How to get a copy of a missing tax return
Wanted: Last year's tax return.
Fortunately, you don't need to post a classified ad to obtain a copy of a missing tax return. In some cases, getting a replacement can be as simple as asking your tax return preparer.
But what happens when you're not sure who prepared the return — or if a return was ever filed?
That's a common situation for many executors, who are suddenly given the responsibility of taking care of the final paperwork for an estate. Disasters can also wipe out records.
The solution? File a request form. Depending on how much detail you need, you can file Form 4506 to request a complete copy of a federal tax return, or Form 4506-T for a transcript of the information it contained.
The complete copy will include supporting information, such as attached schedules and Forms W-2. Copies are available for personal, business, payroll, and amended returns, and you can ask for certification. There's a per-return user fee, though the IRS may waive the charge if your request is related to a presidentially declared disaster.
Transcripts contain essentially the same information as the complete copy, though in abbreviated form and without supporting documentation. Transcripts are free, and you can get them for personal, partnership, and corporate returns.
The IRS will also provide verification of non-filing at no charge.
Please contact us for assistance if you're trying to locate past tax returns. We'll be happy to help you complete and submit the documentation required by the IRS and state tax agencies.
Self-employed taxpayers get a health insurance tax break
Healthcare issues are once again part of the national debate. As political candidates stake out policy positions, it's a good time to review current federal tax rules for deducting your business health insurance premiums.
The general rule. As a self-employed individual, you can take a federal income tax deduction for up to 100% of the health insurance premiums you pay for yourself, your spouse, and your dependents. The deduction is "above the line," meaning it's available even if you don't itemize deductions on your tax return.
You may also be able to deduct a portion of long-term care insurance premiums.
Who's considered self employed? For purposes of this deduction, you're self-employed if you:
- own an unincorporated business.
- are a general partner in a partnership.
- are a limited partner who received guaranteed payments.
- are a shareholder of an S corporation in which you own more than two percent of the stock, and the corporation provided the health insurance.
How it works. Generally, the net income from your business, minus certain retirement plan contributions and 50% of your self-employment tax, determines the maximum deduction. If your premiums exceed this amount, you may be able to take an itemized deduction for the remainder.
What to watch out for. You can't claim the deduction in months when you're eligible for coverage from a health plan paid for by your employer (or your spouse's employer).
Please call for more information. We can help you maximize your health insurance deduction and provide information on other deductions that may save tax dollars.
What's an "EIN"?
The Internal Revenue Service has your number — and they want you to have it, too.
An "EIN," or employer identification number, is a nine-digit number that you use to identify your business when filing various tax returns with the IRS. You may know it by another acronym, "TIN," which stands for taxpayer identification number.
What's in a number? Here are three facts about EINs:
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You could need an EIN even if you don't have employees, and entities you might not think of as businesses, such as employee benefit plans, estates, or trusts, may need one. For instance, say you're appointed trustee of an irrevocable trust that receives or distributes income. If the trust is required to file a tax return, you'll need an EIN.
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You can keep your EIN when you change the name of your business. But a change from one form of business to another – incorporating your partnership or sole proprietorship, for example – means you'll have to request a new identification number.
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When you own more than one corporation, each needs an EIN, even if you're the sole owner. Partnerships also need separate EINs. However, when you conduct your sole proprietorship as a limited liability company and you have no employees, you can use your social security number instead.
You have our number, so give us a call. We'll be happy to determine whether you need an EIN, and to request one if you do. We can also track down an existing number if you've misplaced it.
Are you missing out on the "saver's credit"?
If you're not sure what the "saver's credit" is, you're not alone. Members of the Senate Finance Committee believe many people who are eligible to claim the credit are unaware of its existence.
Here's what you need to know:
- The saver's credit, also called the "retirement savings contributions credit," is a tax break designed to encourage you to make contributions to your traditional and Roth IRAs and certain other qualified retirement plans — including your 401(k).
- You apply the credit directly to your federal income tax liability, including the alternative minimum tax. It's nonrefundable, meaning you can use it to reduce your tax liability to zero, but no lower.
- The maximum credit is $1,000 ($2,000 if you're married filing a joint return).
