Archive for March, 2010

The 2009 “Making Work Pay” Tax Credit

Thursday, March 18th, 2010

The Federal government has been endeavoring to stimulate the economy for the past several years.  There is a new (income) tax credit that is available to taxpayers when they file their 2009 Federal tax return.  It is obtained by completing Schedule M and submitting it with your  tax return.  USA Today recently reported that if you do not complete this schedule the Internal Revenue Service will review your return and determine your eligibility.  However, the processing of your tax return (and possible refund) will be delayed by two to three weeks. 

The Making Work Pay tax credit is a new credit worth up to $400 for individuals and $800 for married couples that was established by the American Recovery and Reinvestment Act of 2009. Millions of hardworking Americans have already received the benefit of this credit every pay period through reduced tax withholding.

Some beneficiaries of Social Security, Veterans and Railroad Retirement programs, may have also received a $250 one-time Economic Recovery Payment in 2009. Early tax filing trends indicate that some working taxpayers who received the Economic Recovery Payment, and are also eligible for the Making Work Pay tax credit are slowing down their tax refunds by not properly reporting the $250 payment on their tax returns. Anyone who received the one-time Economic Recovery Payment must reduce the Making Work Pay credit they claim by the amount of the one-time payment.

To find out if you received a 2009 Economic Recovery Payment, please call our automated telephone service at 1-866-234-2942 and select Option 1. Starting March 23, 2010, use the Did I Receive a 2009 Economic Recovery Payment? online tool to verify whether you received the payment.

You can be sure to properly account for the Economic Recovery Payment by properly reporting it on IRS Schedule M when you claim the Making Work Pay tax credit.  If you received a one-time payment, but do not report it on your return, it will slow your refund. For more information see the instructions to Schedule M.

Additional information on this same topic follows: (more…)

Failure to Pay and Failure to File Penalties

Thursday, March 18th, 2010

This can be a relatively complex subject based on the myriad of tax returns that are required to be filed by taxpayers.  The major income tax returns  are the Form 990 (Tax Exempt organizations), Form 1040 (Individuals), Form 1041 (Estates and Trusts), Form 1065 (Partnerships),  Form 1120 (Corporations), and the Form 1120-S (Sub Chapter “S” Corporations).  The best guidance available as to filing instructions and due dates is provided by the IRS website (  Search for the instructions for your specific tax return and then carefully review the information that is provided in the document.  Most states follow the Federal guidelines since the state returns utilize your Federal return as a starting point for your state tax obligations.  However, this is a general rule and the state department of revenue requirements should also be reviewed.

In my profession we have an adage (that is shared with the IRS) “Ignorance of the law is not a defense!”

If you can not file your tax return by the statutory due date request an extension of the time to file.  There are legitimate reasons for encountering this situation.  However, an extension of the time to file your tax returns is NOT an extension of time to pay your taxes.  The taxes (including your best estimates) have to be remitted to the taxing authority on or before the original due date.  If you can not accurately determine your tax liability there are “safe harbor” rules which if followed will usually allow you to avoid interest and penalties.

Additonal information on this subject is provided below:  (more…)

Home Business Use (Home Office) Deduction

Wednesday, March 17th, 2010

The real (actual) unemployment rate is as high as 15% in some areas of the United States.  Job opportunities are limited.  Many former employees have decided to start their own businesses rather than become an employee again.  They often operate their business from their home.  Anecdotally, Hewlett Packard began its operations in the founder’s garage.  If qualified, making a decision regarding whether to claim the expenses for the use of your home for your business operations is a continuing issue and problem for both American taxpayers and the Internal Revenue Service.  As you may have already concluded, there are far too many instances of fraud and abuse by those taxpayers who are clearly not entitled to the deduction.  It is also a potential “red flag” area that could cause your tax return to be examined and audited.   

There are several situations that may exist in one of three categories:  1)  Fully qualified (entitled), 2) Partially qualified (not meeting one or more of the requirements, and 3)  Not  qualified.  Then the major considerations (factors) become whether or not you are claiming the expenses on your tax return.   From a practitioner’s perspective we must ask our clients about their specific situation and assist the client in determining whether or not the deduction (expenses) should be claimed.  While the Internal Revenue Service does provide general guidelines (which are also provided in this article) these guidelines can not be expected to cover every possible situation.  IRS Publication 587 (“Business Use of Your Home”)  provides additional information and guidance and should also be carefully reviewed.

IRS Topc 509 (Business Use of The Home) is provided on the “Information Center” page of this website.  To review the information in this article now on the business use of the home, click on this link.

Recent guidance from the Internal Revenue Service is provided below from IRS Tax Tip 2010-53: (more…)

Standard or Itemized Deductions??

Wednesday, March 10th, 2010

This is the time of year when most Americans are becoming more actively engaged in the preparation of their individual Federal income tax returns.  While there are not many options available for reporting income, there could be some opportunities to reduce your taxable income (and directly related income taxes) by carefully reviewing the instructions for the completion of Schedule A (Itemized Deductions) for Federal form 1040.  While there are variances from state to state, most states either allow the same deductions as provided by Federal laws or they require various adjustments.  You can obtain specific details for your Federal tax return deductions by reading the instructions for Schedule A  on the IRS website: 

There are seven major categories:  1)  Medical and Dental Expenses, 2) Taxes You Paid,  3) Interest You Paid, 4)  Gifts to Charity, 5) Casualty and Theft Losses, 6) Job Expenses and Miscellaneous Deductions, and 7) Other Miscellaneous Deductions.

You will only realize a tax benefit from those total medical expenses that are greater that 7 1/2% of your total income (Adjusted Gross Income).  There is a deduction for state and local income taxes for those states that do not have a state income tax (i.e. Florida and Texas).  If you have all of your receipts to document your deductions, you have the option to use either the amounts from the IRS tables or the actual total amount from your receipts.  Large ticket (cost) items such as cars, boats, airplanes, recreational vehicles, etc are additions to the IRS tables.  If you own a home, in addition to your mortgage interest don’t forget to deduct any points that were paid (this amount is usually provided on the Form 1098 that you receive from your mortgage company) plus Mortgage Insurance Premiums (PMI) paid for homes purchased after December 31, 2006.  PMI is required if you had less than 20% equity in your home when you purchased or re-financed it. 

If you and your spouse paid expenses jointly and are filing separate tax returns you should review IRS Publication 504 for guidance on the allocation of these expenses.  Additional information on itemizing deductions from the IRS follows: