Tax Tip of the Day: Get Energy Efficient Tax Credits

Taxpayers who made some energy efficient improvements to their home or purchased energy-efficient products last year may qualify for a tax credit this year. The IRS wants you to know about these six energy-related tax credits created or expanded by the American Recovery and Reinvestment Act of 2009. 1. Residential Energy Property Credit This tax credit is for homeowners who make qualified energy efficient improvements to their existing homes. This credit is 30 percent of the cost of all qualifying improvements. The maximum credit is $1,500 for improvements placed in service in 2009 and 2010 combined. The credit applies to improvements such as adding insulation, energy efficient exterior windows and energy-efficient heating and air conditioning systems. 2. Residential Energy Efficient Property Credit This tax credit will help individual taxpayers pay for qualified residential alternative energy equipment, such as solar hot water heaters, solar electricity equipment and wind turbines installed on or in connection with their home located in the United States and geothermal heat pumps installed on or in connection with their main home located in the United States. The credit, which runs through 2016, is 30 percent of the cost of qualified property. ARRA removes some of the previously imposed annual maximum dollar limits. 3. Plug-in Electric Drive Vehicle Credit ARRA modifies this credit for qualified plug-in electric drive vehicles purchased after Dec. 31, 2009. The minimum amount of the credit for qualified plug-in electric drive vehicles, which runs through 2014, is $2,500 and the credit tops out at $7,500, depending on the battery capacity. ARRA phases out the credit for each manufacturer after they sell 200,000 vehicles. 4. Plug-In Electric Vehicle Credit This is a special tax credit for two types of plug-in vehicles — certain low-speed electric vehicles and two- or three-wheeled vehicles. The amount of the credit is 10 percent of the cost of the vehicle, up to a maximum credit of $2,500 for purchases made after Feb. 17, 2009, and before Jan. 1, 2012. 5. Credit for Conversion Kits This credit is equal to 10 percent of the cost of converting a vehicle to a qualified plug-in electric drive motor vehicle that is placed in service after Feb. 17, 2009. The maximum credit, which runs through 2011, is $4,000.   6. Treatment of Alternative Motor Vehicle Credit as a Personal Credit Allowed Against AMT  Starting in 2009, ARRA allows the Alternative Motor Vehicle Credit, including the tax credit for purchasing hybrid vehicles, to be applied against the Alternative Minimum Tax. Prior to the new law, the Alternative Motor Vehicle Credit could not be used to offset the AMT. This means the credit could not be taken if a taxpayer owed AMT or was reduced for some taxpayers who did not owe AMT. Keeping you in the loop:*)

Did you Take an Early Distribution from Your Retirement Plan? 10 Things you should know:

Some taxpayers may have needed to take an early distribution from their retirement plan last year. The IRS wants individuals who took an early distribution to know that there can be a tax impact to tapping your retirement fund.  Here are ten facts about early distributions. Payments you receive from your Individual Retirement Arrangement before you reach age 59 ½ are generally considered early or premature distributions. Early distributions are usually subject to an additional 10 percent tax. Early distributions must also be reported to the IRS. Distributions you rollover to another IRA or qualified retirement plan are not subject to the additional 10 percent tax. You must complete the rollover within 60 days after the day you received the distribution. The amount you roll over is generally taxed when the new plan makes a distribution to you or your beneficiary. If you made nondeductible contributions to an IRA and later take early distributions from your IRA, the portion of the distribution attributable to those nondeductible contributions is not taxed. If you received an early distribution from a Roth IRA, the distribution attributable to your prior contributions is not taxed. If you received a distribution from any other qualified retirement plan, generally the entire distribution is taxable unless you made after-tax employee contributions to the plan. There are several exceptions to the additional 10 percent early distribution tax, such as when the distributions are used for the purchase of a first home, for certain medical or educational expenses, or if you are disabled. For more information about early distributions from retirement plans, the additional 10 percent tax and all the exceptions see IRS Publication 575, Pension and Annuity Income and Publication 590, Individual Retirement Arrangements (IRAs). Both publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676). Enjoy your day! www.EnvisionTaxandAccounting.com

