Tax Relief Blog

Gambling winnings or losses?

December 2, 2008 | Mike Habib, EA

Gambling winnings or losses?

As a US taxpayer, you can deduct gambling losses only if you itemize your deductions on form 1040. You can claim your gambling losses as a miscellaneous deduction on IRS Form 1040, Schedule A. However, the amount of losses you deduct can not total more than the amount of gambling income you’ve reported on your return. It’s important to keep an accurate diary or similar record of your gambling winnings and losses. To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses.

Estate not taxed on transfer

November 11, 2008 | Mike Habib, EA

Estate not taxed on transfer of decedent’s pension to charitable beneficiary PLR 200845029

IRS has privately ruled that an estate will not be taxed on a distribution of the decedent’s pension benefits to a charitable beneficiary of the estate.

Facts. An individual, whom we’ll call, Smith, died owning an interest in a defined benefit pension plan (the Plan Interest) of which his estate (Estate) was the beneficiary. His will (Will) named Charity as a residuary beneficiary. The executor of Estate proposes to assign the benefit of the Plan Interest to Charity in partial satisfaction of Charity’s share of the residue. The Will gave the executor the power to distribute property in kind and state law further allows distributions in kind without any requirement that they be made on a pro-rata basis.

Year End Tax Planning

November 11, 2008 | Mike Habib, EA

Year-end tax planning client letter with checklist

As the end of the year approaches, it is a good time to think of planning moves that will help lower your tax bill this year and possibly the next. Factors that compound the challenge include the stock market’s swoon, the difficult economic climate we’re in right now, and the strong possibility that there will be tax changes in the works next year. In fact, there might even be another economic stimulus package carrying tax changes enacted before the end of this year.

The indisputably good news we are certain of is that Congress has acted to “patch” the AMT problem for 2008, has retroactively reinstated a number of tax breaks (such as the option to deduct state and local general sales tax instead of state and local income tax and the above-the-line deduction for higher education expenses), and has created new tax breaks that go into effect for the 2008 tax year (including a tax credit for first-time homebuyers, a nonitemizers’ deduction for state and local property tax and a nonitemizers’ deduction for certain disaster losses). For 2008, businesses enjoy tax breaks such as a beefed-up expensing option and a 50% bonus first-year depreciation write-off for most machinery and equipment placed into service this year and a reinstated research credit.

How Businesses Are Affected

November 11, 2008 | Mike Habib, EA

How businesses are affected by tax changes in the Emergency Economic Stabilization Act of 2008

As I’m sure you’re aware, on Oct. 3, 2008, the President signed into law the Emergency Economic Stabilization Act of 2008 (P.L. 110-343). Although virtually all of the press coverage of this law has concentrated on its hotly debated $700 billion financial industry bailout plan, the legislation also contains scores of mostly beneficial tax changes for business.

Most of the new law’s tax changes for business fall into one of these categories: tax changes that apply to a wide range of businesses; special tax breaks for disaster areas; and tax changes for specialized industries (there are numerous tax breaks relating to alternative energy production, but they are highly specialized and so not covered in this letter).

Timely reminder for small businesses

November 11, 2008 | Mike Habib, EA

Timely reminder for small businesses to steer clear of trouble on payroll tax and retirement plan contributions IRS Employee Plan News (Fall 2008)

In these trying times, with cash scarce and credit hard to find, a small business might be tempted to “temporarily” use money it deducts for taxes and retirement plan contributions from employees’ wages. The Fall 2008 issue of IRS’s Employee Plans News [https://www.irs.gov/pub/irs-tege/fall08.pdf] suggests that practitioners remind clients that failing to remit payroll taxes and retirement plan contributions in a timely manner not only would violate an employer’s legal obligation, but also could subject them to heavy penalties.

Payroll taxes. IRS suggests that small business employers be reminded that when they deduct income and Social Security taxes from employees’ wages, the money is not theirs to use, even for a short period of time. Deducted amounts must be remitted, along with their portion of payroll taxes, by the next scheduled Federal Tax Deposit deadline. An employer that doesn’t deposit the money on time could be hit with:

penalties for making late deposits and for not depositing the proper amount; and
penalties for failing to file returns and pay taxes when due, for filing false returns, and for submitting bad checks.