- You're eligible if you're not a full-time student or a dependent, are over age 18, and your adjusted gross income is less than the phase-out amount of $26,000 ($52,000 for married filing jointly in 2007).
Why it's a good deal: If you're eligible, you can take the credit and still deduct your traditional IRA contribution, which gives you the opportunity for double savings.
Additional rules might apply. For instance, the amount of the credit may be reduced by certain distributions from your retirement plans. To learn how you can obtain the maximum benefit, please give us a call.
Note the record keeping requirements for charitable contributions
Are you drawing up your year-end charitable contributions list? After you check it twice, add a reminder to gather the paperwork required to claim a gift for yourself: an itemized tax deduction.
Here are four tips:
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Remember the new rules for cash donations. You'll need a written record to deduct cash donations on your 2007 tax return, no matter what amount you donate. The record can be from the charity or, for donations under $250, in the form of a cancelled check, or credit card or bank statement.
If you contribute via payroll deduction, keep your pay stub and documentation from the charity (a pledge card, for example).
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Know when old rules still apply. If you donate $250 or more in money or property, ask for a receipt from the charity showing how much you contributed and any benefit you received in return.
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Log vehicle expenses. Your record should indicate the charity's name, the dates you used your car, and either the actual cost of gas and oil or the number of miles you drove. Parking fees and tolls are also deductible, whether you claim actual costs or the standard mileage rate for charitable driving (14 cents for 2007).
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Keep receipts for unreimbursed items. These include out-of-pocket costs directly related to charitable service, such as buying or cleaning uniforms used for your volunteer work.
Additional recordkeeping rules may apply, depending on what you donate. For instance, some non-cash contributions require an appraisal. Give us a call. We can review the records you need to obtain the maximum tax benefit.
Year-end tax strategies for investors
Here's a recipe for holiday cheer: Sweeten your year-end portfolio update with tax savings. Just remember to start planning now to achieve the best result.
Here are strategies that can help:
- Wash sales. Thinking of selling a security before December 31 to take advantage of a capital loss? To make sure the loss is deductible, refrain from buying a substantially identical security during the 61-day period that begins 30 days before you sell and ends 30 days after.
- Worthless stocks. For capital loss purposes, securities with no value are treated as if you sold them on the last day of the year. Your loss is generally the same as your cost.
If you want to deduct worthless securities on your 2007 return, you'll need to prove the security became worthless during the year and that it truly has no value. Not sure you can meet those requirements? Selling before year-end may be a better option.
- Stock donations. Giving appreciated stock to charity lets you avoid capital gains tax and claim a charitable deduction.
In order to deduct the donation on your 2007 return, the gift must be complete. For certificates you endorse and present directly, the date of mailing or other delivery is considered the date of the gift. When your broker or the issuing company handles the transaction, the gift is complete when the stock is titled to the charity.
Tax law changes that will take effect in 2008, such as revised kiddie tax rules and a zero percent capital gains tax rate on certain asset sales, may also affect your year-end investment planning. Please call us for more guidance in your year-end tax review.
Year-end tax to-do's for individuals
"Countdown" time is here again, with reminders everywhere pointing out how many days are left until anticipated events. While you're marking your calendar, remember that countdown time is great for tax planning, too, because it means you can still implement strategies to reduce your 2007 tax bill.
Here are three actions for your to-do list:
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Review retirement contributions. If you're not on track to reach the maximum deferral allowable, consider increasing your contributions. Pre-tax retirement plan contributions reduce federal adjusted gross income – and your tax.
For 2007, you can contribute up to $15,500 to your 401(k), plus an additional $5,000 if you're 50 or older by year-end. The maximum SIMPLE contribution is $10,500 (plus $2,500 if you're over age 50).
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Estimate tax liability. Figuring out whether you'll be over- or underpaid now gives you time to adjust the income tax withheld from your wages for the year. As a general rule, to avoid penalties for underpayment you'll need to prepay at least 90% of your tax liability for 2007.
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Take advantage of expiring tax provisions. The non-business energy property credit, which lets you claim a credit of up to $500 against your federal tax bill for certain energy-efficient home improvements, expires December 31, 2007.