Tax Tip of the Week! 4 Credits that can pay YOU at Tax Time

You might be eligible for a valuable tax credit. A tax credit is a dollar-for-dollar reduction of taxes owed. Some credits are even refundable, which means you might receive a refund rather than owe any taxes at all. Here are four popular tax credits you should consider before filing your 2010 Federal Income Tax Return: 1. The Earned Income Tax Credit is a refundable credit for certain people who work and have earned income from wages, self-employment or farming. Income, age and the number of qualifying children determine the amount of the credit. EITC reduces the amount of tax you owe and may also give you a refund. For more information see IRS Publication 596, Earned Income Credit. 2. The Child and Dependent Care Credit is for expenses paid for the care of your qualifying children under age 13, or for a disabled spouse or dependent, to enable you to work or look for work. For more information, see IRS Publication 503, Child and Dependent Care Expenses. 3. The Child Tax Credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses. For more information on the Child Tax Credit, see IRS Publication 972, Child Tax Credit. 4. The Retirement Savings Contributions Credit, also known as the Saver’s Credit, is designed to help low-to-moderate income workers save for retirement. You may qualify if your income is below a certain limit and you contribute to an IRA or workplace retirement plan, such as a 401(k) plan. The Saver’s Credit is available in addition to any other tax savings that apply. For more information, see IRS Publication 590, Individual Retirement Arrangements (IRAs). Just keeping you in the loop~ www.EnvisionTaxandAccounting.com

10 Tips You Should Know About the Child and Dependent Care Credit

Did you pay someone to care for your child, spouse, or dependent last year? Well, you may be able to claim the Child and Dependent Care Credit on your federal income tax return. Below are 10 things the IRS wants you to know about claiming a credit for child and dependent care expenses. The care must have been provided for one or more qualifying persons. A qualifying person is your dependent child age 12 or younger when the care was provided. Additionally, your spouse and certain other individuals who are physically or mentally incapable of self-care may also be qualifying persons. You must identify each qualifying person on your tax return. The care must have been provided so you – and your spouse if you are married filing jointly – could work or look for work. You – and your spouse if you file jointly – must have earned income from wages, salaries, tips, other taxable employee compensation or net earnings from self-employment. One spouse may be considered as having earned income if they were a full-time student or were physically or mentally unable to care for themselves. The payments for care cannot be paid to your spouse, to the parent of your qualifying person, to someone you can claim as your dependent on your return, or to your child who will not be age 19 or older by the end of the year even if he or she is not your dependent. You must identify the care provider(s) on your tax return. Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child. The qualifying person must have lived with you for more than half of 2010. There are exceptions for the birth or death of a qualifying person, or a child of divorced or separated parents. See Publication 503, Child and Dependent Care Expenses. The credit can be up to 35 percent of your qualifying expenses, depending upon your adjusted gross income. For 2010, you may use up to $3,000 of expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit. The qualifying expenses must be reduced by the amount of any dependent care benefits provided by your employer that you deduct or exclude from your income. If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer and may have to withhold and pay social security and Medicare tax and pay federal unemployment tax.                                                                                                 For help with your tax preparations for businesses or individuals contact Envision Tax & Accounting of Florida at (407)951-1492 or on the web: www.envisiontaxandaccounting.com/

Child’s Investment Income: 4 Things Parents should know

Parents need to be aware of the tax rules that affect their children’s investment income. Here are four facts from the IRS that will help parents determine whether their child’s investment income will be taxed at the parents’ rate or the child’s rate: Investment Income Children with investment income may have part or all of this income taxed at their parents’ tax rate rather than at the child’s rate. Investment income includes interest, dividends, capital gains and other unearned income. Age Requirement The child’s tax must be figured using the parents’ rates if the child has investment income of more than $1,900 and meets one of three age requirements for 2010: Was under age 18 at the end of the year, Was age 18 at the end of the year and did not have earned income that was more than half of his or her support, or Was a full-time student over age 18 and under age 24 at the end of the year and did not have earned income that was more than half of his or her support. Form 8615 To figure the child's tax using the parents’ rate for the child’s return, fill out Form 8615, Tax for Certain Children Who Have Investment Income of More Than $1,900, and attach it to the child's federal income tax return. Form 8814 When certain conditions are met, a parent may be able to avoid having to file a tax return for the child by including the child’s income on the parent’s tax return. In this situation, the parent would file Form 8814, Parents' Election To Report Child's Interest and Dividends. Keeping you in the 'know'... www.EnvisionTaxandAccounting.com

Things to Know about Employee Business Expenses

If you itemize deductions and are an employee, you may be able to deduct certain work-related expenses. The IRS has put together the following facts to help you determine which expenses may be deducted as an employee business expense.
Expenses that qualify for an itemized deduction include:

• Business travel away from home
• Business use of car
• Business meals and entertainment
• Travel
• Use of your home
• Education
• Supplies
• Tools
• Miscellaneous expenses

You must keep records to prove the business expenses you deduct. For general information on recordkeeping, see IRS Publication 552, Recordkeeping for Individuals available on the IRS website, http://www.irs.gov, or by calling 800-829-3676.
If your employer reimburses you under an accountable plan, you do not include the payments in your gross income, and you may not deduct any of the reimbursed amounts.

An accountable plan must meet three requirements:

1. You must have paid or incurred expenses that are deductible while performing services as an employee.
2. You must adequately account to your employer for these expenses within a reasonable time period, and
3. You must return any excess reimbursement or allowance within a reasonable time period.

If the plan under which you are reimbursed by your employer is non-accountable, the payments you receive should be included in the wages shown on your Form W-2. You must report the income and itemize your deductions to deduct these expenses.

Deductible expenses are then reported on Form 1040, Schedule A, as a miscellaneous itemized deduction subject to 2% of your adjusted gross income rules. Only employee business expenses that are in excess of 2% of your adjusted gross income can be deducted. Feel free to contact our tax professionals for help with this tax topic & more: (407) 951-1492.

Do you work from home? Consider the Home Office Deduction

Whether you are self-employed or an employee, if you use a portion of your home for business, you may be able to take a home office deduction.  Here are six things the IRS wants you to know about the Home Office deduction 1. Generally, in order to claim a business deduction for your home, you must use part of your home exclusively and regularly: as your principal place of business, or as a place to meet or deal with patients, clients or customers in the normal course of your business, or in any connection with your trade or business where the business portion of your home is a separate structure not attached to your home. 2. For certain storage use, rental use, or daycare-facility use, you are required to use the property regularly but not exclusively. 3. Generally, the amount you can deduct depends on the percentage of your home used for business. Your deduction for certain expenses will be limited if your gross income from your business is less than your total business expenses. 4. There are special rules for qualified daycare providers and for persons storing business inventory or product samples. 5. If you are self-employed, use Form 8829, Expenses for Business Use of Your Home to figure your home office deduction and report those deductions on line 30 of Form 1040 Schedule C, Profit or Loss From Business. 6. If you are an employee, additional rules apply for claiming the home office deduction. For example, the regular and exclusive business use must be for the convenience of your employer. Just keeping you in the loop! www.EnvisionTaxandAccounting.com

10 Things to Know about Farm Income and Deductions

If you have a farming business, there are several tax issues to consider before filing your federal tax return.  The IRS has compiled a list of 10 things that farmers may want to know.      1. Crop Insurance Proceeds —You must include in income any crop insurance proceeds you receive as the result of crop damage. You generally include them in the year you receive them.      2.  Sales Caused by Weather — Related Condition If you sell more livestock, including poultry, than you normally would in a year because of weather-related conditions, you may be able to postpone reporting the gain from selling the additional animals due to the weather until the next year.      3.  Farm Income Averaging — You may be able to average all or some of your current year's farm income by allocating it to the three prior years. This may lower your current year tax if your current year income from farming is high, and your taxable income from one or more of the three prior years was low. This method does not change your prior year tax, it only uses the prior year information to determine your current year tax.      4.  Deductible Farm Expenses — The ordinary and necessary costs of operating a farm for profit are deductible business expenses.  An ordinary expense is an expense that is common and accepted in the farming business. A necessary expense is one that is appropriate for the business.      5.  Employees and Hired Help — You can deduct reasonable wages paid for labor hired to perform your farming operations. This includes full-time and part-time workers. You must withhold social security, medicare and income taxes on employees.      6.  Items Purchased for Resale — You may be able to deduct, in the year of the sale, the cost of items purchased for resale, including livestock and the freight charges for transporting livestock to the farm.      7.  Net Operating Losses — If your deductible expenses from operating your farm are more than your other income for the year, you may have a net operating loss. You can carry that loss over to other years and deduct it. You may get a refund of part or all of the income tax you paid for past years, or you may be able to reduce your tax in future years.      8.  Repayment of Loans — You cannot deduct the repayment of a loan if the loan proceeds are used for personal expenses. However, if you use the proceeds of the loan for your farming business, you can deduct the interest that you pay on the loan.      9.  Fuel and Road Use —You may be eligible to claim a credit or refund of federal excise taxes on fuel used on a farm for farming purposes.      10. Farmer's Tax Guide — For more information about farm income and deductions is in IRS Publication 225, Farmer’s Tax Guide, which is available by calling the IRS at 800-TAX-FORM Keeping you in the loop:)  Envision Tax & Accounting Services of Florida...www.envisiontaxandaccounting.com