The rate of these penalties increases with each passing day until deposits are made. Interest is also charged on the total unpaid tax and the penalty. These penalties and interest can add up quickly and lead to even bigger financial troubles for noncompliant businesses.

IRS seeks to return $266 million

November 11, 2008 | Mike Habib, EA

IRS seeks to return $266 million in undeliverable refunds and economic stimulus payments to taxpayers [IR 2008-123]:

More than 383,000 regular refund and economic stimulus checks have been returned by the U.S. Postal Service as undeliverable, IRS said on Oct. 23. This figure included 279,000 economic stimulus checks totaling $163 million and 104,000 regular refund checks totaling $103 million.

The problem is more urgent for those who have not received their economic stimulus checks which, by law, must be sent out by Dec. 31, IRS said. The agency is urging individuals who have not received the stimulus payment to check on the status of their payment immediately and, if necessary, update their addresses by Nov. 28.

Emergency Economic Stabilization Act of 2008

November 11, 2008 | Mike Habib, EA

As I’m sure you’re aware, on Oct. 3, 2008, the President signed into law the Emergency Economic Stabilization Act of 2008 (P.L. 110-343). Although virtually all of the press coverage of this law has concentrated on its hotly debated $700 billion financial industry bailout plan, the legislation also contains scores of tax changes, mostly beneficial, for individuals and businesses alike.

Here’s a brief review of the tax provisions individuals need to know about right now.

AMT relief: In general terms, to find out if you owe alternative minimum tax (AMT), you start with regular taxable income, modify it with various adjustments and preferences (such as addbacks for property and income tax deductions and dependency exemptions), and then subtract an exemption amount (which phases out at higher levels of income). The result is multiplied by an AMT tax rate of 26% or 28% to arrive at the tentative minimum tax. You pay the AMT only if the tentative minimum tax exceeds your regular tax bill. Although it was originally enacted to make sure that wealthy individuals did not escape paying taxes, the AMT has wound up ensnaring many middle-income taxpayers. One reason is that many of the tax figures (such as the tax brackets, standard deductions, and personal exemptions) used to arrive at your regular tax bill are adjusted for inflation, but the tax figures used to arrive at the AMT are not.

Excise Tax Refund Procedure

October 23, 2008 | Mike Habib, EA

Special refund procedures for coal producers and exporters on excise tax paid on exported coal Ann. 2008-103, 2008-46 IRB

In a new Announcement, IRS has advised taxpayers how to claim a refund of the excise tax on exported coal under the new procedures provided in Sec. 114 of the Energy and Extension Act of 2008 (2008 Energy Act, P.L. 110-343, 10/3/2008). The claim must be filed with IRS by Nov. 3, 2008.

Background. A manufacturers excise tax is imposed on coal mined from underground or surface mines located in the U.S. and sold or used by the producer. (Code Sec. 4121) In ’98, a district court (Ranger Fuel Corp v. U.S., (DC VA 1998) 83 AFTR 2d 99-375 ) held that the coal excise tax is unconstitutional to the extent it applies to exported coal based on the blanket prohibition imposed by the Export Clause of the U.S. Constitution, and IRS acquiesced, in effect, in that decision by issuing guidance on how to claim a refund for coal excise tax imposed on exported coal. (Notice 2000-28, 2000-1 CB 1116)

Trucking Employment Tax Relief

October 23, 2008 | Mike Habib, EA

Appeals Court reverses ruling that denied taxpayer Section 530 Relief

Trucker tax relief, trucking tax relief, trucking tax problem resolution.

Trucking Tax & Accounting: Back Taxes – Unfiled delinquent tax returns – IRS & State audits – Messy books / accounting

Charitable Extenders

October 7, 2008 | Mike Habib, EA

Charitable extenders and incentives in the 2008 Extenders Act

The Tax Extenders and Alternative Minimum Tax Relief Act of 2008, which was enacted on Oct. 3, 2008, extends several expired charitable giving tax breaks and provides several new tax incentives for charitable giving. Here is a brief overview of the charitable provisions in the new legislation.

Charitable giving provisions extended for two years. Several popular charitable incentives expired at the end of 2007 and would not have been available to taxpayers on their 2008 tax returns if Congress had not acted. The new law restores the provisions and extends them for two years (through 2009). The extended provisions include: