EXPERTS AREN’T WITHHOLDING ALLOWANCE TAX SAVING TIPS
April 4th, 2010 | Posted by taxWould you rather have an extra $253 in your pocket every month or $3,036 at the end of the year?
That’s the average tax refund amount among filers nationwide as of March 12, the latest available data, said David Stell, Oklahoma spokesman for the Internal Revenue Service. And about three-fourths of taxpayers
every year receive refunds, he said.
“Some people view taxes as a forced saving account,” Stell said. “They know this time every year they’ll get a refund.”
But getting refunds makes poor financial sense, said Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling in Silver Spring, Md. It means people have overpaid all year long, she said, and are making an interest-free loan to the government.
According to a March-long poll on NFCC’s Web site, 72 percent of 4,030 respondents would prefer more money monthly versus a lump-sum refund. Yet, “often the very people who struggle to make ends meet on a monthly basis are the ones who overpay Uncle Sam and receive an annual refund,” Cunningham said in a recent news release.
There’s a quick fix that will help consumers change that, but many just don’t understand it, said John Grace, a certified public accountant with Stanfield and O’Dell in Tulsa.
Workers, Grace said, can increase the number of tax withholding allowances they claim on the W-4 form they filed with their employer when they were hired.
Generally, taxpayers can claim allowances for the number of people in their household who are their dependents, plus an additional allowance if they itemize their deductions, including home mortgage interest, charitable contributions and real estate taxes, on their tax return (Schedule A).
“So if there are three in your family and you pay home mortgage, you generally can claim four allowances,” Grace said.
But taxpayers, he said, should keep in mind withholding tax tables can change from year to year. “If a withholding table calculates a reduction in your 2010 withholding, you could end up owing an underpayment penalty,” Grace said.
Be cautious, some say
Taxpayers who fail to evenly pay 90 percent of their current year tax liability may be charged a 7 percent underpayment penalty by the IRS. But there are several exemptions to the penalty, Grace said, including a safe harbor provision based on the prior year tax liability.
When couples file jointly, Grace advises whoever makes more money to claim all the allowances, while the other spouse claims zero. “Generally, withholding tables take out more from your pay if you earn more,” Grace said. “Tax rates increase as your income increases.”
Workers can change the allowances on their W-4 forms as often as they like, Grace said. “But you always should following life events, such as marriage, divorce, births and deaths.”
Stell recommends a short worksheet to properly figure the number of allowances to enter. Consumers can go to irs.gov and type “withholding allowances” in the search box.
Jim Nolen, president of the Oklahoma Society of Accountants, errs on the conservative side. “I advise my clients to be extremely cautious about claiming more exemptions just to free up money during the year,” Nolen said.
“We have no clue how Congress may change things,” he said. “They may take away mortgage interest like they did credit card interest in the ’80s,” Nolen said.
Trio plans benefit for homeless shelter
March 30th, 2010 | Posted by taxBy Wayne Quesenberry Wytheville Enterprise, Va.
Publication: Wytheville Enterprise (Virginia)
Mar. 30–Melissa Collins was at work at Truliant Federal Credit Union on a cold, snowy day last December when a young man stopped for a free cup of coffee. Their conversation prompted Collins to organize a drive to raise $10,000 for Crossroads Shelter Inc. in Wytheville.
“He didn’t even say he was staying at the shelter,” Collins recalled last week, “but I got the impression he had some connection to it. He asked if I knew anywhere he could get free furniture. I knew the shelter was closed from 8 a.m. to 3 p.m. because there wasn’t enough money to keep it open during the daytime. It was cold and I felt sorry for him. It planted a seed that helped me see there was such a need at the shelter.”
In her quest for a fundraising project, Collins saw the face of Jinjer Covert in “a vision” while she was grocery shopping. She later contacted the personal fitness trainer at A Step Above and the plan was put into motion.
“It was like the Lord put Jinjer’s face before me,” remarked Collins. “I knew Jinjer and I pitched the idea to her. She took it from there.”
Covert enlisted one of her clients and Just Jewelry representative, Shannon Tate. They and Collins met to brainstorm the idea, which began to blossom.
“It’s kind of grown,” Collins noted.
