Ask the Expert
ASK THE EXPERT
Click on a Topic below to view some of our most frequently asked questions.
Audits
Capital Gains
Charitable Donations
Child Tax Credit
Church Tax Exemption
Claiming Dependents
Collectibles
Coverdell ESA
CP2000 Letter from IRS
Deductions - Attorney Fees
Deductions - Business
Deductions - Dependent Care
Deductions - Domestic Production Incentive Tax
Deductions - Medical
Deductions - Mortgage Insurance and Interest
Deductions - Moving Expenses
Deductions - Nursing Expenses for Parents
Deductions - Sales Tax
Deductions - School Expenses
Deductions 2010 - Section 179 - Limit $500,000
Deductions - Volunteer
Dividends
Education
Electronic Filing
Employer Identification Number (EIN)
Employers - What Information Do I Need?
Energy Bill
Escrowed Funds
Estate Tax
Ex-Citizen Taxes
Extension Deadlines
Federal Estimated Tax Payments
Federal Minimum Wage
Filing Status
Flat Rate Tax
(Click Here for more Subject Headings)
Audits
Q: What can be expected from the IRS’ shift toward
tougher enforcement?
A: More audits, particularly for higher income
taxpayers, plus an increase in liens, levies and
seizures.
Q: Is there a particular kind of target the IRS has been aiming at
with its audits?
A: They have been aggressively going after questionable tax
shelters and the lawyers and accountants who have been
promoting them.
Q: Is it true that S-Corps are coming under greater
scrutiny by the IRS?
A: Yes. The IRS has announced it will select 5,000
Sub S returns for detailed scrutiny over the next
two years.
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Capital Gains
Q: Have the lower capital gain tax rates been extended?
A: Yes - through 2010. Non-corporate taxpayers' maximum capital gains rates remain at 15%
Q: Who qualifies for the 5% capital gains rate they keep mentioning?
A: Non-corporate taxpayers whose ordinary income is taxed at a 10% or 15% rate qualify for a 5% capital gains rate for 1007, and a 0% rate for tax years after 2007.
Q: We moved here from California to retire a year
ago. Our home there finally sold this year. Do we
have to pay CA taxes on the proceeds?
A: No, if the gain on your primary residence was
under the exclusion amount ($250K for an indiv.;
$500K for MFJ). Yes, if it exceeded that amount.
Q: We retired here several years ago. We sold farm land we
owned in Iowa this year. Do we have to pay taxes to Iowa
on that sale?
A: You will have to file a Non-Resident Iowa return and pay tax on
any gain realized on the sale of the land over your basis in it.
Q: How long do I have to own property before I can
sell it and take a long-term capital loss on it?
A: Property must be held at least one year plus one
day to qualify for long-term capital loss treatment.
Q: If I sold my stock that I held for 11 months, what kind of
capital gain tax will I have to pay?
A: Any property held for less than one year and a day is treated
as a short-term gain. The profit is added to the top of your
other income, and you pay tax on it as ordinary income.
Q: Does a Section 1031 exchange of investment
property exempt you from paying taxes on it?
A: No. 1031 like-kind exchanges are a deferral of
tax, not an exemption from paying the tax.
Q: What are the time limits involved in a making a Section
1031 exchange?
A: To be treated as like-kind property, the new property must be
identified in the contract within 45 days after relinquishing the
other, and property must be titled within 180 days.
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Charitable Donations
Q: What's the new rule about deductions for donated clothing & household items to a charity?
A: For donations made after 8-17-06, no deduction is allowed for clothing or household items not in good used condition or better.
Q: What if the donated item of furniture is very valuable, but needs some restoration
A: IRS will require to obtain a qualified appraisal to verify the value you have claimed as a charitable deduction for the item.
Q: Is there a new requirement regarding monetary charitable contributions?
A: Yes. Deductions for any cash, check or other monetary contributions will be disallowed without a bank record or a receipt from the donee charity.
Q: What minimum gift amount is exempted from this verification requirement?
A: None. There is now no de minimis exception to any gift of money, regardless of the amount.
Q: How will the new contributions law affect church goers who contribute cash each week?
