Sunday, December 28, 2008

Foreclosure, IRS and Celebrities


One of my favorite rappers Doug E Fresh best known for his '80s hit "The Show" and "Loddi Doddi" has been hit with three foreclosure actions by banks looking to collect more than $3.5 million in unpaid mortgages on a trio of his Harlem homes. Doug E Fresh is also being chased by American Express for nearly $60,000 in credit-card debt, and the IRS just slapped him with a $367,000 tax lien on top of more than $40,000 owed to the state tax collector, records show.

Singer Tionne “T-Boz” Watkins of TLC is facing foreclosure on her home. T-Boz's five-bedroom, nearly 10,000-square-foot home in the gated Sugarloaf Country Club community will be put up for auction in January. According to T-Boz, the home involved in foreclosure proceedings may have to do with her ex-husband Mack 10." This isn't the first time the singer has been confronted with financial difficulties, back in 1995 as a member of the group TLC, the group filed for bankruptcy.

Other celebrities also facing foreclosure on one or more of their properties is American Idol winner Fantasia Barrino. Fantasia's $1.3 million, 6,200 square foot home has been scheduled for auction in January. She defaulted on a mortgage she took out in 2007.

Tonight Show sidekick Ed McMahon was close to losing his $6.25 million home after falling behind more than $644,000 behind on $4.8 million in mortgage loan payments. Thankfully for him, he had a friend in Donald Trump who bailed him out of his troubles allowing him to keep his home. I know the other celebrities wish they were so lucky.



Thursday, December 25, 2008

Merry Christmas





I hope everyone have a safe and joyous holiday.

Monday, December 22, 2008

Tax Amnesty


State after state is facing a disastrous drop-off in tax revenue because of the stock market collapse, the housing foreclosure crisis, and the recession. As a result, many lawmakers are being forced to think outside the box in order to develop creative solutions to close current and future projected budget deficits. One solution that seems to be gaining momentum is tax amnesty. Under a tax amnesty program, individuals and businesses would be allowed to pay their past-due tax bills with little or no penalties or interest.


Three years ago, Indiana raised about $245 million dollars over three months by allowing individuals and businesses to clear their overdue tax obligations without penalties of any sort. Other states inspired by Indiana's success, are either experimenting with or discussing their own amnesty programs,


Nevada for example raised 41 million dollars in just under four months this year while giving up 14 million dollars. The result of Nevada's tax amenesty is that they earned approximately $3 for every $1 given up in penalties or interest. Oklahoma, generated about twice as much as it expected from its offer of amnesty, raising $82 million through its 90-day Clean Slate program for businesses and individuals. New York has a program under way, and Connecticut and Massachusetts are drawing up theirs. California debated one before rejecting it in favor of stiffer penalties. Delaware's incoming governor campaigned on the idea. A similar program is being considered for Louisiana when its lawmakers return in April.

New York, which has a $1.5 billion deficit, began a limited amnesty last January that covers income, corporate and sales taxes. The state has collected $11 million so far and hopes to take in $30 million.

Connecticut Gov. Jodi Rell has warned that the state faces nearly $6 billion in deficits over the next two fiscal years. The state is hoping to generate $40 million by instituting a 56-day tax amnesty program next spring. It will let taxpayers pay their late state taxes without penalty, and with a 25 percent reduction in interest.

Many states are reluctant to offer amnesty, arguing that its rewards cheaters, discourages honest taxpayers and poaches revenue the states will collect in the future — especially as they improve the databases they use to catch delinquents. They worry, too, that people will hold back on their taxes and simply wait for the next amnesty. I guess this is what the lawmakers in California were thinking since they rejected a tax amnesty program as a way to generate tax revenues while the state is on course to run out of money in 60 days.

Friday, December 19, 2008

Updated Publication 17 for 2008

The IRS has published an updated version of its comprehensive tax guide for individuals for use in preparing 2008 tax returns: The updated on-line version of Publication 17, Your Federal Income Tax, contains more than 900 interactive links.

