Haiti Relief Donations Qualify for Immediate Tax Relief
________________________________________
People who give to charities providing earthquake relief in Haiti can claim these donations on the tax return they are completing this season, according to the Internal Revenue Service. Taxpayers who itemize deductions on their 2009 return qualify for this special tax relief provision, enacted Jan. 22. 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 card or debit card. The new law only applies to cash (as opposed to property) contributions. The contributions must be made specifically for the relief of victims in areas affected by the Jan. 12 earthquake in Haiti. Taxpayers have the option of deducting these contributions on either their 2009 or 2010 returns, but not both.
http://www.irs.gov/newsroom/article/0,,id=218678,00.html
MBtaxpro.com
Portland, OR 97210
David Bixel
Erin Murphy
Friday, January 29, 2010
Wednesday, January 27, 2010
Measure 66 & 67 have passed - How will they affect you and your business?
Ballot Measure 66
What it is:
Raises tax on household income at and above $250,000 ($125,000 for individual filers). Reduces income taxes on unemployment benefits in 2009. Provides funds currently budgeted for education, health care, public safety, other services.
What it does:
Establishes a new tax rate of 10.8 percent on the amount of taxable income above $250,000 for households or $125,000 for single filers. Phases out deduction for federal tax on those amounts. Leaves the current 9 percent rate intact for income up to those amounts. Establishes new tax rate of 11 percent for the amount of household income above $500,000 or $250,000 for single filers. Excludes first $2,400 of unemployment benefits from taxes. Applies to the current tax year (2009 and on).
How it changes life in Oregon:
Oregon's tax rate tops out at 9 percent. This would set higher marginal rates for higher-income residents. Provides additional revenue to the state of Oregon for schools, prisons, health care and other services - $472 million for the 2009-11 biennium.
Pro:
Raises taxes on those who can most afford it. Doesn't affect the vast majority of Oregon workers. Keeps intact the current state budget for schools, public safety and health care.
Con:
Unfairly raises taxes on people who already contribute the most to Oregon's treasury. Would disproportionately affect small business owners, who pay state income taxes on their business income.
http://www.ocpp.org/2009/20091102Measure66DecisionTree_fnl.pdf
Ballot Measure 67
What it is:
“Yes” vote raises $10 corporate minimum tax, establishes $150 minimum tax for most businesses or minimum tax of approximately 0.1% of total Oregon revenues for some corporations with over $500,000 in Oregon revenues. Raises tax rate some corporations pay on profits by 1.3 percentage points. Increases certain business filing fees. Raises estimated $255 million to maintain funds currently budgeted for education, health care, public safety, other services.
What it does:
Ends the $10 minimum tax that has been in place since 1931. Companies registered as “C” corporations will see a minimum tax based on gross sales, regardless of whether they show a profit. The corporate rate on business income above $250,000 goes from 6.6 percent to 7.9 percent. That rate falls to 7.6 percent in 2011. In 2013, the rate for profits under $10 million a year drops back to 6.6 percent. Above $10 million a year, it stays at 7.6 percent.
How it changes life in Oregon:
Most companies will see only a small change in their taxes. A relatively few large corporations will carry the bulk of the tax increase, and companies that have high sales but little or no profits may also be hit with higher taxes.
Pro:
Measure 67 gets rid of the archaic $10 minimum that allows some billion-dollar companies to escape paying meaningful taxes in Oregon. The measure also requires companies most able to pay higher taxes to shoulder more of the burden during the recession, when necessary state services are at risk.
Con:
The taxes target businesses unfairly without regard to their profits, and it could do too much damage to Oregon business already struggling in a deep recession.
http://www.ocpp.org/2009/20091102Measure67DecisionTree_fnl.pdf
MB Tax Pro
Portland, Oregon 97210
Erin Murphy
David Bixel
www.mbtaxpro.com
What it is:
Raises tax on household income at and above $250,000 ($125,000 for individual filers). Reduces income taxes on unemployment benefits in 2009. Provides funds currently budgeted for education, health care, public safety, other services.
