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March 26, 2009
New Withholding Tables May Produce Unwanted Results
The IRS has released the new withholding tables (IRS Pub. 15-T) that are to be used
by employers for the remainder of 2009 and in 2010. The tables reduce the amount of
federal tax that is withheld from employees’ paychecks to account for the new
Making Work Pay tax credit.
Now may be the time to counsel your clients on the effects of the 2009 stimulus
package withholding rules. The lower withholding may cause some unwanted results
for taxpayers with more than one job, two-earner married couples, and high income
taxpayers.
NATP has found a withholding calculator that shows the difference between the old
and the new federal withholding numbers. This calculator can be used as a tool to
help your clients decide whether to file a new Form W-4 with their employer.
------------------------------------------------------------------------------------------------------------------------
Unemployment Benefits Tax-free in 2009
In 2009, the first $2,400 of unemployment benefits will be tax-free, under relief
provided by the American Recovery and Reinvestment Act. Every person who
receives unemployment benefits during 2009 is eligible to exclude the first $2,400 of
these benefits when they file their tax return next year. For a married couple, the
exclusion applies to each spouse, separately. Thus, if both spouses receive
unemployment benefits during 2009, each may exclude from income the first $2,400
of benefits they receive.
The new law doesn’t affect the return taxpayers are filling out now. Unemployment
benefits received in 2008 and prior years remain fully taxable.
Unemployed workers who expect to receive more than $2,400 in benefits in 2009
should consider having tax withheld from their benefit payments in excess of that
amount. Those unemployed workers who have already chosen to have tax taken out
of their benefits, should consider the $2,400 exclusion in determining whether to
continue to have tax withheld.
------------------------------------------------------------------------------------------------------------------------
March 19, 2009
Deducting Theft Losses From "Ponzi" Schemes
The IRS released Rev. Rul. 2009-9 addressing the tax treatment of "Ponzi" scheme
losses, and Rev. Proc. 2009-20 which provides safe harbor options for deducting
these losses. The guidance is welcome relief to the thousands of investors who
have lost money in the Bernard Madoff scandal and others who have incurred
similar Ponzi scheme losses.
The revenue ruling holds that the losses are theft losses not subject to casualty loss
limitations under §165(h) or the itemized deduction limits under §67 and §68. The
rulings allow the losses against ordinary income and even allow an NOL generated
by Ponzi losses to be treated as sole proprietorship losses potentially eligible to be
carried back 3, 4, or 5 years under the business tax breaks enacted by the American
Recovery and Reinvestment Act of 2009.
The safe harbor options under Rev. Proc. 2009-20 allow a 95% deductible loss for
investors with no potential third-party recovery or a 75% deductible loss for
investors with potential third-party recoveries. The investor may have additional
losses or income in later years depending on actual recoveries.
Rev. Rul. 2009-9 is available on NATP’s website.
Rev. Proc. 2009-20 is available on NATP’s website.
------------------------------------------------------------------------------------------------------------------------
First-Time Homebuyer Credit
The American Recovery and Reinvestment Act of 2009 expands the first-time
homebuyer credit to include purchases made before Dec. 1, 2009.
The IRS announced Feb. 25 that for first-time homebuyers who purchase in 2009, the
maximum credit is $8,000 and can be claimed on a buyer's 2008 federal tax return. If
the home purchase closes after April 15, a taxpayer can still claim the credit on a
2008 tax return by requesting an extension of time to file or filing an amended
return. News release 2009-27 has more details on these options.
The credit is claimed using Form 5405.
For first-time homebuyers who bought in 2008, the maximum credit is $7,500 and
must be paid back over a period of 15 years.
------------------------------------------------------------------------------------------------------------------------
Audit Triggers: The Biggest Red Flags to Watch Out For
Here are just a few more things you want to be careful with when it comes to taking
deductions on your business taxes:
All in the family. When employing a spouse, child or close relative, be careful not to
give them any extra-special treatment. Make sure the responsibilities of their job
description are commensurate with their age and experience. Pay them the same
salary you'd pay anyone else doing the same job.