Publication 17 has been updated with important changes for 2008, including information on the new recovery rebate credit, new first-time-homebuyer credit, and an additional standard deduction for real estate taxes. It has been published annually by the IRS for more than 65 years and has been available on the IRS Web site since 1996.

As in prior years, the publication provides information on how to file an individual tax return, what to include as income, how to calculate capital gains and losses, how IRAs and other expenses can affect how much income to report, whether to take the standard deduction or itemize, and how to figure taxes and credits.

IRS To Help Distessed Homeowners

T
he IRS has announced that it will be providing relief to financially distressed homeowners to avoid having a federal tax lien impair their ability to either sell or refinance their homes.

If a taxpayer has a federal tax lien against his property, and the taxpayer is looking to refinance or restructure his loan, the taxpayer or the taxpayer's representative may request that the IRS make the tax lien secondary to that of the lending institution restructuring or refinancing the loan. For homes being sold for less than the mortgage lien, the taxpayer or its representative may request that the tax lien be discharged. The discharge does not relieve the taxpayer of his responsibility to pay the taxes owed. It merely removes the lien from the property so that it can be sold.

The process to request a discharge or a subordination of a tax lien takes approximately 30 days after the submission of the completed application, but the IRS will work to speed those requests in wake of the economic downturn.

“We don’t want the IRS to be a barrier to people saving or selling their homes. We want to raise awareness of these lien options and to speed our decision-making process so people can refinance their mortgages or sell their homes,” said Doug Shulman, IRS commissioner. “We realize these are difficult times for many Americans,” Shulman said. “We will ensure we have the resources in place to resolve these issues quickly and homeowners can complete their transactions.”

To apply for a certificate of lien subordination, people must follow directions in Publication 784, How to Prepare an Application for a Certificate of Subordination of a Federal Tax Lien. Again, there is no form but there must be a typed letter of request and certain documentation. The request should be mailed to one of 40 Collection Advisory Groups nationwide. See Publication 4235, Collection Advisory Group Addresses, for address information.

Saturday, December 13, 2008

Charitable Donations Rules




As the end of the year approaches and our minds are focused on the holiday season, we can help others in this time of economic distress and lower our tax bill by making donations to charity prior to the end of the year.

Some of the the items you can donate are furniture, furnishings, electronics, appliances, linens, clothing and of course cash. In order for your clothings or household items to be deductable, they must be in good used condition or better. Torn or stained clothing does not qualify. Clothing or household items which you claim a deduction of over $500 does not have to be in good used condition or better if you include a qualified appraisal of the item with the return.

Donations of money include those made in cash, check, electronic funds transfer, credit card, and payroll deduction. So if your employer lets you make a charitable donations through automatic payroll withdrawls, you should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

To deduct any charitable donation of money, regardless of amount, you must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.
Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of the year count for 2008. This is true even if the credit card bill isn’t paid until next year. Also, checks count for 2008 as long as they are mailed this year. You must also obtain ackowledgement from the charity for donations of property or cash of $250 more. For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value.

Check that the organization is qualified. Only donations to qualified organizations are tax-deductible. IRS Publication 78, available online and at many public libraries, lists most organizations that are qualified to receive deductible contributions. The searchable online version can be found at IRS.gov under “ Search for Charities.” In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even though they often are not listed in Publication 78.

Rules for Charitable Donations


As the end of the year approaches and our minds are focused on the holiday season, we can help others in this time of economic distress and lower our tax bill by making donations to charity prior to the end of the year. Some of the the items you can donate are furniture, furnishings, electronics, appliances, linens, clothing and of course cash.

In order for your clothings or household items to be deductable, they must be in good used condition or better. Torn or stained clothing does not qualify. Clothing or household items which you claim a deduction of over $500 does not have to be in good used condition or better if you include a qualified appraisal of the item with the return.

To deduct any charitable donation of money, regardless of amount, you must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.

