TaxAlmanac:Featured article
From TaxAlmanac
- January 3, 2013
American Taxpayer Relief Act of 2012
American Taxpayer Relief Act of 2012
General
After a long and difficult negotiation process over the last several months, Congress finally passed extender legislation that allowed the nation to avert the fiscal cliff. The Senate and House of Representatives each approved H.R. 8, the American Taxpayer Relief Act, on January 1, 2013. The President has subsequently signed the bill into law.
Summary of provisions
- Income tax rates go from 35% to 39.6% for individuals earning more than $400,000 ($450,000 for joint filers, $425,000 for heads of household);
- The 2% payroll tax cut has been allowed to expire;
- The alternative minimum tax (AMT) patch (higher exemption amounts and personal credits allowed to offset regular tax and AMT) has been made permanent;
- Dividend and capital gain rates increase from 15% to 20% for individuals making at least $400,000 ($450,000 for joint returns);
- The Personal Exemption Phaseout (PEP) is now reinstated at threshold levels of $300,000 for joint filers and surviving spouses; $275,000 for heads of household; $250,000 for single filers; and $150,000 for married taxpayers filing separately;
- November 17, 2011
3% Withholding Repeal and Job Creation Act of 2011
3% Withholding Repeal and Job Creation Act of 2011
On November 16, 2011, Congress passed the "3% Withholding Repeal and Job Creation Act of 2011" (H.R. 674). President Obama signed the bill into law on November 21, 2011. The bill contains the following main measures:
- Permanently repeal the 3 percent withholding provision on government contractors
- Tax credits for businesses that hire veterans
- $5,600 credit for hiring long-term unemployed veterans
- $2,400 credit for hiring short-term unemployed veterans
- Credits of up to $9,600 for hiring unemployed veterans with service-related disabilities
- Simplify the certification process to make it easier for businesses to get the tax credit
- Modifies the income definition for determining eligibility for exchange subsidies, Medicaid and the Children’s Health Insurance Program – conforming the definition of income in the health law to the standards used by other federal low-income programs such as food stamps and public housing
- December 17, 2010
Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010
Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010
Congress has just passed the The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, which the President is expectly to quickly sign. It provides vital tax relief and investments in our workers that will create jobs and accelerate economic growth. The bill has three key accomplishments:
- Working families will not lose their tax cut. A typical working family faced a tax increase of over $3,000 on January 1st. That’s avoided under this bill, and working families won’t see their tax cuts go away next year.
- Focused on high impact job creation measures. The bill includes some of the best measures for jumpstarting growth and job creation, including a full year of emergency unemployment insurance benefits, a 2% payroll tax cut for working families and a continuation of tax credits for working families. This is on top of growth generated by extension of the middle-class income tax rates.
- Does not worsen the medium- and long-term deficit. These are responsible, temporary measures to support our economy that will not add costs by the middle of the decade. The President does not believe it is affordable to make the high-income tax cuts permanent and will continue to make his case for why we cannot extend these measures beyond 2012.
- September 26, 2010
Small Business Jobs Act of 2010
Small Business Jobs Act
Eight Small Business Tax Cuts – Effective Today, Providing Immediate Incentives to Invest: The President had already signed into law eight small business tax cuts, and on Monday [9/27/10], he is signing into law another eight new tax cuts that go into effect immediately.
- Zero Taxes on Capital Gains from Key Small Business Investments: Under the Recovery Act, 75 percent of capital gains on key small business investments this year were excluded from taxes. The Small Business Jobs Act temporarily puts in place for the rest of 2010 a provision called for by the President – elimination of all capital gains taxes on these investments if held for five years. Over one million small businesses are eligible to receive investments this year that, if held for five years or longer, could be completely excluded from any capital gains taxation.
- Extension and Expansion of Small Businesses’ Ability to Immediately Expense Capital Investments: The bill increases for 2010 and 2011 the amount of investments that businesses would be eligible to immediately write off to $500,000, while raising the level of investments at which the write-off phases out to $2 million. Prior to the passage of the bill, the expensing limit would have been $250,000 this year, and only $25,000 next year. This provision means that 4.5 million small businesses and individuals will be able to make new business investments today and know that they will earn a larger break on their taxes for this year.
- June 1, 2010
Special Tax Incentives for Small Businesses
Recent Legislation Offers Special Tax Incentives for Small Businesses to Provide Health Care, Hire New Workers
IR-2010-69, May 28, 2010
WASHINGTON — In recognition of National Small Business Week, the Internal Revenue Service encourages small businesses to take advantage of tax-saving opportunities included in recently enacted federal legislation.