In the money. An excessively high income compared to previous years can stand out
and trigger an audit. And high-income taxpayers are more likely to be audited since
they're more likely to be involved in complex transactions and have partnerships, trusts
or businesses.
Consistency is key. The IRS will notice if your federal return is disproportionate to
your state return, so be careful to ensure they're consistent.
Stay on the up and up. People who've filed frivolous lawsuits in the past are most
likely always going to be audited. Considering not filing your taxes at all? Here's
something that may cause you to re-think your decision: People who haven't filed their
federal taxes can be picked up for fraud, hit with a felony and do jail time. Even if you
don't have the funds to pay off everything you owe, Brown strongly suggests filing
anyway--it's better to file and not pay all you owe than wait until you have all the funds
and risk getting hit with penalties or worse.
Know your preparer. More and more, the IRS is using a software program to check
up on tax-return preparers. If they notice a high error rate, they'll not only audit the return-
preparer, but they'll also audit that person's clients as well. So do your homework
before choosing a preparer. And if you ever have any doubt as to whether they're
guiding you in the right direction, seek an outside opinion before proceeding.
Protect yourself. If you are selected for an audit, Brown recommends standing up to
the IRS by getting representation. As a former IRS insider, Brown says that these days,
the IRS is "a bit out of control--they aren't enforcing the tax law with professionalism."
Second Mortgage Loans vs. Home Equity Loans
It's not surprising that some homeowners confuse the terms "second mortgage" and
"home equity loan." After all, a second mortgage is a type of home equity loan. But
more often than not, home equity loan is used to describe a home equity line of credit,
or HELOC. If you want to take advantage of the equity that you have built up in your
home, you will need to decide if a HELOC or a true second mortgage is best for you.
Before discussing which might be better for your purposes, let's look at some of the
basics of each. A second mortgage pays out a fixed sum of money to be repaid on a
set schedule, like your initial mortgage. Unlike refinancing, the second mortgage does
not supersede the first mortgage. Second mortgages are usually 15- to 30-year loans
with a fixed rate of interest. Like the initial loan, the rate of interest and points (if any)
will be based on your credit history, the price of the home, and the current interest rate.
While the interest rate on a second mortgage may be a little higher, the fees are
generally lower. Should You Pay Points?
A HELOC, however, is similar to a credit card, and it may even include a credit card to
make purchases. Like credit cards, interest is charged, and the amount you can
borrow is based on your creditworthiness.
To determine the limit of your HELOC, lenders will look at the appraised value of your
home and start their calculations at 75 percent of that value. They then subtract the
outstanding balance owed on the mortgage. If your home was appraised at $200,000,
the lender would typically look at a maximum of $150,000 or 75 percent. If you had paid
off $100,000 of your $180,000 loan, the lender would then deduct the remaining
$80,000, which would mean you would have a maximum of $70,000 available on a
HELOC if you had a very good credit history. Learn how to Evaluate Your
Creditworthiness.
Your current financial needs will help determine which type of loan is right for you. If you
need money for a one-time expense, such as building a new deck or paying for a
wedding, you would probably opt for the fixed-rate second mortgage.
But if you forecast a recurring need for extra money, such as tuition payments, you may
prefer a HELOC. A line of credit allows you to borrow when you need the money and, if
you pay back the amounts you borrow quickly, you can save money over a second
mortgage. You also need to consider your spending habits. If having another credit
card in your wallet would tempt you to spend more often, then you are not a good
candidate for a HELOC.
Once you make an initial determination about which loan might be right for you, you will
need to discuss the details with your lender. While second mortgages usually operate
in the same manner as your initial mortgage, lines of credit are different. Because they
feature monthly payments, you will need to review the fine print carefully.
There is no shortage of lenders and offers for loans and lines of credit. Consider your
needs, then shop around for a lender you can trust.
March 26, 2009
New Withholding Tables May Produce Unwanted Results
The IRS has released the new withholding tables (IRS Pub. 15-T) that are to be used
by employers for the remainder of 2009 and in 2010. The tables reduce the amount of
federal tax that is withheld from employees’ paychecks to account for the new
Making Work Pay tax credit.
Now may be the time to counsel your clients on the effects of the 2009 stimulus
package withholding rules. The lower withholding may cause some unwanted results
for taxpayers with more than one job, two-earner married couples, and high income
taxpayers.
NATP has found a withholding calculator that shows the difference between the old
and the new federal withholding numbers. This calculator can be used as a tool to
help your clients decide whether to file a new Form W-4 with their employer.
------------------------------------------------------------------------------------------------------------------------
Unemployment Benefits Tax-free in 2009
In 2009, the first $2,400 of unemployment benefits will be tax-free, under relief
provided by the American Recovery and Reinvestment Act. Every person who
receives unemployment benefits during 2009 is eligible to exclude the first $2,400 of
these benefits when they file their tax return next year. For a married couple, the
exclusion applies to each spouse, separately. Thus, if both spouses receive
unemployment benefits during 2009, each may exclude from income the first $2,400
of benefits they receive.
The new law doesn’t affect the return taxpayers are filling out now. Unemployment
benefits received in 2008 and prior years remain fully taxable.
Unemployed workers who expect to receive more than $2,400 in benefits in 2009
should consider having tax withheld from their benefit payments in excess of that
amount. Those unemployed workers who have already chosen to have tax taken out
of their benefits, should consider the $2,400 exclusion in determining whether to
continue to have tax withheld.
------------------------------------------------------------------------------------------------------------------------
March 19, 2009
Deducting Theft Losses From "Ponzi" Schemes
The IRS released Rev. Rul. 2009-9 addressing the tax treatment of "Ponzi" scheme
losses, and Rev. Proc. 2009-20 which provides safe harbor options for deducting
these losses. The guidance is welcome relief to the thousands of investors who
have lost money in the Bernard Madoff scandal and others who have incurred
similar Ponzi scheme losses.
The revenue ruling holds that the losses are theft losses not subject to casualty loss
limitations under §165(h) or the itemized deduction limits under §67 and §68. The
rulings allow the losses against ordinary income and even allow an NOL generated
by Ponzi losses to be treated as sole proprietorship losses potentially eligible to be
carried back 3, 4, or 5 years under the business tax breaks enacted by the American
Recovery and Reinvestment Act of 2009.
The safe harbor options under Rev. Proc. 2009-20 allow a 95% deductible loss for
investors with no potential third-party recovery or a 75% deductible loss for
investors with potential third-party recoveries. The investor may have additional
losses or income in later years depending on actual recoveries.
Rev. Rul. 2009-9 is available on NATP’s website.
Rev. Proc. 2009-20 is available on NATP’s website.
------------------------------------------------------------------------------------------------------------------------
First-Time Homebuyer Credit
The American Recovery and Reinvestment Act of 2009 expands the first-time
homebuyer credit to include purchases made before Dec. 1, 2009.
The IRS announced Feb. 25 that for first-time homebuyers who purchase in 2009, the
maximum credit is $8,000 and can be claimed on a buyer's 2008 federal tax return. If
the home purchase closes after April 15, a taxpayer can still claim the credit on a
2008 tax return by requesting an extension of time to file or filing an amended
return. News release 2009-27 has more details on these options.
The credit is claimed using Form 5405.
For first-time homebuyers who bought in 2008, the maximum credit is $7,500 and
must be paid back over a period of 15 years.
------------------------------------------------------------------------------------------------------------------------
Audit Triggers: The Biggest Red Flags to Watch Out For
Here are just a few more things you want to be careful with when it comes to taking
deductions on your business taxes:
All in the family. When employing a spouse, child or close relative, be careful not to
give them any extra-special treatment. Make sure the responsibilities of their job
description are commensurate with their age and experience. Pay them the same
salary you'd pay anyone else doing the same job.
