To compound the financial woes resulting from a foreclosure or other mortgage restructuring for your home, the IRS generally imposes tax when debt is cancelled. In other words, you're taxed on the amount forgiven by the lender as if you actually received it as income. However, Congress provided some relief to homeowners under the "Mortgage Forgiveness Debt Relief Act of 2007."
Here are the answers to several common questions in this area.
* What relief does the recent law provide? Generally, it excludes tax on cancellation-of-debt income realized from a foreclosure, short sale, or other mortgage restructuring. This tax break only applies to debt used to buy, build, or improve your principal residence. It isn't available for vacation homes or investment property.
* Is there a limit? Yes. The exclusion can cover the tax due on up to $2 million of forgiven debt ($1 million if you're married and file separate tax returns). Any excess is taxable under the general rules.
* How does the exclusion affect your basis in the home? You must reduce your basis (the amount used to determine taxable gain or loss from a home sale) by the amount of cancelled debt excluded from taxable income. For example, if a loan restructuring results in cancellation of $50,000 of debt on a home with a basis of $450,000, your basis is reduced to $400,000. This could increase your taxable gain when you sell the home, although the first $250,000 of gain ($500,000 for joint filers) may still be sheltered by the home sale exclusion.
* How do I know how much debt is excluded? Your lender will send you Form 1099-C (Cancellation of Debt) showing the amount of debt forgiven and the fair market value of property given up through foreclosure. It also sends the IRS a copy of the form. The IRS encourages homeowners to check this information carefully.
* What is a short sale? Instead of foreclosing on a home, a lender may allow you to sell it for less than the mortgage amount and take the proceeds in full satisfaction of the debt. For instance, let's say you still have a mortgage of $250,000 on your home, but the home's value has dropped to $225,000. Assuming the bank agrees to a short sale and you incur $15,000 in selling expenses, you turn over the remaining $210,000 to the bank. The $40,000 difference, which will be reported on Form 1099-C, qualifies for the tax exclusion on cancellation-of-debt income.
* Is this tax relief permanent? No. Initially, the tax exclusion only applied to debt forgiven in 2007, 2008, or 2009. But the economic stimulus law passed last year - the "Emergency Economic Stabilization Act of 2008" - extended this tax break for three years through 2012.
This is just a brief overview of the new mortgage debt relief available to homeowners. Call us if you have questions pertaining to your situation.
Fall River #: 508-679-6079 New Bedford #: 508-999-0020
Wednesday, September 30, 2009
Tuesday, September 29, 2009
What's New in Taxes: A new vehicle could bring tax savings
If you're thinking of buying a new car, truck, motorcycle, or motor home this year, you might benefit from a tax break included in the "Recovery Act of 2009." Here are the details.* You can deduct state and local sales taxes paid on up to $49,500 of the purchase price of a qualifying vehicle.
* Qualifying vehicles generally include new (not used) cars, light trucks, motorcycles, and motor homes purchased after February 16, 2009, and before January 1, 2010.
* The deduction can be claimed on your 2009 tax return regardless of whether or not you itemize other deductions.
* The deduction phases out for single taxpayers with income between $125,000 and $135,000. For joint filers, the phase-out range is $250,000 to $260,000.
For more information or planning assistance, give us a call.
Fall River #: 508-679-6079 New Bedford #: 508-999-0020
Major Tax Deadlines For October 2009
* October 1 - Generally, the deadline for self-employeds and small businesses to establish a SIMPLE retirement plan for 2009.* October 15 - Deadline for filing 2008 individual tax returns on automatic extension of the April 15 filing deadline.
* October 15 - If you converted a regular IRA to a Roth IRA in 2008 and now want to switch back to a regular IRA, you have until October 15, 2009, to do so without penalty.
NOTE: Businesses are required to make federal tax deposits on dates determined by various factors that differ from business to business.
Payroll tax deposits: Employers generally must deposit Form 941 payroll taxes (income tax withheld from employees' pay and both the employer's and employees' share of social security taxes) on either a monthly or semiweekly deposit schedule. There are exceptions if you owe $100,000 or more on any day during a deposit period, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.
* Monthly depositors are required to deposit payroll taxes accumulated within a calendar month by the fifteenth of the following month.
* Semiweekly depositors generally must deposit payroll taxes on Wednesdays or Fridays, depending on when wages are paid.
For more information on tax deadlines that apply to you or your business, contact our office.
Fall River #: 508-679-6079 New Bedford #: 508-999-0020
Wednesday, September 23, 2009
Take a Break
Millions, Billions, Trillions: Just how much money is it?
The recent stimulus law provided about $800 billion dollars in an effort to get the U.S. economy back on track. The proposed 2010 federal budget hit the $3.5 trillion mark.