Donations of money include those made in cash, check, electronic funds transfer, credit card, and payroll deduction. So if your employer lets you make a charitable donations through automatic payroll withdrawls, you should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.


Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of the year count for 2008. This is true even if the credit card bill isn’t paid until next year. Also, checks count for 2008 as long as they are mailed this year. You must also obtain ackowledgement from the charity for donations of property or cash of $250 more. For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value.

Check that the organization is qualified. Only donations to qualified organizations are tax-deductible. IRS Publication 78, available online and at many public libraries, lists most organizations that are qualified to receive deductible contributions. The searchable online version can be found at IRS.gov under “ Search for Charities.” In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even though they often are not listed in Publication 78.
For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to people who choose the standard deduction, including anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceeds the standard deduction. Use the 2008 Form 1040 Schedule A, available now on IRS.gov, to determine whether itemizing is better than claiming the standard deduction.
For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value.Additional rules apply for a contribution of $250 or more.
The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value of the vehicle is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.
If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.

Sunday, December 7, 2008

AMT Explained


Want to understand the true essence of pain? Watch the face of a taxpayer who completes a tax return showing a $2,000 refund. Then remind him of the Alternative Minimum Tax (AMT), and tell him it results in a net $3,000 in additional taxes owed. This is what is happening to more and more middle class Americans. However, with a good idea of what you’re up against, you can plan for the AMT and, I hope, avoid it entirely

How does the AMT work? Well, Congress designed the AMT in 1969. It's supposed to ensure that everyone especially the most affluent pays at least some tax. The AMT mandates a recomputation of your federal taxable income at a flat tax of 26%, and you are required to pay the higher of two tax bills. It becomes a flat tax of 28% on AMT taxable income over $175,000 for all taxpayers except those who file "married filing separately." For these taxpayers the 28% rate applies to income above $87,5000. The rate is applied on your income after your standard or itemized deductions but before your personal exemptions. Now, here is where the pain starts, the amount (line 37 on your 1040) is then increased by what are called “tax preferences.” and is reduced by an exemption amount that phases out as your AMT taxable income increases.

“Tax preferences” are nothing more than tax benefits or deductions that Congress has decided to give you under the regular tax system and then take away from you under the AMT tax system. Here’s what I mean. If you took the standard deduction, forget it. It’s a tax preference. Did you itemize? Medical expenses are normally deductible to the extent they exceed 7.5% of your adjusted gross income under the regular tax system but not for the Alternative Minimum Tax system. Under the AMT computation, you can only deduct the excess over 10% of your adjusted gross income. Forget the deduction for state and local income taxes or property taxes. They’re all tax preferences, and are added back into your AMT income. Congratulations if you live in a high income-tax state like New York or pay substantial real estate or personal property taxes! So watch out if your state is talking about increasing property or state taxes to close budget gaps. Do you itemize? Kiss your miscellaneous itemized deductions goodbye. That means investment expenses, tax preparation costs, job hunting expenses and all non-reimbursed employee business expenses lose their tax benefits.

By the year 2010 and probably regardless of the Bush tax cuts, the number of taxpayers affected by the AMT will rise to as many as 17 million, or about one in six. The revenue gain for the Treasury: from $5.8 billion a year to $38.2 billion a year. The reason more of us will be affected by the AMT in 2010 than now is that the AMT, unlike normal tax brackets, isn’t indexed for inflation. If it were indexed, as much of the tax code is, the projected increase would only be to 2.1 million taxpayers. Among the taxpayers increasingly exposed will be those with large families because of exclusions of such items as child credits. So plan, plan, plan!

Friday, December 5, 2008

More Year End Planning Part 3



Make a charitable transfer:
Individuals who are at least 70½ years old can also make a tax-free transfer from their IRA of up to $100,000 to a charity, as long as the transfer is direct to the organization. This can be useful for retirees who must take required minimum distributions from an IRA, but since the money goes untaxed, donors do not get to deduct the contribution.

