you of failure-to-pay penalties if you owe tax and under-estimated.

If your tax situation is simple and you're comfortable with computers, there are many good, free tax prep methods out there. Maybe you can file online yourself.

But if your tax and financial situation is more complex, you could be leaving money with the IRS. Do you really want to do that?

Consultations are always free.

Are you happy with your CPA/tax preparer? Isn't it time you had a CPA of your own?

Charitable Deduction for Reduced Rent? Part 2

Here is the same situation, but the question is coming from the not-for-profit...

Q - We are a not-for-profit; we asked our landlord to lower our rent by $500. He said he would agree if we gave him a receipt saying he had donated $500. Can we do this since we did not actually receive the $500? How do we balance our books if no contribution was actually received?

A - It is quite proper for you to give the landlord a contribution receipt for his gift-in-kind contribution.

The not-for-profit records gift-in-kind income to recognize the transaction. The books balance the contribution income with rental expense. Rental expense is recorded just as it would if cash had been spent. Again, it is a wash transaction. But there was a real donation of the rental space that the organization can recognize.

Many organizations don't properly recognize all of the gift-in-kind income they receive by way of donated services. However, not all donated services should be recognized, only those that the organization would have had to spend cash on if they had not been donated. Examples are legal, accounting, or other professional services. Normal 'volunteer' activities that a person performs for the organization are not included.

Charitable Deduction for Reduced Rent?

Q - I own a building that I rent to a non profit organization for $500/month. If I decide to lower the rent to $400/month, can I ask for a receipt stating I gave the organization $100/month as a donation and use that for a tax deduction?

A - Basically, no.

In order to claim a charitable deduction of the $100, you would have to report $500 in income. The IRS would look at your situation as a wash transaction: it is as though you received the full $500 in rent, and then turned around and donated $100 in a separate transaction.

The situation could even be worse by recognizing the contribution if you do not itemize deductions: you would be reporting the full $500 in rent and you wouldn't be able to deduct the charitable contribution because you didn't itemize.

The IRS only recognizes gifts of property as charitable contributions, not gifts of services or gifts of the partial use of property.

Disability Income

Q I received disability income while I was off from work for several months. Now my employer is telling me I have to pay taxes on that money. Is this true?

A If you receive income for personal injury or sickness, the income is taxable if your employer paid the cost of the premiums for the coverage. If you paid the cost for the disability income coverage, the payments are not taxable to you. If you and your employer both contributed to the payment of the coverage, a portion of the income will be taxable.

If you are covered by an accident or health insurance plan as a part of a cafeteria plan and the premiums were not included in your income, you are not considered to have made the payments, and the income is taxable.

If you receive a pension or annuity for personal injury or sickness resulting from active service in the armed services of any country, the National Oceanic and Atmospheric Administration, the Public Health Service, or the Foreign Service you may be able to exclude the income from taxation.

Amounts you receive as workers' compensation for a work-related injury or illness are fully exempt from tax if paid under a workers' compensation act or statute. The exemption also applies to your survivors. Compensatory damages received for physical injury or illness are not taxable.

Loss of Function Compensation you receive for permanent loss of use of a part or function of your body, or for permanent disfigurement are not taxable. Reimbursements for medical care are not taxable, but may reduce your medical expense deduction.

New Small Business Health Care Tax Credit

Health coverage legislation enacted last month includes a Small Business Health Care Tax Credit to help small businesses and small tax-exempt organizations afford the cost of covering their workers.

A qualifying employer must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate. A qualifying employer must also have less than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible), and the employer must pay average annual wages below $50,000.

Both taxable (for profit) and tax-exempt firms qualify.

The credit is worth up to 35 percent of a small business' premium costs in 2010. On Jan. 1, 2014, this rate increases to 50 percent (35 percent for tax-exempt employers). The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.

An enhanced version of the credit will be effective beginning in 2014. The new law, the Patient Protection and Affordable Care Act, was passed by Congress and was signed by President Obama on March 23, 2010.

Are Summer Camp Expenses Deductible for the Child & Dependent Care Tax Credit?

Expenses for summer day camps can count toward the Child & Dependent Care Tax Credit if certain requirements are met. Overnight camps don't count, but the Internal Revenue Service says day camp expenses do qualify for this popular credit.

Regardless of whether you paid for after-class child care during the school year or a week of day camp during summer break, you can apply the costs to the Child and Dependent Care tax credit and use it cut your tax bill at filing time.

There are limits that reduce the actual amount of the credit. Plus, you must make sure you and the person being cared for meet IRS eligibility guidelines.

Then there's the credit's job catch. You can only claim dependent care that was necessary so that you can go to or look for work.

If you're married, the IRS requires both of you to be employed or seeking a job. The only exception is when one spouse is either a full-time student or is physically or mentally incapable of self-care.

After clearing the employment hurdle, other requirements to claim the credit include:

* A filing status of single, head of household, married filing jointly or qualifying widow or widower with a dependent child. In most cases, married taxpayers who file separate returns cannot claim the dependent-care credit.
* The payments for care cannot be made to someone you can claim as your dependent on your return or to your child who is younger than age 19.

Please talk with me about the details of your situation to see if your expenses qualify for the Child & Dependent Care tax credit.

Non-Profit Tax Returns are Open for Public Inspection

Q I get several requests each year from charitable organizations? Can I ask to see their financial statements? And how do I know if my contributions will be tax deductible for the IRS?

A You can do one better: you can ask to see their tax returns.

Exempt organizations generally must make their annual returns - Form 990, Return of Organization Exempt From Income Tax - available for public inspection. This also includes the organization’s application for exemption.