What it does:
Establishes a new tax rate of 10.8 percent on the amount of taxable income above $250,000 for households or $125,000 for single filers. Phases out deduction for federal tax on those amounts. Leaves the current 9 percent rate intact for income up to those amounts. Establishes new tax rate of 11 percent for the amount of household income above $500,000 or $250,000 for single filers. Excludes first $2,400 of unemployment benefits from taxes. Applies to the current tax year (2009 and on).
How it changes life in Oregon:
Oregon's tax rate tops out at 9 percent. This would set higher marginal rates for higher-income residents. Provides additional revenue to the state of Oregon for schools, prisons, health care and other services - $472 million for the 2009-11 biennium.
Pro:
Raises taxes on those who can most afford it. Doesn't affect the vast majority of Oregon workers. Keeps intact the current state budget for schools, public safety and health care.
Con:
Unfairly raises taxes on people who already contribute the most to Oregon's treasury. Would disproportionately affect small business owners, who pay state income taxes on their business income.
http://www.ocpp.org/2009/20091102Measure66DecisionTree_fnl.pdf
Ballot Measure 67
What it is:
“Yes” vote raises $10 corporate minimum tax, establishes $150 minimum tax for most businesses or minimum tax of approximately 0.1% of total Oregon revenues for some corporations with over $500,000 in Oregon revenues. Raises tax rate some corporations pay on profits by 1.3 percentage points. Increases certain business filing fees. Raises estimated $255 million to maintain funds currently budgeted for education, health care, public safety, other services.
What it does:
Ends the $10 minimum tax that has been in place since 1931. Companies registered as “C” corporations will see a minimum tax based on gross sales, regardless of whether they show a profit. The corporate rate on business income above $250,000 goes from 6.6 percent to 7.9 percent. That rate falls to 7.6 percent in 2011. In 2013, the rate for profits under $10 million a year drops back to 6.6 percent. Above $10 million a year, it stays at 7.6 percent.
How it changes life in Oregon:
Most companies will see only a small change in their taxes. A relatively few large corporations will carry the bulk of the tax increase, and companies that have high sales but little or no profits may also be hit with higher taxes.
Pro:
Measure 67 gets rid of the archaic $10 minimum that allows some billion-dollar companies to escape paying meaningful taxes in Oregon. The measure also requires companies most able to pay higher taxes to shoulder more of the burden during the recession, when necessary state services are at risk.
Con:
The taxes target businesses unfairly without regard to their profits, and it could do too much damage to Oregon business already struggling in a deep recession.
http://www.ocpp.org/2009/20091102Measure67DecisionTree_fnl.pdf
MB Tax Pro
Portland, Oregon 97210
Erin Murphy
David Bixel
www.mbtaxpro.com
Tuesday, January 19, 2010
Happy New Year from MB Tax - Your Tax Appointment is Ready!
Happy New Year from MB Tax!
We are excited to be starting 2010 with some fun office renovations and a renewed commitment to providing excellent, efficient tax preparation service for every client. We are also starting this year with a committed new member to our team, Fern Capella. She became our office manager in May of 2009 and since has found her place at MB Tax. Please utilize her for your primary communication, she will make sure to get back to you as soon as possible and address your needs. You can email her at office@mbtaxpro.com or call the office Monday -Friday 9am - 5pm 503.595.5890. The office hours are 9 am to 5 pm as well, with evening or weekend appointments by request. FYI! Another new development is the entrance to our office, which is located on 26th Ave. Please use this entrance as the entrance on Upshur St is no longer available to our clients.
2009 Tax Appointments
We have pre-scheduled tax preparation appointments for our clients for the months of February, March, and April. If you have an immediate preference of time or date, please call or email Fern and she will do her best to schedule to your convenience. Appointment postcards will be arriving this week. If you have moved recently and are certain that we do not have your new address, please drop us a line at mailto:office@mbtaxprop.com to keep us up to date. If the appointment you receive does not work please call or email Fern to reschedule. We have a variety of useful forms located on our website, http://rs6.net/tn.jsp?t=nn6ungdab.0.0.e6zchicab.0&ts=S0453&p=http%3A%2F%2Fwww.mbtaxpro.com%2F&id=preview. You can download and print the forms of your choice, or call Fern and she will mail you the forms you need.