Covert added, “We’ve got a great team. We constantly stay in touch.”
Setting a date for the fundraiser quickly became a problem for them. Initially, it was set for Saturday, March 25, but had to be rescheduled because of the races at Bristol.
Commenting on the established date of Saturday, April 10, Collins said, “Of course, there’s a lot going on that day, too. But that’s good for Wytheville. People can still stop by Elizabeth Brown Memorial Park and enjoy the music and food and the other activities.”
Beginning at noon and continuing until 6 p.m., the benefit concert will feature Edith Shumate, Ephraim Vause Memorial String Band, COR 13, 3N1 Band, Breakndaylight and All Nations Church Praise and Worship Team. Each group will perform for 40 minutes.
“The music will be very diverse,” Covert pointed out. “There will be everything from Christian rock to bluegrass to gospel.”
Tate organized the arts and crafts displays and activities for children. She has lined up clowns, face painters and animal balloon makers.
A variety of food and drinks will be sold during the event, including hot dogs, homemade soups and baked goods. Several area churches will be involved as will local vendors.
Several items will be auctioned during the afternoon. Among them will be an autographed December Radio guitar.
“Businesses have been great to donate items for the benefit,” Covert stated. “Right now, we have everything we need.”
In case of rain, the benefit will be held in the old community center next to the park.
According to the women, volunteers are welcomed on the day of the event. Especially needed are people to help clean up after the activities end.
“I love the day of the event,” Collins commented. “I’m more of a pitch in and do person than I am at planning.”
Tate credited her co-workers with most of the preparations.
“They’re using a lot of their own money on this,” Tate pointed out. “They’re not getting paid back.”
Covert remarked, “We’re doing something we were called to do. We have the same vision.”
All proceeds from the event will be donated to Crossroads Shelter Inc. for operational expenses.
“We will have donation jars on the day of the event,” Covert said.
Collins added, “All donations are tax deductible since the shelter is a nonprofit agency.”
Collins, Covert and Tate said they plan to make the fundraiser an annual event.
Wayne Quesenberry can be reached at 228-6611 or wquesenberry@wythenews.com
To see more of Wytheville Enterprise or to subscribe to the newspaper, go to http://www.swvatoday.com Copyright (c) 2010, Wytheville Enterprise, Va. Distributed by McClatchy-Tribune Information Services. For reprints, email tmsreprints@permissionsgroup.com , call 800-374-7985 or 847-635-6550 , send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.
March 25th, 2010 | Posted by taxMar. 25–A recent Kansas Legislative Post Audit report spelled out what homeowners have suspected for several years: The tax burden on residential property owners has outpaced any other significant category of property.
Residential real estate accounted for 47 percent of state property tax revenue in 2008, up from 38 percent in 1994. Add to that local governments’ dependence on property taxes — part of which comes from the state’s habit of shifting expenses to the local level — and it is clear that Kansas homeowners are bearing more than their fair share of the state’s tax burden.
It doesn’t have to be this way, but the Legislature is reluctant to recognize its previous mistakes and move to undo tax exemptions that could shift some of the responsibility back away from homeowners.
The audit revealed no only the increased burden on residential property but also inconsistencies in exemptions. For instance, aircraft used as a primary means to produce income is granted a property tax break, while a taxicab is fully taxed. And antique aircraft used for recreation or display avoid property taxes, while the many middle class families that enjoy classic cars can’t avoid taxes on those vehicles.
The tax break for low-production oil wells — set in place when oil prices were at record lows — is indefensible, especially as the price of crude continues to climb higher.
In addition to the most notable property tax exemptions, the LPA report found that 99 sales tax exemptions cost the state more than $4 billion in 2009.
Despite this evidence, the state’s latest idea for addressing the damaging cuts to education is to — you guessed it — shift the burden to local property owners by requiring schools to raise their local option budgets to offset aid that normally comes from the state.
Property owners, especially homeowners, provide the largest possible pool of people from which to draw revenue. Apparently, they are also the easiest — while the burden on homeowners has increased substantially, the burden has remained relatively flat for utility companies, agriculture, and the oil and gas industry.
