Ed Bove-Tax Express Blog

Tax Season Never Really Ends

It's true that April 15th has come and gone.  And so it seems that another tax season has ended.  But has it really?

Consider this:

• As I stated in a previous blog entry, residents of 12 New Jersey counties have until May 11th to file their tax returns;
• Taxpayers who filed for extensions have until Oct. 15th to complete their returns;
• People often realize after they've already filed their returns, that they left out something important.  And so they need to file an amended tax return to include the missing information.

If you fall into any of these categories, please remember that Tax Express is open and available to help year-round.  Unlike most of our competitors, we don't close up shop and disappear after April 15th.

Now we don't keep the same crazy hours in the off-season that we do during tax season, but we are available if you require help.

So if you need any additional tax services, please call our office at (908) 686-8600 and we'll be glad to schedule an appointment for you. 

Soaked New Jersey Residents Get Extra Time To File Tax Returns

People who live or have a business in storm ravaged areas of New Jersey are getting extra time to file their federal and state tax returns.

The IRS has announced that it will postpone the filing deadline until May 11 for taxpayers in parts of New Jersey that were declared federal disaster areas following last months severe storms and floods.

The NJ Division of Taxation has stated it will follow the IRS' lead and give affected residents the same deadline for filing their state tax returns.  The New York State Department of Taxation indicated that it would provide tax relief for flood victims as well.

The disaster area covers 12 New Jersey counties, including Atlantic, Bergen, Cape May, Essex, Gloucester, Mercer, Middlesex, Monmouth, Morris, Passaic, Somerset and Union.

The IRS indicated that its computer systems will automatically identify taxpayers located in the covered disaster area and apply automatic filing and payment relief.  Affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request tax relief.

The NJ Division of Taxation stated that "If you are affected by the storms and the due date for filing your return and for paying your tax is postponed by the Division of Taxation, you are eligible for interest and penalty abatement on underpaid tax that would otherwise accrue for the period of the postponement."

For more information on tax relief for storm and flood victims click on the following links:

IRS News Release on Tax Relief For Flood Victims

NJ Division of Taxation News Release

8 Things You Should Know About The New Vehicle Sales Tax Deduction

If you bought a new car in 2009, you may be eligible to a special tax deduction for the sales and excise taxes on the purchase.  And that may be the case regardless of whether you itemize or take the standard deduction on your tax return.

Here are 8 things the IRS says you should know about this new deduction:

1.       State and local sales and excise taxes paid on up to $49,500 of the purchase price of each qualifying vehicle are deductible.

2.       Qualified motor vehicles generally include new cars, light trucks, motor homes and motorcycles.

3.       To qualify for the deduction, the new cars, light trucks and motorcycles must weigh 8500 pounds or less. New motor homes are not subject to the weight limit.

4.       Purchases must occur after Feb. 16, 2009, and before Jan. 1, 2010.

5.       Purchases made in states without a sales tax – such as Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon – may also qualify for the deduction. Taxpayers in these states may be entitled to deduct other qualifying fees or taxes imposed by the state or local government. The fees or taxes that qualify must be assessed on the purchase of the vehicle and must be based on the vehicle’s sales price or as a per unit fee.

6.       This deduction can be taken regardless of whether the buyers itemize their deductions or choose the standard deduction.  Taxpayers who do not itemize will add this additional amount to the standard deduction on their 2009 tax return.

7.       The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.

8.       Taxpayers who do not itemize on Schedule A must complete Schedule L, Standard Deduction for Certain Filers to claim the deduction.

Haiti Donations Deductible on 2009 Tax Returns

The following is straight from the IRS:

WASHINGTON — People who give to charities providing earthquake relief in Haiti can claim these donations on the tax return they are completing this season, according to the Internal Revenue Service.

Taxpayers who itemize deductions on their 2009 return qualify for this special tax relief provision, enacted Jan. 22. Only cash contributions made to these charities after Jan. 11, 2010, and before March 1, 2010, are eligible. This includes contributions made by text message, check, credit card or debit card.

"Americans have opened their hearts to help those affected by the Haiti earthquake," said IRS Commissioner Doug Shulman." This new law provides an immediate tax benefit for the many taxpayers who have made generous donations."

