2009 Tax Deductions That You Should Not Overlook

With 13 days to go before April 15th here is a list of tax deductions many people either miss or forget.

Charitable Contributions: If you itemize your deductions and gave money to a church, a charitable organization such as the Red Cross, or a nonprofit organization such as the Boys and Girls Club of America then you are entitled to deduct your contribution. You must make sure you get a written receipt for your deduction just in case you get audited. If you donated your old clothes, furniture, books, etc to your local Goodwill, Big Brother or Salvation Army, you are entitled to deduct the value of your contribution. In addition, if you donated money to support disaster relief in Haiti after January 11, 2010 and before March 1, 2010 these contributions also qualify to be deducted on your 2009 return. So, if you didn't have the cash to contribute in 2009, I hope you charged it.

Points: If you were able to refinance your home in these tough economic times, any points you paid to refinance your home can be deducted on a monthly basis over the life of the new loan. All unamortized points on an old refinancing are deducted in the year of a new refinancing.

Health Insurance Premiums: Any health insurance premiums you pay, including some long-term-care premiums based on your age, are potentially deductible. But you have to add these to your medical expense pot. Medical expenses have to exceed 7.5% of your adjusted gross income (AGI) before they give you any tax benefit. If you're self-employed and not covered by any other employer-paid plan, though, you can deduct 100% your health insurance premiums (to the extent of your net income) "above the line." Above the line means the expense is an adjustment to your adjusted gross income.

Educator Expenses: If you're a kindergarten through grade 12 teacher, teachers aide, instructor or principal, you can get an above-the-line deduction for as much as $250 for materials you bought in 2009. That includes books, supplies and even computer equipment.

College Education Expenses: In this category you will have a choice of taking either an adjustment to income or a tax credit. A tax credit will reduce your taxes payable on a dollar for dollar scale while the adjustment to income can either reduce or increase your gross income. If your adjusted income is less than $65,000 for single taxpayers or less than $130,000 for married filing jointly taxpayers you can deduct up to $4,000 on your adjusted gross income. If you qualify, you can take either the Lifetime Earning Credit which is worth $2,000 or the American Opportunity Credit which is worth $2,500. Since you have choice between the tax credit and the adjustment to income, you will have to choose which one offers the greater tax benefit.

Health Care Reform Taxes

Individual responsibility: Starting in 2014 everyone will be required to maintain health insurance. If you go without insurance, you will be subject to a tax of $695 per year.

Employer responsibility: Large companies will be required to provide health insurance as a benefit to its employees. Companies that do not provide this benefit will be imposed a tax of $2,000 a year per employee.

High cost plan excise tax: Starting in 2018, high cost health insurance plans will be subject to a tax. Plans for single persons that cost in excess of $10,200 and family plans that cost in excess of $27,500 are in this sections cross hairs. The excise tax rate on incremental costs will be 40 percent.

Medicare tax: Medicare tax will now be assessed on investment income for families making in excess of $250,000 and for singles making over $200,000. Investment income includes interest, dividends, capital gains, rental income and royalties. In the past, Medicare taxes had been assessed on wages only. Earn one dollar of investment income while you are over the threshold limits and you will incur this tax. This tax will commence January 1, 2013.

Medicare tax: In addition to the expansion of Medicare tax on investment income as noted in Section 1402 above, the Medicare tax rate has also increased. This tax increases by a third, from 2.9 percent to 3.8 percent.

Brand name pharmaceuticals: Starting in 2011, the pharmaceutical industry will be subject to a $2.5 billion annual excise tax. The annual excise tax increases in subsequent years, rising to $4.2 billion in 2018. The tax is assessed based on a companies market share and is non-deductible for federal tax purposes

Medical Devices: A 2.3 percent excise tax on the sale of medical devices goes into effect on Jan. 1, 2013. That tax, which excludes items sold at retail to consumers, would raise $20 billion through 2019.

Tanning Tax: A 10 percent excise tax on indoor tanning services goes into effect in July 2010.

Tax Benefits Aid Employers Who Hire and Retain Unemployed Workers

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

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.

“These tax breaks offer a much-needed boost to employers willing to expand their payrolls, and businesses and nonprofits should keep these benefits in mind as they plan for the year ahead,” said IRS Commissioner Doug Shulman.

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.

Businesses, agricultural employers, tax-exempt organizations and public colleges and universities all qualify to claim the payroll tax benefit for eligible newly-hired employees. Household employers cannot claim this new tax benefit.

Employers claim the payroll tax benefit on the federal employment tax return they file, usually quarterly, with the IRS. Eligible employers will be able to claim the new tax incentive on their revised employment tax form for the second quarter of 2010.

