Tax Relief Blog

Major Tax Changes

February 27, 2009 | Mike Habib, EA

President’s FY 2010 budget will propose many major tax changes for businesses and individuals

“A New Era of Responsibility: Renewing America‘s Promise,” the Administration’s preview of its FY 2010 budget, is available at http://www.omb.gov

Mike Habib, EA Tax Relief & Tax Problem Resolution

Energy tax incentives

February 25, 2009 | Mike Habib, EA

Energy tax incentives in the American Recovery and Reinvestment Act of 2009

Mike Habib, EA Tax Relief & Tax Problem Resolution The recently enacted “American Recovery and Reinvestment Act of 2009” (the 2009 economic stimulus act) includes a package of tax incentives to encourage investments in renewable energy projects or more-efficient technologies. I’m writing to give you an overview of these new provisions. Please call our offices for details of how the new changes may affect you, your investments, or your business.

Long-term extension and modification of renewable energy production tax credit. The new legislation extends the placed-in-service date for wind facilities for three years (through December 31, 2012). It also extends the placed-in-service date through December 31, 2013 for certain other qualifying facilities: closed-loop biomass; open-loop biomass; geothermal; small irrigation; hydropower; landfill gas; waste-to-energy; and marine renewable facilities.

Business tax changes

February 25, 2009 | Mike Habib, EA

Business tax changes in the American Recovery and Reinvestment Act of 2009

Mike Habib, EA Tax Relief & Tax Problem Resolution I’m writing to give you an overview of the key tax changes affecting business in the recently enacted “American Recovery and Reinvestment Act of 2009” (the 2009 economic stimulus act). Please call our offices for details of how the new changes may affect your specific business.

Extension of bonus depreciation. Last year, Congress temporarily allowed business to recover the costs of capital expenditures made in 2008 faster than the ordinary depreciation schedule would allow by permitting these businesses to immediately write off 50% of the cost of depreciable property acquired in 2008 for use in the United States. The new law extends this temporary benefit for qualifying property purchased and placed into service in 2009.

Expanded college credit

February 25, 2009 | Mike Habib, EA

Expanded college credit in the American Recovery and Reinvestment Act of 2009

Mike Habib, EA Tax Relief & Tax Problem Resolution The recently enacted “American Recovery and Reinvestment Act of 2009” (the 2009 economic stimulus act) includes a measure aimed at making college more affordable for low and moderate-income students. The new provision temporarily enlarges the Hope tax credit (renamed the American Opportunity tax credit) for students from middle-income families and partially extends this tax credit for the first time to students from lower-income families. Here are the details.

The new law creates a new American Opportunity tax credit for 2009 and 2010, replacing and expanding the Hope tax credit for those years.
The maximum amount of the American Opportunity tax credit is $2,500 (up from a maximum credit of $1,800 under the Hope credit). The credit is 100% of the first $2,000 of qualifying expenses and 25% of the next $2,000, so the maximum credit of $2,500 is reached when a student has qualifying expenses of $4,000 or more.
While the Hope credit was only available for the first two years of undergraduate education, the American Opportunity tax credit is available for up to four years.
Under the Hope credit, qualifying expenses were narrowly defined to include just tuition and fees required for the student’s enrollment. Textbooks were excluded, despite their escalating cost in recent years. The American Opportunity tax credit expands the list of qualifying expenses to include textbooks.
The Hope credit was nonrefundable, i.e., it could reduce your regular tax bill to zero but could not result in a refund. This meant that if a family didn’t owe any taxes it couldn’t benefit from the credit, which prompted critics to argue that the credit was thus denied to the very families most in need of help affording college. The American Opportunity tax credit addresses this criticism to a degree by providing that 40% of the credit is refundable. This means that someone who has at least $4,000 in qualified expenses and who would thus qualify for the maximum credit of $2,500, but who has no tax liability to offset that credit against, would qualify for a $1,000 (40% of $2,500) refund from the government.
The Hope credit was not available to someone with higher than moderate income. Under the credit’s “phaseout” provision, taxpayers with adjusted gross income (AGI) over $50,000 (for 2009) saw their credits reduced, and the credit was completely eliminated for AGIs over $60,000 (twice those amounts for joint filers). Under the American Opportunity tax credit, taxpayers with somewhat higher incomes can qualify, as the phaseout of the credit begins at AGI in excess of $80,000 ($160,000 for joint filers).

Get tax relief and resolve your tax matters by contacting the tax firm of Mike Habib, EA at 877-788-2937 or online at myirstaxrelief.com

Enhanced first-time homebuyer credit

February 25, 2009 | Mike Habib, EA

Enhanced first-time homebuyer credit in the American Recovery and Reinvestment Act of 2009

Mike Habib, EA Tax Relief & Tax Problem Resolution In hopes of spurring the housing industry, the recently enacted “American Recovery and Reinvestment Act of 2009” (the 2009 economic stimulus act) includes an enhanced tax credit for first-time homebuyers. Here are the details.