But homeowners simply can’t continue to serve as an endless supply of money for the state, while trade organizations work to retain tax breaks and exemptions for their industries or interests.
While such exemptions are being reviewed, there is little time left for the Legislature to make significant changes this session. The LPA is scheduled to meet after this session and suggest legislation that could undo tax exemptions that don’t make sense at any time, but even less sense in a recession.
Legislators should listen and begin to consider how to stop piling on to homeowners’ already heavy tax burden.
By Jason Probst/Hutchinson News editorial board
To see more of The Hutchinson News or to subscribe to the newspaper, go to http://www.hutchnews.com . Copyright (c) 2010, The Hutchinson News, Kan. Distributed by McClatchy-Tribune Information Services. For reprints, email tmsreprints@permissionsgroup.com , call 800-374-7985 or 847-635-6550 , send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.
March 22nd, 2010 | Posted by taxIt seems that everyone reads about the latest tax saving tips just prior to filing their returns. At this point, it’s often too late to do much about your pending tax bill. You can, however, start saving on your personal income tax bite during the year, and make additional strategic moves as the year-end approaches.
Here are some basic tips for saving on your taxes.
1. Keep all business-related receipts. Keep track of what the receipts are for, and save them in a safe place.
2. Deductions. Many people neglect to carefully look for, and claim, all the deductions to which they’re entitled. By simply taking the standard deduction, you may miss out on other available deductions.
3. Take all applicable tax credits. For each child under the age of 17, there is up to a $1,000 tax credit. There are also various other credits, such as those available when you adopt a child or when you elect to claim a Lifetime Learning Credit.
4. Take a loss. If you’ve done well with your investments and are looking at significant capital gains, prior to year-end is the time to offset some of those gains by selling a losing venture. Also, remember that you can carry forward up to $3,000 from previous years’ losses.
5. Consider tax-free investments. Returns are not very high, but if you’re looking for a safe, tax-friendly investment, consider tax-free government or municipal bonds, among other such investments. This type of investment is particularly good for a high-income individual.
6. Remember charitable donations. While donations should not be made simply for tax purposes but for philanthropic reasons, you can always make a couple more at the end of the year to lower your tax bite. Remember to get receipts.
7. Gift if you can. You can give up to $12,000 away tax-free to each person you choose. This is typically for retirees with significant assets who want to gift money now, rather than leave it for estate taxes later.
8. Max out your IRA or other retirement plan contributions. Of course, by doing so you’re assuming that your personal income will be lower when you withdraw the money. While that may or may not be the case, it’s safe to say that, if there are a number of years until you start taking distributions, the tax laws will likely change many times over between now and then — hopefully in your favor.
9. Put your (over 14-year-old) children on the payroll. By having them do some work for you, you’ll be able to shift some of your income that would be taxed at a higher rate to their lower tax bracket without being hit with kiddie taxes. Be careful, however, because college financial aid could be affected by their income.
10. Double-check your work. Errors in tax preparation and on tax returns account for millions of dollars that taxpayers could have saved every year. Remember to double-check everything.
Health bill would put 3.8% tax on investment income
March 19th, 2010 | Posted by taxBy Ryan J. Donmoyer and James Rowley Bloomberg News
Publication: Deseret Morning News (Salt Lake City)
WASHINGTON ? Democratic congressional leaders would raise to 3.8 percent the Obama administration’s proposed new Medicare tax on investment income to generate an estimated $210 billion to help fund a health-care overhaul plan. The rate is higher than the 2.9 percent President Barack Obama
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proposed in February. The new tax would apply to income from interest, dividends, annuities, royalties, capital gains and rents for individuals who earn more than $200,000 annually and joint filers reporting more than $250,000, according to the legislation.