Forms and Due Dates
Don't forget! 1099s are due out by January 31st. If you need forms they are free at the IRS office located at 1220 Southwest 3rd AvenuePortland, OR 97204-2871. Also, businesses have a March 15th filing deadline, one month before the Infamous Individual deadline date of April 15th, so we will need your end of the year numbers by February 15th to prepare a thorough and timely return.
We look forward to serving your tax and financial consulting needs in 2010 and beyond, and we look forward to seeing you all soon.
We are excited to be starting 2010 with some fun office renovations and a renewed commitment to providing excellent, efficient tax preparation service for every client. We are also starting this year with a committed new member to our team, Fern Capella. She became our office manager in May of 2009 and since has found her place at MB Tax. Please utilize her for your primary communication, she will make sure to get back to you as soon as possible and address your needs. You can email her at office@mbtaxpro.com or call the office Monday -Friday 9am - 5pm 503.595.5890. The office hours are 9 am to 5 pm as well, with evening or weekend appointments by request. FYI! Another new development is the entrance to our office, which is located on 26th Ave. Please use this entrance as the entrance on Upshur St is no longer available to our clients.
2009 Tax Appointments
We have pre-scheduled tax preparation appointments for our clients for the months of February, March, and April. If you have an immediate preference of time or date, please call or email Fern and she will do her best to schedule to your convenience. Appointment postcards will be arriving this week. If you have moved recently and are certain that we do not have your new address, please drop us a line at mailto:office@mbtaxprop.com to keep us up to date. If the appointment you receive does not work please call or email Fern to reschedule. We have a variety of useful forms located on our website, http://rs6.net/tn.jsp?t=nn6ungdab.0.0.e6zchicab.0&ts=S0453&p=http%3A%2F%2Fwww.mbtaxpro.com%2F&id=preview. You can download and print the forms of your choice, or call Fern and she will mail you the forms you need.
Forms and Due Dates
Don't forget! 1099s are due out by January 31st. If you need forms they are free at the IRS office located at 1220 Southwest 3rd AvenuePortland, OR 97204-2871. Also, businesses have a March 15th filing deadline, one month before the Infamous Individual deadline date of April 15th, so we will need your end of the year numbers by February 15th to prepare a thorough and timely return.
We look forward to serving your tax and financial consulting needs in 2010 and beyond, and we look forward to seeing you all soon.
Friday, January 15, 2010
Measures 66 & 67
Here is a little more information to help you make a decision which way to vote on Measure 66 & 67 here in Oregon.
Historical General Fund Revenue At the bottom of this page you will see a spreadsheet showing how much money comes from what sources in Oregon. Historically we are looking at 80% to 88% of our state money coming from Income Taxes.
Here is a flow chart explaining Measure 66 - Chart
Here is a flow chart explaining Measure 67 - Chart
Measure 66:
If you feel like raising our income tax for the top 30% of income earners will help the over all financial health of our state vote yes. If you believe there are other options then just raising taxes and only on the top earners, then vote no.
Measure 67:
First off I am in agreement that the Corporate tax in Oregon should be fixed. Now we have to decide if 67 is a fix or not.
If you believe a small tax increase on LLCs, Partnerships and S Corporations and a larger increase on C Corporations is good decision for the financial health of our state vote yes.
If you believe Oregon Businesses will simply move that cost down the line, at the cost of jobs and higher prices for consumers then vote no. Even if you agree that it should be fixed and do not like how this has been written, then vote no.
Historical General Fund Revenue At the bottom of this page you will see a spreadsheet showing how much money comes from what sources in Oregon. Historically we are looking at 80% to 88% of our state money coming from Income Taxes.
Here is a flow chart explaining Measure 66 - Chart
Here is a flow chart explaining Measure 67 - Chart
Measure 66:
If you feel like raising our income tax for the top 30% of income earners will help the over all financial health of our state vote yes. If you believe there are other options then just raising taxes and only on the top earners, then vote no.
Measure 67:
First off I am in agreement that the Corporate tax in Oregon should be fixed. Now we have to decide if 67 is a fix or not.
If you believe a small tax increase on LLCs, Partnerships and S Corporations and a larger increase on C Corporations is good decision for the financial health of our state vote yes.
If you believe Oregon Businesses will simply move that cost down the line, at the cost of jobs and higher prices for consumers then vote no. Even if you agree that it should be fixed and do not like how this has been written, then vote no.
