Homeowners credit

 

For those who took the Homeowners credit in 2008, the first installment of payment is due with your 2008 taxes. This is because the 2008 homeowners credit worked like a 15 year interest free loan. However, the credit if taken in 2009 and 2010 will not have to be repaid as long as the home is occupied for 36 months. So what happens if you bought a home in 2008, took the credit and then sold it last year. Well, in general you must pay the amount of the credit unless you meet the following exceptions:

You transfer your home as part of a divorce settlement. In this case your former spouse  who keeps the home is responsible for making the rest of the repayments.

Your home is destroyed or condemned

You lose your home in foreclosure, in this case you repay the credit only to the amount of gain.

You die

You sell  your main home to an unrelated person, you repay the credit only up to the amount of gain. The amount owed on the credit is taken into consideration when computing gain or loss.

Retirement

With April 18th (usually April 15th) coming up, now is a good time to look at your retirement plan to see if you have maximized contributions and minimized taxes.

Can you set up a Traditional IRA?

Yes if:

• You (or, if you file a joint return, your spouse) received taxable compensation during the year (only one of you need to have compensation but must exceed $10,000 if only one person is working), and
• You were not age 70½ by the end of the year.

A traditional IRA can be set up even if you or your spouse are covered by a retirement plan at work. However, this might limit the amount of contribution deductible on your taxes.

 Phaseout

For 2010, if you are covered by a retirement plan at work, your deduction  to a traditional IRA is phased out if your modified AGI is:

• More than $89,000 but less than $109,000 for a married couple filing a joint return or a qualifying widow(er),
• More than $56,000 but less than $66,000 for a single individual or head of household, or
• Less than $10,000 for a married individual filing a separate return.

Please post a comment if you have any questions?

Website

Retirement Plans

 

401k’s, deferred comps, ROTH IRA’s, Traditional IRA’s, what do they all mean?

A 401(k)  is a deferred pay plan. In other words, the company you work for may offer to contribute to a trust account on your behalf as long as you forego a pay increase or defer some part of your salary. Your company can also choose to match a part of your contribution. The reduction in your salary is treated as your employers contribution and is not taxable as long as you do not exceed the annual limit.

A deferred compensation plan is a section 457 plan that can be set by a government entity or non profit. In this plan, employees agree to defer income and are not taxed until paid or until the income is made available and unlike other retirement plans it is generally not subject to the 10% early withdrawal penalty (there are occasions were exceptions apply, see your accountant for more information).

IRAs aka as Individual Retirement Account is a personal retirement savings plan and is available to people who have earned income in the tax year. IRAs come in different flavors: there are Traditional IRAs, ROTH IRAs, SIMPLE IRAs and SEPs.  SIMPLE IRAs and SEPS are only available through your employer. A Traditional IRA is an IRA where contributions are deductible (subject to limitations) but distributions are taxable. A Roth IRA is an IRA where contributions are not deductible but distributions are not taxable either. ROTH IRA’s work best for people who foresee an increase in their tax bracket after retirement. A person who withdraws from an IRA before the age of 591/2 is subject to the early withdrawal penalty. If you make low to moderate income, you may be eligible for a tax credit computed on form 8880.

Website

Welcome to E Ivy's Blog: Can a person deduct the value of blood donated to ...

Welcome to E Ivy's Blog: Can a person deduct the value of blood donated to ...: " In General Counsel Memorandum (GCM) 36418, the IRS states that, “no charitable contributions deduction is allowed for the fair..."

Can a person deduct the value of blood donated to a charitable organization

 

In  General Counsel Memorandum (GCM) 36418, the IRS states that, “no charitable contributions deduction is allowed for the fair market value of blood furnished to certain charitable organizations because the furnishing of blood is analogous to the rendering of a nondeductible personal service by the donor rather than a contribution of property (under Rev Rul 162)”. GCM 36418 denied the donation of milk as a charitable deduction based on this reasoning. Donation of the milk and the blood were considered as rendering a service rather than donation of services. No deduction is allowable under section 170 for a contribution of services. However, unreimbursed expenses incidental to performance of the service are deductible.  In LARY, JR. v. U.S., 57 AFTR 2d 86-1377, the district court upheld the same reasoning that blood donation constitutes a service and not the contribution of a property.  No transfer of property is recognized for purposes of section 170.

Website

Keeping Financial records Part 1

If you ever seen paper pile up in your house, I am sure you have wondered just how long you will need all that paper lying around the house.

Well, the IRS has three years from your filing date to audit your return if it suspects good faith error. However, if the IRS has reason to believe that you under reported your return by at least 25%, then the statue of limitation is increased to six years. There is no limit if you filed or fraudulent return or failed to file altogether.

With this in mind, seven years will be  a safe amount of time to keep tax returns, cancelled checks or receipts, proof of deduction taken ( like charitable contributions) and other like documents.

Deduction of child support and alimony

Rev. Rul. 62-53 held that held that “where periodic payments for support are made by a husband and received by a wife under a divorce decree, or an instrument or agreement described in section 71(a), such payments are includible in the gross income of the wife under section 71 of the 1954 Code and are deductible by the husband under section 215, except to the extent that the terms of the decree, instrument, or agreement specifically designate or “fix” such payments, or a portion of such payments, as support for minor children of the husband”.

Home Page  For more info, post comment here or on Facebook

Skype user id: financialkeepers