Taxpayers can benefit from their donations, almost immediately, by filing their 2009 returns early, filing electronically and choosing direct deposit. Refunds take as few as ten days and can be directly deposited into a savings, checking or brokerage account, or used to purchase Series I U.S. savings bonds.

The new law only applies to cash (as opposed to property) contributions. The contributions must be made specifically for the relief of victims in areas affected by the Jan. 12 earthquake in Haiti. Taxpayers have the option of deducting these contributions on either their 2009 or 2010 returns, but not both.

To get a tax benefit, taxpayers must itemize their deductions on Schedule A. Those who claim the standard deduction, including all short-form filers, are not eligible.

For anyone who is interested in donating, I have set up a link on www.taxexpress.biz to make donations to the American Red Cross.  Or we're also taking on-site donations at our office.

Education Credits Expanded This Year

As tax season arrives, you should be aware of some significant changes that have been made to Edication Credits as a result of the American Recovery and Reinvestment Act of 2009.  Here's a quick overview:

·         American Opportunity Credit (AOC) – This credit modifies the existing Hope Credit for tax years 2009 and 2010, making the Hope Credit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. Taxpayers may be able to take a credit of up to $2,500 for qualified education expenses paid for each student who qualifies for the American opportunity credit.  Additionally, up to 40% of this credit may be refundable.

·         Hope Credit – The Hope Credit is for the payment of the first two years of tuition and related expenses for an eligible student. This credit may be more advantageous only if at least one student attended an educational institution located in the Midwestern disaster area.  For qualifying education institutions located in a Midwestern disaster area there is an expanded definition of qualifying expense and a credit of up to $3,600.  However, both the American Opportunity Credit and Hope Credit cannot be claimed on the same tax return.  If claiming the Hope credit for one student that attended an educational institution in a Midwestern disaster area, the Hope Credit must be claimed for all students that qualify.   

·         Lifetime Learning Credit – For the tax year, taxpayers may be able to claim a lifetime learning credit of up to $2,000 ($4,000 for students in Midwestern disaster areas) for qualified education expenses paid for all students enrolled in eligible educational institutions. There is no limit on the number of years the lifetime learning credit can be claimed for each student. However, a taxpayer cannot claim the Hope, American Opportunity and the Lifetime Learning credit for the same student in one year.

IRS Unveils Standard Mileage Rates for 2010

The IRS has released the standard mileage rates to be used for tax year 2010.  It's always helpful to know these things ahead of time for planning purposes.  Here is the official release:

WASHINGTON — The Internal Revenue Service today issued the 2010 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Beginning on Jan. 1, 2010, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 50 cents per mile for business miles driven
• 16.5 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

The new rates for business, medical and moving purposes are slightly lower than last year’s. The mileage rates for 2010 reflect generally lower transportation costs compared to a year ago. The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study. A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously. Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Hello From Charlotte

I'm in the midst of a two-day tax conference in Charlotte, NC.  It's the third tax update session I've been to in the past three months.  And I can summarize them all in the same way:  Taxpayers are going to face so many tax law changes this coming season that their heads will be spinning.

I'll write about some of the major ones in the coming days and weeks leading up to tax season.

But first give me a chance to get back home and enjoy some Thanksgiving turkey, okay?

Deadline Looms For First-Time Homebuyer Credit

The deadline is fast approaching to take advantage of the valuable federal tax credit for first-time homebuyers--worth up to $8,000 for 2009 purchases.

The "American Recovery and Reinvestment Act of 2009" made the first-time homebuyer credit more generous than a previous credit available for purchases made last year. For a qualified home purchase between January 1 and November 30, 2009, the maximum credit equals the lesser of:

    * 10 percent of the purchase price of a principal residence or
    * $8,000 (or $4,000 for those who are married but file separately).

To qualify for the credit, the home sale must close by Monday, November 30. Merely having a contract by that date is not enough.

To make matters worse, Thanksgiving falls on November 26 this year, which means a day off for most people involved in the home buying process (banks, title companies, home inspectors, attorneys and real estate agents). So there will likely be large numbers of homebuyers trying to find a property, secure a mortgage, and fit the closing in by November 30.

The National Association of Realtors estimates that the entire process can take up to two months. So...now could be the time to act.