Monday, January 11, 2010
Home Buyer Tax Credit Update January 2010
Tax Credits for Home Buyers
FS-2010-06, January 2010
Video: New Homebuyer Credit - Claim It ENG SPAVideo: New Homebuyer Credit - Claim It (Military) ENG
Tax Credit in General
For first time homebuyers, there is a refundable credit equal to 10 percent of the purchase price up to a maximum of $8,000 ($4,000 if married filing separately). A first-time homebuyer is an individual who, with his or her spouse if married, has not owned any other principal residence for three years prior to the date of purchase of the new principal residence for which the credit is being claimed.
There are several situations in which a taxpayer cannot claim the credit:
The taxpayer is a nonresident alien;
The taxpayer purchases a home located outside the United States;
The taxpayer sells the home or if it stops being the taxpayer’s principal residence in the year the taxpayer purchased the home;
The taxpayer receives the home, or any portion of the home, as a gift or as an inheritance; and
The taxpayer exceeds the income limits.
The Worker, Homeownership, and Business Assistance Act of 2009 extended and expanded the tax credit for first time homebuyers that had been created in 2008. The new law extends the deadline for qualifying home purchases from Nov. 30, 2009, to April 30, 2010. If a buyer enters into a binding contract by April 30, 2010, the buyer has until June 30, 2010, to settle on the purchase.
Members of the Armed Forces and certain federal employees serving outside the U.S. have an extra year to buy a principal residence in the U.S. and still qualify for the credit. An eligible taxpayer must buy or enter into a binding contract to buy a home by April 30, 2011, and settle on the purchase by June 30, 2011.
Purchases made after Nov. 6, 2009
Taxpayers should be aware of some changes to the law that apply to home purchases after Nov. 6, 2009, the date of enactment of the new law.
The new law expands the tax credit to include not just first-time buyers but also long-time residents who buy a new principal residence. They are eligible for a credit of 10 percent of the purchase price up to a maximum credit of $6,500. A long-time resident is an individual who, with his or her spouse if married, has owned and used the same home as a principal residence for any period of 5 consecutive years during the 8-year period ending on the date of purchase of the new principal residence for which the credit is being claimed.
Income Limitation
For people who purchase homes after Nov. 6, the full credit will be available to taxpayers with a modified adjusted gross income (MAGI) up to $125,000, or $225,000 for joint filers. MAGI is your adjusted gross income plus the total of certain foreign earned income. Those with MAGI between $125,000 and $145,000, or $225,000 and $245,000 for joint filers, are eligible for a reduced credit. Those with higher incomes do not qualify.
However, for homes purchased before Nov. 7, 2009, existing income limits remain in place. The full credit is available to taxpayers with MAGI up to $75,000, or $150,000 for joint filers. Those with MAGI between $75,000 and $95,000, or $150,000 and $170,000 for joint filers, are eligible for a reduced credit. Those with higher incomes do not qualify.
Several new restrictions apply to purchases that occur after Nov. 6:
Dependents are not eligible to claim the credit;
No credit is available if the purchase price of a home is more than $800,000; and
A purchaser must be at least 18 years of age on the date of purchase.
Credit Claimed on a 2009 or 2010 Tax Return
For all qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 tax returns.
A new version of Form 5405, First-Time Homebuyer Credit, is expected to be available by Jan. 15, 2010, for taxpayers who purchased a home after Nov. 6; this new version of the form must be used to claim the credit. Likewise, taxpayers claiming the credit on their 2009 returns, no matter when the house was purchased, must also use the new version of Form 5405. Taxpayers who claim the credit on their 2009 tax return will not be able to file an electronic return, but instead will need to file a paper return.
Credit Claimed on a 2008 Tax Return
The maximum credit was originally $7,500 ($3,750 if married filing separately). A taxpayer who chose to claim the credit on the 2008 tax return for a home purchased in 2009 and who also did not use the February 2009 revision of Form 5405 may now be able to claim the additional $500 on an amended 2008 tax return.