In the money. An excessively high income compared to previous years can stand out
and trigger an audit. And high-income taxpayers are more likely to be audited since
they're more likely to be involved in complex transactions and have partnerships, trusts
or businesses.
Consistency is key. The IRS will notice if your federal return is disproportionate to
your state return, so be careful to ensure they're consistent.
Stay on the up and up. People who've filed frivolous lawsuits in the past are most
likely always going to be audited. Considering not filing your taxes at all? Here's
something that may cause you to re-think your decision: People who haven't filed their
federal taxes can be picked up for fraud, hit with a felony and do jail time. Even if you
don't have the funds to pay off everything you owe, Brown strongly suggests filing
anyway--it's better to file and not pay all you owe than wait until you have all the funds
and risk getting hit with penalties or worse.
Know your preparer. More and more, the IRS is using a software program to check
up on tax-return preparers. If they notice a high error rate, they'll not only audit the return-
preparer, but they'll also audit that person's clients as well. So do your homework
before choosing a preparer. And if you ever have any doubt as to whether they're
guiding you in the right direction, seek an outside opinion before proceeding.
Protect yourself. If you are selected for an audit, Brown recommends standing up to
the IRS by getting representation. As a former IRS insider, Brown says that these days,
the IRS is "a bit out of control--they aren't enforcing the tax law with professionalism."
Second Mortgage Loans vs. Home Equity Loans
It's not surprising that some homeowners confuse the terms "second mortgage" and
"home equity loan." After all, a second mortgage is a type of home equity loan. But
more often than not, home equity loan is used to describe a home equity line of credit,
or HELOC. If you want to take advantage of the equity that you have built up in your
home, you will need to decide if a HELOC or a true second mortgage is best for you.
Before discussing which might be better for your purposes, let's look at some of the
basics of each. A second mortgage pays out a fixed sum of money to be repaid on a
set schedule, like your initial mortgage. Unlike refinancing, the second mortgage does
not supersede the first mortgage. Second mortgages are usually 15- to 30-year loans
with a fixed rate of interest. Like the initial loan, the rate of interest and points (if any)
will be based on your credit history, the price of the home, and the current interest rate.
While the interest rate on a second mortgage may be a little higher, the fees are
generally lower. Should You Pay Points?
A HELOC, however, is similar to a credit card, and it may even include a credit card to
make purchases. Like credit cards, interest is charged, and the amount you can
borrow is based on your creditworthiness.
To determine the limit of your HELOC, lenders will look at the appraised value of your
home and start their calculations at 75 percent of that value. They then subtract the
outstanding balance owed on the mortgage. If your home was appraised at $200,000,
the lender would typically look at a maximum of $150,000 or 75 percent. If you had paid
off $100,000 of your $180,000 loan, the lender would then deduct the remaining
$80,000, which would mean you would have a maximum of $70,000 available on a
HELOC if you had a very good credit history. Learn how to Evaluate Your
Creditworthiness.
Your current financial needs will help determine which type of loan is right for you. If you
need money for a one-time expense, such as building a new deck or paying for a
wedding, you would probably opt for the fixed-rate second mortgage.
But if you forecast a recurring need for extra money, such as tuition payments, you may
prefer a HELOC. A line of credit allows you to borrow when you need the money and, if
you pay back the amounts you borrow quickly, you can save money over a second
mortgage. You also need to consider your spending habits. If having another credit
card in your wallet would tempt you to spend more often, then you are not a good
candidate for a HELOC.
Once you make an initial determination about which loan might be right for you, you will
need to discuss the details with your lender. While second mortgages usually operate
in the same manner as your initial mortgage, lines of credit are different. Because they
feature monthly payments, you will need to review the fine print carefully.
There is no shortage of lenders and offers for loans and lines of credit. Consider your
needs, then shop around for a lender you can trust.
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