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• 2008 Tax Year Preparation Checklist

2009 Tax Deadlines

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Quick Check for Business & Individuals

Has Your Tax Situation Changed?

These days, even the seemingly smallest things can affect your tax situation in a big way. 

Take a quick look through this list to see if any of these situations has occured in your life in the past year. 

Yes?  Then your tax situation has probably changed and you need to communicate that to your accountant. 

In the past year, did you...

Buy a Home

Owning a home can provide many tax benefits. Some of the benefits are:

• deduction for real estate taxes
• interest deduction on home mortgage
• deduction for qualified expenses when you have an office in the home
• and the exemption for home sale gains as discussed in selling a home.

Contact us for assistance with tax and financial matters relating to your home. Disclaimer.

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Sell a Home

The sale of a principal residence generally is not reported on a taxpayer's return. However, if a portion of the home was used for business i.e. office in the home or a rental, this may trigger a taxable gain. The homeowner must have lived on the premise for at least two of the last five years, and can only claim this exclusion for one sale every two years. There is a maximum exclusion amount and other criteria that need to be checked. Disclaimer.

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Buy a Rental

Rental properties can provide cash/flow that helps individuals offset the high cost of living. They can also provide losses that help to offset other gains. Rental income is taxed in the year that it is earned. Losses from rental activities are deducted in the year of the loss with limitations. Any loss exceeding the limit is then carried forward and can be deducted in future years. Disclaimer.

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Sell a Rental

Selling a rental property can trigger multiple taxing issues. Upon a sale, losses from previous years are generally allowed along with the current year losses. If the property is sold for a loss then a portion of the loss is deductible. Any remaining portion is then carried forward to future years. If sold for a gain, the entire amount of the gain is realized. Disclaimer.

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Retire

Upon retirement, many retirement plans require that you take minimum distributions or a lump sum amount. Many factors are taken into account when computing the amount of the minimum distribution. At the age of 65 you may be eligible for Social Security and Medicare benefits.

Estate planning remains very important. You will want to insure that the assets you have acquired are protected and are passed on to loved ones with the least possible tax.

You will need to start thinking about making estimated tax payments. You will need to ensure that you prepay at least 90% of what you actually owe in the year you are retiring or 100% of the prior year's tax amount.

When you retire, Social Security taxes will no longer be withheld. If you get a pension, no FICA taxes will be owed since pensions are not considered income.

If you or your spouse are over 65, you are automatically eligible for a higher standard deduction

When you reach 70 ½ years of age you must begin regular withdraws from your IRA and qualified retirement plans. Income taxes will be due on these withdraws. Disclaimer.

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Have Gambling Winnings and Losses

Adequate records must be kept to support gambling winnings and losses. Daily logs recording; dates, amounts, location, and type of gambling should be kept. Gambling winnings can be offset by gambling losses but not to exceed the amount of the winnings. Disclaimer.

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Get Married

If there is a name change, social security must be notified along with various other governmental agencies. This is important as the IRS verifies names and social security numbers on each tax return.

It is important to change named beneficiaries on insurance policies, retirement plans, change to POD (pay on death) accounts or joint tenancy, etc. to insure that these items go to the intended person(s).

Tax returns are filed based on the taxpayer's status at the end of the year. Married taxpayers may either file jointly or married filing separate. Disclaimer.

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Get Divorced

If there is a name change, social security must be notified along with various other governmental agencies. This is important as the IRS verifies names and social security numbers on each tax return.

You may be able to file HOH (head of household) if have a qualifying dependent. If children are involved, insure that form 8332 Release to Claim to Exemption has been signed for each child.

It is important to change named beneficiaries on insurance policies, retirement plans, change POD (pay on death) accounts or joint tenancy, etc. to insure that these items go to the intended person(s).

Alimony is deductible by the payer, but must be included in income for the recipient.

How are the assets divided? What are the property settlements? There could be possible tax consequences for these. Disclaimer.

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My Spouse Dies

Is there a will? Transfers of assets may be handled differently depending on whether or not there was a will. Who is the executor? Check with an attorney….federal and state estate tax forms may need to be filed.