Selling the Home and Other Events that Require Repaying the Credit
Taxpayers who bought homes in 2009 or 2010 and sold them within a 36 month period that begins on the purchase date, must repay the credit. They also must repay the credit if they convert the home to a business or rental property or the lender forecloses on the home. The taxpayer repays the credit by including the amount of the credit as additional tax on the tax return for the year in which the repayment event occurs.
However, taxpayers do not have to repay all or a portion of the credit under the following circumstances:
Taxpayers sell the home to someone who is not related to them, the repayment in the year of sale is limited to the amount of gain on the sale;
If the home is destroyed, condemned, or disposed of under threat of condemnation and the taxpayer acquires a new principal residence within 2 years of the event, the taxpayer does not have to repay the credit; and
If, as part of a divorce settlement, the home is transferred to a spouse or former spouse, the spouse who receives the home is responsible for repaying the credit if required.
For all of your tax related questions, please visit our website at www.mbtaxpro.com, or call or email me anytime!
Best,
David Bixel, EA
Portland, OR 97210
Friday, January 8, 2010
The "What If's" of an Economic Downturn
The Internal Revenue Service recognizes that many people may be having difficult times financially. There can be a tax impact to events such as job loss, debt forgiveness or tapping a retirement fund. If your income decreased, you may be newly eligible for certain tax credits, such as the Earned Income Tax Credit.
Most importantly, if you believe you may have trouble paying your tax bill contact the IRS immediately. There are steps we can take to help ease the burden. You also should file a tax return even if you are unable to pay so you can avoid additional penalties.
Here are some “What if” scenarios and the possible tax impact:
What if I lose my job?
The loss of a job may create new tax issues. Severance pay and unemployment compensation are taxable. Payments for any accumulated vacation or sick time also are taxable. You should ensure that enough taxes are withheld from these payments or make estimated tax payments to avoid a big bill at tax time. Public assistance and food stamps are not taxable. The IRS has updated a helpful publication which lists a number of job-loss related tax issues. For more information, see Publication 4128, Tax Impact of Job Loss.
What if I receive unemployment compensation?
Unemployment compensation you received under the unemployment compensation laws of the United States or of a state must be included in your income. It is taxable income. If you received unemployment compensation, you should receive Form 1099-G showing the amount you were paid and any federal income tax you elected to have withheld. For more information, see Publication 525, Taxable and Nontaxable Income.
Note: The American Recovery and Reinvestment Act temporarily will change the taxation of unemployment benefits for the 2009 tax year only. Under the new economic stimulus law, the first $2,400 of unemployment benefits received in 2009 will not be subject to federal taxes. The exemption will be reflected on those tax returns filed in 2010.
What if my income declines?
There are many tax credits that are subject to income limitations. If you had a reduction in income this year you may be eligible for some credits or deductions. For example, the Earned Income Tax Credit is available for working families and individuals. Eligibility is determined by income and family size. You must file an income tax return in order to claim EITC. See 1040 Central for more information on EITC, other tax credits and tax law changes.
What if I am searching for a job?
You may be able to deduct certain expenses you incur while looking for a new job, even if you do not get a new job. Expenses may include travel, resume and outplacement agency fees. For more information, see Publication 529, Miscellaneous Deductions . Moving costs for a new job at least 50 miles away from your home may also be deductible.
What if my employer goes out of business or in bankruptcy?
Your employer must provide you with a Form W-2 showing your wages and withholdings for the year by Jan. 31 of the following year. For example, if you were employed during 2009, your employer should provide you with a W-2 for 2009 by Jan. 31, 2010. You should keep up-to-date records or pay stubs until you receive your Form W-2. If your employer or its representatives fails to provide you with a Form W-2, contact the IRS and we can help by providing you with a substitute Form W-2. If your employer is liquidating your 401(k) plan, you have 60 days to roll it over to another qualified retirement plan or IRA. For more information, see Publication 4128, Tax Impact of Job Loss.
What if I close my own business?
If your business is no longer operating, you still are responsible for filing all required tax returns for your business by the due dates. In addition, if you had employees, you must file all required employment tax returns, including Forms 940, 941, 943 or 944. Both business and employment taxes should be paid when due. But, if you are not able to pay in full, contact the IRS immediately to discuss your options. For more information, see Starting, Operating or Closing a Business.
What if I withdraw money from my IRA?