December 31 is also the last date for making charitable donations of up to $100,000 from your IRA. If you're age 70½ or older, these distributions may be nontaxable while satisfying your minimum annual withdrawal requirement.
Please contact us for additional tax saving ideas tailored to your circumstances.
Year-end tax planning for business owners
There are no time machines, so you can't come back to today from the future. That's one reason planning ahead is important — and why now is the time to think about what you can do before the end of the year to trim your business tax bill.
Here are three suggestions:
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Take advantage of energy incentives. Making energy-efficient improvements to commercial business property by December 31 can garner a federal tax deduction. The maximum deduction is $1.80 per square foot.
A partial deduction is available for improvements such as interior lighting and hot water systems that meet certain energy-savings targets.
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Benefit from depreciation write-offs. Instead of waiting until January to upgrade computers or software, consider buying them now.
For 2007, you can expense up to $125,000 of qualifying business assets. Though subject to limitations, the deduction is available whether you finance assets or buy them outright.
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Plan for retirement. Establish and fund a qualified retirement plan before December 31 and you might be eligible for federal tax credits in addition to a deduction from your business income.
The credit for small employer pension plan startup costs reduces your tax liability by as much as $500 in each of the plan's first three years.
You may also qualify for the qualified retirement savings contributions credit on your personal return, which can save up to $1,000.
Other tax-saving strategies include hiring family members and paying year-end bonuses. We'll be happy to help you maximize business tax benefits. Give us a call.
Zero capital gains rate coming in 2008
You already know the federal tax rate on capital gains varies, depending on your tax bracket, the kind of property you sell, and how long you owned it.
But are you aware that starting next year some capital gains won't be taxed at all?
From 2008 through 2010, if your taxable income falls within the 10% or 15% tax brackets, the rate you'll pay on your federal return for certain dividends and long-term capital gains will be zero.
The zero rate generally applies to gains on sales of assets such as stocks, bonds, and mutual funds that you owned longer than a year. Qualified dividends, which include dividends on most US stocks, are also eligible.
Note: Gains on sales of assets you owned for twelve months or less are still taxed at your ordinary income rate. Depreciation recapture and sales of collectibles remain subject to higher rates as well.
Though the zero percent break becomes effective January 1, you can start planning now. For instance, it may be beneficial to wait until 2008 to sell appreciated stocks in taxable investment accounts.
In addition, since expanded kiddie tax rules go into effect in January, it's a good idea to review gifting plans before year end. Why? The new rules mean the investment income of your age 19 and younger dependent children (under age 24 for students) might be taxed at your rate in 2008. Preparing in advance can save tax dollars.
Other planning opportunities exist. Please contact us for more information.
Deduct business bad debts
It happens to butchers, bakers, and candlestick makers. It probably happens in your business, too: A customer doesn’t pay what they owe and you end up with a bad debt. Can you take a tax deduction?
The answer depends on how you account for income on your tax return. If you included the amount due from the customer in income this year or in previous years, it’s likely you have a bad debt deduction. You can claim all or part of the now-worthless receivable.
What if you record income as you collect the cash? In this case, since you don't receive the amount your customer owes you, and since you never reported it as income, there’s no deduction.
Suppose you lend money to a customer for a business reason and the loan becomes uncollectible. Is the loan considered a deductible bad debt?
As a general rule, yes, as long as your intention was to make a loan, not a gift, and you attempted to collect the debt but could not. Money you lend to employees or suppliers may also be deductible.
Though you don’t have to go to court to prove a debt is uncollectible, the deduction can only be taken in the taxable year it becomes worthless. If you overlook the deduction on that year’s return, don’t despair. For a fully worthless bad debt you have up to seven years from the due date of your original return to file an amended one.
Additional rules apply to specific situations, and certain businesses can use a special method for claiming bad debt deductions. Give us a call to discuss your options.
How to determine the amount of a casualty loss deduction
Fire, flood, tornado. Violent weather can wreak emotional and financial havoc. If your home, vehicle or other personal property is damaged or destroyed by a sudden, unexpected casualty, an itemized tax deduction may help ease the financial burden.