Change beneficiaries if your spouse was named on any policy. Joint and POD (pay on death) accounts will automatically be converted.

Spouses have special rules available regarding rollovers of retirement accounts. Disclaimer.

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Other Family Member Dies

Is there a will? Transfers of assets may be handled differently depending on whether or not there was a will. Who is the executor? Check with an attorney….federal and state estate tax forms may need to be filed.

Are you a beneficiary? There may be possible tax consequences depending on the type of asset you receive and how the transfer takes place.

A 1040 tax return will need to be filed for income received up to the date of death and a 1041 return for income received after date of death. Disclaimer.

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Am named executor/personal representative of an estate

You can refuse this appointment, but if you accept this can be very time consuming. It is best to work in conjunction with an attorney regarding the legal matters of this appointment.

The estate administration has various steps to follow to complete your duties, i.e., local will and codicils, do a preliminary inventory of decedent's assets and liabilities, verify deadlines for probate and tax filings, etc.

You can be paid for your administrative duties, but remember that this is taxable income to you, but at the same time deductible for the estate. Disclaimer.

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Start a New Business or Sell an Existing Business

It is important to choose the right type of entity for your business. Personal liability issues and taxes are very important considerations.

What is your business plan for the next 1-3 years, 5-10 years and beyond? Are you going to have employees? Will you be renting space, working out of your home or purchasing a building?

You need to be aware that IRS takes a close look at "businesses" that consistently show losses and certain types of businesses… is the business being conducted for a profit or is it a hobby?

If you sell (or buy) an existing business, the purchase price should specifically allocate the purchase price to the assets being transferred. Form 8594 Asset Acquisition Allocation may need to be attached by both the purchaser and seller to their respective tax returns.
What are the tax implications of selling your business? It depends on what is being sold, the basis for these items and how payments are received. Are you retaining an interest in the business or selling 100%? Disclaimer.

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Have a Baby or Adopt a Child

A social security number is needed before the tax return is filed claiming the child as a dependent.

Child care may provide an additional tax reduction as well as the child tax credit, and a portion of adoption expenses, depending on your aggregate gross income (AGI). Disclaimer.

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Want to Start Planning for College Savings

The first key to a college savings plan is to start early. Because of new tax laws, State 529 Plans typically offer the best tax advantages. Education IRAs should also be considered.

When the child enters high school, savings should be moved from market based investments (like mutual funds) to fixed rate investments (bonds or CDs) Disclaimer.

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Have College or Continuing Education Expenses

If college expenses are for a dependent, there are two types of federal tax credits available: The Hope Education Credit and the Lifetime Learning Credit.

The Hope Credits are available to Freshman and Sophomore full time college students. The Lifetime credits are for all other college students, including advanced degree candidates. You do not need to be a full time student to qualify for the Lifetime credits. State tax credits may also be available.

If college expenses or continuing education expenses are incurred for you or your spouse, care must be taken to ensure the right costs are deducted or qualify for credits. The first thing you must determine is: are the expenses to "improve an existing career" or to "qualify for a new career"? Once this is determined, there are three different calculations that need to be done to ensure the maximum tax savings. A tax professional should be consulted to determine the best method to use.

As a general rule, room and board expenses are never deductible, only qualified tuition and book expenses qualify. Disclaimer.

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Have Employee Business Expenses

Typical employee business expenses include: vehicle, travel, transportation, meals and entertainment costs. Such expenses are reported on Form 2106. Other employee expenses such as education, dues and business use of the home are deducted directly on your Schedule A. In both cases, expenses are deductible only if the exceed 2% of your Adjusted Gross Income.

Special care in the treatment of these expenses must be made if your employer has an Accountable Reimbursement Plan or makes reimbursements on a per diem basis. Other special rules apply to qualified transportation workers, employee moving expenses, military personnel and travel outside the United States. Disclaimer.

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Suffer an Illness

Typically, it is difficult to claim a medical expenses deduction. Only those with medical expenses in excess of 7.5% of their Adjusted Gross Income may claim a deduction: Example AGI = $45,000, only the portion above $3,375 is deductible.