“It’s a big deal,” said Clint Stretch, a tax analyst for the consulting firm Deloitte Tax LLC. “It extends dramatically the reach of the Medicare hospital insurance tax.” The first-time Medicare tax on investment income would start in 2013. It would push tax rates on capital gains and dividends that year to 23.8 percent for high-income people if Congress goes along with Obama’s proposal to let those rates rise to 20 percent in 2011 from the current 15 percent. It would be the highest rate for long-term capital gains since 1997. The nonpartisan staff of the congressional Joint Committee on Taxation estimated the Medicare tax on investments would generate more than $30 billion annually, or $210.2 billion from 2013 through 2019. It would be the biggest tax increase in the bill and account for half of the $409 billion in total revenue. Overall tax rates on income from interest, annuities and royalties would rise to as much as 43.4 percent. The Medicare tax wouldn’t apply to income in tax-deferred retirement accounts such as 401(k) plans. Obama proposed extending Medicare taxes to investment income as lawmakers sought to merge the House health care plan, which included a 5.4 percent income surtax on millionaires, with the Senate proposal, which sought to tax expensive health insurance plans over the objections of labor unions. The final plan announced Thursday delays the proposed 40 percent tax on high-value insurance plans until 2018, from 2013 in earlier proposals. It also increases the cost threshold affected by the tax, applying it to the portions of plans worth more than $10,200 for individuals and $27,500 for families. The Senate bill would have imposed the tax at thresholds of $8,500 and $23,000. In further years, the tax on high-cost plans would affect more insurance plans than earlier proposed, as the plan would reduce the inflation index for that provision. “Clearly, unions and others concerned with high-cost plans have won a victory in this,” Stretch said. The Medicare tax on unearned income “is a compromise, if you will, between the House and the Senate on the level of high-income taxation that goes into the mixture.” The tax on high-cost insurance plans would generate about $32 billion in 2018 and 2019, according to the Joint Committee on Taxation. That’s a fraction of the original Senate proposal to generate about $149 billion from the levy. The current 2.9 percent Medicare tax applies only to salaries and is split evenly between workers and their employers. The bill adopts a Senate-passed proposal to increase an employee’s share of that amount by 0.9 percentage points, to a total 2.35 percent, for high-income workers. That would be added to the worker’s top marginal rate, which under Obama’s other tax proposals would rise to as much as 39.6 percent. Separately, the legislation would delay until 2013 a new $2,500 cap on the amount of money workers can contribute on a pre-tax basis to employer-sponsored flexible spending accounts to pay out-of-pocket medical expenses. The Senate version of the plan would have imposed that limit starting in January. The new proposal would generate about $13 billion in revenue by 2019, according to the joint tax panel. Thursday’s proposals are “a radical change from U.S. tax policy without much debate at a time when we should shift the fundamental core of U.S. tax policy in a more pro-saving and investment” direction, said Mark Bloomfield, president of the American Council for Capital Formation, a Washington group that lobbies for lower taxes on capital. Democrats are seeking the biggest health-care changes in more than four decades. Americans would be required to get insurance, with subsidies and purchasing exchanges to help. Insurers such as Philadelphia-based Cigna Corp. would get millions of new policyholders and be required to accept all customers. The bill also would impose a 10 percent excise tax on indoor tanning services that is projected to raise $2.7 billion. For everyone but retirees, it would increase to 10 percent the share of income a person would have to spend on out-of-pocket medical expenses before being allowed to deduct them. The current floor is 7.5 percent. The change is projected to generate $15.2 billion.
Insurance Tax Breaks for Self-Employed Individuals
March 19th, 2010 | Posted by taxBy Bill Bischoff
IF YOU’RE A sole proprietor, partner, or member of a limited liability company (LLC), you’re considered self-employed for tax purposes. As such, you probably have to pay your own health insurance premiums. The good news is you can probably deduct them on page 1 of Form 1040, which is a favorable deal compared to what happens to everyone else who pays their own premiums. Here’s the scoop on this self-employment tax break.
The general rule says individuals must combine their health insurance premiums with other out-of-pocket medical expenses. To the extent the total exceeds 7.5% of adjusted gross income (AGI), you can claim the excess as an itemized deduction. Unfortunately, the 7.5%-of-AGI hurdle can be difficult — if not impossible — to clear. And even if you do clear it, you get no tax savings unless you itemize.
Thankfully, eligible self-employed individuals are allowed to deduct their health insurance premiums, including payments for dental coverage, on page 1 of Form 1040 (on line 29 of the 2009 version of the form). The page 1 deduction reduces your taxable income (and your tax bill) whether you itemize or not. And you don’t have to worry about the 7.5%-of-AGI hurdle. Finally, the page 1 deduction lowers your AGI, which lowers the odds that you’ll fall victim to all those nasty phase-out rules that can reduce or eliminate valuable tax breaks (like the child tax credit, the two higher-education tax credits, and many other goodies).
