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

Small Business Jobs and Wages Tax Cut

President Obama has proposed a new jobs creation program that is targeted at small businesses who are the engines of job creation. The program is designed to provide firms an incentive to move quickly on new hires by reducing payroll tax costs. The program provides:

• A $5,000 tax credit for each net new job created in 2010. Employers would receive a tax credit of up to $5,000 against their payroll taxes for every net new employee they hire in 2010. The credit is designed to help jumpstart job growth by giving employers an incentive to add jobs or accelerate the hiring they would have done later in the future. Start-ups would be eligible for half the credit, which provides an incentive for entrepreneurship while avoiding gaming. The credit would be administered off an employer’s unemployment insurance wage base (equal to 72% of the unemployment insurance wage base increase, or $5,000 credit for each additional worker who earns at least $7,000).


• An additional tax credit to reimburse payroll taxes on increases in inflation-adjusted payrolls. Businesses will receive a bonus 6.2 percent tax credit on aggregate wages in excess of inflation – reimbursing the employer for the Social Security payroll taxes they pay on those payroll increases. This provides firms with an incentive to increase wages or work hours for existing employees as well as hire new employees at a higher wage. This wage bonus would be calculated off the Social Security payroll tax base, so firms would not get credit for increasing wages for employees making more than the current taxable maximum of $106,800.


• A cap at $500,000 per business to incentivize small business hiring. All firms with net employment increases will be eligible for these credits. But to ensure that small businesses receive the bulk of the incentive to hire, the maximum credit will be limited to $500,000 per business.


• Anti-abuse provisions to ensure that employers do not game the system. Businesses that reduce employment or payrolls in 2010 would be ineligible for both the $5,000 credit and the wage bonus. The credit would also include anti-abuse provisions designed to deny or limit the credit to employers that seek to game the system by, for example, replacing full-time employees with part-time employees. This will include limiting the maximum jobs credit amount to 25% of the increase in a firm’s Social Security payroll wage base. In addition, rules would prevent businesses from renaming themselves or merging in order to claim the credit.


• Quarterly payment option to accelerate payments to firms. Employers would have the option of receiving the tax credit on a quarterly estimated basis. This helps get money in the hands of employers earlier in the year, could help increase awareness of the credit and provides an early incentive to hire.


• The proposal is estimated to cost $33 billion. The administration plans to pay for this program with savings from the Treasury Department’s Troubled Asset Relief Program, which the administration says has cost $200 billion less than had been projected. If every firm used the maximum credit to hire rather than for salary increases, it would reward six million new jobs.

Special Tax Relief for Donations Made To Haiti

People who give to charities providing earthquake relief to Haiti can claim these donations on their 2009 tax returns, according to a new special relief provision issued by the Internal Revenue Service. This special tax relief provision for Haiti is modeled on a 2005 law that allowed taxpayers to deduct donations made in January 2005 on their 2004 returns in the wake of the Dec. 26, 2004, Indian Ocean tsunami.

Only taxpayers who itemize deductions on their 2009 return qualify for this special tax relief provision. All short-form filers and taxpayers who use the standard deduction are ineligible. . Only cash contributions made to these charities after Jan. 11, 2010, and before March 1, 2010, are eligible. This includes contributions made by:

• text message,
• check,
• credit or debit card.
  

You can benefit from your donations, almost immediately, by filing your 2009 returns early, filing electronically, and choosing direct deposit. Refunds take as few as ten days and can be directly deposited into a savings, checking or brokerage account, or used to purchase Series I U.S. savings bonds.

You have the option of deducting these contributions on either your 2009 or your 2010 returns, but not both.

You should make sure your contributions go to qualified charities. Most organizations eligible to receive tax-deductible donations are listed in a searchable online database available on IRS.gov under Search for Charities. Some organizations, such as churches or governments, may be qualified even though they are not listed on IRS.gov. Donors can find out more about organizations helping Haitian earthquake victims from agencies such as USAID. Contributions to foreign organizations generally are not deductible.

Federal law requires that you keep a record of any deductible donations you make. For donations by text message, a telephone bill will meet the recordkeeping requirement if it shows the name of the donee organization, the date of the contribution and the amount of the contribution. For cash contributions made by other means, be sure to keep a bank record, such as a cancelled check, or a receipt from the charity showing the name of the charity and the date and amount of the contribution.

New HomeBuyer Credit Form and Doccumentation Requirements

The Internal Revenue Service has released the new form, its instructions, and doccumentation requirements that eligible homebuyers must use in order to claim either the first-time homebuyer credit or the Repeat Homebuyer Tax Credit this tax season.

The new form and instructions follow major changes in November to the homebuyer credit by the Worker, Homeownership, and Business Assistance Act of 2009. The new law extended the homebuyer credit to a broader range of home purchasers and added new documentation requirements to deter fraud and ensure taxpayers properly claim the credit.

