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Are you invested in foreign companies or mutual funds with foreign investments? – Tax Tip of the Week March 31, 2010

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Tax Tip of the Week | Mar. 31, 2010 | No. 34
You may be entitled to Foreign Tax Credits

If you own individual stocks or have investments in mutual funds that invest internationally, you may be paying foreign taxes on the dividends and capital gains generated.  If so, then you are due a credit for those foreign taxes on your federal tax return.

The foreign tax credit is calculated on Form 1116.  To properly calculate the credit, you must determine how much of the investment income was attributable to the foreign tax paid.  Example:  You received $400 in dividends, $300 in qualified dividends and $100 in capital gain distributions.  You also paid $50 in foreign taxes.  You must determine specifically how much of the $400/$300/$100 investment income generated the $50 foreign tax.

Carefully read your broker statements to determine the allocation.

In some instances, you may not be able to take the entire $50 credit on this year’s tax return due to other limitations (that go beyond the scope of this tax tip.)  If this happens, the unused foreign credit will carry forward to the following year’s returns until such time the credit can be used.  Therefore, it is very important to review prior year tax returns to see if they contained any unused foreign tax credits.

This is an easy credit to miss…now YOU know.

Need help sorting through your tax credits? Just give us a call if you have any questions. In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit http://www.bradstreetcpas.com.

Rick Prewitt – the guy behind TTW

…until next week.

Divorce and Claiming Dependents – Tax Tip of the Week March 24, 2010

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Tax Tip of the Week | Mar. 24, 2010 | No. 33
What you need to do

Many times a divorcee decree will grant the noncustodial parent the right to claim as dependents minor children in alternating years. For example, the custodial parent can claim the child(ren) in years ending with even numbers, and the noncustodial parent can take them as dependents in years ending with odd numbers.

New this year
The IRS now requires Form 8332 be attached to the return of the noncustodial parent in the years when claiming dependents. The IRS will no longer accept copies of divorcee decrees or any other documentation relating to the right to claim children as dependents.

Completing this form is very simple and only needs to be done one time. All that is needed is for the custodial parent to list the years they are releasing claims to exemptions all the way until the year the child turns 18. (Note—it would probably be a good idea to carry through to the age of 22 in the event the child remains a full-time college student.) Copies can then be made and attached to the noncustodial parent’s return in future years.

If the noncustodial parent is electronically filling his or her return, the Form 8332 must be attached to Form 8453 and mailed to the IRS.

The custodial parent does retain the right to revoke their written declaration in future years if facts and circumstances dictate. This would be accomplished by filing and attaching a new Form 8332 in the year of that election.

Editorial Note: I really wish divorcee attorneys would include the completion of this form as part of all the other divorce documents that are prepared and signed.

As always, give us a call if you have any questions. In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit http://www.bradstreetcpas.com.

Rick Prewitt – the guy behind TTW

…until next week.

Who is a child in the eyes of the IRS? Tax Tip of the Week March 17, 2010

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Everyone knows a child when they see one. Right? babyNot so fast…. Let’s look at how the IRS has recently clarified the definition of a Qualifying Child?:

These are just the new rules.  To see the complete set of rules of determining a Qualifying Child refer to this flowchart.

Confused?  Give us a call.

As always, give us a call if you have any questions. In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit http://www.bradstreetcpas.com.

Rick Prewitt – the guy behind TTW

…until next week.

It is never a good idea to file a tax return late – Tax Tip of the Week March 10, 2010

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Don’t be late – You’ll pay…File for an extension if needed

tax_deadlineIt is never a good idea to file a tax return late.  The IRS, State of Ohio, and virtually every municipality will assess penalties on returns filed past the due date.  If you simply run out of time, or don’t yet have all the needed information, it is perfectly fine to file for an extension.

Note: To see a tax due date calendar for 2010, visit our web site at www.bradstreetcpas.com.  Click on any day on the calendar and the entire year of due dates will appear.

Date Changes
For business owners, several dates have changed.  Most notable are the deadlines for the CAT return.  If you are an annual CAT filer, the due date is now May 10, 2010.  Quarterly CAT payment dates have also changed.  As always, corporations are reminded that the due date for Forms 1120 and 1120S are due March 15, 2010.

All business owners and those needing to file fiduciary returns have only until September 15, 2010 to file returns that were placed on extension.  Individual tax returns placed on extension still have until October 15, 2010 to file.

As always, give us a call if you have any questions. In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit http://www.bradstreetcpas.com.

Rick Prewitt – the guy behind TTW

…until next week.

Make sure your name matches – Tax Tip of the Week March 3, 2010

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If you were recently married or divorced, you’ll want to ensure the name on your tax return matches the name registered with the Social Security Administration (SSA). Here’s what you need to know:

  1. If you took your spouse’s last name or if both spouses hyphenate your names, you may run into complications if you don’t notify the SSA.  When newlyweds file a tax return using their new last name, IRS computers can’t match your Social Security Number.
  2. If you were recently divorced and changed back to your previous last name, you’ll also need to notify the SSA of this name change.
  3. To notify the SSA of a name change you’ll need to file Form SS-5. You can also file this form by visiting your SSA office.
  4. If you adopted your spouse’s children after getting married, you’ll want to make sure the children have an SSN.  For adopted children without SSNs, you can apply for an Adoption Taxpayer Identification Number (ATIN).  Form W-7A should be filed with the IRS.
  5. It takes the SSA about two weeks to have the change verifiedso be sure to do this prior to filing your tax return.

Avoid delays and confusion and make sure the government knows who you are!

As always, give us a call if you have any questions. In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit http://www.bradstreetcpas.com.

Rick Prewitt – the guy behind TTW

…until next week.