A: Unless they contribute that cash in an envelope provided by the church, with their name or number on it, no tax deduction can be claimed.
Q: How must churches report these cash gifts to donors?
A: After the end of the year, churches must send a statement now to all contributors, identifying the date & amount of each contribution.
Q: How much in cash contributions to churches or charities can I now deduct without a receipt?
A: None. The IRS is now requiring receipts from qualifying charitable organizations for any size contribution.
Q: Will a cancelled check be accepted by the IRS?
A: Yes, a cancelled check or bank statement with the charity’s
name, the date and the amount will be accepted — as long as it
was a genuine donation, not a purchase of services or goods.
Q: What’s the new deal about gifts of vehicles to
charitable organizations?
A: Congress recently acted to limit the deduction for
such vehicles to the price the charity actually sells
the vehicle for — instead of the Fair Market Value.
Q: Why the change regarding gifts of vehicles?
A: Substantial abuse. For tax year 2000, for example, charities
actually received $33 million from vehicle donations. Taxpayers
claimed $654 million for vehicles donated that year.
Q: Can I deduct the FMV of a vehicle I donate to a
qualified charitable organization?
A: Your deductible amount is limited to the proceeds
of the sale of your vehicle by that organization,
which must issue a 1099-C to you with that value.
Q: What if the organization doesn’t sell the vehicle, but
keeps it to use, or gives it to a needy individual?
A: In either case, the IRS will permit you to deduct the FMV of the
vehicle at the time of its donation. The charity will check the
exception box on the 1099-C it will provide to you.
Q: How will I know how much I can deduct when I contribute
a car, boat or plan to a charity?
A: The charity must issue to you (and the IRS) a Form 1098-C
that verifies the amount the charity received from the sale. A
copy of that form must be attached to your tax return.
Q: If we donate $400 to a local public school this
year, how can we obtain the tax credit for it?
A: As a couple, you are eligible for up to a $400 state
tax credit by filing Form 322 with your state return
(up to a $200 credit for an individual).
Q: Can we also claim our donation to a public school as a
charitable contribution on our federal tax return?
A: Yes, if you itemize deductions. Such a contribution makes
both dollars and sense! You get it all back as a credit on your
state return, plus the benefit from the federal tax deduction.
Q: We donated 5 bags of clothing to Goodwill. Do
we need a receipt to take a deduction for it?
A: For a $250 - $500 non-cash donation, a receipt is
required. For less than $250, it is not required if
impractical to obtain one (left at a drop box).
Q: What do we have to do if we want to claim a non-cash
donation deduction for $2,500 in furniture & appliances?
A: A Form 8283 must be filed with your return, giving detailed
information on when and how you acquired each item, its cost,
name & address of donee and method of valuation used.
Q: Are there other federal deductions that may
require me to amend my 2009 Arizona return? What about the deduction I was allowed for my 2010
cash contributions for Haiti Earthquake Relief?
A: The state legislature zapped that one, too. Your state return
will have to be amended to add any of these deductions back
in as taxable income. What a mess they have created!
Q: As a church leader, how can we show tangible
appreciation for our hard-working volunteers?
A: Recognizing volunteers with cash or “near cash”
(gift cards, etc) can create taxable income. Free
food & drink at a gala “Thank You” event is better.
Q: Does IRS regard a “love offering” we take up for our
Pastor as taxable income, or is it considered to be a gift?
A: The IRS is very adamant on this point. It must be reported as
taxable income to the Pastor.
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Child Tax Credit
Q: Wasn’t the Child Tax Credit supposed to
decrease to $700 for 2005?
A: Yes, it was, but Congress acted to maintain the
maximum Child Tax Credit at $1,000 per child
under age 17 for tax years 2005 through 2010.
Q: Is the above-the-line educator’s deduction still in effect
for this year?
A: It expired at the end of 2003, but Congress restored it
retroactively to January 2004 and extended it through 2005.
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Church Tax Exemption
Q: Can churches & charities lose their tax-exempt status with political activity?
A: Yes. The IRS can revoke their tax-exempt status for engaging in prohibited political activity.