These documents must be made available to any individual who requests them, and must be made available immediately when the request is made in person. If the request is made in writing, an organization has 30 days to provide a copy of the information, unless it makes the information widely available.

Another great way to find out information about charitable organizations is the website GuideStar.org Many charitable organizations voluntarily post their Form 990s with GuideStar to make their financial information immediately available to all prospective donors.

It is important to know whether an organization is qualified to receive tax deductible contributions.

The easiest way is to ask them. You can ask to see an organization's exemption letter, which states the Code section that describes the organization and whether contributions made to the organization are deductible. You can also search for organizations qualified to accept deductible contributions in IRS Publication 78, Cumulative List of Organizations and its Addendum, available at IRS.gov. Taxpayers can also confirm an organization’s status by calling the IRS at 877-829-5000.

Not all exempt organizations are eligible to receive tax-deductible charitable contributions. Organizations that are eligible to receive deductible contributions include most charities described in section 501(c)(3) of the Internal Revenue Code and, in some circumstances, fraternal organizations described in section 501(c)(8) or section 501(c)(10), cemetery companies described in section 501(c)(13), volunteer fire departments described in section 501(c)(4), and veterans organizations described in section 501(c)(4) or 501(c)(19).

If an exempt organization is ineligible to receive tax-deductible contributions, it must disclose that fact when soliciting contributions.

Income Earned Working in a Foreign Country

Q I worked overseas part of the year last year for a foreign company. Do I have to report that income on my US income tax return?

A Citizens and resident aliens who live and work abroad may be able to exclude all or part of their foreign salary or wages from their income when filing their U.S. federal tax return. They may also qualify to exclude compensation for their personal services or certain foreign housing costs.

To qualify for the foreign earned income exclusion, a U.S. citizen or resident alien must have a tax home in a foreign country and income received for working in a foreign country, otherwise known as foreign earned income. The taxpayer must also meet one of two tests: the bona fide residence test or the physical presence test.

The foreign earned income exclusion is adjusted annually for inflation. For 2009, the maximum exclusion is up to $91,400 per qualifying person.

The foreign earned income exclusion and the foreign housing exclusion or deductions are claimed using Form 2555, Foreign Earned Income, which should be attached to the taxpayer’s Form 1040.

For more information about the Foreign Earned Income Exclusion, see Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad. This and other IRS publications are available at www.irs.gov or by emailing me.

Please contact me directly to see how these rules apply to you individually.

New Tax Incentive for Hiring New Workers

Two new tax benefits are now available to employers hiring workers who were previously unemployed or only working part time. These provisions are part of the Hiring Incentives to Restore Employment (HIRE) Act enacted into law Thursday.

Employers who hire unemployed workers this year (after Feb. 3, 2010 and before Jan. 1, 2011) may qualify for a 6.2-percent payroll tax incentive, in effect exempting them from their share of Social Security taxes on wages paid to these workers after March 18, 2010. This reduced tax withholding will have no effect on the employee’s future Social Security benefits, and employers would still need to withhold the employee’s 6.2-percent share of Social Security taxes, as well as income taxes. The employer and employee’s shares of Medicare taxes would also still apply to these wages.

In addition, for each worker retained for at least a year, businesses may claim an additional general business tax credit, up to $1,000 per worker, when they file their 2011 income tax returns.

The two tax benefits are especially helpful to employers who are adding positions to their payrolls. New hires filling existing positions also qualify but only if the workers they are replacing left voluntarily or for cause. Family members and other relatives do not qualify.

In addition, the new law requires that the employer get a statement from each eligible new hire certifying that he or she was unemployed during the 60 days before beginning work or, alternatively, worked fewer than a total of 40 hours for someone else during the 60-day period. The IRS is currently developing a form employees can use to make the required statement.

Protect yourself from Identity Theft: Get a Free Credit Report

At tax season, it is a important to remember to guard access to your social security number and other sensitive, personal financial information. For this reason, GurelCPA uses an SSL secure web portal to password protect any sensitive data we send you or that we request from you. And, we strongly suggest that you never include your social security number in unencrypted emails, or attach documents containing your SSN to an email.

In addition, we highly recommend that you obtain a FREE credit report annually to monitor your credit report to make sure you have not been a victim of identity theft. Now, more than ever, it is important to monitor your credit report and make sure no one has gained fraudulent access to your social security number

What is AnnualCreditReport.com?

AnnualCreditReport.com is the ONLY authorized source for the free annual credit report that's yours by law. The Fair Credit Reporting Act guarantees you access to your credit report for free from each of the three nationwide credit reporting companies — Experian, Equifax, and TransUnion — every 12 months. The Federal Trade Commission has received complaints from consumers who thought they were ordering their free annual credit report, and yet couldn't get it without paying fees or buying other services. TV ads, email offers, or online search results may tout "free" credit reports, but there is only one authorized source for a truly free credit report.

A new law requires commercial websites that say they offer free credit reports to include a box letting you know you can get a free credit report at www.AnnualCreditReport.com. Click on the link to www.AnnualCreditReport.com, the only place to get the free report that's yours by law.

Many companies claim to offer free credit reports – and some do. But others give you a report only if you buy other products or services. Still others say they’re giving you a “free” report and then bill you for services you have to cancel. If you go to www.AnnualCreditReport.com and follow the prompts for your free credit report, you can be sure the reports you get really are free.

Take Digital Pictures of your Home Office

Do you have a small business? Do you use a part of your home regularly and exclusively for business purposes?

