DUNN TAXES
Your taxes DUNN right
ALTERNATIVE MINIMUM TAX GETS ANOTHER “PATCH”
Due to tax provisions of the recently passed Emergency Economic Stabilization Act of 2008, the AMT has been “patched” again. This means tax relief is in sight for over 20 million Americans who faced a sudden tax hike because they would have qualified for the Alternative Minimum Tax when filing their 2008 tax return. For tax year 2008, the alternative minimum tax exemption amounts will increase to $46,200 for single and head of household filers, $69,950 for married filing jointly or qualifying widower, and $34,975 for married filing separately. Taxpayers can also deduct nonrefundable personal credits in 2008 such as the child tax credit to reduce their AMT liability.
EXTENDED TAX RELIEF FOR SOME FINANCIALLY DISTRESSED HOMEOWNERS
Homeowners experiencing “short sales” and foreclosures will get an extended break for “debt-forgiveness” tax consequences. Instead of treating cancellation of debt as taxable income on the foreclosure of a principle home, no taxes will be levied on discharges of indebtedness of up to $2 million dollars for married taxpayers filing jointly and of up to $1 million dollars for a married taxpayer filing a separate return through tax year 2012.
CHANGE FOR THE CHILD TAX CREDIT
For 2008, the child tax credit is refundable to the extent of 15 percent of the taxpayer’s earned income in excess of approximately $12,050. Under the new law, the earned income floor falls to $8,500.
SALES TAX DEDUCTION CONTINUES THROUGH DECEMBER 31ST, 2009
Dunn's Tax Service reminds you that taxpayers can take advantage of state sales tax deductions if they itemize deductions. Those who live in one of seven states without a state income tax may deduct their state sales tax when they itemize. Taxpayers in states with state income taxes can choose to deduct their state income taxes or state sales taxes, whichever is more advantageous. This deduction was renewed with the passage of The Emergency Economic Stabilization Act of 2008 in October, 2008.
TAX BREAK FOR ELIGIBLE EDUCATORS CONTINUES THROUGH DECEMBER 31st, 2009
Eligible educators who spend their own money on classroom supplies may qualify for a tax break when filing a 2008 return. An eligible educator is a kindergarten through grade 12 teacher, instructor, counselor, principal or aide who works at least 900 hours in either a public or private school. The adjustment for these expenses, of no more than $250, can be claimed whether or not the taxpayer can itemize. This deduction was renewed with the passage of The Emergency Economic Stabilization Act of 2008 in October , 2008.
TUITION AND FEES DEDUCTION CONTINUES
Qualifying higher education expenses such as tuition and fees you paid for yourself, a spouse, or a dependent may be deductible. The taxpayer cannot claim both this deduction and the Hope or lifetime learning credit for the same student in the same year. This deduction was renewed with the passage of The Emergency Economic Stabilization Act of 2008 in October, 2008. TOP
DEDUCTIBLE MILEAGE RATES INCREASE
With gas prices soaring, it’s a good time to be taking advantage of all possible tax deductible mileage. Mileage for some business, medical, charitable, moving, and educational purposes may be deductible. Here are the new mileage rates that will take effect July 1st through the end of 2008:
• Business mileage: to 58.5 cents per mile from 50.5 cents per mile
• Medical or moving mileage: to 27 cents per mile from 19 cents per mile
• Charitable mileage: stays at 14 cents per mile for 2008.
• Be sure that you document your mileage by keeping a log or other written record.
MOVING EXPENSES
Dunn's Tax Service reminds you that if you’ve moved at least 50 miles during 2008 in order to start work at a new work location, you may be able to deduct some moving expenses. Your moving mileage is deductible at 19 cents per mile from January 1st until June 30th, 2008, and 27 cents per mile from July 1st until the end of 2008. Deductible moving expenses include the cost of moving furniture and household items as well as your lodging en route. Always be sure to notify the IRS of your relocation, by sending a Form 8822, Change of Address, to the IRS Service Center where you filed your last return.
Dunn Tax Tips for filing a 2009 return
Tax Law Changes
The Tax Relief Act of 2010 Poses Some Filing Delays
For most taxpayers, it’s business as usual. However, the latest round of tax extenders and Tax Relief Act of 2010 will cause filing delays for certain taxpayers. The IRS announced in late December that filing probably will not be a reality until mid-to-late February for those who itemize deductions and file Schedule A.
Some of the main specific forms that need to be reprocessed by the IRS are:
· Schedule A
· Form 8917 Tuition and Fees Deduction
· Form 4684 Casualties and Thefts
The 2010 Tax Relief Act Will Affect Consumers and Businesses
The 2010 Tax Relief Act ushers in a package of over 800 billion dollars of extended tax cuts that will benefit all Americans. All tax rates approved under President George Bush and many of the “Bush era tax cuts” are extended for 2 more years. Here are the major highlights:
TAX RATES EXTENDED: Extends the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) tax rates for 2 years. Without passage of the Tax Relief Act the EGTRRA tax rates of 10%, 15%, 25%, 28%, 33% and 35% would have gone back to 15%, 28%, 31%, 36% and 39.6% starting January 1, 2011.
AMT “PATCH”: For average American families, the most immediate effect is a pay increase from the Social Security cuts realized on the first paycheck of 2011, rather than a $3,000-$5,000 increase due to a an Alternative Minimum tax patch that was set to expire. With the additional patch on the Alternative Minimum Tax, an estimated additional 21 million households would have been subject to the higher taxes.