Q: How common of a problem is this?
A: According to the IRS, nearly 75% of the churches and tax-exempt charities they have reviewed so far engaged in prohibited political activity during the 2004 election season.
Q: What kinds of political activity can cost a church or charity its tax-exempt status?
A: 1. Distribution of printed materials encouraging members to vote for a particular candidate.
2. Ministers' use of their pulpits to endorse or oppose candidates.
3. Donations of cash contributions to candidates/ campaigns.
4. Giving of preferential treatment to some candidates by permitting them to speak at functions.
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Claiming Dependents
Q: Is a signed Form 8332 required for a non custodial
parent to claim a child as a dependent?
A: The courts have generally enforced the
requirement to have a Form 8332 or other similar
statement, signed by the custodial parent.
Q: If a child resides with both parents an equal amount of
time, which parent gets the deduction for the child?
A: The tie-breaker rule states the deduction goes to the parent with the larger income. NOTE: New regs now base the time calculation on number of nights spent with parent -- not days.
Q: Can a custodial parent release to a non-custodial
parent the right to claim a child as a dependent?
A: Yes. The release of the exemption must name
the non-custodial parent and identify the years it
is to be effective (Form 8332 is recommended.)
Q: Can a signed Form 8332 be revoked by the custodial
parent?
A: Yes. The revocation must be presented in writing to the non custodial parent. It is not effective earlier than the year
following year the revocation is presented to the other parent.
Q: If I pay all of the expenses for my girlfriend's children who live with me, can I file as Head of Household?
A: No, because those children are not related to you. You would have to adopt them - or get married, and then file as Married Filing Jointly.
Q: If I don't adopt them or get married, can I still claim them as my dependents?
A: Yes. If they lived with you all year and were supported by you, they don't have to be related to you to be your dependents.
Q: My girlfriend and her daughter live with me. She has no income. Can I claim them on my return?
A: If they lived with you the entire year, you can claim them as your dependents.
Q: Can I get Earned Income Credit with my girlfriend's daughter, since I supporter her?
A: No, the child would have to be your child, either by birth or marriage, in order for you to qualify for Earned Income Credit.
Q: Can a sibling claim a brother or sister as a dependent if the parents don't?
A: The elimination of the support test for claiming a dependency exemption can technically create a small loophole which we refuse to use.
Q: Why would you not allow a client to claim a dependent under this loophole?
A: We do not believe it in the intent of the law and that taking the deduction would ultimately result in fraudulent tax preparation.
Q: Is there any way I can file my tax return if I do not have a
Social Security Number yet for my child?
A: IRS requires a Social Security Number for any dependent
claimed on your tax return, or they will disallow the dependent
exemption.
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Collectibles
Q: Collectibles are taxed at what rate when they are sold?
A: Brace Yourself! They are taxed at a special 28% rate - nearly double the current 15% rate for other long-term investments.
Q: Is a "like-kind exchange" permitted for collectibles?
A: Yes. Such 1031 exchanges, often used for real estate, can also be used to swap stamps, coins, gems and other collectibles.
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Coverdell ESA
Q: Are contributions to Education Saving Accounts deductible?
A: No. The tax benefit is on the other end. If used for qualified educational purposes, the earnings in the ESA are tax-free.
Q: How much can be contributed to a Coverdell ESA?
A: $2,000 per year can be contributed to a Coverdell Education Savings Account in a calendar year. More than that can be contributed to a 529 Plan, however.
Q: Up to what age can contributions be made to an Education Savings Account?
A: Contributions can be made to a Coverdell ESA only up to age 18.
Q: What happens if funds from a Coverdell ESA are with-drawn and not used for qualifying education expenses?
A: A Form 1099-Q is issued for withdrawals from an ESA, and the earnings on the principal become taxable income, reported on Line 21 of the Form 1040.
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CP2000 Letter from IRS
Q: If I received a CP2000 letter from the IRS and agree with it, do I have to amend my tax return?
A: No. A CP2000 letter is issued regarding income not reported on your return. If you agree with it, just check box "A", sign it and send them a check.
Q: If I disagree with a CP2000 letter I received, what should I do?