If so, you may be able to take a home office deduction.

Generally, in order to claim a business deduction for your home, you must use part of your home exclusively and regularly as your principal place of business, or as a place to meet or deal with patients, clients or customers in the normal course of your business.

A separate, detached structure such as a garage or guesthouse that is used regularly and exclusively for business also may qualify as a home office.

The amount you can deduct depends on the percentage of your home used for business. And, your deduction for certain expenses will be limited if your gross income from your business is less than your total business expenses.

There are special rules for qualified daycare providers and for persons storing business inventory or product samples.

Different rules apply for claiming the home office deduction if you are an employee. For example, the regular and exclusive business use must be for the convenience of your employer.

The home office deduction got a bad name because abuse in the past caused the IRS to deny many deductions.

However, if your home office meets the regularly and exclusively test, and your office is the base of your small business operations, I recommend taking advantage of this deduction.

Want additional documentation to support your home office deduction? Take digital pictures or video clips of your home office showing your exclusive use of the area. A picture can be worth a thousand words.

Did you receive a $250 Economic Recovery Payment in 2009?

You'll need to know if you are claiming the Making Work Pay Tax Credit on your 2009 tax return.

Only individuals who received income from the Social Security Administration, Department of Veterans Affairs and Railroad Retirement Board received a $250 Economic Recovery Payment.

If you received benefits from one or more of these agencies, but you are unsure if you received the $250 Economic Recovery Payment, you can find out by using the "Did I Receive a 2009 Economic Recovery Payment?" feature online at IRS.gov or by calling 1-866-234-2942. These tools give you an easy way to verify if you received the one-time Economic Recovery Payment and which agency made the payment. These payments must be included when claiming the Making Work Pay Tax Credit on 2009 tax returns.

You must make a separate inquiry for each person on the tax return when using the "Did I Receive a 2009 Economic Recovery Payment?", even if you are filing a joint tax return.

Not claiming the Economic Recovery Payment on the Schedule M can delay the processing of your tax return. To avoid delays be sure to use the "Did I Receive a 2009 Economic Recovery Payment?" feature to find out if you received the payment.

To Avoid Penalties, File even if You Don't Have the Money to Pay

The tax filing deadline for individual income taxes is approaching. If you don’t file your return and pay your tax by the due date you may have to pay penalties.

If you do not file by the deadline, you might face a failure-to-file penalty. In addition, if you do not pay by the due date, you could face a failure-to-pay penalty. Here are some things to know about the two different penalties you may face if you do not pay or file on time.

The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return and explore other payment options in the meantime. The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes.

If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

You will have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes.

Automatic six-month extensions are available for individual income tax returns. However, an extension is an extension to FILE, not an extension to PAY. Unless you pay at least 90 percent of your actual tax liability by the due date, you will be faced with a failure-to-pay penalty even if the remaining balance is paid by the extended due date.

So, it is always better to file your tax return by the due date or the extended due date, even if you don't have the funds to pay your taxes at the time of filing. Failure-to-pay penalties may be added, but you will avoid failure-to-file penalties.

Facts the IRS Wants You to Know about Suspicious E-mails

There are many e-mail scams circulating that fraudulently use the Internal Revenue Service name or logo as a lure. The goal of the scams – known as phishing – is to trick you into revealing personal and financial information. The scammers can then use your personal information – such as your Social Security number, bank account or credit card numbers – to commit identity theft and steal your money.

The IRS does not send unsolicited e-mails about a person’s tax account or ask for detailed personal and financial information via e-mail. The IRS never asks taxpayers for their PIN numbers, passwords or similar secret access information for their credit card, bank or other financial accounts.

If you receive an e-mail from someone claiming to be the IRS or directing you to an IRS site, do not reply to the message or open any attachments. Attachments may contain malicious code that will infect your computer.

You can help shut down these schemes and prevent others from being victimized. If you receive a suspicious e-mail that claims to come from the IRS, you can forward that e-mail to a special IRS mailbox, phishing@irs.gov.

Remember, the official IRS Web site is http://www.irs.gov/. Do not be confused by sites claiming to be the IRS but end in .com, .net, .org or other designations instead of .gov.

Checking the Status of Your Refund

Are you expecting a tax refund from the Internal Revenue Service this year?

You can check your refund status online with Where’s My Refund? or ¿Dónde está mi reembolso? on IRS.gov. This is the fastest, easiest way to get information about your federal income tax refund. Whether you split your refund among several accounts, opted for direct deposit into one account, used part of your refund to buy U.S. savings bonds or asked the IRS to mail you a check, Where’s My Refund? and ¿Dónde está mi reembolso? give you online access to your refund information nearly 24 hours a day, 7 days a week. It’s quick, easy and secure.

If you e-file, you can get refund information 72 hours after the IRS acknowledges receipt of your return. If you file a paper return, refund information will generally be available three to four weeks after mailing your return.

To get your personalized refund information you will need the following:
• Your Social Security Number or Individual Taxpayer Identification Number
• Your filing status which will be Single, Married Filing Joint Return, Married Filing Separate Return, Head of Household, or Qualifying Widow(er)
• Exact whole dollar refund amount shown on your tax return

Once you enter your personal information, you could get several responses, including:
• Acknowledgement that your return was received and is in processing.
• The mailing date or direct deposit date of your refund.
• Notice that the IRS could not deliver your refund due to an incorrect address. In this instance, you may be able to change or correct your address online using Where’s My Refund?.

You can also check the status of your refund in English or Spanish by calling the IRS Refund Hotline at 800-829-1954 or the IRS TeleTax System at 800-829-4477. You will need all of the same information.