In most cases, you claim a casualty loss in the taxable year the calamity strikes. However, if you’re in a presidentially declared disaster area, you have the option of amending your prior year return, thereby getting tax relief sooner.
Either way, to receive the maximum benefit you’ll need to calculate the amount of your loss. Here’s how.
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File an insurance claim. If your property is insured, file a timely claim. Otherwise, you’ll only be able to take a deduction for the part of the loss that isn’t covered by insurance.
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Get an appraisal. An appraisal determines the decline in fair market value caused by the casualty. Tax rules require that you measure the difference between what your home or property would have sold for before the damage and the probable sales price afterward. Your loss is the lesser of this decline or your adjusted basis in the property.
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Establish basis. Generally, your home’s adjusted basis is what you paid for it, plus improvements. If your records were lost in the casualty, recreate them using reasonable estimates or the best information you have.
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Keep receipts for repairs. In some situations, repairs you make to restore your property to its pre-casualty condition can be used as an indicator of the decline in the fair market value.
The aftermath of a casualty is often a stressful time. We’re here to help you resolve the tax issues. Please give us a call.
Plan for the tax consequences of required minimum distributions
After all the advice you’ve received about saving for retirement, taking money out of your traditional IRAs and other qualified retirement plans may feel strange. Yet once you reach age 70½, the required minimum distribution (RMD) rules say you have to do just that.
Under these rules, you must withdraw at least a minimum amount from your retirement plans each year. Since the withdrawals are considered ordinary income, planning in advance can help you prepare for the impact on your tax return.
Here are two suggestions.
Make a list of your accounts. The rules require an RMD calculation for each plan. With traditional IRAs, including SEP and SIMPLE plans, you can take the total distribution from one or more accounts, in any amount you choose. You can also take more than the minimum.
However, withdrawals from different types of retirement plans can’t be combined. Say for instance, you have one 401(k) and one IRA. You have to figure the RMD for each and take separate distributions.
Why is that important? Failing to take distributions, or taking less than is required, could result in a penalty of 50% of the shortfall.
Plan your required beginning date. In general, you’re required to withdraw RMDs by December 31, starting in the year you turn 70½. The rules provide one exception: You have the option of postponing your first withdrawal until April 1 of the following year.
Delaying income can be a sound tax move. But because you’ll still have to take your second distribution by December 31, you’ll receive two distributions in the same year, which can increase your taxes.
To discuss these and other RMD rules, give us a call. We can help you create a sound distribution plan.
New random audits will begin this month
The IRS is coming.
Starting this month, the Internal Revenue Service will begin another round of random examinations of income tax returns. This latest series of audits was prompted by continuing concern over the gap between what the IRS thinks taxpayers owe and actual tax collections, as well as a need for updated statistics for audit selection purposes.
If your return is selected for examination, here’s what to do before the audit begins.
- Coordinate scheduling. For in-person meetings with an examiner, the notice you receive will state the time and place of the audit. Need more time to prepare? Let us assist you with getting the appointment changed to a more convenient date or location.
- Gather records. The notice of examination will also indicate the records you’ll be expected to present. Because one purpose of these audits is tax research, the amount of paperwork requested may be substantial, so you’ll want to start organizing your documentation promptly. That way you’ll have time to locate missing forms and receipts, or to request duplicates if necessary.
- Assess your return. Review your return and records to determine where potential questions may arise. For instance, you might have claimed a larger-than-usual medical deduction due to a serious illness. Since it’s likely you’ll be asked about the deduction, be prepared by having your explanation and evidence ready.
Please contact us as soon as the IRS notifies you of a pending examination. In addition to providing advice and assistance, we can represent you during the audit and help you obtain the best possible outcome.
Do you know the tax effects of foreclosure?
As you listen to the debate over the latest turmoil in the real estate market, you may wonder how losing a home in foreclosure proceedings could result in taxable income.
Unfortunately, unless Congress changes federal tax law, there are two ways.
- Gain on foreclosure. A foreclosure is treated as a sale. When the amount realized on the foreclosure is greater than your basis in the home, the resulting gain is generally subject to tax at capital gains rates. You can have a gain even though you receive no cash.