Generally, early withdrawal from an Individual Retirement Account (IRA) prior to age 59½ is subject to being included in gross income plus a 10 percent additional tax penalty. There are exceptions to the 10 percent penalty, such as using IRA funds to pay your medical insurance premium after a job loss. For more information, see Publication 590, Individual Retirement Accounts.
What if my 401(k) drops in value?
Generally, you can not claim a capital gains loss on your retirement accounts that already are receiving favorable tax treatment. The only time you would have a loss is when you receive a distribution that had previously been taxed. For more information, see Publication 575, Pension and Annuity Income.
What if I lose my home through foreclosure?
Under the Mortgage Forgiveness Debt Relief Act of 2007, taxpayers generally can exclude income from the discharge of debt on their principal residence or mortgage restructuring. This exception does not apply to second homes or vacation homes. In some cases, you may be able to file an amended tax return for previous tax years. For more information, see The Mortgage Forgiveness Debt Relief Act and Debt Cancellation.
What if I sell my home for a loss?
Losses from the sale of personal–use property, such as your home or car, are not deductible. It is not eligible for the capital gains loss of up to $3,000 annually. For more information, see Publication 523, Selling Your Home.
What if my debt is forgiven?
The tax impact of debt forgiveness or cancellation depends on your individual facts and circumstances. Generally, if you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt. There are several exceptions to the taxability of cancelled debt, such as insolvency or bankruptcy. For more information, see The Mortgage Forgiveness Debt Relief Act and Debt Cancellation.
What if I am insolvent?
A taxpayer is insolvent when his or her total liabilities exceed his or her total assets. The forgiven debt may be excluded as income under the "insolvency" exclusion. Normally, a taxpayer is not required to include forgiven debts in income to the extent that the taxpayer is insolvent. The forgiven debt may also qualify for exclusion if the debt was discharged in a Title 11 bankruptcy proceeding or if the debt is qualified farm indebtedness or qualified real property business indebtedness. If you believe you qualify for any of these exceptions, see the instructions for Form 982. For more information, see highlights of the Mortgage Forgiveness Debt Relief Act.
What if I file for bankruptcy protection?
Debts discharged through bankruptcy are not considered taxable income. If you are an individual debtor who files for bankruptcy under chapter 7 or 11 of the Bankruptcy Code, a separate “estate” is created consisting of property that belonged to you before the filing date. This bankruptcy estate is a new taxable entity, completely separate from you as an individual taxpayer. Please note, however, that some tax debts are not dischargeable in a bankruptcy action. For more information, see Publication 908, Bankruptcy Tax Guide.
What if I can’t pay my taxes?
Don’t panic. If you cannot pay the full amount of taxes you owe, you should still file your return by the deadline and pay as much as you can to avoid penalties and interest. You also should contact the IRS to discuss your payment options at 1-800-829-1040. The agency may be able to provide some relief such as a short-term extension to pay, an installment agreement or an offer in compromise. In some cases, the agency may be able to waive penalties. However, the agency is unable to waive interest charges which accrue on unpaid tax bills. For more information, see The Collection Process and Tax Payment Options. The Form 1040 Instructions also provide guidance on filing and paying your taxes.
What if I did not receive an economic stimulus payment?
If you had a change in income, a birth or adoption or failed to receive the stimulus payment in 2008, you may be eligible to receive the recovery rebate credit. The maximum credit is $1,200 for a married couple who earn less than $150,000. There also is a $300 credit for each qualifying child age 16 and younger. For more information, see the Recovery Rebate Information Center.
What if there is a federal tax lien on my home?
If there is a federal tax lien on your home, you must satisfy the lien before you can sell or refinance your home. There are a number of options to satisfy the tax lien. Normally, if you have equity in your property, the tax lien is paid (in part or in whole depending on the equity) out of the sales proceeds at the time of closing. If the home is being sold for less than the lien amount, the taxpayer can request the IRS discharge the lien to allow for the completion of the sale. Taxpayers or lenders also can ask that a federal tax lien be made secondary to the lending institution's lien to allow for the refinancing or restructuring of a mortgage. The IRS currently is working to speed requests for discharge or mortgage restructing to assist taxpayers during this economic downturn. For more information, see IRS Speeds Lien Relief for Homeowners Trying to Refinance, Sell or File a Notice of Federal Tax Lien.