Just how much money is that? Most people have a hard time envisioning such astronomical amounts. Here's a visual that might help.
$1,000,000 - If you laid one million one-dollar bills end-to-end, you would have a path 95 miles long.
$1,000,000,000 - A billion one-dollar bills laid end-to-end would go around the earth almost four times. (The earth is about 25,000 miles around.)
$1,000,000,000,000 - A trillion one-dollar bills laid end-to-end would go around the earth 3,800 times. So a $3.5 trillion federal budget would wrap the world 13,000 times in one-dollar bills. And that, fellow taxpayers, is a lot of money.
The recent stimulus law provided about $800 billion dollars in an effort to get the U.S. economy back on track. The proposed 2010 federal budget hit the $3.5 trillion mark.
Just how much money is that? Most people have a hard time envisioning such astronomical amounts. Here's a visual that might help.
$1,000,000 - If you laid one million one-dollar bills end-to-end, you would have a path 95 miles long.
$1,000,000,000 - A billion one-dollar bills laid end-to-end would go around the earth almost four times. (The earth is about 25,000 miles around.)
$1,000,000,000,000 - A trillion one-dollar bills laid end-to-end would go around the earth 3,800 times. So a $3.5 trillion federal budget would wrap the world 13,000 times in one-dollar bills. And that, fellow taxpayers, is a lot of money.
Monday, September 21, 2009
As things change, update your beneficiaries
Although life's only certainties may be death and taxes, we rarely enjoy planning for them. But without planning, your assets can go to unintended recipients - including the government.
* Only the first step. Naming your beneficiaries is only the first step. It's just as important to periodically review the beneficiaries designated by your will, insurance policies, investment accounts, retirement plans, and similar documents. Examine each document carefully, because some assets may pass to the beneficiaries named in the governing document, regardless of the terms of your will.
Example: You name your husband as sole beneficiary of your life insurance policy and your 401(k) plan. After a few years, you divorce and remarry. You remove your ex-husband from your will and name your new husband as the insurance beneficiary, but you forget about the 401(k) plan. The result: When you die, your ex-husband probably will inherit the plan assets.
Events that might require changing beneficiaries include marriage, birth, divorce, death of a beneficiary, increases or decreases in your wealth, changes in tax law, or simple changes of heart. Even in the absence of a triggering event, it's wise to review your designations regularly. A beneficiary may have fallen out of favor. A once-needy beneficiary may have become wealthy, enabling you to divert your assets elsewhere. Ongoing changes to estate tax law may mandate different approaches to beneficiary selection.
* Where to start. When reviewing your beneficiary designations, start by listing the relevant documents. In addition to your will, personal life insurance, and active retirement plan, include employer-provided life insurance and life insurance associated with services such as credit cards, medical plans, and trade associations. You'll also need to look at stock purchase plans, stock option plans, and similar benefit programs.
If you haven't reviewed your beneficiary designations lately, think about doing it soon. For assistance in your review, give us and your attorney a call.
Fall River #: 508-679-6079 New Bedford #: 508-999-0020
* Only the first step. Naming your beneficiaries is only the first step. It's just as important to periodically review the beneficiaries designated by your will, insurance policies, investment accounts, retirement plans, and similar documents. Examine each document carefully, because some assets may pass to the beneficiaries named in the governing document, regardless of the terms of your will.
Example: You name your husband as sole beneficiary of your life insurance policy and your 401(k) plan. After a few years, you divorce and remarry. You remove your ex-husband from your will and name your new husband as the insurance beneficiary, but you forget about the 401(k) plan. The result: When you die, your ex-husband probably will inherit the plan assets.
Events that might require changing beneficiaries include marriage, birth, divorce, death of a beneficiary, increases or decreases in your wealth, changes in tax law, or simple changes of heart. Even in the absence of a triggering event, it's wise to review your designations regularly. A beneficiary may have fallen out of favor. A once-needy beneficiary may have become wealthy, enabling you to divert your assets elsewhere. Ongoing changes to estate tax law may mandate different approaches to beneficiary selection.
* Where to start. When reviewing your beneficiary designations, start by listing the relevant documents. In addition to your will, personal life insurance, and active retirement plan, include employer-provided life insurance and life insurance associated with services such as credit cards, medical plans, and trade associations. You'll also need to look at stock purchase plans, stock option plans, and similar benefit programs.
If you haven't reviewed your beneficiary designations lately, think about doing it soon. For assistance in your review, give us and your attorney a call.
