Jerry Coon, Enrolled Agent Five items most affect returns this year Boy, there sure is a lot going on in the tax arena this year. I have written about this regularly and previously, but it bears repeating: virtually by the minute, our tax system is getting more complicated. I attended a two-day seminar last week that was attended predominantly by Enrolled Agents, such as me, and Certified Public Accountants. In theory, and in my judgment, these tax professionals are the best informed and educated tax professionals in the market, but even these people were surprised when the manual of topics to be covered was handed out at the registration desk. It was over 800 pages long. The topics covered included not only the tax laws that were passed this year but also the tax laws passed last year that went into effect this year, as well as the myriad of courts cases and Internal Revenue Service rulings and publications that will affect returns prepared this coming tax season. Even to us veteran tax professionals, it’s mind-boggling. What are some of the items that will affect the largest amount of returns we will file this year? Here is the list as I see it right now: 1. Residential Energy Credit. I wrote a few weeks ago about the energy credit that is available on purchases of golf carts. That was fun to write about, but it’s really important to remember that purchases of energy improvements made to our personal residences can result in a credit of up to $1,500. Remember to keep those receipts and take that credit on this year’s return. 2. Homebuyer’s $6,500 Tax Credit. Any taxpayer who owned and occupied a personal residence for five out of the last eight years and now buys a new personal residence will qualify for a refundable credit of $6,500. The closing has to have taken place after November 6, 2009. The previous residence doesn’t even have to be sold. Stay tuned for more clarifications, but this is a huge credit. 3. New Hope Tuition Credit. The Hope tuition credit was substantially expanded. The old Hope credit was up to $1,800 per year for up to two years, was non-refundable, and began to phase out at the relatively […]
Useful tax tips and information from Jerry Coon of Action Tax Service.
Penalty provisions in fine print E-file saves taxpayers millions The Worker, Homeownership and Business Assistance Act of 2009, as signed into law by President Obama on November 6, among several important provisions, had a penalty provision inserted within the fine print of the law. I think there is a lot of fine print in some of these laws being passed by Congress. This particular penalty provision concerns the filing of partnership and Sub S Corporation tax returns. Our tax system is set up so that both partnerships and Sub S Corporations are reporting entities, technically called pass-through entities. This means usually that neither one has to pay any tax. The tax returns are used to report the income and expenses of the partnership or Sub S. These items are passed through to the partners of the partnership or the shareholders of the Sub S via a Form K-1. These partners and shareholders then report the income and expenses of the reporting entity on their personal tax returns and are responsible for any tax due to that income. This presents a small problem to the Internal Revenue Service when it comes to penalizing a partnership or a Sub S for not filing a tax return on time. For the most part, penalties are based on the amount of tax due. No tax due = no penalties. Congress has ridden to the rescue, in this instance, and instituted flat-dollar-amount penalties based on the late filing of tax returns. For partnerships and Sub S Corporations, the Worker, Homeownership and Business Assistance Act of 2009 has increased these late-filing penalties to $195 per partner or shareholder per month the return is filed late. Not too many years ago, the penalty was $50. For instance, for a partnership that has five partners and is late filing its return by two months, the penalty will be $195 times 5 partners, or $975 per month, times 2 months equals $1,950. That’s a lot of penalty! At those rates, no one is going to knowingly file a partnership or Sub S return late. Another provision in the law affects tax preparers and indirectly taxpayers. Starting in the year 2011, any tax preparer filing more than 10 tax returns must file those returns electronically. Previously, […]
First-time homebuyer credit extended Present homebuyer credit expanded A flurry of activity has occurred this past week in our federal government. Last Friday, Nov. 6, President Obama signed into law the Worker, Homeownership and Business Assistance Act of 2009. The main provisions of the bill extend the first-time homebuyer credit and expand the credit to present homebuyers. Our federal government has been in the habit lately of extending and expanding—mainly expanding. However, in this instance, I think this extension and this expansion are good things. The basics of the extension are two-fold. First, the $8,000 first-time homebuyer credit is extended to include purchases made from December 1, 2009, through April 30, 2010. Second, the credit will apply to contracts that are written as of April 30 as long as the actual close occurs before July 1, 2010. Under the current first-time homebuyer rules, the closing had to occur by this November 