If you’re eligible, you can claim the beneficial page 1 deduction for heath premiums to cover you, your spouse, and your dependents. Here are the rules.
1. Eligibility Is Determined Month-by-Month
You can only claim the page 1 deduction for premiums paid for months during which you’re ineligible to participate in any subsidized health plan offered by an employer of you or your spouse. For instance, say you did not participate in any employer-subsidized plan for the last nine months of the year because you quit your job to go into business for yourself as a sole proprietor. As long as you also did not participate in any subsidized plan offered by your spouse’s employer, you’re good to go for the page 1 deduction deal (assuming no problem with the earned income limitation explained next).
2. Earned Income Limitation
The page 1 health insurance deduction can’t exceed the earned income from the self-employed business activity for which you establish the health coverage. For example, if you have a sole proprietorship with Schedule C net taxable income of $10,000, your page 1 deduction can’t exceed $10,000. If you have a farm with Schedule F net income of $8,000, your page 1 deduction can’t exceed $8,000. You get the idea.
The IRS says you can take out the health insurance in the name of your business or (more likely) in your own name. In the latter case, please put a piece of paper in your tax records file stating that you established the health coverage for a specific self-employed activity (for example, your Schedule C consulting operation).
If your business is a partnership and you pay your own health premiums, you can claim the page 1 deduction for those premiums. Ditto if you’re employed by your own S corporation, own more than 2% of the company stock, and pay your own premiums (even though you’re technically not self-employed in this case).
According to the IRS, you must furnish proof of the premiums you paid to the partnership or S corporation, and the entity must reimburse you. Then the partnership or S corporation must follow some tricky tax accounting procedures which we need not go into here. The important thing to know is that when all is said and done, you will have the right to claim the tax-saving page 1 deduction for your premium expenses.
Keep in mind, these scenarios are also subject to the month-by-month eligibility and earned income limitations described above.
As a bonus, you can also claim the page 1 self-employed health insurance deduction for qualified long-term-care (LTC) insurance premiums. However, you cannot deduct more than the age-based limits shown in the following table. To get the deduction limit for the applicable year, use the age of the covered person as of the end of that year.
| Age of Covered Person | 2009 Limit | 2010 Limit |
|---|---|---|
| Age 40 or younger | 320 | 330 |
| Age 41 to 50 | 600 | 620 |
| Age 51 to 60 | 1190 | 1230 |
| Age 61 to 70 | 3180 | 3290 |
| Over age 70 | 3980 | 4110 |
The rule prohibiting participation in an employer-subsidized health plan is applied differently to LTC insurance premiums. For example, you as a self-employed person can claim the page 1 deduction for qualified LTC premiums (subject to the age-based limit) even though you’re covered under a health plan through your regular job or your spouse’s job — as long as that plan doesn’t include LTC coverage.
Tulsa World, Okla., Phil Mulkins column: Tax credits not to be ignored
March 17th, 2010 | Posted by taxBy Phil Mulkins Tulsa World, Okla.
Publication: Tulsa World (Oklahoma)
Mar. 17–Before sending off your income tax return, check to see if you’re eligible for a valuable tax credit. A tax credit is a dollar-for-dollar reduction of taxes owed, as opposed to a “deduction” that simply reduces your taxable income to arrive at your “adjusted gross income.” Some credits are even refundable, meaning you can receive a refund rather than owe taxes. Five popular tax credits should be considered before filing your 2009 federal income tax return.
Earned Income Tax Credit: This is a refundable credit for certain people who work and have earned income from wages, self-employment or farming. Income, age and the number of qualifying children determine the amount of the credit. EITC reduces the amount of tax you owe and can also provide you a refund. See IRS “Publication 596, Earned Income Credit” at tulsaworld.com/EarnedIncome .
Child and Dependent Care Credit: This is for expenses paid for the care of your qualifying children under age 13, or for a disabled spouse or dependent, to enable you to work or look for work. See IRS “Publication 503, Child and Dependent Care Expenses” at tulsaworld.com/CDCE.