Example: A taxpayer filing single making $50,000 with $1,500 of withholding, 2 children under 13 with $6,000 of dependent care expenses, using the standard deduction. Without the patch, they would have a refund of $43 and have AMT of $469. With the patch they get a refund of $512.
The 2010 Tax Relief Act provided another “patch” for the Alternative Minimum Tax (AMT). There’s Alternative Minimum Tax relief in store again and the AMT exemption amount has increased to $47,450 for individuals and $72,450 for joint filers. Taxpayers can also deduct nonrefundable personal credits in 2010 such as the child tax credit to reduce their AMT liability. Without the patch the AMT exemption amount would have decreased to $33,750 for individuals and $45,000 for joint filers.
CUT IN SOCIAL SECURITY TAXES: A cut in Social Security taxes withheld from workers’ paychecks will mean an immediate increase in take home pay for millions of Americans. Social security taxes (FICA) will be cut by 2 percentage points for 2011 so employees will pay 4.2 percent of wages earned to Social Security instead of 6.2 percent. What this means is a taxpayer earning $50,000 a year this will have an extra $1,000 in their pocket over the year.
For every $10,000 of wages, the yearly increase in the paycheck will be $200.
For every $5,000 of wages, the yearly increase in the paycheck will be $100.
For every $1,000 of wages, the yearly increase in the paycheck will be $20.
UNEMPLOYMENT INSURANCE BENEFITS EXTENDED: Unemployment insurance benefits are extended through 2011 for those out of work longer than 26 weeks, but not longer than 99 weeks.
BENEFITS FOR FAMILIES AND EDUCATION: Extends enhancements made to the Earned Income Tax Credit, Child Tax Credit, and the Hope (now called American Opportunity Tax Credit) credit adopted in the 2009 American Recovery and Reinvestment Act (ARRA) that would have expired December 31, 2010.
The American Opportunity Tax Credit expanded the Hope credit to be available for the first four years of post secondary education. It has increased up to $2,500 (first $2,000 of tuition and 25% of the second $2,000) and is now up to 40% refundable. This due to expire after December 31, 2010, and now has been extended for two years.
The Tax Relief Act extends the repeal of itemized deduction and personal exemption phase-outs for 2 years. The itemized deductions were projected to have begun to phase-out at $169,550 ($84,775 if MFS) and the personal exemptions were projected to start phase-out for AGIs above $169,550 ($254,350 for MFJ).
The temporary increase in the Earned Income Tax Credit (EITC) for 2009 will continue through 2012. Prior to 2009, the credit percentage for the EITC for a taxpayer with two or more qualifying children was 40 percent of the first $12,570 of earned income. The new law increases the percentage to 45 percent of the first $12,570 of earned income for taxpayers with three or more qualifying children. The EITC phase-out range has also been adjusted upward by $1,880 for joint filers to eliminate any marriage penalty.
Without action, the Child Tax Credit (CTC) would have decreased from $1,000 per qualifying child to $500 per qualifying child in 2011. The Tax Relief Act also continued to allow the CTC to be used against AMT. Additionally, the Tax Relief Act continues the refundable portion of CTC (additional CTC) threshold to be 15% of the earned income above $3,000 for 2 more years. Without action the threshold would have returned to $10,000.
There’s a change in the inheritance tax. The first $5 million of an estate can pass tax-free to heirs. Anything over that will be taxed at 35%.
The individual “tax extenders were extended again for 2010 and 2011. These are the state and local sales tax deduction, higher education tuition and fees deduction, teacher’s classroom expense deduction and charitable contribution of IRA proceeds.
Current capital gains tax rates of 0% (for those in the 10 and 15% tax brackets) and 15% will remain in place for two more years. Without action, the rates would have been 10% (for those in the 15% tax bracket) and 20% for 2011 and beyond. Additionally qualified dividends would no longer be eligible for capital gains treatment and would be taxed at the taxpayers ordinary tax rate (15%, 28%, 31%, 36% and 39.6%).
BUSINESS BENEFITS: Businesses will be able to write off 100% of their capital investments for tax purposes for items placed in service after September 8, 2010 through December 31, 2011, up from the 50% bonus depreciation. The 2010 Tax Relief Act also makes the 50% bonus depreciation available for qualified property placed in service after December 31, 2011 and before January 1, 2013. If a taxpayer purchased a qualified property after September 8, 2010, they will be able to claim 100% of the cost on their business return.
Conversion to Roth IRA
Starting in 2010, there is no income limit on converting a traditional IRA to a Roth IRA. A taxpayer can convert a traditional IRA to a Roth IRA in 2010 and pay the tax on the amount that would be included in income on the conversion in equal amounts in 2011 and 2012. The taxpayer can choose to include the entire amount in income in 2010.
Tanning Tax Takes Effect July 1
Unless you spray on a tan, or bask under the sun, those ultraviolet rays may soon cost you more. Starting July 1, tanning salons using ultraviolet rays must charge their customers a ten percent tax. The salon is responsible for paying the taxes in quarterly installments, by filing Form 720, Quarterly Federal Excise Tax Return. There are some exceptions to the rule. If the tanning is considered phototherapy and prescribed and administered by a licensed medical professional, the tax is not applicable. If tanning is offered at a fitness facility, but not specified in membership dues or on a list of membership services, there’s no tax for tanning.