You may remember that last year’s Housing Act included a tax credit giving first-time homebuyers up to a $7,500 (actually, 10% of the purchase price or $7,500, whichever is less) credit for buying a home between April 8, 2008, and July 1, 2009, with single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualifying for the full tax credit. However, despite high hopes that the credit would be effective in getting people to buy homes and thereby reduce the excessive inventory on the market, the credit is widely acknowledged to have failed in its objective. The problem, according to realtors and industry officials, was that buyers were turned off by the odd way the credit worked. While the credit functioned initially like other tax credits, reducing a person’s tax liability on a dollar-for-dollar basis, it was unusual in that, unlike other federal tax credits (for example, the child credit), the credit for first-time homebuyers had to be paid back to the government ratably over a period of 15 years (or earlier if the house is sold).

Making Work Pay tax credit

February 25, 2009 | Mike Habib, EA

“Making Work Pay” tax credit in the American Recovery and Reinvestment Act of 2009

Mike Habib, EA Tax Relief & Tax Problem Resolution

The recently enacted “American Recovery and Reinvestment Act of 2009” (the 2009 economic stimulus act) contains a wide-ranging tax package that includes tax relief for low and moderate-income wage earners, individuals and families with college expenses, and home and car purchasers. The centerpiece of the tax package–and at $115 billion its single largest component–is a “Making Work Pay” tax credit of up to $400 per year for individuals, or $800 per year for couples. Here the details of this new credit:

Eligible individuals will receive an income tax credit for two years (tax years beginning in 2009 and 2010). The new credit, like other tax credits, will reduce a person’s tax liability on a dollar-for-dollar basis. Wage earners who don’t earn enough to pay income taxes will be able to claim the difference as a tax refund.
The new credit is the lesser of (1) 6.2% of an individual’s earned income or (2) $400 ($800 in the case of a joint return). In other words, for individuals with earned income above roughly $6,451 ($12,902 for couples), the credit maxes out at $400 ($800 for couples). For the last half of 2009, workers can expect to see perhaps $13 a week less withheld from their paychecks starting around June. That reduction goes down to about $9 per week next year.
Nonresident aliens do not qualify for this credit. Neither do estates, trusts, or individuals who can be claimed as a dependent on someone else’s return.
The credit is available in full only if AGI (adjusted gross income, with some modifications for highly specialized income) doesn’t exceed $75,000 for an individual ($150,000 if you file a joint return). The credit is phased out at a rate of two percent of the eligible individual’s AGI above $75,000 ($150,000 in the case of a joint return). So no credit is allowed for individuals with AGI of $100,000 or more, or for joint filers with AGI of $200,000 or more.
Unlike the $600 per worker lump-sum rebates issued last year, the credit can be received as a reduction in the amount of income tax that is withheld from a paycheck, or through a credit on a tax return.
Since the credit is based on taxable wages and thus unavailable to many retired people and other whose income does not come from wages, the new law includes a one-time payment of $250 to retirees, disabled individuals and SSI recipients receiving benefits from the Social Security Administration, and Railroad Retirement beneficiaries, and to veterans receiving disability compensation and pension benefits from the U.S. Department of Veterans’ Affairs. The one-time payment is a reduction to any allowable Making Work Pay credit. Similarly, a one-time refundable tax credit of $250 is provided in 2009 to certain government retirees who are not eligible for Social Security benefits. This one-time credit is a reduction to any allowable making Work Pay credit.

Get tax relief and resolve your tax matters by contacting the tax firm of Mike Habib, EA at 877-788-2937 or online at myirstaxrelief.com

Tax changes affecting individuals and families

February 25, 2009 | Mike Habib, EA

Tax changes affecting individuals and families in the American Recovery and Reinvestment Act of 2009

Mike Habib, EA Tax Relief & Tax Problem Resolution

The recently enacted “American Recovery and Reinvestment Act of 2009” (the 2009 economic stimulus act) contains a wide-ranging tax package that includes tax relief for low and moderate-income wage earners, individuals and families with college expenses, and home and car purchasers. I’m writing to give you an overview of the more widely applicable tax changes affecting individuals and families in the new law. Please call our offices for details of how the new changes may affect you and your family.

Foreign tax credit generators

February 25, 2009 | Mike Habib, EA

IRS LMSB Memorandum targets artificially-generated foreign tax credits

LMSB Tier I Issue Foreign Tax Credit Generator Directive – Revision 1 (LMSB-04-0109-002, February 19)

Mike Habib, EA Tax Relief & Tax Problem Resolution

Offshore tax evasion

February 24, 2009 | Mike Habib, EA

Battle over UBS secret accounts is before US court

Associated Press

MIAMI_U.S. tax authorities should quickly gain access to the secret accounts of 52,000 wealthy Americans at Swiss bank UBS AG to stop continuing tax evasion, U.S. lawyers told a federal judge.

Audit mistakes by the IRS

February 24, 2009 | Mike Habib, EA

TIGTA assesses how well IRS Examination function scrutinizes all open tax periods during audits [Audit Report No. 2009-30-034]:

IRS Examination function employees do not always appropriately inspect and examine prior and/or subsequent year tax returns when warranted, the Treasury Inspector General for Tax Administration (TIGTA) said in a new audit.

Auditors reviewed 68 statistical sample cases and found that 13 (or 21%) of the cases warranted scrutiny of additional returns but none were selected for examination. In 26 (or 38%) of the 68 cases, “there was no evidence that examiners inspected either the prior or subsequent year return to identify similar issues to the years under examination or if large, unusual, or questionable items existed that would warrant examination,” the audit said. Factors that might be considered include the comparative size of an expense, if the nature of the item is significant, the beneficial effect of the manner in which an item is reported, and missing items on the return.