A: Respond in writing by the due date, include documentation to support your position and provide a contact number - or come see us for help.
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Deductions – Attorney Fees
Q: For taxable legal settlements, can you deduct the amount paid for attorneys?
A: Although a recent unanimous Supreme Court decision held that attorneys' fees must be included in the taxable income, Congress trumped that decision in October 2004.
Q: What did Congress do to provide relief?
A: The Tax Act of 2004 allows plaintiffs to net legal fees and court costs against the taxable portion of civil damages awards -- effective October 22, 2004.
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Deductions – Business
Q: How many years can a small business carry
back a net operating loss (NOL)?
A: The recently passed 2009 American Recovery &
Reinvestment Act permits a small business to
elect to carry back a loss for up to five years.
Q: What are the other options for dealing with a net
operating loss?
A: If a business does not elect to carryback for 5 years, the
normal 2-year carryback is still available, or they can elect to
carry forward the balance of an NOL for up to 20 years.
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Deductions – Dependent Care
Q: Does the cost of summer camp qualify for the dependent care tax credit?
A: Yes, in some cases. The IRS recently clarified this and said that specialized camps do qualify for the credit.
Q: What conditions must be met for summer camp tuition to qualify for the dependent care credit?
A: The child must be under 13, and the camp expenses must be incurred so the parents can work.
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Deductions – Domestic Production Incentive Tax
Q: Who is entitled to claim the new domestic production incentive tax deduction?
A: It is available to corporations, partnerships and LLCs, among other entities.
Q: What are the deductible percentages?
A: 6% for 2007 - of the lesser of (1) qualified production activities income (QPAI) for the tax year or (2) taxable income for the year, without regard to the deduction.
Q: Are there any limitations on the new domestic production incentive tax deduction?
A: Yes! The allowable deduction (6% in 2007) cannot exceed 50% of the taxpayer's Form W-2 wages for the year.
Q: What if you are paying everyone on 1099-MISC forms, instead of W-2s.
A: You would not get a production incentive deduction at all. Better consider switching to paying employees W-2 wages, and deal with the payroll taxes.
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Deductions – Medical
Q: Do I deduct on my 2009 or 2010 tax return my November hospital bill that I paid in January?
A: You would deduct the amount on your 20010 return. Medical expenses are deductible in the year paid, regardless of when they were incurred.
Q: What if I paid my hospital bill with a credit card? Does that change when I deduct the amount paid?
A: Yes it does. That is the exception. You deduct the amount for the year in which the bill was charged to your credit card - not when you paid your credit card charges.
Q: Can I deduct medical expenses I paid for my son,
if he is no longer my dependent?
A: No. Medical expenses can only be deducted if
paid for the taxpayer, spouse or dependents.
Q: Can I deduct over-the-counter drugs I have purchased?
A: No. Over-the-counter drugs purchased without a prescription
are not deductible as medical expenses.
Q: My wife and I are divorced. Our son lives with
her. Can I deduct medical expenses I pay for
our son?
A: Yes. IRS Code Section 213(d)(5) permits both
divorced parents to deduct the medical expenses
each has paid for their children.
Q: Can I claim medical expenses I pay for my son, who is 19,
who lives with me, but earned $4,000 during the year?
A: Yes. You can deduct medical expenses paid for a person who
could have been claimed as your dependent, except for their
earning more than the $3,650 personal exemption limit.
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Deductions – Mortgage Insurance and Interest
Q: Is there a mortgage insurance deduction available for 2010 tax returns?
A: Yes, on Schedule A, line 13. However, the qualified premiums had to be paid in 2010, only for a contract issued in 2010 in association with home acquisition debt.
Q: If we own three homes, can we deduct mortgage
interest on all three?
A: No. Taxpayers can deduct mortgage interest on
only two homes as qualified mortgage interest.
The 3rd is non-deductible personal interest.
Q: If we own a motor home, can we deduct the interest we
pay on it as mortgage interest?
A: Yes, if you have only one other residence. No, if you own two
other residences.
Q: We purchased the vacant lot next to our home.
Can we deduct the interest on the loan with our
other mortgage interest?