House Approves Health Care Bill

The House voted 219-212 in favor of health legislation backed by President Obama. The 219-212 House vote, coming after a tumultuous day of protests and rancorous debate, paves the way for Obama to sign the major portion of his 10-year, $940 billion plan early this week. The vote assured that about 32 million Americans will gain health insurance coverage and millions more will win protections against losing theirs. The legislation will raise taxes, largely on the wealthy, and reduce future Medicare spending by about $500 billion.

"This legislation will lead to healthier lives," House Speaker Nancy Pelosi of California said in the final floor speech before the vote. "This is an American proposal that honors the traditions of our country."

Read more: USA Today

Businessweek

Washington Post

Politico

New York Times

How To Choose A Tax Preparer

Most tax return preparers are professional, honest and provide excellent service to their clients. However, unscrupulous tax return preparers do exist and can cause considerable financial and legal problems for their clients. Therefore, it’s important to find a qualified tax professional. Here are 8 rules for seperating the honest tax preparer from the dishonest tax preparer.

1. Check the person’s qualifications Ask if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.
2. Check on the preparer’s history Check to see if the preparer has any questionable history with the Better Business Bureau, check for any disciplinary actions and licensure status through the state boards of accountancy for certified public accountants; the state bar associations for attorneys; and the Office of Professional Responsibility for enrolled agents.
3. Find out about their service fees Avoid preparers that base their fee on a percentage of the amount of your refund or those who claim they can obtain larger refunds than other preparers.
4. Make sure the tax preparer is accessible Make sure you will be able to contact the tax preparer after the return has been filed, even after April 15, in case questions arise.
5. Provide all records and receipts needed to prepare your return Most reputable preparers will request to see your records and receipts and will ask you multiple questions to determine your total income and your qualifications for expenses, deductions and other items.
6. Never sign a blank return Avoid tax preparers that ask you to sign a blank tax form.
7. Review the entire return before signing it Before you sign your tax return, review it and ask questions. Make sure you understand everything and are comfortable with the accuracy of the return before you sign it.
8. Make sure the preparer signs the form A paid preparer must sign the return as required by law. Although the preparer signs the return, you are responsible for the accuracy of every item on your return. The preparer must also give you a copy of the return.

2009 Profesional Tax Software Choices Part 1

"'In this world nothing can be said to be certain, except death and taxes." – quote by Benjamin Franklin in a letter to Jean-Baptiste Leroy in 1789, (re-printed in The Works of Benjamin Franklin, 1817)



Here we are again with another tax season and asking ourselves the following questions about our tax software? Are we using the “right” package for our needs? Are we getting the most value from our investment in Tax Preparation Software? What would it take for me to consider changing from my current tax software? Would I recommend my tax software to other tax professionals? Do I know what are my alternatives? What do I like about my tax software? What do I dislike about my tax software?



Drake Software offers an all-inclusive package regularly, $1,395 (currently web-listed as $1,295) with early season discount prices as low as $995. The package includes all individual and business federal tax returns - 1040, 1040NR, 1041, 1065, 1120, 1120H, 1120S, 706,709, 990, and 990PF - as well as all state returns. It also includes their tax planner, write-up, client status manager, document manager, bank software, electronic filing, technical support, network version, preparer Web site, and paperless office capabilities. They also offer a client write-up package that includes everything except their client write-up package. The pay-per-return option allows you to prepare up to 15 federal and state returns for $285, and additional returns cost $19 each.
The price is small, but the power of the package is impressive. Screens and helps are available in Spanish, for your Spanish speaking preparers or clients, but printed tax forms are all in English. Auto entry features include a Zip Code database that automatically fills in the city and state after you enter the zip code, and an EIN database that retains and fills in provider's information when the EIN is entered.


Drake Software's client base is an even mix between one to two man shops, to CPA firms, to large multi-sites. If the firm's hardware meets the Drake Software minimum requirements there is no limitation on the amount of users and returns it can support.



The Intuit ProLine Lacerte is for mid-sized and larger practices, as well as smaller firms with more complex client needs. The program offers preparation and electronic filing for all major tax entity types, along with all states and municipal entities. The system is offered modularly, with practices selecting the entity types and state support they require. Pricing for the Federal individual package is $2,699 and $429 per state, with add-on available for unlimited electronic filing ($995), networking ($570 for the first 4, $280 for each additional 4), tax analyzer ($465 of which 25% is the annual maintenance fee which is all you pay in future years), tax planner ($665 of which 25% is the annual maintenance fee which is all you pay in future years) and other productivity tools including applications for trial balance, document management, and tax research. The Intuit ProLine Lacerte system is also offered in a pay-per-use format, for lower-volume firms with a $395 license fee, $36 for federal and 1 state and a $4 electronic filing fee. Once the Pay-per-Return fee is paid separate business, trust, estate, and gift taxes may also be purchased.