Rebates for ENERGY STAR Appliances

The U.S. government’s stimulus package signed into law earlier this year includes $300 million to fund the Energy Efficient Appliance Rebate Program, which offers rebates to consumers who buy Energy Star-rated appliances.

Under this program, eligible consumers can receive rebates to purchase new energy-efficient appliances when they replace used appliances.

Each state and U.S. territory was allowed to design its own rebate program, and all 56 plans have now been approved by the U.S. Department of Energy (DOE). Learn about those programs and when they are projected to start at this website. Click on your state to learn about the program that applies to you:

http://www.energystar.gov/index.cfm?fuseaction=rebate.appliance_rebate

(Note: This Web site is the only official DOE-sponsored Web site; be cautious of "fake" Web sites.)

Types of Appliances

More than 70% of the energy used in our homes is for appliances, refrigeration, space heating, cooling, and water heating. Replacing old appliances and equipment with those that are ENERGY STAR® labeled can help American families save significantly on their utility bills. Each state and territory may select its own set of ENERGY STAR qualified products to rebate. DOE has recommended that states select from among the following appliances:

* Boilers
* Central air conditioners
* Clothes washers
* Dishwashers
* Freezers
* Furnaces (oil and gas)
* Heat pumps (air source and geothermal)
* Refrigerators
* Room air conditioners
* Water heaters

Note that these are actual rebates, not tax credits.

IRS Has $1.3 Billion for People Who Have Not Filed a 2006 Tax Return

Unclaimed refunds totaling more than $1.3 billion are awaiting nearly 1.4 million people who did not file a federal income tax return for 2006, the Internal Revenue Service announced today. However, to collect the money, a return for 2006 must be filed with the IRS no later than Thursday, April 15, 2010.

The IRS estimates that the average unclaimed refund for tax-year 2006 is $604.

Some people may not have filed because they had too little income to require filing a tax return even though they had taxes withheld from their wages or made quarterly estimated payments. In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If no return is filed to claim the refund within three years, the money becomes property of the U.S. Treasury.

For 2006 returns, the window closes on April 15, 2010. The law requires that the return be properly addressed, mailed and postmarked by that date. There is no penalty for filing a late return qualifying for a refund.

The IRS reminds taxpayers seeking a 2006 refund that their checks will be held if they have not filed tax returns for 2007 or 2008. In addition, the refund will be applied to any amounts still owed to the IRS and may be used to satisfy unpaid child support or past due federal debts such as student loans.

By failing to file a return, people stand to lose more than refunds of taxes withheld or paid during 2006. For example, most telephone customers, including most cell-phone users, qualify for the one-time telephone excise tax refund. Available only on the 2006 return, this special payment applies to long-distance excise taxes paid on phone service billed from March 2003 through July 2006. The government offers a standard refund amount of $30 to $60, or taxpayers can base their refund request on the actual amount of tax paid. For details, see the Telephone Excise Tax Refund page on IRS.gov.

In addition, many low-and-moderate income workers may not have claimed the Earned Income Tax Credit (EITC). The EITC helps individuals and families whose incomes are below certain thresholds, which in 2006 were $38,348 for those with two or more children, $34,001 for people with one child and $14,120 for those with no children. For more information, visit the EITC Home Page.

Contact me for a free consultation; I want to help you get up-to-date with filing your tax returns. Even if you don't think you can pay your tax bill, the sooner you file, the less your penalties will be.

Casualty Losses in Federally Declared Disaster Areas

It’s winter 2010 now, but remember back to the severe winter storms of 2009 in Arkansas, Washington State, and other places?

If you suffered losses to your home or other personal property in those storms, you may be eligible for a deduction for your losses, even if you do not itemize your deductions, because you lived in a federally declared disaster area.

You lived in a federally declared disaster area if you lived in any of these Arkansas counties (Benton, Conway, Johnson, Madison, Pope, Searcy, Van Buren, Washington, or Yell) or Washington State Counties (Pend Oreille, Spokane, or Stevens). These are a few areas I am familiar with; for a full list of 2009 federally declared disaster areas, see http://www.fema.gov/news/disasters.fema .

Here’s how it works:

A casualty loss can result from “the damage, destruction or loss of your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, or earthquake.”

If it is personal-use property (I’ll address business-use property another time), the amount of your casualty loss is the lesser of the basis of your property (usually your cost increased plus improvements) OR the decrease in fair market value of your property as a result of the casualty.

For casualty losses NOT in federally declared disasters, you must further reduce your loss by 10% of your adjusted gross income. Then, only individuals who itemize deductions are able to deduct the casualty loss as an itemized deduction on Schedule A.

However, the National Disaster Relief Act of 2008 changed some of the tax rules pertaining to losses resulting from federally declared disasters. The new law is effective for losses attributable to disasters federally declared in taxable years 2008 and 2009. It provides the following:

• Allows all taxpayers, not just those who itemize, to claim the net disaster loss deduction regardless of the taxpayer's adjusted gross income

• Removes the 10 percent of adjusted gross income limitation for net disaster losses

• Provides a 5-year net operating loss (NOL) carryback for qualified disaster losses

This is only a brief overview of the provisions of this disaster relief act, and there are many limitations and restrictions on these provisions. However, if you suffered a loss during those winter storms last year, please check with me personally to see how these rules apply to your tax situation.

Tax-Free No-Interest Loan from an IRA?

Q I heard that I can borrow money from my IRA without paying any tax on the money I withdraw. Is this true?