Prepay bills: Prepaying things such as January's mortgage bill, a child's spring semester tuition, local property taxes or state income taxes and even tax-advisory and preparation fees can help drive up the amount of deductions you can itemize.

  • Prepay Deductible Expenditures: Early payments for some deductible expenditures that are made this year -- instead of in early 2009 -- will produce higher write-offs for your 2008 tax return. This strategy makes sense if you expect to be in the same or lower tax bracket next year. Of course, that’s a big "if," but let’s assume it’s the case. Monthly mortgage payment Perhaps the easiest expense to prepay is your house payment due Jan. 1. By paying it this year, you'll have 13 months' worth of mortgage interest to write off for 2008. You can pull the same prepayment trick with a vacation home. By prepaying this year, you’ll have to continue the policy for next year and beyond. Otherwise, you’ll only have 11 months of interest to deduct for the first year you stop.

  • State and local income and property taxes: Prepayment of state and local income and property taxes that aren't actually due until early next year can also generate a larger 2008 deduction. Thanks to a new tax-law provision, even non-itemizers can deduct real property taxes paid during 2008. However, the maximum write-off under the new rule is $1,000 for married joint-filing couples and $500 for others and the deduction cannot exceed the amount you actually pay by year's end. Do not do these prepayment drills if you know you’ll owe the dreaded alternative minimum tax (AMT) for this year. Write-offs for state and local income and property taxes are completely disallowed under the AMT rules. Therefore, prepaying these expenses will do little or no tax-saving good for AMT victims.

  • Medical expenses and itemized deductions: Also, consider prepaying expenses that are subject to limits based on your adjusted gross income (AGI). The two prime candidates are unreimbursed medical expenses and miscellaneous itemized deductions. Medical expenses are deductible only to the extent they exceed 7.5% of AGI. Miscellaneous deductions for investment expenses, tax preparation fees, tax advice, and unreimbursed employee business expenses are deductable to the extent they exceed 2% of AGI. If you can combine these expenditures into a single calendar year, you’ll have a fighting chance of clearing the AGI hurdles and getting some write-offs. Unfortunately, this strategy may not work for AMT victims. Under the AMT rules, medical expenses must exceed 10% of AGI to be deductible and miscellaneous itemized deductions are completely disallowed.

  • Prepay College Tuition: If your 2008 adjusted gross income (AGI) allows you to qualify for the Hope Scholarship or the Lifetime Learning higher education tax credits, consider prepaying college tuition bills for 2009 if that would result in a bigger credit on this year’s 1040 form. Specifically, you can claim a 2008 credit based on prepaying tuition for academic periods that begin in January through March of next year. If your 2008 AGI is too high to be eligible for the Hope or Lifetime credits, you might still be able to deduct up to $2,000 or $4,000 of college tuition costs. If so, consider prepaying tuition bills for academic periods that begin in the first three months of 2009 if that would result in a bigger write-off on this year’s Form

Business expenses: Smaller items also add up, so restocking work-related supplies, renewing subscriptions to professional journals or prepaying dues for professional organizations can also help reduce taxes.


Medical expenses: Review your medical bills to see whether the total spent is close to 7.5 percent of adjusted gross income. If your expenses are at or near that threshold, it might make sense to have other elective work done or prepay some expenses to take advantage of that deduction.


Make a gift: The law also allows taxpayers to deduct gifts of up to $12,000, or $24,000 for a married couple filing a joint return. What's more, there's no cap on gift deductions for educational and medical expenses if the payments are made directly to the educational organization or medical provider.


Think alternative energy or hybrid: Finally, there are tax credits available for several energy-saving investments, including installing alternative energy devices such as solar panels, fuel cells or wind turbines to provide electricity for a home, and for buying alternative fuel vehicles. There are tax credits available for the purchase of a hybrid or electric car. A list of the credits available for different models is available on the Internal Revenue Service Web site, http://www.irs.gov/.