Child Tax Credit: This is for people with qualifying children. Its maximum amount is $1,000 for each qualifying child and can be claimed in addition to the credit for child and dependent care expenses. See IRS “Publication 972, Child Tax Credit” at tulsaworld.com/ChildTaxCredit .
Retirement
Savings Contributions Credit: Also known as the Saver’s Credit, this is designed to help low- to moderate-income workers save for retirement. You may qualify if your income is below a certain limit and you contribute to an IRA or workplace retirement plan, such as a 401(k) plan. The Saver’s Credit is available in addition to any other tax savings that apply. See IRS “Publication 590, Individual Retirement Arrangements (IRAs)” at tulsaworld.com/RetirementSavings .
Health Coverage Tax Credit: This pays up to 80 percent of the health insurance premiums for eligible Trade Adjustment Assistance recipients and Pension Benefit Guaranty Corporation payees. Complete IRS “Form 8885, Health Coverage Tax Credit” to claim the credit on your tax return. Determine your qualification and find out how to receive the credit each month at tulsaworld.com/HealthCoverage .
Other credits: There are other credits available to eligible taxpayers. As many qualifications and limitations apply to them, taxpayers should carefully check tax form instructions, listed publications and additional information available at tulsaworld.com/irs or call for applicable forms and publications at (800) 829-3676
Energy savers give owners added tax value
Under what is called Energy-Saving Tax Credits, you may take a $1,500 credit based on what you spent on various energy-saving improvements made to your main home. Energy-efficient improvements qualifying are insulation, exterior windows, exterior doors, water heaters, heat pumps, central air conditioners, furnaces, etc. These credits are claimed on Form 5695 at tulsaworld.com/form5695 including instructions.
Nonbusiness energy property credit: This credit has been reinstated for qualified property placed in service after 2008 and is limited to a total of $1,500 for tax years 2009 and 2010. It has also been expanded to include certain biomass fuel stoves and asphalt roofs. The annual maximum credit limits on the “residential energy efficient property credit” have been eliminated for qualified solar, small wind energy and geothermal heat pump property costs.
Residential energy property costs: These costs are for new qualified energy property that was installed on or in connection with your main home you owned in 2009 in the U.S. This includes labor costs properly allocable to the onsite preparation, assembly, or original installation of the property.
Qualified residential energy property: This is any of the following: certain electric heat pump water heaters, electric heat pumps, central air conditioners; natural gas, propane or oil water heaters; and stoves that use biomass fuel; qualified natural gas, propane or oil furnaces; and qualified natural gas, propane or oil hot water boilers. Also qualified are certain advanced main air circulating fans used in natural gas, propane or oil furnaces.
When can you take it: Costs are treated as being paid when the original installation is completed, or in the case of costs connected with the construction or reconstruction of your home, when your original use of the constructed or reconstructed home begins. A home is where you lived in 2009 and can include a house, houseboat, mobile home, cooperative apartment, condominium and a manufactured home conforming to Federal Manufactured Home Construction and Safety Standards. You must reduce the basis of your home by the amount of any credits allowed.
Consumer Page topics: Tulsa World consumer writer Phil Mulkins wants to know which topics interest you most. Call 699-8888 or e-mail your interest to phil.mulkins@TulsaWorld.com or mail it to Tulsa World Consumer, PO Box 1770, Tulsa OK 74102-1770.
To see more of the Tulsa World, or to subscribe to the newspaper, go to http://www.tulsaworld.com . Copyright (c) 2010, Tulsa World, Okla. Distributed by McClatchy-Tribune Information Services. For reprints, email tmsreprints@permissionsgroup.com , call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.