A The answer is a qualified ‘yes’, but be very careful. Here’s how it works:

Generally, the entire amount distributed from an IRA (or other qualified trust or eligible retirement plan) must be deposited in another such account within 60 days. If you withdraw money from an IRA and ‘roll it over’ into another IRA within 60 days, there are no adverse tax consequences.

So, that could be considered a no-interest, short-term loan.

However, if you fail to deposit all of the funds into the new IRA within 60 days, the entire amount is included in your gross income. Plus, you may be subject to the 10% early withdrawal penalty.

The IRS typically is not forgiving about this deadline. A good-faith misunderstanding between the taxpayer and the financial institution usually has been grounds for a waiver if the taxpayer clearly did not intend that funds be withdrawn from an IRA or gave instructions that were intended to complete a timely rollover. Other administrative mistakes by the financial institution can also be grounds for waiving penalties.

However, the tax literature is full of seemingly reasonable excuses the IRS did not go along with. For example, a taxpayer was two days late rolling over an IRA because his spouse was admitted to the hospital for emergency surgery on day 58. The IRS refused to waive the penalty or allow for a late rollover.

So, if you intend to use an IRA withdrawal as a short-term loan, be sure to deposit the money into another IRA within 60 days.

What to Do if you Have Not Received a W-2

Q. I haven't received one of my W-2s. What should I do?

A. If you do not receive your Form W-2 or Form 1099-R by January 31st , or your information is incorrect, contact your employer.

If you do not receive the missing or corrected form by February 14th from your employer/payer, you may call the IRS at 800–829–1040 for assistance. You must provide your name, address (including zip code), phone number, Social Security Number, dates of employment, your employer/payer's name, address (including zip code), and phone number. The IRS will contact the employer/payer for you and request the missing form. IRS will also send you a Form 4852 (PDF), Substitute for Form W-2 or Form 1099-R.

If you do not receive the missing form in sufficient time to file your tax return timely, you may use the Form 4852. If you receive the missing or corrected Form W-2 or Form 1099 after you file your return and a correction is needed, you should use Form 1040X Amended U.S. Individual Income Tax Return to file an amended tax return.

The IRS recommends against filing your tax return with only the information from a last pay stub. For one thing, the Employer Identification Number (EIN)is usually not on the pay stub, and it is required for filing. Also, if you had pre-tax withholding for medical insurance or retirement savings, your W-2 year-to-date amounts may be different from those on your last pay stub of the year.

So if you file with your last pay stub, you may need to file an amended tax return later to correct the errors.

Who gets a 1099?

Q. My wife and I built a house last year. Do we need to give 1099s to the contractors?

A. No, you only need to issue 1099s to people who work for you in the course of a trade or business, but who are not employees. Personal payments are not reportable.

Can I Deduct Gambling Losses on my Tax Return?

Gambling winnings are fully taxable and must be reported on your tax return. You must include all of your winnings, including winnings from lotteries, raffles, horse races, and casinos. It includes cash winnings and also the fair market value of prizes such as cars and trips.

Gambling losses are deductible, but only when they offset gambling profits. And you MUST keep detailed records of those losses or the IRS will disallow them if you are audited. You'll need to list exactly how much you lost on a particular day at a specific machine or game (identified by machine number, game type, and casino).

The catch: you may deduct gambling losses only if you itemize deductions. You claim gambling losses as a miscellaneous deduction not subject to the 2% limit. However, the amount of losses you deduct may not be more than the amount of gambling income reported on your return.

This means that if you win, you must report all winnings; but, if you lose, you can only deduct gambling losses if you itemize deductions (and your winnings are more than your losses.)

It is important to keep an accurate diary or similar record of your gambling winnings and losses. To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses.

Keep in mind that Federal taxes apply to ALL your gambling income even if a win doesn’t reach the threshold for mandatory reporting by the casino to the IRS. Jackpots between $1,200 and $5,000 are reported, but are not subject to Federal withholding when the player provides a social security number. Amounts above $5,000 require withholdings.

Don't Forget Non-Cash Charitable Contributions

Don’t forget non-cash charitable contributions as you prepare your tax return this year. Non-cash contributions include clothing, household goods, books, furniture, or other tangible items given to the Salvation Army, Goodwill, or other charitable organizations.

Generally, you can deduct contributions of property that you make to, or for the use of, a qualified organization. Not everyone, however, will be able to deduct their charitable contributions: you will need to itemize your tax deductions in order to claim this benefit.

In general, contributions of donated clothing and household items must be is in good used condition or better. Questionable items worth only a few dollars because they are in fair condition are no longer acceptable. Items not in good used condition must be accompanied by an appraisal.

Also, be sure to get a receipt or written acknowledgment from the charity for the donated goods for your personal records. The nonprofit may not put a dollar value on this receipt, but it will help you prove that you did indeed donate the property if the IRS asks. You are responsible for determining the fair-market value of any goods or services.

And if the total of all your contributed property comes to more than $500, you have to file IRS Form 8283 with your tax return. Above $5,000 and you must include an appraisal.

You can deduct your contributions only if you make them to a qualified organization. Donations to an individual, even if you feel the person is in need, are not tax deductible.

You can ask any organization whether it is a qualified organization, and most will be able to tell you. Or you can check IRS Publication 78, which lists most qualified organizations. You may find Publication 78 on the Internet at www.irs.gov/app/pub-78. You can also call the IRS to find out if an organization is qualified at 877-829-5500.

Making It Easier for Americans to Support Haiti

New legislation signed by President Obama on January 22, 2010 providing immediate tax deductions for Haiti Charitable Contributions.