A: No. That is regarded as investment interest, to
be deducted on Form 4952, limited by your
investment income on Schedules B and D.
Q: What if our investment interest exceeds our investment
income?
A: The purpose of the Form 4952 is to do that comparison, and
to roll forward to future years any excess investment interest.
Q: Can I deduct as real estate taxes the amount I
have to pay as a sewer assessment?
A: No. Such benefits tend to increase the value of
your property. Assessments are added to the
basis of your property, not deducted as taxes.
Q: Can I deduct mortgage insurance?
A: Maybe. Under current law, you can only deduct that qualified
mortgage insurance purchased between Jan. 1, 2007 and
Dec. 31, 2010.
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Deductions – Moving Expenses
Q: We moved here from Ohio to retire. Can we
claim our moving expenses as a tax deduction
on our return?
A: No. Moving expenses can only be claimed if you
are moving from a job back there to another job
here.
Q: We moved here from PA to accept a management
position with the company here. Can we claim our
lodging and meals en route as moving expenses?
A: Your lodging can be claimed as part of your moving expenses
on the Form 3903, but not your meals.
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Deductions – Nursing Expenses for Parents
Q: Can I deduct the nursing home expenses I pay for my father?
A: Probably, assuming he is your dependent, and that he is there primarily for medical care.
Q: When are such expenses not deductible?
A: If the person is in the nursing home for personal reasons, cost of actual medical care is deductible, but the cost of meals and lodging is not deductible.
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Deductions – Sales Tax
Q: Are Arizona Sales Taxes really deductible this year?
A: In October 2004, Congress passed a provision that permits you to deduct either your Arizona Income tax paid or your sales tax - whichever is more.
Q: What if I didn’t keep receipts and don’t know how much sales tax I paid?
A: The IRS has devised a table to tell you what is allowable. You can add to that amount sales tax paid on a new car or boat.
Q: The news has said the sales tax on a new car
can be deducted. Do you have to be itemizing?
A: No. Sales tax on new cars, trucks, motorcycles &
motor homes can be added to the 2009 standard
deduction or be taken as an itemized deduction.
Q: Is there any limit on the amount of sales tax that can be
deducted?
A: Yes. It is limited to the sales tax imposed on the first $49,500.
There is also an income phase-out beginning at $125,000 for
singles and $260,000 for married filing jointly.
Q: Are there other federal deductions that may
require me to amend my 2009 Arizona return?
A: Yes. House Bill 2156 also excluded the itemized
deduction for sales tax on the purchase of a new
vehicle.
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Deductions – School Expenses
Q: Is there a new form this year for claiming the tuition & fees deduction?
A: Yes. The new Form 8917 has to be used in conjunction with an entry on line 34 of Form 1040.
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Deductions 2010 – Section 179 – Limit $500,000
Q: What is the limit on Section 179 deductions for equipment purchases for 2010?
A: The dollar limit on Section 179 deductions for businesses has increased to $500,000 for 2009.
Q: What was the previous Section 179 limit?
A: For 2009, businesses were able to deduct up to $250,000. So this represents a $250,000 increase this year in the limit.
Q: What is the Section 179 deduction for small businesses for 2008?
A: The 179 deduction took a 95% increase for 2008, from $128,000 to $250,000 — reduced only when a business acquires more than $800,000.
Q: Can a business take the 1-year 50% special depreciation in
addition to the Section 179 deduction?
A: Yes. For a $450,000 qualifying purchase, they could use 179
on $250,000, take $100,000 as 50% special depreciation, and
then take regular depreciation on the remaining $100,000.
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Deductions - Volunteer
Q: I am a volunteer at a hospital. Can I deduct the
cost of my required uniform?
A: Yes. You can deduct the cost of buying and
cleaning your uniforms.
Q: Can I deduct the value of the time I spend as a volunteer;
and if so, how much per hour can I deduct?
A: Sorry, you can deduct nothing on your taxes for the value of
your time that you spend doing volunteer work. Your reward is
your satisfaction in doing something worthwhile for others.
Q: I serve as a volunteer youth leader at my church.
Can I deduct anything for my mileage?