March 17th, 2010 | Posted by taxBy PHIL MULKINS World Staff Writer
Publication: Tulsa World (Oklahoma)
contribute to an IRA or workplace retirement plan, such as a 401(k) plan. The Saver’s Credit is available in addition to any other tax savings that apply. See IRS “Publication 590, Individual Retirement Arrangements (IRAs)” at tulsaworld.com/RetirementSavings . Health Coverage Tax Credit: This pays up to 80 percent of the health insurance premiums for eligible Trade Adjustment Assistance recipients and Pension Benefit Guaranty Corporation payees. Complete IRS “Form 8885, Health Coverage Tax Credit” to claim the credit on your tax return. Determine your qualification and find out how to receive the credit each month at tulsaworld.com/HealthCoverage . Other credits: There are other credits available to eligible taxpayers. As many qualifications and limitations apply to them, taxpayers should carefully check tax form instructions, listed publications and additional information available at tulsaworld.com/irs or call for applicable forms and publications at (800) 829-3676 .
Energy savers give owners added tax value Under what is called Energy-Saving Tax Credits, you may take a $1,500 credit based on what you spent on various energy-saving improvements made to your main home. Energy-efficient improvements qualifying are insulation, exterior windows, exterior doors, water heaters, heat pumps, central air conditioners, furnaces, etc. These credits are claimed on Form 5695 at tulsaworld.com/form5695 including instructions. Nonbusiness energy property credit: This credit has been reinstated for qualified property placed in service after 2008 and is limited to a total of $1,500 for tax years 2009 and 2010. It has also been expanded to include certain biomass fuel stoves and asphalt roofs. The annual maximum credit limits on the “residential energy efficient property credit” have been eliminated for qualified solar, small wind energy and geothermal heat pump property costs. Residential energy property costs: These costs are for new qualified energy property that was installed on or in connection with your main home you owned in 2009 in the U.S. This includes labor costs properly allocable to the onsite preparation, assembly, or original installation of the property. Qualified residential energy property: This is any of the following: certain electric heat pump water heaters, electric heat pumps, central air conditioners; natural gas, propane or oil water heaters; and stoves that use biomass fuel; qualified natural gas, propane or oil furnaces; and qualified natural gas, propane or oil hot water boilers. Also qualified are certain advanced main air circulating fans used in natural gas, propane or oil furnaces. When can you take it: Costs are treated as being paid when the original installation is completed, or in the case of costs connected with the construction or reconstruction of your home, when your original use of the constructed or reconstructed home begins. A home is where you lived in 2009 and can include a house, houseboat, mobile home, cooperative apartment, condominium and a manufactured home conforming to Federal Manufactured Home Construction and Safety Standards. You must reduce the basis of your home by the amount of any credits allowed.
Consumer Page topics: Tulsa World consumer writer Phil Mulkins wants to know which topics interest you most. Call 699-8888 or e-mail your interest to phil.mulkins@TulsaWorld.com or mail it to Tulsa World Consumer, PO Box 1770, Tulsa OK 74102-1770. SUBHEAD: Valuable credits can reduce taxable income
March 14th, 2010 | Posted by taxBy Cosby Woodruff Montgomery Advertiser, Ala.
Publication: Montgomery Advertiser (Alabama)
release announcing the survey results.
“Retailers planning speÂcial promotions over the next few months may find that shoppers are a bit more receptive to opening up their wallets than they have been for the past year.”
Phil Rist, leader of the NRF arm that conducted the survey, said consumers are becoming more comfortable spending if they have the money.
“After spending the last year paying down debt or building up a nest egg, Americans are relishing the idea of spending their tax reÂturns,” he said in the reÂlease.
“Consumers focused soleÂly on essential purchases during this economic downÂturn, and many are ready to treat themselves to someÂthing nice for a change.”
Another 10 percent of peoÂple expecting a refund will use it to pay for a vacation, also up from last year’s level.
Berry Grant of All Seasons Travel in Montgomery said the combination of tax reÂfunds and bargains on some travel packages mean inÂcreased sales this season.
“I think it has been a big factor, especially in cruises,” he said.
A cold, wet winter is windÂing down just as thousands of dollars hit some bank acÂcounts. That means the means and the motive to spend, he said.
Not everyone thinks such free spending is a great idea.
Jan Brakefield, professor at the University of AlabaÂma who studies consumer habits, said lingering imÂpacts from the recession and high unemployment should have many consumers worÂried more about saving monÂey.
“I would not have exÂpected that,” she said of the increase in spending.
In fact, she questioned whether or not the survey’s results would hold up once the money reaches consumÂers.