However, if you used the home as your personal residence, the home sale exclusion rules may apply. Under these rules, gains of $250,000 or less ($500,000 or less if you’re married and file jointly) are partially or fully exempt from tax.
What if the foreclosure results in a loss? There’s no tax, but also no benefit, because losses on personal residences are not deductible.
- Cancellation of debt. When a lender forgives all or part of the amount you owe on a loan you’re personally liable for, the amount you no longer have to pay is considered income. There are exceptions, such as bankruptcy, insolvency, or a gifting situation, but in general cancellation of debt is taxable as ordinary income.
When you’re not personally liable for the debt, different rules apply, though you may still realize gain on the foreclosure.
The good news on this issue is that Congress is currently considering tax legislation that would ease the tax burden for taxpayers who lose their homes to foreclosure. For more information about the tax impact of foreclosure, please call. We can explain the available options and their consequences.
Like-kind exchanges – Be aware of this tax saver
There’s a lot to like about like-kind exchanges — and a lot to consider before you use this tax-saving strategy.
Here’s an overview.
What they are. Like-kind exchanges (also called 1031 exchanges after the tax code section regulating them) allow you to defer capital gains tax when you exchange certain business and investment property instead of selling it outright.
For instance, say you purchased an undeveloped lot as an investment a couple of years ago. Now you want to sell so you can buy a rental duplex. By complying with the like-kind exchange rules, you can acquire the new property without currently recognizing gain on the sale of your lot.
What qualifies. Assets of a similar nature used in your business or held for investment are generally considered like-kind. Real estate is a common example. However, your personal residence or a vacation getaway that you treat as a second home are usually not eligible for like-kind exchange treatment.
Business machinery or equipment can be exchanged, unless the assets are part of your inventory.
Stocks, bonds, and other securities are specifically excluded, as are partnership interests.
The requirements. In general, to qualify for deferral of tax on the transaction, you must:
- Use the old property and the property you acquire in your business or as an investment.
- Exchange qualifying property for other qualifying property of the same nature or character.
- Avoid taking possession of sale proceeds.
Before you sell business or investment property, please contact us. We can help you decide if a like-kind exchange will benefit you.
Business gifts: What are the rules?
Rewarding loyalty. Enhancing morale. Whatever your reason for giving business gifts, you're probably aware of the general rule limiting your deduction to $25 per recipient. But do you know what expenses are considered gifts?
Here are three scenarios to test your knowledge.
Situation 1: You're so pleased with the advertising brochure a copywriter created for your business that you include an additional $200 with the invoice. Is the bonus a gift?
The rule: Gifts are given out of affection, respect, or similar impulses. In this case, you're paying a bonus for services. The copywriter has income. You have advertising expense.
Situation 2: You surprise an employee with $25 cash for going the extra mile on a project. Is the money a gift or compensation?
The rule: Cash payments to employees are not treated as gifts, no matter the amount. Cash isn't considered a de minimis nontaxable fringe benefit either. The $25 is compensation to your employee, wage expense for your business.
Situation 3: You give a loyal customer two concert tickets as a thank you. Is the cost entertainment or a gift?
The rule: Generally, expenses that could be either gift or entertainment are classified as entertainment, deductible at 50% of cost. However, there's an exception if you don't attend the concert with your customer. In that case, you can choose whichever classification generates the larger benefit.
Business gifts are also subject to other rules. For instance, you're required to keep records indicating the cost, date, business purpose of gifts, and your business relationship with the recipient.
Please call for more information. We'll be happy to help you sort out the business gift rules.
Quick tax guide to business vehicle expenses
You plot the fastest route to your client’s office with an on-board navigation system. You use a hands-free cell to leave last-minute instructions for your staff on the way to the meeting. Your computer, presentation materials, and an extra shirt are in the back seat. In short, your vehicle is your office on wheels.
It’s also a tax deduction.
Here’s what you need to know to reap the benefits.
Overview: You can deduct auto expenses when you own or lease a vehicle and use it for business. Deliveries to customers, traveling to business meetings, and trips to the office supply store qualify as business use. Commuting generally doesn't, even if you discuss work on your phone while stuck in traffic.