With the release of Form 5405 First-Time Homebuyer Credit and Repayment of the Credit, and the related instructions, eligible homebuyers can now start to file their 2009 tax returns. Taxpayers claiming the homebuyer credit must file a paper tax return because of the added documentation requirements.

Processing of 2009 tax returns claiming the homebuyer credit is not expected to begin until mid-February after it completes the updating and testing of systems to meet the law’s new requirements. The updates allow the IRS to put in place critical systemic checks to deter fraud related to the homebuyer credit. The IRS has identified 582 taxpayers who were under 18 years old and ineligible to buy a home claimed almost $4 million in credits with at least one 4-year-old receiving the credit.

Early taxpayers claiming the homebuyer credit can expect their refunds take an additional two to three weeks. Normally, it takes about four to eight weeks to get a refund claimed on a complete and accurate paper return where all required documents are attached.

In addition to filling out a Form 5405, all eligible homebuyers must include with their 2009 tax returns one of the following documents in order to receive the credit:

• A copy of the settlement statement showing all parties' names and signatures, property address, sales price, and date of purchase. Normally, this is the properly executed Form HUD-1, Settlement Statement.
• For mobile home purchasers who are unable to get a settlement statement, a copy of the executed retail sales contract showing all parties' names and signatures, property address, purchase price and date of purchase.
• For a newly constructed home where a settlement statement is not available, a copy of the certificate of occupancy showing the owner’s name, property address and date of the certificate.

In addition, the new law allows a long-time resident of the same main home to claim the homebuyer credit if they purchase a new principal residence. To qualify, eligible taxpayers must show that they lived in their old homes for a five-consecutive-year period during the eight-year period ending on the purchase date of the new home. The IRS has stepped up compliance checks involving the homebuyer credit, and it encouraged homebuyers claiming this part of the credit to avoid refund delays by attaching documentation covering the five-consecutive-year period:

• Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements,
• Property tax records or
• Homeowner’s insurance records.

The IRS also reminded homebuyers that the new documentation requirements mean that taxpayers claiming the credit cannot file electronically and must file paper returns. You may still use off-the-shelf tax software or you can still use IRS Free File to prepare your returns, but the returns must be printed out and sent to the IRS, along with all required documentation.

Keeping Organized Records

Whether you are an individual taxpayer or a business owner, you can avoid headaches at tax time with good records because they will help you remember transactions you made during the year.
Here are a few things you should know about recordkeeping.
Keeping well-organized records also ensures you can answer questions if your return is selected for examination or prepare a response if you are billed for additional tax. In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, you should keep any and all documents that may have an impact on your federal tax return.
Individual taxpayers should usually keep the following records supporting items on their tax returns for at least three years:

• Bills
• Credit card and other receipts
• Invoices
• Mileage logs
• Canceled, imaged or substitute checks or any other proof of payment
• Any other records to support deductions or credits you claim on your return
  

You should normally keep records relating to property until at least three years after you sell or otherwise dispose of the property. Examples include:

• A home purchase or improvement
• Stocks and other investments
• Individual Retirement Arrangement transactions

Tax Tips For The Tax Season

Well the new year is here and normally that means start paying down on all that debt we incurred on Christmas shopping and getting ready for tax time. Here are my eight tax tips in order to get ready for the 2010 tax season.

1. Start gathering your records. Round up any documents or forms you’ll need when filing your taxes: receipts, canceled checks and other documents that support an item of income or a deduction you’re taking on your return.


2. Be on the lookout. W-2s and 1099s will be coming soon from your employer; you’ll need these to file your tax return.


3. Try e-file. When you file electronically, the software will handle the math calculations for you. If you use direct deposit, you will get your refund in about half the time it takes when you file a paper return. E-file is now the way the majority of returns are filed. In fact, last year, 2 out of 3 taxpayers used e-file.


4. Check out Free File. If your income is $57,000 or less you may be eligible for free tax preparation software and free electronic filing. The IRS partners with 20 tax software companies to create this free service. Free File is for the cost conscious taxpayer who wants reliable question-and-answer software to help them prepare a return.
   
5. Consider all filing options. There are many different options for filing your tax return. You can prepare it yourself or go to a tax preparer. You may be eligible for free face-to-face help at an IRS office or volunteer site. Give yourself time to weigh all the different options and find the one that best suits your needs.


6. Consider Direct Deposit. If you elect to have your refund directly deposited into your bank account, you’ll receive it faster than waiting for a paper check.


7. Remember this number: 17 Check out Publication 17, Your Federal Income Tax on IRS.gov. It’s a comprehensive collection of information for taxpayers highlighting everything you’ll need to know when filing your return.


8. Review! Review! Review! Don’t rush. We all make mistakes when we rush. Mistakes will slow down the processing of your return. Be sure to double-check all the Social Security Numbers and math calculations on your return as these are the most common errors made by taxpayers.

Happy New Year