For this reason it is important to keep careful records of all medical expense in order to qualify for this deduction. A few of the overlooked medical expenses include:

• Air conditioning for relief of asthma
• Birth control pills*
• Medical equipment, ex. wheelchairs
• Optical expenses
• Mileage for travel to doctor/hospitals
• Weight control programs*
• Household help for nursing care
• Swimming*
• Home improvements, ex. Hand rails
• Long-term care insurance

*Must be prescribed by a physician.

The two medical expenses that are most often claimed in error are medical insurance premiums that you pay in "pre-tax" dollars and non-prescription medical supplies. Disclaimer.

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Refinance a Mortgage

Before refinancing, homeowners need to consider up-front costs, how long you will be living in the house, how much time is left on the existing mortgage, and the income tax consequences.

In the past, it usually required a two percent reduction in the interest rate to cost justify refinancing. Today, however, many lenders offer to refinance with little to no out-of-pocket expenses. You should consider refinancing every time you can for a better interest rate if you don't have to pay additional fees.

Special care needs to be taken if you pay points to refinance your mortgage. If you pay points to reduce your interest rate merely to lower your monthly payments then those points must be amortized over the life of the loan, usually 15 or 30 years. If a portion, or all, of the refinanced mortgage is used to improve your home, then all (or the portion) of the points are fully deductible the first year. Disclaimer.

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Make a Charitable Contribution in Cash (or Check)

As the tax laws are written today, only those who itemize their deductions may claim charitable contributions. Examples of deductible contributions include donations made to churches, synagogues, nonprofit schools, public parks, Salvation Army, Red Cross, United Way, volunteer fire departments, etc.

If you make a cash contribution in excess of $250 to a particular organization, then you must have a statement from that organization to claim your deduction. A canceled check is not sufficient to support a deduction greater then $250.

Many people overlook Charitable Travel expenses (14 cents/mile) and volunteer out-of-pocket expenses. An example of this would be a scout leader that drives to camping trips and must buy uniforms that would not be suitable for everyday wear.

Care must be taken if you receive something in return for your contribution. Only the portion of the donation that exceeds the Fair Market Value of the goods and services received is deductible. For example, you pay $150 to play in a charitable golf outing. However the charitable organization tells you that you receive $100 in value for the greens fees, cart, dinner, etc. In this case, only $50 may be claimed for a charitable deduction. Disclaimer.

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Make a Non-Cash Charitable Contribution

You must be able to itemize your deductions in order to take a deduction for donated property to charitable organizations. In all cases, however, you may only claim the Fair Market Value (FMV) as a charitable deduction.

An example of this would be a coat you purchased new for $100 and donate to Goodwill. Goodwill, and most other organizations like this, has a list of the FMV of donated items. If this list shows the FMV of the coat as $20, then $20 is the charitable deduction you are allowed to take on your tax return. There are certain reporting requirements you must follow depending on the value of the donations you make. The following is summary of those requirements:

• Less then $250- a receipt in not required
• $250- $500- must receive written acknowledgment from the
  charitable organization
• $501-$5,000- same requirements as the $250-$500 category, plus the records must show the means of acquisition of the property, the date acquired, and the means to arrive at the FMV
• More then $5000- same requirements as the $501 - $5000 category, plus a written appraisal of the FMV.

There are many other rules to be aware of if you make donations of Ordinary Income Property, Capital Gains Property, Unrelated-use Property or Investment Property that has decreased in value. Disclaimer.

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Use My Car For Work

Using your car or truck for work is a very typical condition of employment, and can offer several different tax treatments. You must first determine if you are reimbursed by your employer for car and truck expenses. Typically, you
can only deduct that portion expenses in excess of your reimbursements.

Conversely, you may find that you have taxable income to report if your reimbursements are greater then your actual expenses. Careful expense records must be kept to properly account for these costs and reimbursements. If you are self-employed, then almost all of your car and truck expenses can be used as a tax deduction.

