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Miss out on Cash for Clunkers? You could still get a tax break! Tax Tip of the Week August 26, 2009

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Now that the Cash for Clunkers program has ended, there are still incentives for those who purchase new cars in 2009. Specifically, there may be deductions available for the sales tax you pay on the new car.

This sales tax deduction can take place in one of two ways.

First, the sales tax may be an eligible “above-the-line” (or front page) deduction.  The deduction is limited to sales tax paid on up to a $49,500 purchase price of a qualifying vehicle.  This deduction is phased-out for single taxpayers with adjusted gross income over $125,000, and $250,000 if married.

The second alternative is to add it to your sales tax deduction on your itemized deductions (Schedule A). A couple of years ago, you were given the option to either deduct the amount you pay in state and local tax, OR the amount you pay in sales tax. The sales tax paid for new cars can be added to the “Optional Sales Tax Tables” provided by the IRS based upon your income and number of people in your household.

If you purchase a new car in 2009, you will need to figure your taxes using both methods to determine which gives you the biggest benefit.

So even if you didn’t participate in Cash for Clunkers program, be sure to put the sales receipt of any new car purchase in your tax file.

These rules can get complicated; call us with any questions. In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504.

…until next week.

Tax Credit for Summer Camp?: Tax Tip of the Week August 19, 2009

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Did your kids attend any camps this summer?  If so, you may be eligible for child care credits of up to 35% of the amount you paid for them to attend.  Of course there are rules:

–    The camp must be a day camp only; expenses for overnight camps do not qualify.
–    Both parents (if married) must be employed.  Looking for work also meets the employment requirement.
–    You will need the name, address and EIN of the organization/business running the camp.
–    Child must be under 13 years old.
–    Tax credit gets phased out at higher incomes.

So as summer simmers to an end and your kids are enjoying the last few lazy, hazy days of summer before school starts, remember to enjoy some tax credits when filing your next tax return. That just made summer camp a little more fun!

Call us with any questions. In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504.

…until next week.

IRAs: To Convert or To Not Convert… Tax Tip of the Week August 12, 2009

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That is a great question! Thinking of converting your Traditional IRA to a Roth IRA in 2010?  You may have heard that this conversion is possible in 2010 regardless of your taxable income.  If you, like many individuals, were forced to make non-deductible IRA contributions in the past due to income limitations; you may be tempted to convert those accounts to Roth accounts next year.

However, this may turn out to be a costly mistake.  When making a conversion to a Roth IRA you must consider the value of ALL your IRA accounts, not just the non-deductible IRA accounts you may have.  Only a pro-rata share of the basis is calculated to determine the taxable income.

Example:

BASIS MARKET VALUE
Non-Deductible IRA $24,000 $30,000
All other IRA Accounts 0 $250,000

In this scenario, the taxable portion of converting the $30,000 non-deductible IRA to a Roth IRA would be $21,429 (.0857%) not the $6,000 (30,000 – 24,000) that you might have expected.

There are other reasons to consider a Roth conversion such as estate planning and legacy planning issues.  We want to ensure you understand the tax consequences of your decision.

Call us with any questions. In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504.

…until next week.

Go Green for Greenbacks: Tax Tip of the Week August 5, 2009

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Looking for more ways to lower your taxes? Greening your home means you can get more greenbacks in return at tax time.

The stimulus plan approved by Congress in February offers tax credits for making your home more energy efficient. There are several tax credits available for improvements made in 2009 or 2010.  The credit is equal to 30% of the cost of the improvement up to a limit of $1,500.  The credits apply to such things as insulation, energy efficient windows and doors and efficient heating and air conditioning systems.

Be sure to save your receipts for all of your “green” projects so we can make “tax time” a little more rewarding.

…until next week.