Tax Tips on Tax Refund Withholdings & Offsets

If you owe money because of certain delinquent debts, the IRS or the Department of Treasury's Financial Management Service (FMS), which issues IRS tax refunds, can offset or reduce your federal tax refund or withhold the entire amount to satisfy the debt. Here are seven important facts the IRS wants you to know about tax refund offsets:

     1. If you owe federal or state income taxes your refund will be offset to pay those taxes. If you had other debt such as child support or student loan debt that was submitted for offset, FMS will take as much of your refund as is needed to pay off the debt, and send it to the agency authorized to collect the debt. Any portion of your refund remaining after an offset will be refunded to you.

     2. You will receive a notice if an offset occurs. The notice will reflect the original refund amount, your offset amount, the agency receiving the payment, and the address and telephone number of the agency.

     3. You should contact the agency shown on the notice if you believe you do not owe the debt or you are disputing the amount taken from your refund.

     4. If you filed a joint return and you're not responsible for the debt, but you are entitled to a portion of the refund, you may request your portion of the refund by filing IRS Form 8379, Injured Spouse Allocation. Attach Form 8379 to your original Form 1040, Form 1040A, or Form 1040EZ or file it by itself after you are notified of an offset.

     5. If you file a Form 8379 with your return, write "INJURED SPOUSE" at the top left corner of the Form 1040, 1040A, or 1040EZ. IRS will process your allocation request before an offset occurs.

     6. If you are filing Form 8379 by itself, it must show both spouses' social security numbers in the same order as they appeared on your income tax return. You, the "injured" spouse, must sign the form. Do not attach the previously filed Form 1040 to the Form 8379. Send Form 8379 to the Service Center where you filed your original return.

     7. The IRS will compute the injured spouse's share of the joint return for you. Contact the IRS only if your original refund amount shown on the FMS offset notice differs from the refund amount shown on your tax return.

For help with your tax preparations for businesses or individuals contact Envision Tax & Accounting of Florida at (407)951-1492 or on the web: www.envisiontaxandaccounting.com/

8 Tips from the IRS to Help you Determine if your Gift is Taxable

If you give someone money or property during your life, the IRS states that you may be subject to the federal gift tax. Most gifts are not subject to the gift tax, but the IRS has put together the following eight tips to help you determine if your gift is taxable.

1. Most gifts are not subject to the gift tax. For example, there is usually no tax if you make a gift to your spouse or to a charity. If you make a gift to someone else, the gift tax usually does not apply until the value of the gifts you give that person exceeds the annual exclusion for the year. For 2010, the annual exclusion is $13,000.
   
   
2. Gift tax returns do not need to be filed unless you give someone, other than your spouse, money or property worth more than the annual exclusion for that year.
   
   
3. Generally, the person who receives your gift will not have to pay any federal gift tax because of it. Also, that person will not have to pay income tax on the value of the gift received.
   
   
4. Making a gift does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than gifts that are deductible charitable contributions).
   
   
5. The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. The following gifts are not taxable gifts:
   
   • Gifts that are not more than the annual exclusion for the calendar year,
   • Tuition or medical expenses you pay directly to a medical or educational institution for someone,
   • Gifts to your spouse,
   • Gifts to a political organization for its use, and
   • Gifts to charities.
   
   
6. Gift Splitting – you and your spouse can make a gift up to $26,000 to a third party without making a taxable gift. The gift can be considered as made one-half by you and one-half by your spouse. If you split a gift you made, you must file a gift tax return to show that you and your spouse agree to use gift splitting. You must file a Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, even if half of the split gift is less than the annual exclusion.
   
   
7. Gift Tax Returns – you must file a gift tax return on Form 709, if any of the following apply:
   
   • You gave gifts to at least one person (other than your spouse) that are more than the annual exclusion for the year.
   • You and your spouse are splitting a gift.
   • You gave someone (other than your spouse) a gift of a future interest that he or she cannot actually possess, enjoy, or receive income from until some time in the future.
   • You gave your spouse an interest in property that will terminate due to a future event.
   
   
8. You do not have to file a gift tax return to report gifts to political organizations and gifts made by paying someone’s tuition or medical expenses.
    
    
   Just keeping you in the loop! Contact Envision Tax & Accounting of Florida at (407)951-1492 or on the web: www.envisiontaxandaccounting.com for help with you accounting or tax needs