There are two primary means to deduct car and truck expenses. You can either use the Standard Mileage Rate or use Actual Expenses.

Many people find using the Standard Mileage Rate the easiest to use, but may not offer the greatest possible deduction. For the Standard Mileage Rate, all you do is keep track of the business miles driven for the year and multiply the mileage by the standard rate (.345 cents/mile for 2001).

To use the Actual Expenses method, you need to record all interest/lease expenses to finance the car/truck, gasoline and repair expenses, insurance and license expenses, auto club expenses, etc. Using the Actual Expenses method also allows you a depreciation expense for the vehicle. If you purchased a new car or truck after 9/11/01 then additional depreciation expenses are allowed.

Due to the complexities involving the treatment of car and truck expenses we suggest you consult with your tax advisor or contact us the first year you purchase, lease or begin using a vehicle for business. Disclaimer.

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Start a new Job

Check out your new benefits package. If you feel that the insurance coverage is not enough you might want to look into upgrading on your own.

Join your new company's 401k plan as soon as possible.

Know your options from your old 401k plan. You might be able to keep your money in your current plan or roll it over into your new employers. Or put it into your own IRA. Cashing out could result in costly taxes and penalties. Disclaimer.

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Lose a Job

Know that expenses for searching for a new job may be deductible. Before you leave you will need all information pertaining to your stock options, pension benefits, and your 401k plan and any rollover options that you might have.

Under the Consolidated Budget Reconciliation Act (COBRA) you are allowed to maintain your current insurance plan. You do have to pay for it however, and there sometimes can be a 2 % administrative cost. COBRA guarantees insurance coverage for 18 months. Disclaimer.

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Come Into an Inheritance

· When you inherit property your basis is the fair market value of the property on the date the benefactor died.
· Regardless of how long your benefactor owed the property you are considered to have owned it long term, over 12 months. This is beneficial because long term gains are taxed at a lesser rate.
· The same is true for inherited stocks. You will want to see a copy of the estates Form 706 to get a basis for the stock. Disclaimer.

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Suffer a Casualty loss

Deduction for a casualty loss is determined by taking the lesser of: the decrease in the fair market value of the property resulting from the casualty; or the adjusted basis in the property before the casualty. Then reduce the loss by any insurance or other reimbursement you received.

• If the property is used in trade or business the entire loss is deductible
• If the property is persona,l the loss must exceed 10% of your adjusted gross income to be deducted
• If the deductible loss plus all other itemized deductions exceed your standard deduction, you itemize your deductions and receive an income tax benefit from the loss. Disclaimer.

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Make a Stock Purchase

The wash sale rule says that if you dump stocks when they are at a loss and then pick them up again within thirty days when they start to go up again, the loss you incurred is not tax deductible. For example, you buy 200 stocks at $15; they go down to $5 and you sell all of your 200 stocks. You just took a hit of $2000. The stocks go back up to $11 and you buy back your 200 stocks for $2200. In the eyes of the IRS, the basis for that stock now is $4200, encompassing your recent purchase plus the loss. Even though you cannot write off that loss, the gain that you get from the sale of the stocks will be less taxing.

The best kind of trading still pertains to the Traditional or the Roth IRA. This money stays in your tax-free or tax-deferred accounts and you can move the money without worrying about the purchase receipts or keeping accurate records.

Remember when purchasing investments, the more information about the purchase you have the better off you will be in the long run.

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Make a Stock Sale

One of the most important parts of trading stocks is keeping records on all sales and purchases. When you sell shares, the tax gain or loss is calculated by comparing your tax basis in the shares sold to the sales proceeds, net of brokerage commissions, and transaction fees.

The IRS is especially interested in the amount of time you have had the stocks. Gains on stocks that you have had for less than a year are taxed at marginal tax rate. Stocks you have had for more than a year are taxed at 20% if you are in the 28% tax bracket, and 10% if you are in the 15% tax bracket.

There is a new 8% tax rate (for those in the 10% or 15% tax bracket) for stocks held more then five years. The new five year holding period began on 1/1/01. Disclaimer.

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