What if I can't pay my Installment Agreement?
You have several options available if your ability to pay has changed and you are unable to make payments on your installment agreement or your offer in compromise agreement with the IRS. Call the IRS immediately at 1-800-829-1040. Options could include reducing the monthly payment to reflect your current financial condition. You may be asked to provide proof of changes in your financial situation so have that information available when you call.
For any and all of your tax and finance questions, please check out our website at www.mbtaxpro.com. Happy New Year!
David Bixel, EA
Portland, OR 97210
Most importantly, if you believe you may have trouble paying your tax bill contact the IRS immediately. There are steps we can take to help ease the burden. You also should file a tax return even if you are unable to pay so you can avoid additional penalties.
Here are some “What if” scenarios and the possible tax impact:
What if I lose my job?
The loss of a job may create new tax issues. Severance pay and unemployment compensation are taxable. Payments for any accumulated vacation or sick time also are taxable. You should ensure that enough taxes are withheld from these payments or make estimated tax payments to avoid a big bill at tax time. Public assistance and food stamps are not taxable. The IRS has updated a helpful publication which lists a number of job-loss related tax issues. For more information, see Publication 4128, Tax Impact of Job Loss.
What if I receive unemployment compensation?
Unemployment compensation you received under the unemployment compensation laws of the United States or of a state must be included in your income. It is taxable income. If you received unemployment compensation, you should receive Form 1099-G showing the amount you were paid and any federal income tax you elected to have withheld. For more information, see Publication 525, Taxable and Nontaxable Income.
Note: The American Recovery and Reinvestment Act temporarily will change the taxation of unemployment benefits for the 2009 tax year only. Under the new economic stimulus law, the first $2,400 of unemployment benefits received in 2009 will not be subject to federal taxes. The exemption will be reflected on those tax returns filed in 2010.
What if my income declines?
There are many tax credits that are subject to income limitations. If you had a reduction in income this year you may be eligible for some credits or deductions. For example, the Earned Income Tax Credit is available for working families and individuals. Eligibility is determined by income and family size. You must file an income tax return in order to claim EITC. See 1040 Central for more information on EITC, other tax credits and tax law changes.
What if I am searching for a job?
You may be able to deduct certain expenses you incur while looking for a new job, even if you do not get a new job. Expenses may include travel, resume and outplacement agency fees. For more information, see Publication 529, Miscellaneous Deductions . Moving costs for a new job at least 50 miles away from your home may also be deductible.
What if my employer goes out of business or in bankruptcy?
Your employer must provide you with a Form W-2 showing your wages and withholdings for the year by Jan. 31 of the following year. For example, if you were employed during 2009, your employer should provide you with a W-2 for 2009 by Jan. 31, 2010. You should keep up-to-date records or pay stubs until you receive your Form W-2. If your employer or its representatives fails to provide you with a Form W-2, contact the IRS and we can help by providing you with a substitute Form W-2. If your employer is liquidating your 401(k) plan, you have 60 days to roll it over to another qualified retirement plan or IRA. For more information, see Publication 4128, Tax Impact of Job Loss.
What if I close my own business?
If your business is no longer operating, you still are responsible for filing all required tax returns for your business by the due dates. In addition, if you had employees, you must file all required employment tax returns, including Forms 940, 941, 943 or 944. Both business and employment taxes should be paid when due. But, if you are not able to pay in full, contact the IRS immediately to discuss your options. For more information, see Starting, Operating or Closing a Business.
What if I withdraw money from my IRA?
Generally, early withdrawal from an Individual Retirement Account (IRA) prior to age 59½ is subject to being included in gross income plus a 10 percent additional tax penalty. There are exceptions to the 10 percent penalty, such as using IRA funds to pay your medical insurance premium after a job loss. For more information, see Publication 590, Individual Retirement Accounts.
What if my 401(k) drops in value?
Generally, you can not claim a capital gains loss on your retirement accounts that already are receiving favorable tax treatment. The only time you would have a loss is when you receive a distribution that had previously been taxed. For more information, see Publication 575, Pension and Annuity Income.
What if I lose my home through foreclosure?