This legislation will allow taxpayers to receive the tax benefit from donations made to the Haiti effort in this tax season, rather than having to wait until they file their 2010 tax returns next year. Specifically, cash donations to charities for the Haitian relief effort given after January 11 and before March 1 of this year may be treated as if the contribution was made on December 31 of last year so that the contribution can be deducted from 2009 income. This measure applies to monetary donations, not goods or services.

However, as usual, you must itemize deductions to deduct any charitable contributions.

One way to contribute is the Clinton Bush Haiti Fund. To donate, visit ClintonBushHaitiFund.org or text “QUAKE” to 20222 to charge a $10 donation that will be added to your cell phone bill. To learn more about the situation in Haiti and what you can do to help, visit WhiteHouse.gov/HaitiEarthquake.

Claiming a Parent as a Dependant

Q I pay to take care of my elderly mother. Can I claim her as a dependant on my tax return?

A You may be able to claim your parent as a dependant. However, you must meet certain IRS criteria.

The highest dependency hurdle is the amount of income your parent earns. A dependent parent cannot have more taxable income than the exemption amount ($3,650 for 2009). Social Security normally is excludable, but it includes interest and dividends. Gifts and loans are not included as income.

Next, to be deemed a dependant for tax purposes, your parent must get more than half of his or her support from you. To reach the 50-percent-plus threshold you can take into account the fair-market room rental, food, medicine and
other support items. This is where Social Security does come into play. If a parent is using benefits to pay for some of these support items, it goes into the calculation of whether you cover more than half of your parent's support costs.

A parent may not have less than $3,650 in taxable income, but gets Social Security and uses it to pay for some medicine and buy clothes. In that case, the adult child's contribution may not meet the support threshold.

Your parent doesn't have to live with you. When a parent is able to remain in his or her own house, in an assisted living facility or a nursing home, costs you
pay for parental support at those locations count toward meeting the support requirement.

Once your parent does meet the IRS dependency tests, you can use any medical expenses you pay for mom or dad toward your itemized medical deduction. Since medical costs must exceed 7.5 percent of adjusted gross income before you can claim them, a parent's added expenses could help you meet the requirements.

Note that, if your parent isn't considered a dependant for exemption purposes simply because he or she earned too much but met the other tests, the IRS says the parent still could be counted as a dependant for medical deduction purposes.

Sometimes you don't shoulder the load alone. Many adult children get help from siblings in caring for mom or dad. Where none of you solely pays for half of a parent's support, but each contributes at least 10 percent toward parental care, you can use the IRS's multiple-support declaration. This form helps you account for the tax implications of a shared-care arrangement.

For example, your mother is in a nursing home. Her Social Security covers 40 percent of the facility's costs, and you and your two siblings split the remainder, each paying 20 percent. Because more than half of her support comes from her three kids, she can be claimed as a dependant -- but by only one of you. The choice is left to you and your siblings, but only one of you can claim her as a dependant in any one year. You can, however, switch off, and take turns claiming her as a dependant.

Are Computers Eligible Education Expenses?

Q My daughter was required to buy a laptop computer when she started college last fall? Can I include that as an eligible expense for the Education Tax Credits?

A The American Recovery and Reinvestment Act was passed last year and created the American Opportunity Credit, which expanded the existing Hope credit. And, when the credit was expanded, the definition of qualified expenses was also expanded.

The credit can be claimed for tuition and certain other qualified expenses paid for yourself, your spouse, or your dependant for higher education in 2009. The term "qualified tuition and related expenses" now includes expenditures for required course materials, including books, supplies and equipment required for a course of study. Those additional costs need not be paid directly to the institution and do not have to be a condition of enrollment.

So, if the computer is required by the higher education institution, the cost would be a “qualified education expense” for the American Opportunity Credit.

The American Opportunity Credit can be claimed for expenses paid for any of the first four years of post-secondary education at an “eligible educational institution.” (Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education. The educational institution should be able to tell you if it is an eligible educational institution.)

Taxpayers will receive a tax credit based on 100 percent of the first $2,000 of tuition, fees and course materials paid during the taxable year, plus 25 percent of the next $2,000 of tuition, fees and course materials paid during the taxable year. Forty percent of the credit is refundable, so even those who owe no tax can get up to $1,000 of the credit for each eligible student as cash back.

The credit begins to decrease for individuals with incomes above $80,000 or $160,000 for joint filers and is not available for individuals who make more than $90,000 or $180,000 for joint filers.

Computers can also be eligible education expenses for 529 plans. If, however, you take the above-the-line deduction instead of the credit, the old definition of qualified expenses apparently applies, and you can only deduct payments made directly to the education institution.

New Real Estate Tax Deduction for Non-itemizers

Much like the ‘New Car Tax Deduction’ (see below), there is a new standard tax deduction for those who don’t qualify to itemize their tax deductions, but pay real estate taxes. The deduction amount is equal to the amount of real estate taxes paid up to $500 for single filers or up to $1,000 for joint filers. This property tax deduction is in addition to the standard deduction used by filers.

This option especially benefits older homeowners and others who have paid off or paid down their mortgage and no longer have the big interest deductions that usually are the major reason for itemizing.

New Car Sales Tax Deduction

For 2009, individuals can deduct sales tax paid on the purchase of a new vehicle. The deduction is available for cars, trucks, motorcycles, motor homes and recreational vehicles purchased after February 16, 2009, and before January 1, 2010. And, the vehicle must be new (not used).