"Am I Eligible?"

Eligibility for the credit is limited to those who haven't owned a principal residence in the U.S. during the three-year period that ends on the purchase date. In the case of a married couple, both spouses must pass this test (even if they don't file jointly). So you don't really have to be a first-time homebuyer.

For a newly constructed home, the purchase date is considered the move-in date. To qualify, the residence cannot be bought from a spouse, parent, grandparent, child, or certain other related parties.

The credit is reduced or eliminated if "Modified Adjusted Gross Income" (MAGI) is too high. The phase-out range for single filers and married individuals who file separately is between MAGI of $75,000 and $95,000. For joint filers, it is between MAGI of $150,000 and $170,000.

Under the old rules, which expired on December 31, 2008, the credit was worth up to $7,500 and all homebuyers were generally required to repay it over 15 years. The Recovery Act eliminates the 15-year repayment rule for purchases between January 1 and November 30, 2009.

However, even under the new liberalized rules that apply for 2009, buyers may have to repay the credit if they sell or stop using the home as their principal residence within three years of the purchase date. In such cases, the credit must generally be repaid by remitting it with the tax return for the year the triggering event occurs. However, the amount due cannot exceed the gain from selling the home.

"Come on--this is the kind of thing that will get extended...right?"

Well, realtors and other organizations are lobbying Congress to extend the first-time homebuyer credit and even make it larger in order to continue the real estate market recovery. But with the government short of cash right now, I wouldn't count on it. We'll keep you posted of any developments.

And, of course--if you go for it, give us a call to make sure it's done right!

I hope this helps!

Revamped Tax Credit Helps Those Who Are Paying For College

Many people will be able to offset their college expenses over the next two years under the new American Opportunity Tax Credit. This tax credit is part of the American Recovery and Reinvestment Act of 2009.

Here are six important facts to know about the new American Opportunity Tax Credit:

1. This credit, which expands and renames the existing Hope Credit, can be claimed for qualified tuition and related expenses that you pay for higher education in 2009 and 2010. Qualified tuition and related expenses include tuition, related fees, books and other required course Materials.
2. The credit is equal to 100% of the first $2,000 spent and 25% of the next $2,000 per student each year. Therefore, the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualifying expenses for an eligible student.
3. The full credit is generally available to eligible taxpayers who make less than $80,000 or $160,000 for married couples filing a joint return. The credit is gradually reduced, however, for taxpayers with incomes above these levels.
4. 40% of the credit is refundable, so even those who owe no tax can get up to $1,000 of the credit for each eligible student as cash back.
5. The credit can be claimed for qualified expenses paid for any of the first four years of post-secondary education.
6. You cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction, which ever is more beneficial for you.

Many people will be able to offset their college expenses over the next two years under the new American Opportunity Tax Credit. This tax credit is part of the American Recovery and Reinvestment Act of 2009.

Here are six important facts to know about the new American Opportunity Tax Credit:

1. This credit, which expands and renames the existing Hope Credit, can be claimed for qualified tuition and related expenses that you pay for higher education in 2009 and 2010. Qualified tuition and related expenses include tuition, related fees, books and other required course Materials.
2. The credit is equal to 100% of the first $2,000 spent and 25% of the next $2,000 per student each year. Therefore, the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualifying expenses for an eligible student.
3. The full credit is generally available to eligible taxpayers who make less than $80,000 or $160,000 for married couples filing a joint return. The credit is gradually reduced, however, for taxpayers with incomes above these levels.
4. 40% of the credit is refundable, so even those who owe no tax can get up to $1,000 of the credit for each eligible student as cash back.
5. The credit can be claimed for qualified expenses paid for any of the first four years of post-secondary education.
6. You cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction, which ever is more beneficial for you.

Change Is Here!

The times tax laws they are a-changing!

After spending barely a day at the IRS Nationwide Tax Forum in New York City today, I thought my head was going to explode with all the tax law changes that are going into effect this year.

Now don't get me wrong, there are a lot of changes every year.  But these are major changes that are going to affect millions of taxpayers.

I'm not going to go into it all right now...but I'll put a recap together after the forum is over in a couple of days.

Stay tuned.  Big news is on the way!