30. Now, taxpayers effectively have until next July to get all of their ducks in a row and get the $8,000. For purchases occurring in 2009, taxpayers will have the continued option to either file an amended 2008 return or wait to file the credit with their original 2009 return this coming tax season. This is actually an important decision. Currently, it is taking the Internal Revenue Service about 20 weeks to process an amended 2008 return and get the credit back to the taxpayer. They are checking out each credit carefully to make sure the applicant really does qualify for the credit. It goes without saying that $8,000 will bring out the worse in some people. So far, the IRS has prosecuted 153 taxpayers and tax preparers for filing fraudulent claims and they have another 800-plus claims that may be prosecuted. They have about 90,000 claims currently in process. As part of the amended return submission, we are attaching a copy of the closing document that clearly shows the closing date, the purchase amount, and the buyer. The buyer must coincide with the first-time homebuyer. Along with the closing document, we are also attaching a notarized statement from the buyer stating that the buyer has not owned a home in the past three years and does qualify for the credit. Hopefully, these […]
Security issues discussed This summer we traveled to the Asheville, North Carolina area. It’s a wonderful part of the world. There seems to be plenty of wild animals living in the mountains surrounding Asheville and the scenery is outstanding. Deb and I took the Blue Ridge Parkway on our way home and I was lucky enough to see a bear crossing the road. Deb had looked down for just a second and missed seeing the bear. She was extremely disappointed, because Deb has never a seen a bear in the wild. For me, I’m fortunate to go fishing in Canada, and most years I get to see bears both on the side of the road and, all too often, in or very near our campsite. This year was a particularly good year for bear sightseeing, but since Deb isn’t going fishing in Canada anytime soon, we have to find a different way for her to see a bear. After reading the Sunday Grand Rapids Press, I’m beginning to think all we have to do to see a bear is take a drive up to Newaygo County. In case you missed it, Don Corrigan of Kent City killed a 500-pound bear near Woodville. Apparently, it will end up being the second largest bear ever killed in Michigan. Occasionally, we do read about a bear being sighted in Newaygo County, but the second largest bear ever killed in Michigan? That amazes me, but it didn’t amaze Mr. Corrigan. He said, “I stayed close to home to show people there are bears in Newaygo County.” That’s an understatement and thanks for showing us, Don. Now if I can just show Deb. I’m thinking she might be satisfied to see just a regular-size bear or even a cub. Throughout the year, the Internal Revenue Service holds several conferences with tax professionals. These conferences keep tax professionals informed as to what is happening within the IRS and also what they are expecting of tax professionals. We all tend to think of the IRS as a big, non-personal bureaucracy, but in reality it is a large employer with employees trying to make a living just like you and me and trying to operate within an insanely complicated tax system. Tax professionals […]
Tax rebate for golf carts The amount of tax questions I receive on an ongoing basis is a sign of not only how complicated and convoluted our tax system has become, but also how often we think about our tax situations. The questions seem to have gotten a bit more complicated, too. Even though my bank of tax experiences grows year by year, the amount of questions that I have to get some help to answer also has grown. For example, I received a call from Dale Boersma this week. Dale and his wife, Jamie, moved to Iowa from Rockford several years ago. My wife, Deb, and I go to Iowa most summers to visit the Boersmas. Dale and I go to the Mecca of sprint car racing, also known as the Knoxville Raceway and soak up the Knoxville Nationals, while Jamie and Deb do the things they enjoy, like shopping. Dale also golfs and owns his own cart. This year he traded in his old one in favor of a new cart. The salesperson set Dale up with a nice new cart, but then added the fact that for $1,000 more, Dale could get a cart that would qualify for a tax credit of $4,000. Dale was a little skeptical of that statement and thought maybe that the salesman might be stretching the truth just a little in order to get a sale. After all, this is a golf cart we are talking about here and not a Toyota Prius. When Dale got home, he did two things. First, he Googled “Tax Rebate for Golf Carts” and, second, he called me to find out what I knew about golf carts qualifying for a $4,000 tax credit. As he explained the situation, I could see Dale was serious and wasn’t pulling my leg, so to speak. “Tax Rebate for Golf Carts” was not something I have ever Googled before our conversation, but I told Dale I would do some investigating. $4,000 is a lot of money and definitely worth looking into. The Internet took me to the Villages of Lady Lake Florida’s site, villagesgolfcartman.com. It was very informative. I also was directed to a Wall Street News article of October 17, 2009, titled “Cash for Clubbers.” […]