“We will have to see if the people in fact do what they say they are going to do,” she said.
In most cases, consumers will be better off either payÂing down debt or increasing personal savings with the reÂfund, she insisted.
Still, she said some people treat a tax refund as found, rather than earned, money.
“I had hoped we were lookÂing at a fundamental culture change,” she said.
To see more of the Montgomery Advertiser, or to subscribe to the newspaper, go to http://www.montgomeryadvertiser.com . Copyright (c) 2010, Montgomery Advertiser, Ala. Distributed by McClatchy-Tribune Information Services. For reprints, email tmsreprints@permissionsgroup.com , call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.
INVESTMENT BRIEF BONDS CAN BEAT TAX RISES
March 11th, 2010 | Posted by taxPublication: Money Marketing
Margaret Jago, manager of investment products, tax and regulations at Aegon, explains how bond investments can help high-earners likely to be hit by imminent income tax increases
Two major income tax changes for high-earners take effect on April 6. Both of these changes mean that high-earners may end up paying substantially more in tax on some slices of income than the current top rate of 40 per cent.
Bonds can be used to avoid annual income tax liabilities on investment income, so these changes mean bond investments will become particularly attractive to high-earners.
Income tax personal allowances are being removed from 2010-11 onwards for people with taxable income over GBP100,000. The allowance for 2010-11 is GBP6,475 and those affected will pay equivalent to a rate of 60 per cent on income between GBP100,000 and GBP112,950.
Bonds can help reduce this where overall income, including investment income, is within the range GBP100,000-GBP112,950. This is because there is no annual income tax liability on investments held in bonds. Personal income tax liabilities are deferred until a chargeable-event gain arises. This will usually only happen when proceeds are taken from the bond, so the investor can control and delay the tax point and save tax as a result.
Looking at how this might work, take the example of someone earning GBP97,000 and with interest on bank deposits of GBP5,000. Their total income is over GBP100,000 so the effective tax rate will be 60 per cent on the GBP2,000 excess.
If that person puts the capital that generates the interest into a bond, they have removed their annual income tax liability on investment income and at the same time have reduced their income back below GBP100,000 – so back into the 40 per cent tax bracket.
Gains on the bond will be taxed eventually but the investor can decide when to trigger the income tax liability on their bond and this means they may be able to cash in the bond and pay tax when their tax liability is at 40 per cent.
For example, if the person’s income falls back to GBP80,000, perhaps because of a lower than average bonus, then their highest tax rate would fall back to 40 per cent and this rate would apply to their bond gains as long as these were under GBP20,000.
This example also shows that bonds can be particularly beneficial for people whose total income fluctuates – perhaps because they are self- employed. The other group that might be able to save income tax by using bonds is people with income over GBP150,000 – including investment income – who will be 50 per cent taxpayers from April 6.
Again, if bonds are not used, investment income will be taxed annually and so tax will be due on this at 50 per cent. But where savings are held in bonds, there will be no personal income tax liability until money is withdrawn.
This means the 50 per cent rate can be avoided completely if proceeds from the bond are not cashed in until the investor is paying tax at lower rates, either because tax rates have fallen or the person is no longer a UK resident or has retired.
When someone decides to reduce their highest tax rate by investing their savings in bonds they will have to decide whether an onshore or an offshore bond meets their needs best. One factor that may draw that person to offshore rather than onshore investment bonds is the fund choice available within portfolio bonds.
It is important to remember that using bond wrappers might not be appropriate for everyone, particularly because using the bond will often mean a loss of investor protection.
Bank deposits are a good example of this. An investor who holds a fixed- term deposit with a bank based in the most common jurisdictions will be able to benefit from a deposit compensation scheme if that bank becomes insolvent.
This is not true of deposits held within bond wrappers, however, as it is the life company that owns the deposit and the life company will usually not be covered by a guarantee scheme.
This is a downside but as long as the investor is clear that the bond is a suitable investment for their circumstances and risk appetite, it can certainly have a place in saving income tax in a period of high tax rates as well as offering more traditional tax planning opportunities, such as inheritance tax planning.
Copyright: Centaur Communications Ltd. and licensors
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