The deduction is limited to the taxes and fees paid on up to $49,500 of the purchase price of an eligible vehicle. The deduction is reduced for joint filers with modified adjusted gross incomes (MAGI) between $250,000 and $260,000 and other taxpayers with MAGI between $125,000 and $135,000. Taxpayers with higher incomes do not qualify.

People won't need to itemize to take this deduction. Instead, the deduction will be added to a person's standard deduction. Itemizers will take this deduction in addition to the deduction for state and local income taxes. If you elect to deduct sales taxes instead of state and local income taxes, then the taxes paid on the car will be added to the other sales taxes you paid.

What if You Don't Get a 1099 for Work You've Done?

Q I am negotiating with an overseas company to do consulting services for them. They don’t have a federal tax ID, they don’t bank in the US, and they won’t be sending me a 1099. How do I report this income?

A You are responsible for correctly reporting your income despite not receiving a 1099 from the foreign contractor. You have no responsibility as the service provider in the 1099 process; but you are required to report the income with or without a 1099.

The same thing happens frequently with domestic companies or individuals who fail to issue 1099s to contractors. The IRS will not have a copy of the 1099 to compare your reported income to, but that does not change the fact that you are expected to report all income that you receive.

I recommend that you keep good records of the income received with any pertinent documentation, such as contracts, letters of agreement, and bank deposit receipts.

Do I have to Pay Gift Tax on Gifts that I Give?

Generally, the current gift tax rules allow you to make a gift of $13,000 per year to any individual without gift tax consequences. There is no limit on the number of people to whom you can give; you can give $13,000 per year to as many people as you want without gift tax consequences. And, you can give unlimited gifts to a spouse.

There is no dollar limit on the amount you may pay on an individual's behalf if you pay the money directly to a school for tuition or to a health care provider for certain medical costs. As long as the payments are made directly to the institution, the $13,000 annual limit will not apply.

The exclusion does not apply to books, supplies, and fees or other expenses that are not direct tuition costs, or for medical costs that do not qualify as deductions for income tax purposes.

Spouses can split their gifts so that a gift made by one is treated as being made one half by each. As a result, a married couple can give $26,000 a year to any one individual without incurring any gift tax consequences. The funds can come from one spouse's assets, as long as the couple agrees to split the gift.

So what are the ‘gift tax consequences”? If you make a gift to any one individual of more than $13,000 ($26,000 for a married couple), you will have to file a gift tax return. However, under the unified gift and estate tax rules, you may still not owe any gift tax. Under those rules, every person is entitled to a combined lifetime exemption for gift and estate tax purposes. This exemption allows an individual to gift $1,000,000 of assets without paying any gift tax.

However, even if no tax is due, a gift tax return must be filed for any gifts above the annual exclusion limit.

There is no limit to the amount that you can give to charity; however, your tax deduction may be limited. Income tax deductions for charitable contributions not allowed in one tax year may be carried over to the next tax year.

Note, however, that the gift and estate tax rules are in the process of change: what is true for 2009 and 2010 may not be true for 2011.

And, as I wrote in the previous post, there are no income tax consequences to the recipient of the gift.

Eight Ways to Find Tax Help 'en Español'

Tax information can be tough to understand in any language, but it can be even more difficult if it is not in your first language. To assist Spanish speaking taxpayers, the IRS provides a wide range of free products and services.


Here are ways you can seek help from the IRS if you need assistance with your federal taxes in Spanish:


1. Get answers 24 hours a day seven days a week IRS.gov/espanol has a wealth of information accessible all day, every day for individuals and businesses. You will find links to tax-related information, disaster relief, identity theft and warnings about common tax scams that victimize taxpayers. You can also check the status of your tax refund through the online tool ¿Dónde está mi reembolso? Or even find out if you qualify for the Earned Income Tax Credit, a refundable tax credit for people who earned less than $48,000, using the Asistente EITC on our secure Web site.


2. Get up-to-date at the Multimedia Center Watch YouTube video tax tips and listen to audio podcasts on various IRS topics in Spanish and English by entering the keywords “Centro Multimediático” into the search box of IRS.gov.


3. TeleTax is a toll-free, automated telephone service. TeleTax provides helpful pre-recorded tax topic messages and refund information. TeleTax can also help if at least four weeks have passed since you filed your return and want to check on the status of your federal refund. Having a copy of the tax return handy will help you respond to the prompts on the automated system. TeleTax is available 24 hours a day, seven days a week at 800-829-4477.


4. Toll-Free Telephone Assistance is available from Spanish-speaking IRS representatives by calling the IRS customer service line at 800-829-1040 and then pressing 8.


5. Get tax forms and publications You can view and download several tax forms and publications in Spanish directly from IRS.gov/espanol at any hour of the day or night. You can also get them by calling 800-TAX-FORM (800-829-3676).


6. Visit the IRS Spanish Newsroom Find the agency’s most recent announcements, tips and information on recently implemented tax law that could affect you. Avoid missing any benefits and keep up to date by typing the keywords “Noticias en Espanol” into the search box of IRS.gov.


7. Multilingual Assistance at IRS Taxpayer Assistance Centers Don’t let a language barrier prevent you from getting the face-to-face tax assistance you may need when you believe your tax issue cannot be handled online or by phone. Multilingual services are offered to taxpayers in more than 150 languages, including Spanish, through bilingual employees and an Over-the-Phone Interpreter. TAC locations, hours and services are available at IRS.gov/individuals by clicking on the link for Contact My Local Office in the left tool bar section.



