Get Your Charitable Donations Lined Up Before The Holidays
December 1, 2008
There’s a special sinking feeling as you approach Dec. 31 and realize you’ve done no tax planning whatsoever. That includes big issues like end-of-the-year investment decisions, and the smaller ones – like that stuff you no longer use piling up in the basement.
Charitable giving is an important part of tax planning at year-end, so let’s look at the cash and noncash aspects of giving. It makes sense to contact a tax expert or financial planner to talk about what giving makes sense for you:
You have to itemize: Only individual taxpayers who itemize their deductions on Schedule A can claim a deduction for charitable contributions. This deduction is not available to people who choose the standard deduction, including anyone who files a short form (1040A or 1040EZ). However, there has been talk about allowing “above the line” charitable deductions, so I’m hopeful that this tax law will change soon.
Get out the checkbook: Uncle Sam likes a record. To deduct any charitable donation of money, a taxpayer 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 – and it definitely helps to have both. Bank records mean canceled checks, bank or credit union statements and credit card statements. Bank or credit union statements should show the name of the charity and the date and amount paid. Credit card statements should show the name of the charity and the transaction posting date. For payroll deductions, the taxpayer should retain a pay stub, 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. If you remember the IRS being satisfied with personal bank registers or scribbled notes to document the donation, they’re not anymore.
Key Provisions in The Housing and Economic Recovery Act of 2008
September 6, 2008
On July 30, 2008, President Bush signed H.R. 3221, the Housing and Economic Recovery Act of 2008 (the “Act”).
The Housing Act is intended to revamp the housing finance industry, encourage home ownership and help prevent foreclosures. Below is a summary of some of the tax provisions in the bill that will affect current and future home owners:
* The Hope for Homeowners Program: The Act creates a new Federal Housing Authority (FHA) program designed to help borrowers in danger of losing their homes to foreclosure. Eligible homeowners may be able to pay off their original (foreclosing) lenders with a fixed-rate, 30-year-term mortgage for up to 90 percent of the appraised value of the property.
Eligible homeowners are those who originated their loans before January 1, 2008, spend more than 31 percent of their monthly income on their mortgage, and are currently in danger of foreclosure. Borrowers would have to share future equity with the FHA. The program is completely voluntary; banks may elect not to participate. The program begins on October 1, 2008 and ends in September of 2011.
What to Do with Your Tax Refund or Other “Found Money”
February 26, 2008
Garrett Planning Network Provides Thirteen Smart Ideas
(Lee’s Summit, MO) February 24, 2008 – After concluding their tax preparation activities, many people will see that they are entitled to a refund from Uncle Sam. “Whether you refund is large or small, you are wise to determine now what you will do when that check arrives,” says Sheryl Garrett, CFP®, author of Personal Finance Workbook For Dummies® (Wiley, November 2007) and founder of the Garrett Planning Network (www.GarrettPlanningNetwork.com). “Don’t fritter it away or spend it on a whim.”
On a recent teleconference, network members brainstormed thirteen ways taxpayers can put this “found money” to work:
1. Put the entire amount, up to the maximum allowed by law ($4000 for an individual in 2007 unless you are age 50+, then the maximum contribution is $5000; $5000 for an individual in 2008 unless you are age 50+, then the maximum is $6000), into a Roth IRA assuming your income falls below the government thresholds (the phase out for singles in 2007 is $99-$114,000 and in 2008 it’s $101-116,000; for married couples in 2007, the phase out is $156-166,000 and in 2008, it’s $159-$169,000).
If you are saving for higher education funding needs, withdrawals of regular contributions to a Roth IRA are not subject to tax or penalty and can be made at any time, and you can take a “qualified distribution” (one that is made after a 5 year holding period, beginning on the first day of the first year for which the contributions were made), if one of the following applies: (1) you are a first-time home buyer, (2) you are age 59 1/2 or older (3) the distribution is due to death or disability. If your earned income for 2007 is higher than the phase-out thresholds, put your “found money” into another qualified retirement plan such as a 401(k), 403(b) or 457 plan if your employer offers one. Consider contributing to a traditional IRA if you have maxed out contributions to your employer-sponsored plan or if a Roth IRA is not an option.
Don’t forget the Energy Tax Credits
March 21, 2007
Just a quick reminder…
If you made improvements to your home in 2006, you may be eligible for one of the Energy Tax Credits.
Improvements such as adding insulation, replacement windows and energy efficient furnaces and air conditioning units all qualify.
The credit ranges from $50 to $500 depending on which improvements you made and how energy efficient the improvements are.
To qualify for the credit, you will need to keep your receipt and you should also have a manufacturer’s certification statement that shows the specifications of the product.
For more details about the credits available and the requirements please visit: http://www.energystar.gov/index.cfm?c=products.pr_tax_credits#s1
Tags: income tax credit, tax deduction, energy tax credit
Several tax law changes not included on 2006 forms
February 14, 2007
Be careful if you are preparing your own tax return this year; there are several tax deductions, credits and other provisions that are NOT listed on the tax forms.
The Tax Relief and Health Care Act of 2006 was passed in December 2006, after the IRS completed and printed the tax forms for 2006. Fortunately, several tax provisions that were scheduled to expire were extended, and several new tax provisions were created by this tax act. Unfortunately, since the IRS had already printed the tax forms for 2006, these new and extended tax provisions are not included on the forms.