The rules: You have two alternatives for calculating the deduction: actual costs or the standard mileage rate. If you choose standard mileage in the first year you use a vehicle you own for business, you can usually switch to actual costs in later years. Choosing standard mileage for a leased vehicle locks you in to that method for the term of the lease.
What’s deductible? Under the actual cost method, deductible costs include depreciation, maintenance, gasoline, taxes, insurance, parking fees, and interest expense.
The standard mileage rate for business use during 2007 is 48.5 cents per mile. In addition, you can deduct the business portion of parking fees, tolls, certain taxes, and, if you're self-employed, interest on your vehicle loan.
How to benefit: Maintain a log of business and personal mileage and keep receipts. Having both lets you pick the method that generates the largest deduction.
Call us if you would like additional information on taxes and business driving.
Payroll records for new employees: What you need to know
When you’re knee-deep in the paperwork required to set up payroll records for new employees, it may be difficult to believe “pay” is derived from the Latin word “pax,” meaning peace.
To help maintain your serenity, here’s an overview of forms to have on hand.
- Form I-9. Though not a tax form, the I-9 is required by law to verify your new employee’s eligibility to work in the US. Keep the completed form in your files, along with copies of any documentation your payroll policies specify.
- Form W-4. The information your employee provides on this form is used to calculate the amount of income tax you’ll withhold from each paycheck. Make sure Form W-4 is fully filled out and signed, and put it in your payroll file.
Note: Your employee may also need to complete a state withholding allowance form.
- Form W-5. Use this form when eligible employees choose to receive advance payments of the earned income credit. If you hire both spouses, request a separate W-5 from each. Retain the form as part of your records.
- New hire reports. State requirements vary, but typically you’ll need to submit new employee information to a designated State agency within twenty days from your employee’s first day of work.
Call us with your payroll questions. We have the forms and answers to set your mind at ease.
Tune up your business retirement plan
Change happens at an ever-increasing rate. New tax laws are enacted, your business grows, additional employees are hired.
Has your retirement plan kept pace?
If you’re not sure, now’s the time for a tune-up. Making sure your plan continues to qualify for tax benefits will provide current deductions and tax-deferred growth.
Here are four areas to evaluate.
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Eligible employees. Generally, all employees who meet your plan’s coverage rules must be allowed to participate. That may include part-timers and terminated workers.
To do: Review your payroll records to confirm you haven’t missed any qualifying employees.
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Contribution limits. Plan contributions are limited by law, and may be adjusted periodically for inflation. The limit varies based on the type of plan you offer. For instance, this year’s maximum SIMPLE plan contribution is $10,500 (plus an additional catch-up contribution of $2,500 for employees over age 50).
To do: Verify and monitor total contributions per employee per year.
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Timely deposits. For SEP and SIMPLE plans, you have until the due date of your federal tax return (including extensions) to deposit contributions you make on behalf of employees. Missing the deadline can mean losing your tax deduction.
Payroll-deduction SIMPLE plan contributions must be deposited within thirty days after the last day of the month during which they were withheld.
To do: Review your deposit history. Set up recurring reminders to avoid penalties.
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Informational notices. You’re generally required to provide employees with facts about plan features, eligibility and changes. Document formats and deadlines differ, but most plans stipulate at least annual reporting to participants.
To do: Bring your employees up to date, and schedule regular notifications. |
Give us a call to discuss recent tax law changes and procedures for correcting inadvertent errors in your plan administration. We can help you keep your retirement plan in good shape.
Is your worker an employee or an independent contractor?
Are your workers properly classified as independent contractors? Or are they employees?
With the “tax gap” under scrutiny, Congress wants to learn the answer. Policy makers think misclassification of workers accounts for at least some of the gap, which is the difference between tax dollars the IRS believes are due and what is actually collected.
As attention turns to the issue, you may be wondering about the status of your workers, since the penalties for incorrectly treating an employee as an independent contractor can be severe.
Here’s an overview of three categories of indicators that can help you decide.
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Behavioral control. The more control you have over the work performed, the more likely your workers are employees. Behavioral control includes the right to tell a worker how, when, and where to do the work, even if you don’t exercise that right.