In addition to this help from the IRS, you can contact me at lancewgurel@gurelcpa.com en Espanol at any time. I have Spanish-speaking assistants on staff to assist us in meeting your tax and accounting needs.

Are Gifts That You Receive Taxable?

Q I received a large cash gift from my father last year? Do I have to report it on my income tax return?

A No. Gifts are NOT taxable to the recipient. Some gifts require the filing of Form 709 – US Gift Tax Return, and some can incur gift tax. However, filing the return and paying any gift tax due is the responsibility of the gift giver, not the recipient.

What is considered a gift? Gifts include both money and property given out of affection, respect, or other generous motivation with no consideration of payback in the form of past or future work, promotional activity, or other benefit.

Gifts include the use of property without expecting to receive something of equal value in return. Also, if someone sells you something for far less than the fair market value, they have given you a ‘gift’ in addition to the price they received. If you receive an interest-free or reduced-interest loan, the IRS considers the interest given up as a gift.

What about gifts from an employer to an employee? Within limitations, gifts are allowed tax free to reward longevity or safety achievements. But a gesture of gratitude, in cash or goods, for great work the past year or to spur efforts in the future is taxable, says the IRS. That includes Christmas or other bonuses; your employer should include the bonus in taxable income on the W-2.

Certain untaxed gifts between family members can have a hidden bite that may not be apparent for years. Take a grandfather who gives stock to his granddaughter. Though there's no immediate income tax on the gift, there may be a large liability when the securities are sold. That's because profit on the sale will generally be measured from when granddad acquired the shares, and that profit will be taxable to the granddaughter when she sells the stock.

Reporting Name Changes to the Social Security Administration

Q I was married in 2009. Is there anything special I need to do before filling my taxes this year?

A If you took your spouse’s last name or if both of you now hyphenate your last names, you may run into complications if you don’t notify the Social Security Administration. When newlyweds file a tax return using their new last names, but the Social Security Administration has the old last names, IRS computers can’t match the new name with their Social Security Number.

Similarly, individuals who were recently divorced and changed back to their previous last name need to notify the Social Security Administration of this name change.

If your husband adopted your children and their names changed, you’ll want to make sure this information was reported to Social Security Administration, as well.

Informing the Social Security Administration of a name change is easy; you’ll just need to file a Form SS-5, Application for a Social Security Card. Form SS-5 is available from the Social Security Administration or on my website at www.gurelcpa.com (Click the DOCUMENT CENTER tab.)

Bartered Goods and Services are Income

Q I have a landscape business, and I trade services with my mechanic. We agree that, over the course of the year, the value of our services is equal. Since it is a “wash”, do I have to include anything about this on my tax return?

A Yes. The IRS considers this barter income, and even though the transaction was a “wash”, you must both include the fair market value of the services as income.

Bartering is an exchange of one taxpayer's property or services for another taxpayer's property or services. The fair market value of property or services received through barter is taxable income.

Usually there is no swap of cash. Barter may take place on a direct, one-on-one basis between businesses and individuals, or it can take place on a third party basis through a modern Internet barter exchange.

If you engage in the direct barter of products or services with an individual or a business you will generally not receive a Form 1099-B, but the transaction must be accounted for in your books and records just the same. For example, if a doctor agrees to give an accountant a personal medical exam in exchange for personal tax return preparation, the fair market value of the medical exam is taxable to the accountant, and the fair market value of the tax return preparation is taxable to the doctor.

Barter can be used as compensation, too. A business can “pay”3 bartered goods or services as a bonus or as part of a compensation package to employees, partners and contractors. For example, a business may “pay” bonus or sales incentive programs with compensation including such items as vehicles, restaurant certificates or resort trips.

Barter used as compensation is deductible to the payer as an expense, but it is subject to employment taxes and information reporting. Barter used as a bonus or compensation for an independent contractor must be included on the contractor’s Form 1099-MISC, Miscellaneous Income, as non-employee compensation, and all barter compensation for employees must be taken into account on their Forms W-2. Barter compensation is subject to FICA, FUTA, and federal income tax withholding.

Happy New Year! Now, go write down your odometer reading

It's the beginning of a new year, and it's time to document the odometer reading of each vehicle you use in your business.

Why? Establishing total yearly mileage for the vehicle is an essential part of documenting a deduction for the business use of a vehicle. In order to claim a deduction for vehicle expenses, you must know the percentage of business use each vehicle you use in your business, not just the number of miles of use. And the IRS is picky about what you must do to prove your deduction.

Simply knowing the number of miles you use the vehicle for business use is not enough; you must know your TOTAL mileage to calculate the business-use percentage.

Hopefully, you wrote down the beginning of 2009 odometer reading(s) somewhere; if so, with that number and the reading you take today, we will be able to calculate your total vehicle mileage for 2009 and, then, the business-use percentage.

If you did, congratulations!

If not, it's time for New Year resolution: write down the beginning odometer reading of my vehicle(s) so I'll be able to properly document the business use for 2010!

Since I'm writing from Florida, it's easy for me to say, "Go outside right now and check your vehicle mileage." However, I realize for many of you in other parts of the country, that process may involve many layers of clothes and possibly scrapping ice. I shutter at the thought. Nevertheless, you must know your beginning of the year odometer reading to properly document your tax deduction.

If you're not sure where to store that information, you can email it to me @ lancewgurel@gurelcpa.com and I'll store it for you.

(Please also see the post from December 2009 for more about maintaining a log of vehicle mileage. Jump to the post by expanding the 2009 diamond to the right, clicking on the December diamond, and selecting the post.)

Happiest of New Years and best wishes for the coming decade.