Fall River #: 508-679-6079 New Bedford #: 508-999-0020
New credit card rules become effective
The new "Credit Card Accountability, Responsibility and Disclosure Act of 2009" (CARD), which is designed to protect consumers from unfair credit practices, generally does not take effect until February 2010. But a few provisions went into effect on August 20, 2009.Credit card companies must now give consumers 45 days notice before changing interest rates or fees. However, they don't need to warn you of a rate increase if your payment is late by 60 or more days.
The new law will not allow credit card companies to count your payment as late unless they've sent their bill at least 21 days before it is due.
Provisions in the law which go into effect next year will restrict rate increases on existing card debt and marketing to college students.
Is your business prepared for flu season?
The government is encouraging businesses to look ahead to the upcoming fall and winter flu season and to make plans to minimize the flu's effects on business productivity. Flu season may be worse this year due to the H1N1 or swine flu which still has not been effectively brought under control.Some actions being suggested by government officials:
* Encourage vulnerable workers to get the flu vaccine as soon as it becomes available (pregnant women, health care providers, older individuals, and those with asthma, for example).
* Clean work areas, stock up on hand sanitizers, encourage frequent hand washing.
* Send workers home at the first sign of flu symptoms, and encourage them to stay home for at least 24 hours after fever abates.
* Consider staggering work shifts or letting employees work at home if a company-wide outbreak seems likely.
Your business should also consider developing a plan for operating if a flu pandemic strikes. The U.S. government has started to plan for the consequences of a pandemic, but in the chaos that would accompany a serious outbreak of flu, your business can't rely only on the government. At this point, it's probably too early to make concrete plans. But it's not too early to start thinking about the possible effects on your business and how you would deal with them.
Consider the following issues:
* Loss of employees. How would you cope if perhaps 25% of your employees were sick and unable to report for work? How would your business be affected?
* Quarantined employees. What would happen if a significant number of your employees were quarantined and unable to report to work? Could they work from home? It's quite possible that compulsory quarantine would be imposed if an area is affected by an outbreak.
* Loss of a supplier. How would you be affected if a major supplier lost employees and cut back production? How much inventory do you keep on hand?
* Disruption in shipping. A pandemic could well disrupt transportation and shipping. This could affect both your supplies of materials and your ability to ship a product.
* Loss of communications. In a worst case, telephone and/or Internet service could be interrupted. How would this affect your ability to do business?
The potential problems and the solutions to them are different for every business. There are certainly no easy answers. But the businesses that come through a pandemic in the best shape will be those that have done their planning! Make a start by assessing your vulnerabilities and thinking of possible responses.
Tuesday, September 15, 2009
Do a year-end investment review to cut taxes and increase returns
This is a good time of year to review and rebalance your investment portfolio. Although the recent market volatility has been disastrous for many investors, there may still be some year-end moves you can make that will cut your 2009 taxes and increase your after-tax returns. As you identify investments to buy and sell, keep the following tax implications in mind:
* First, remember that any sales you make within your retirement accounts are free of tax. If you need to trade just to rebalance your portfolio, consider doing it in your IRA or 401(k) plan.
* If you're selling investments to weed out poor performers, remember that losses can cut your tax bill. You can use capital losses to offset taxable gains, plus up to $3,000 of other income. If you still have losses left over, you can carry them forward to use in future years.
* Not all dividends on stocks and mutual funds are taxed at the same rate. "Qualified" dividends paid by most U.S. and some foreign companies enjoy lower rates of 5% or 15%, depending on your tax bracket.
* You can often manage the size of your gain or loss when you decide to sell some, but not all, of a particular stock or mutual fund. To do this, you must have kept good records of the date and the price for each share purchase. By selling the highest cost shares first, you'll minimize your taxable gain or maximize your loss. You must specify the particular shares you are selling at the time you sell.
* Don't forget to include any reinvested dividends when you calculate your cost basis for mutual fund shares.
* If you're planning to buy or sell mutual fund shares close to year-end, take the tax consequences of the fund's year-end distribution into account.
* If you want to dispose of stock that has appreciated, consider donating it to your favorite charity. You can generally claim a deduction for the appreciated value and avoid paying any tax on your gain.
Give us a call to find out more about year-end investment planning.
Fall River #: 508-679-6079 New Bedford #: 508-999-0020
* First, remember that any sales you make within your retirement accounts are free of tax. If you need to trade just to rebalance your portfolio, consider doing it in your IRA or 401(k) plan.
* If you're selling investments to weed out poor performers, remember that losses can cut your tax bill. You can use capital losses to offset taxable gains, plus up to $3,000 of other income. If you still have losses left over, you can carry them forward to use in future years.
* Not all dividends on stocks and mutual funds are taxed at the same rate. "Qualified" dividends paid by most U.S. and some foreign companies enjoy lower rates of 5% or 15%, depending on your tax bracket.