A: Yes. You can deduct 14 cents per mile for driving
the kids to camp and to other outings. But you
must keep a written mileage log as evidence.
Q: Can I deduct anything for my lodging and meals when
transporting youth from my church on overnight trips?
A: Yes, lodging and meals incurred on those trips are deductible.
But you must keep receipts in case your tax return is audited.
Q: If I fly to Haiti to help an organization rebuild
homes destroyed by a natural disaster, are my
travel expenses deductible?
A: Yes. Air fare, lodging and meals to make such a
trip to do charitable volunteer service can be
deducted on your tax return on Schedule A.
Q: What if I decide to combine a vacation with my charitable
volunteer service in another country?
A: That can be a problem, particularly if you are performing
limited work for a charity, compared to time spent vacationing.
Prepare for a struggle with the IRS on an audit.
Q: As a volunteer with a Senior Center, can I deduct
the cost of my lunch on the days I serve?
A: No. The cost of meals is not deductible for
volunteers who are not required to stay overnight.
Q: Can I deduct the cost of craft supplies and the other
materials I donate to the Senior Center?
A: Yes. But you need to keep the receipts, along with your tax
records, for 5 years, in case of an audit.
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Dividends
Q: On my 1099-DIV, what is the difference between "Ordinary" and "Qualified" Dividends?
A: To be qualified dividends, the stock must be held for more than 60 days during a 120 day period, starting 60 days before the ex-dividend date.
Q: What difference does that make on what I will pay in income tax on those dividends?
A: Quite a bit. Ordinary dividends should cost you as much as 20% more than the income tax you will pay on qualified dividends.
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Education
Q: Who qualifies to claim the Hope Scholarship Tax
Credit?
A: Taxpayer, spouse or dependent child enrolled in
the first 4 years of college qualify for the credit for
tuition, books, essential equipment & fees.
Q: How much will the Hope Scholarship Credit be for 2009?
A: $2,500 maximum. It is 100% of the first $2,000 of qualifying
expenses, plus $25% of the next $2,000. The phase-out is
being raised to $80,000 income ($160,000 for couples).
Q: You said the Hope Education Credit was for the
first 4 years of college. Has that changed?
A: Yes, it has always been for the first 2 years of
post-secondary education. It has been modified
for 2009 and 2010 to include the first 4 years.
Q: Is the Hope Education Credit still a non-refundable credit?
A: Partly — again modified for 2009 and 2010. 40% of the credit
will become a refundable credit for these two tax years.
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Electronic Filing
Q: Does electronic filing of tax returns really benefit
the taxpayer?
A: Yes, in a number of ways. It speeds up your
refund and it reduces chances of loss in the mail
and keyboarding errors inputting paper returns.
Q: What percentage of taxpayers now electronically file
their tax returns?
A: This year the number topped 50% for the first time. Congress
has mandated that the IRS somehow raise this to 80% of the
taxpayer’s e-filing by 2007.
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Employer Identification Number (EIN)
Q: Do I need an Employer Identification Number (EIN) for my business if I have no employees?
A: If you are a sole proprietor with no employees, and are not required to file and pay excise taxes, you do not need to apply for an EIN.
Q: If I do need an EIN, how can I obtain one?
A: You can apply for an EIN on line (www.irs.gov) call the IRS (1-800-829-4933) or mail in a completed Form SS-4.
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Employers – What Information Do I Need?
Q: With crack-downs on hiring illegal aliens, what must I secure from a prospective employee?
A: You must secure a Social Security Number (SSN) from each employee (an ITIN is not acceptable) and have them complete I-9, W-4, and A-4 forms.
Q: If I am hiring a person to do contract work for me, rather than as an employee, what do I need from them?
A: You will need to have a completed W-9 form, with a valid SSN, for all contract workers.
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Energy Bill
Q: How will the new Energy Bill the President just
signed affect our taxes for 2005?
A: Unfortunately, the tax benefits don’t take effect
until the 2006 tax year. There is a sweet subsidy
for hybrid-car purchases next year, though.
Q: What tax benefits will be offered to induce taxpayers to
purchase hybrid cars?