Lacerte integrates with QuickBooks, Intuit's Document Management System, Tax Planner, EasyACCT, and BNA Tax Planner, Forms Library, Tax Research, Tax Analyzer, Trial Balance Utility, Lacerte e-Organizer.



The Intuit ProSeries is offered as a complete package or as a pay-per-return option, ProSeries Professional is easily adaptable to fit your office needs. Directed toward the small to medium sized accounting firm that might also provide other accounting services, Intuit allow you to buy as much (or as little) tax power as you need. One license of ProSeries tax software covers everyone in one company and location (multiple installations, networking is an add-on), via Webprice $1299, regularly $1399. This package includes unlimited individual returns for federal and state, and no license fee for Pay-Per-Return for business return. The PowerTax Library, priced at $4449, includes: the federal individual (100+ forms and schedules); state individual (45 States and Local forms); federal business forms 1120, 1120s, 1065, 1041, and 990; state business forms 1120, 1120s, 1065, 1041, and 990; Gift and Estate forms 709 and 706; and ProSeries add-on solutions Client Organizer and Fixed Asset Manager. Add-on packages include Network Solutions for $475, ProSeries DMS (Document Management System) for $450, Client Organizer for $229, Fixed Asset Manager for $229. The Pay-Per-Return option fee is $225, plus $20 for each federal and $15 for each state return processed




ATX Max is a highly inclusive program that sells for $1,110 and includes all the tax forms and specialty forms needed for a small to medium accounting practice. This package includes 1040 and related forms plus all state and local individual income tax forms, electronic filing where supported, 1041, 1120 1120S, 1065, 706, 709, 990, 5500, registrations and elections and more. Training and online CCH U.S. Master Tax Guide and CCH 1040 Express Answers are included with the ATX Max package.
One thing that really sets the ATX packages apart is their over 10,000 federal, state, and local forms, including the hard-to-find local tax forms. With ATX, tax practitioners no longer have to find and fill out by hand less common local tax forms, they are already included in the tax package. CCH Small Firm Services knows that not all small tax firms are looking for the same solution. They have packages that start as low at $410 that include all of the federal 1040 forms and supporting schedules, up to 3 states, $200 unlimited electronic filing, or individually priced e-filing for $3 federal and $2 per state state, and free training. They also offer a small firm turnkey solution of their Total Tax & Accounting Office package for $2295 which includes everything from the ATX Max package plus ATX Fixed Asset Manager, ATX Trial Balance, ATX Document Manager, ATX Client Write-Up with Payroll, and CCH Express Answers for all of the included tax returns.

TaxWise offers different groupings of their tax software so that they are price accessible to the various sized firms that are looking for the services their product offers. TaxWise is targeted for the accounting firm that is looking to grow and wants to position itself in an efficient manner with a complete business solution that is fully integrated and streamlined.
The ProFiling Package is $1084 for all federal individual and state and local forms, $1 Per federal and $.50 per state for electronic filing. The Power package at $2395 includes 1120, 1120s, 1065, 1041, 706, 709, 990 and 5500as well as unlimited e-filing, and free networking within the same office. They also offer an Executive package that includes all 1040 forms, 1120, 1120S, and 1065, 3 states each for individual and business returns, and $2 federal, $1 state electronic filing for $1335. The Complete Tax and Accounting package includes their complete line of individual, corporate, partnership, business, and specialty forms and schedules, all states and electronic filing, trial balance, fixed asset, document manager, and research software for $3265. TaxWise includes as much power as you could need, depending on the package you purchase. Free orientation sessions, customer support, and the online CCH U.S. Master Tax Guide (included in the Executive, Power, and Complete packages) make this a complete solution for a growing professional accounting firm.

Tax Tips On The HomeBuyer Tax Credit

Here are the 9 things you should know about the expanded credit and the qualifications you must meet in order to qualify for it.

1. You must buy – or enter into a binding contract to buy a principal residence – on or before April 30, 2010.


2. If you enter into a binding contract by April 30, 2010 you must close on the home on or before June 30, 2010.


3. For qualifying purchases in 2010, you will have the option of claiming the credit on either your 2009 or 2010 return.


4. A long-time resident of the same home can now qualify for a reduced credit. You can qualify for the credit if you’ve lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the new home is purchased and the settlement date is after November 6, 2009.


5. The maximum credit for long-time residents is $6,500. However, married individuals filing separately are limited to $3,250.


6. People with higher incomes can now qualify for the credit. The new law raises the income limits for homes purchased after November 6, 2009. The full credit is available to taxpayers with modified adjusted gross incomes up to $125,000, or $225,000 for joint filers.


7. No credit is available if the purchase price of the home exceeds $800,000.


8. The purchaser must be at least 18 years old on the date of purchase. For a married couple, only one spouse must meet this age requirement.


9. A dependent is not eligible to claim the credit