* You can often manage the size of your gain or loss when you decide to sell some, but not all, of a particular stock or mutual fund. To do this, you must have kept good records of the date and the price for each share purchase. By selling the highest cost shares first, you'll minimize your taxable gain or maximize your loss. You must specify the particular shares you are selling at the time you sell.
* Don't forget to include any reinvested dividends when you calculate your cost basis for mutual fund shares.
* If you're planning to buy or sell mutual fund shares close to year-end, take the tax consequences of the fund's year-end distribution into account.
* If you want to dispose of stock that has appreciated, consider donating it to your favorite charity. You can generally claim a deduction for the appreciated value and avoid paying any tax on your gain.
Give us a call to find out more about year-end investment planning.
Fall River #: 508-679-6079 New Bedford #: 508-999-0020
The IRS reminds taxpayers to use new tax breaks
The IRS has issued a news release reminding taxpayers to take advantage of the tax breaks provided in the "American Recovery and Reinvestment Act of 2009," the recovery law passed earlier this year.
Among the tax benefits that are available for a limited time:
* First-time homebuyer credit of up to $8,000 for homes purchased before December 1, 2009.
* Deduction for state and local sales and excise taxes paid on the purchase of a new car, light truck, motor home, or motorcycle. No limit on the number of vehicles you may buy, but the deduction per vehicle is limited to tax on up to $49,500 of the purchase price. Higher-income taxpayers won't qualify for the deduction, and the deduction ends after 2009.
* Credit for energy-efficient home improvements of up to $1,500 for improvements done in 2009 and 2010.
* American opportunity tax credit of up to $2,500 for qualifying higher education expenses for 2009 and 2010.
The IRS is so concerned that taxpayers will not utilize these tax breaks that it has also launched a YouTube video site and an iTunes podcast with information about these tax breaks.
Among the tax benefits that are available for a limited time:
* First-time homebuyer credit of up to $8,000 for homes purchased before December 1, 2009.
* Deduction for state and local sales and excise taxes paid on the purchase of a new car, light truck, motor home, or motorcycle. No limit on the number of vehicles you may buy, but the deduction per vehicle is limited to tax on up to $49,500 of the purchase price. Higher-income taxpayers won't qualify for the deduction, and the deduction ends after 2009.
* Credit for energy-efficient home improvements of up to $1,500 for improvements done in 2009 and 2010.
* American opportunity tax credit of up to $2,500 for qualifying higher education expenses for 2009 and 2010.
The IRS is so concerned that taxpayers will not utilize these tax breaks that it has also launched a YouTube video site and an iTunes podcast with information about these tax breaks.
Major Tax Deadlines for September 2009
* September 15 - Due date for individuals to pay third quarter installment of 2009 estimated tax.
* September 15 - Due date for filing 2008 tax returns for calendar-year corporations that had an extension of the March 16 filing deadline.
* September 15 - Due date for filing 2008 partnership tax returns that had an extension of the April 15 filing deadline.
* October 1 - Deadline for businesses to adopt a SIMPLE retirement plan for 2009.
NOTE: Businesses are required to make federal tax deposits on dates determined by various factors that differ from business to business.
Payroll tax deposits: Employers generally must deposit Form 941 payroll taxes (income tax withheld from employees' pay and both the employer's and employees' share of social security taxes) on either a monthly or semiweekly deposit schedule. There are exceptions if you owe $100,000 or more on any day during a deposit period, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.
* Monthly depositors are required to deposit payroll taxes accumulated within a calendar month by the fifteenth of the following month.
* Semiweekly depositors generally must deposit payroll taxes on Wednesdays or Fridays, depending on when wages are paid.
For more information on tax deadlines that apply to you or your business, contact our office.
* September 15 - Due date for filing 2008 tax returns for calendar-year corporations that had an extension of the March 16 filing deadline.
* September 15 - Due date for filing 2008 partnership tax returns that had an extension of the April 15 filing deadline.
* October 1 - Deadline for businesses to adopt a SIMPLE retirement plan for 2009.
NOTE: Businesses are required to make federal tax deposits on dates determined by various factors that differ from business to business.
Payroll tax deposits: Employers generally must deposit Form 941 payroll taxes (income tax withheld from employees' pay and both the employer's and employees' share of social security taxes) on either a monthly or semiweekly deposit schedule. There are exceptions if you owe $100,000 or more on any day during a deposit period, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.
* Monthly depositors are required to deposit payroll taxes accumulated within a calendar month by the fifteenth of the following month.
* Semiweekly depositors generally must deposit payroll taxes on Wednesdays or Fridays, depending on when wages are paid.
For more information on tax deadlines that apply to you or your business, contact our office.
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