A: There will be a credit of between $250 and $1,000, depending
on estimated lifetime fuel savings, plus an extra credit of up to
$2,400 that is based on overall fuel economy.
Q: What credits will the new Energy Bill offer for
homeowners?
A: Solar energy is favored, with a credit of 30% of the
cost of systems to heat air or water — but not
pools or hot tubs. The credit is capped at $2,000.
Q: What energy credits will be available for other home
improvements?
A: 10% of the cost of skylights, outside doors, windows,
pigmented roofs and high-efficiency furnaces, water heaters
and central air conditioners.
Q: What homeowner energy-efficient improvements
qualify for the new $500 tax credit?
A: Up to $500 can be claimed for a 10% credit for
qualifying insulation, exterior windows & doors,
storm windows & doors and metal roofs.
Q: How does a homeowner know what products
qualify for this credit?
A: Manufacturers are required to provide certification that their
products qualify under the IRS guidelines.
Q: How can a person find out which vehicles qualify
for the new tax credit for hybrid vehicles?
A: The most reliable list is found on the IRS website:
www.irs.gov/newsroom/article/0,,id=157557,00.html
Q: Does the credit apply to all of these vehicles purchased in
2006?
A: No. The full credit of up to $3,400 can only be claimed up to
the end of the first quarter the manufacturer sells its 60,000th
vehicle. After that the percentage credit drops dramatically.
Q: Will there be any residential energy credits for
2009?
A: Yes. After discontinuing them for 2008, they are
back for 2009 and expanded. Check the rules
before you buy, though. Not everything qualifies.
Q: How much credit will there be for nonbusiness energy
property?
A: The credit increases from 10% to 30%, but is limited to $1,500
for all 2009 and 2010 purchases.
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Escrowed Funds
Q: Can I use my own attorney to hold escrowed funds for a
like-kind exchange?
A: No. Your attorney will not qualify as a qualified independent
third-party intermediary to hold escrowed funds for a 1031 like kind
exchange.
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Estate Tax
Q: When will the Estate Tax exemption be going up next?
A: For 2009, the exemption increases to $3.5 million, becomes unlimited for 2010, and then raises to 35% with an exemption on the first 5 million.
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Ex-Citizen Taxes
Q: If a person renounces U.S. citizenship and moves to a desert island, will he be taxed?
A: Yes. A new tax law taxes any unrealized gain on his assets on the way out of the country at current market values (a “mark to market” tax).
Q: What if such an ex-citizen dies and has U.S. citizen heirs?
Is the inheritance tax-free, like it would be from a citizen?
A: No. That same new law requires that such an inheritance left
by an ex-citizen be taxed at U.S. gift tax rates — which are
currently 45%.
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Extension Deadlines
Q: How long do I have to file my taxes if I filed
an extension?
A: Your 2010 tax return must be filed by October
16, 2010. We now have a 6-month extension,
instead of the previous four.
Q: Can I get a second extension after that?
A: No. The IRS has done away with the second extension
request and is cutting down its paperwork by lengthening
the automatic extension period from 4 to 6 months.
Q: Has the extension time to file partnership and trust returns changed?
A: Yes. Extensions are reduced from 6 months to 5
months for extensions requested for Forms 1065,
1041 and 8804 on returns due on or after 1/1/09.
Q: Why has this extension time been shortened?
A: It is to allow K-1 recipients time to prepare and file their own
returns.
Q: What form do I file for an extension, and how
long do I get?
A: You need to file a Form 4868 with the IRS to
request an automatic extension. Tax returns on
extension are due on October 15.
Q: Do I have to pay any amount when I file for an extension?
A: If you are going to owe taxes, you are required to pay that
expected amount you will owe when you file for your extension.
If you will not owe taxes, you pay nothing with the extension.
Q: What is the deadline for filing personal tax
returns that are on extension this year?
A: The automatic extension that was granted upon
written request is for six months. The extension
deadline is October 15.
Q: Is it possible to get an additional extension if I am not
ready yet to file by the deadline?
A: No, you cannot obtain an additional extension, after the
original 6-month extension has been granted.
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