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Financial control. Do you pay for tools, equipment, facilities, and business and travel expenses? That can indicate an employer/employee relationship. Independent contractors typically take on a certain amount of financial risk.
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Type of relationship. Independent contractors usually provide the same or similar services to others and receive no employee-type benefits from you, such as paid vacation or sick days. |
The categories are based on a list of factors the IRS uses as guidelines, but the final decision requires an objective facts-and-circumstances analysis of each situation. What matters is the substance of the relationship your business has with your workers. For help making the determination, please call.
This energy credit is due to expire
Interested in reducing your heating and cooling bills?
Make energy-efficient improvements to your existing home and you could save money on current and future utility costs — and possibly claim a federal tax credit of up to $500, too.
But you’ll have to act soon unless Congress acts to extend the credit. Under present law, the Non-business Energy Property Credit expires December 31, 2007.
Here’s an overview of the two types of property that qualify for the credit.
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Improvements to your principal residence that conserve energy and are expected to last at least five years.
These items consist of insulation materials or systems, exterior windows and doors, and certain treated metal roofs.
Examples of improvements that may be eligible include radiant barrier insulation, window film, and garage doors. According to the IRS, drywall and exterior siding do not qualify.
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| 2. |
Improvements to your principal residence that are designed to use less energy.
Qualifying property includes high-efficiency heating and cooling equipment, such as electric or geothermal heat pumps and air circulating fans for use in furnaces. Electric heat pump, natural gas, propane, or oil water heaters may also qualify. |
The property you install must meet specified energy requirements and be in service by the end of the year. Other rules may limit the total credit you receive.
Please call our office before you start your energy-efficient home repairs and upgrades. We can help you realize the greatest tax benefit.
Keep track of nondeductible IRA contributions
As the tax rules governing Individual Retirement Accounts change over the years, it’s easy to forget some of the more enduring ones, like record keeping requirements for nondeductible contributions.
But retaining paperwork that shows the total traditional IRA contributions you were unable to deduct on your federal return can save you money. How? Nondeductible contributions are considered basis, so they’re not taxable when you begin to take withdrawals.
This is true even if your IRA account is made up of both deductible and nondeductible contributions, though you can’t choose which type to withdraw. Instead, your withdrawals are split between taxable and nontaxable amounts, based on a formula.
Another reason to keep track of nondeductible contributions: You receive the same tax-saving benefit when you convert your traditional IRA to a Roth.
Planning tip: Even if making a conversion is not possible now due to your adjusted gross income, a 2005 tax law provision offers relief in the near future. Beginning in 2010, the income restriction is repealed for Roth conversions.
Establishing the amount of your nondeductible contributions is the only way to avoid paying tax twice on them. You’ll find the information you need on Form 8606, in your federal tax return. If we can help you update your records, please call.
Will the change in the "kiddie tax" affect you?
The “kiddie
tax” rules need a new name.
These rules govern the taxability
of your child’s unearned income
and currently apply to children under age 18.
But starting in 2008, the kiddie tax will include children under age
19, as well as full-time students under age 24.
The change could mean a bigger tax bill for your college student.
- How the kiddie tax works.
When your child receives more than a specified amount of net unearned
income in a year ($1,700 for 2007), the excess is usually taxed
at your top tax rate if it’s higher
than your child's tax rate. Unearned income is typically defined
as income from investments, such as dividends, interest, and capital
gains.
- The exceptions. The
kiddie tax doesn't come into play if your
child is married and files a joint return. In addition, the newly expanded
age provision won’t apply when your child earns enough income
to provide over half of his or her own total annual support.
- Planning moves to make.
To save for college without getting hit by the kiddie tax, consider
investing in college savings plans such as a Section 529 plan or
a Coverdell educational savings account. Both offer tax-free earnings
and distributions when the funds are used to pay for school-related
expenses. Hiring your child to work in your family business is
another option. Wages are earned income and are taxed at your child’s
rate, not yours, even if the child is under the kiddie tax age
limit.
Please call our office to discuss the effect the expanded rule will
have on your gifting and college savings strategies. We can help you
minimize the consequence.