Under the Mortgage Forgiveness Debt Relief Act of 2007, taxpayers generally can exclude income from the discharge of debt on their principal residence or mortgage restructuring. This exception does not apply to second homes or vacation homes. In some cases, you may be able to file an amended tax return for previous tax years. For more information, see The Mortgage Forgiveness Debt Relief Act and Debt Cancellation.
What if I sell my home for a loss?
Losses from the sale of personal–use property, such as your home or car, are not deductible. It is not eligible for the capital gains loss of up to $3,000 annually. For more information, see Publication 523, Selling Your Home.
What if my debt is forgiven?
The tax impact of debt forgiveness or cancellation depends on your individual facts and circumstances. Generally, if you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt. There are several exceptions to the taxability of cancelled debt, such as insolvency or bankruptcy. For more information, see The Mortgage Forgiveness Debt Relief Act and Debt Cancellation.
What if I am insolvent?
A taxpayer is insolvent when his or her total liabilities exceed his or her total assets. The forgiven debt may be excluded as income under the "insolvency" exclusion. Normally, a taxpayer is not required to include forgiven debts in income to the extent that the taxpayer is insolvent. The forgiven debt may also qualify for exclusion if the debt was discharged in a Title 11 bankruptcy proceeding or if the debt is qualified farm indebtedness or qualified real property business indebtedness. If you believe you qualify for any of these exceptions, see the instructions for Form 982. For more information, see highlights of the Mortgage Forgiveness Debt Relief Act.
What if I file for bankruptcy protection?
Debts discharged through bankruptcy are not considered taxable income. If you are an individual debtor who files for bankruptcy under chapter 7 or 11 of the Bankruptcy Code, a separate “estate” is created consisting of property that belonged to you before the filing date. This bankruptcy estate is a new taxable entity, completely separate from you as an individual taxpayer. Please note, however, that some tax debts are not dischargeable in a bankruptcy action. For more information, see Publication 908, Bankruptcy Tax Guide.
What if I can’t pay my taxes?
Don’t panic. If you cannot pay the full amount of taxes you owe, you should still file your return by the deadline and pay as much as you can to avoid penalties and interest. You also should contact the IRS to discuss your payment options at 1-800-829-1040. The agency may be able to provide some relief such as a short-term extension to pay, an installment agreement or an offer in compromise. In some cases, the agency may be able to waive penalties. However, the agency is unable to waive interest charges which accrue on unpaid tax bills. For more information, see The Collection Process and Tax Payment Options. The Form 1040 Instructions also provide guidance on filing and paying your taxes.
What if I did not receive an economic stimulus payment?
If you had a change in income, a birth or adoption or failed to receive the stimulus payment in 2008, you may be eligible to receive the recovery rebate credit. The maximum credit is $1,200 for a married couple who earn less than $150,000. There also is a $300 credit for each qualifying child age 16 and younger. For more information, see the Recovery Rebate Information Center.
What if there is a federal tax lien on my home?
If there is a federal tax lien on your home, you must satisfy the lien before you can sell or refinance your home. There are a number of options to satisfy the tax lien. Normally, if you have equity in your property, the tax lien is paid (in part or in whole depending on the equity) out of the sales proceeds at the time of closing. If the home is being sold for less than the lien amount, the taxpayer can request the IRS discharge the lien to allow for the completion of the sale. Taxpayers or lenders also can ask that a federal tax lien be made secondary to the lending institution's lien to allow for the refinancing or restructuring of a mortgage. The IRS currently is working to speed requests for discharge or mortgage restructing to assist taxpayers during this economic downturn. For more information, see IRS Speeds Lien Relief for Homeowners Trying to Refinance, Sell or File a Notice of Federal Tax Lien.
What if I can't pay my Installment Agreement?
You have several options available if your ability to pay has changed and you are unable to make payments on your installment agreement or your offer in compromise agreement with the IRS. Call the IRS immediately at 1-800-829-1040. Options could include reducing the monthly payment to reflect your current financial condition. You may be asked to provide proof of changes in your financial situation so have that information available when you call.
For any and all of your tax and finance questions, please check out our website at www.mbtaxpro.com. Happy New Year!
David Bixel, EA
Portland, OR 97210
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