The provisions that will affect most taxpayers are the tuition and fees deduction, teacher-related expenses, and the deduction for sales taxes paid.
Most tax software will have updated information on these tax provisions, so you should use tax software or see a tax professional to have your taxes prepared this year. You should not attempt to prepare your return by hand this year, or you could miss a deduction/credit that was passed after the forms were printed.
For more details, see IRS Notice IR-2006-195, or visit the IRS website at www.irs.gov
Tags: income taxes, tax act, tax preparation
Can you deduct your home office?
January 10, 2007
Do you have a home office? Do you know if it qualifies for the home office deduction?
The IRS has actually relaxed it’s position on home office in the last few years, so you may qualify, even if you didn’t previously.
To qualify for the home office deduction, your home office must:
- Be your principal place of business, or
- Be used to meet clients, customers or patients, or
- Be a separate structure not attached to your home.
Most solo professionals have their home office in their home, so we’ll focus on the first two requirements:
Meeting clients, customers and patients is pretty self explanatory. If you use your home office to meet with clients, you qualify.
Place of business is a little harder to define. Basically, you have to use your home office regularly and exclusively for management and administrative duties of your business, and you must not have another location where these activities can be conducted.
Still not sure if your home office qualifies? Check out IRS Publication 587 – Business Use of Your Home, or the article The Home Office Tax Deduction.
Tags: taxes, home office deduction, self employed
The AMT to be repealed?
January 6, 2007
A bill has been introduced into the Senate to repeal the AMT tax this week.
If you’re not familiar with AMT, it is the Alternative Minimum Tax, created to keep higher income taxpayers from paying too little income tax. Unfortunately, the AMT has never been adjusted, so many middle income taxpayers have fallen victim to the AMT in recent years.
The Tax Increase Prevention and Reconciliation Act of 2005 provided some AMT relief by increasing the AMT exemption amount, but this is just a one-year fix.
Without permanent changes to the AMT tax, more and more middle income taxpayers will be subject to this tax each year.
The legislation that was introduced into the Senate calls for the death of the AMT tax. Click here to read more.
Tags: income tax, AMT, alternative minimum tax
PMI Insurance: New Tax Break Helps with Mortgage Insurance Premiums
December 15, 2006
Uncle Sam is now going to help you pay your mortgage insurance premiums!
Mortgage insurance is typically required when home buyers purchase a new home with less than 20 percent down.
The newest tax legislation allows taxpayers to deduct premiums paid for mortgage insurance. Mortgage insurance premiums typically range from $50 to $150 per month, which could mean a $600 to $1,800 deduction on your tax return.
This deduction is only available to taxpayers who itemize, but many home owners (especially if you’ve just purchased your home) have enough mortgage insurance, real estate tax, and other deductions to itemize.
Prior to this tax law, only the interest paid on a mortgage was deductible.
This deduction won’t help everyone. The deduction will be limited to taxpayers with adjusted gross income below $110,000.
Finally, you’re out of luck if you are already paying mortgage insurance. This deduction will only apply to mortgage insurance contracts issued in 2007, and it’s set to expire on December 31, 2007.
For more information on the mortgage insurance premium deduction and the tax law, please visit:
http://www.mercurynews.com/mld/mercurynews/business/personal_finance/16217445.htm
Educator Expense Deduction Extended
December 13, 2006
If you are a teacher, you probably know about the $250 deduction that is allowed on your income tax return. While this is a very small tax break, every little bit helps.
So, I was glad to see that Congress extended this deduction for two more years, until the end of 2007.
If you’re not familiar with this tax deduction, here’s a brief summary:
Teachers can deduct up to $250 that they spend out of pocket to buy classroom supplies. The deduction is an above the line deduction, which means you don’t have to itemize to take the deduction.
The deduction is available to teachers, instructors, counselors, aides and other educators who work with classes from kindergarten through grade 12.
Costs that are deductible include books, supplies, computer equipment, software and other materials used in the classroom.
To learn more, please visit:
http://www.bankrate.com/BRM/itax/tips/20030213a1.asp or
http://www.irs.gov/taxtopics/tc458.html
IRA withdrawal for 1st time home purchase
December 10, 2006
Q. I am making my first home purchase. Can I take money out of my IRA to help with the down payment?
A. Generally, withdrawals from a traditional IRA before the age of 59 ½ are subject to income tax and a 10% penalty. There are several exceptions to the 10% penalty, one of which is a distribution for a first time home purchase.
You can take up to $10,000 from your traditional IRA to purchase your first home without incurring the 10% penalty.
There are some rules to keep in mind, however:
1. The purchase must be for a principal residence – qualified costs include costs to build, buy or rebuild a home.
2. The person purchasing the residence must be the IRA account owner or a family member (within limits).
3. To qualify as a first-time homebuyer, you must not have owned a home at any time during the two years prior to the IRA withdrawal. If you are married, your spouse must also meet this requirement.
4. The 10% penalty exception only applies to the first $10,000 you withdraw from your IRA (this is a lifetime limit) – if you are married and both spouses qualify as first time homebuyers, you can each withdraw $10,000 from your IRAs penalty free.
5. You must use the IRA funds within 120 days of the withdrawal to qualify for the exception.