A variety of business tax deductions and credits were created, extended and expanded by the American Recovery and Reinvestment Act of 2009 (ARRA), this year’s Hiring Incentives to Restore Employment (HIRE) Act and the Affordable Care Act. Because some of these changes are only available this year, eligible businesses only have a few months to take action and save on their taxes. Here is a rundown of some of the key provisions.
New Health Care Tax Credit Helps Small Employers
The small business health care tax credit, created under the Affordable Care Act, is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.
The credit takes effect this year and is generally available to small employers that pay at least half the cost of single coverage for their employees in 2010. The credit is specifically targeted to help small employers that primarily employ low- and moderate-income workers.
For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers. The maximum credit goes to smaller employers –– those with 10 or fewer full-time equivalent (FTE) employees –– paying annual average wages of $25,000 or less. The credit is completely phased out for employers with more than 25 FTEs or with average wages of more than $50,000.
Because the eligibility rules are based in part on the number of FTEs, not the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals. More information about the credit, including a step-by-step guide and answers to frequently asked questions, is available on the IRS website.
- April 1, 2010
Health Care Act of 2010
SUMMARY
The final health insurance reform legislation (the Senate bill as improved by the Reconciliation Bill) that the House passed on March 21st will ensure that all Americans have access to quality, affordable health care and significantly reduce long‐term health care costs. The non‐partisan Congressional Budget Office (CBO) has determined that it will provide coverage to 32 million more people, or more than 94% percent of Americans, while lowering health care costs over the long term. This historic legislation will reduce the deficit by $143 billion over the next ten years, with $1.2 trillion in additional deficit reduction in the following 10 years.
QUALITY, AFFORDABLE HEALTH CARE FOR ALL AMERICANS
- Bars insurance companies from discriminating based on pre‐existing conditions, health status, and gender.
- Provides Americans with better coverage and the information they need to make informed decisions about their health insurance.
- Creates health insurance exchanges – competitive marketplaces where individuals and small business can buy affordable health care coverage in a manner similar to that of big businesses today.
- Offers premium tax credits and cost‐sharing assistance to low and middle income Americans, providing families and small businesses with the largest tax cut for health care in history.
- Insures access to immediate relief for uninsured Americans with pre‐existing conditions on the brink of medical bankruptcy.
- Creates a reinsurance program in support of employers who offer retirees age 55‐64 health coverage.
- Invests substantially in Community Health Centers to expand access to health care in communities where it is needed most.
- Empowers the Department of Health and Human Services and state insurance commissioners to conduct annual reviews of new plans demanding unjustified, egregious premium increases.
- March 19, 2010
Hiring Incentives to Restore Employment Act
Two New Tax Benefits Aid Employers Who Hire and Retain Unemployed Workers
IR-2010-33, March 18, 2010
WASHINGTON — Two new tax benefits are now available to employers hiring workers who were previously unemployed or only working part time. These provisions are part of the Hiring Incentives to Restore Employment (HIRE) Act enacted into law today.
Employers who hire unemployed workers this year (after Feb. 3, 2010 and before Jan. 1, 2011) may qualify for a 6.2-percent payroll tax incentive, in effect exempting them from their share of Social Security taxes on wages paid to these workers after March 18, 2010. This reduced tax withholding will have no effect on the employee’s future Social Security benefits, and employers would still need to withhold the employee’s 6.2-percent share of Social Security taxes, as well as income taxes. The employer and employee’s shares of Medicare taxes would also still apply to these wages.
In addition, for each worker retained for at least a year, businesses may claim an additional general business tax credit, up to $1,000 per worker, when they file their 2011 income tax returns.
“These tax breaks offer a much-needed boost to employers willing to expand their payrolls, and businesses and nonprofits should keep these benefits in mind as they plan for the year ahead,” said IRS Commissioner Doug Shulman.
- January 18, 2010
New Homebuyer Credit Form Released; Taxpayers Reminded to Attach Settlement Statement and Other Key Documents
IR-2010-6, Jan. 15, 2010
WASHINGTON — The Internal Revenue Service today released the new form that eligible homebuyers need to claim the first-time homebuyer credit this tax season and announced processing of those tax returns will begin in mid-February. The IRS also announced new documentation requirements to deter fraud related to the first-time homebuyer credit.
The new form and instructions follow major changes in November to the homebuyer credit by the Worker, Homeownership, and Business Assistance Act of 2009. The new law extended the credit to a broader range of home purchasers and added new documentation requirements to deter fraud and ensure taxpayers properly claim the credit.
With the release of Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, and the related instructions, eligible homebuyers can now start to file their 2009 tax returns. Taxpayers claiming the homebuyer credit must file a paper tax return because of the added documentation requirements.
The IRS expects to start processing 2009 tax returns claiming the homebuyer credit in mid-February after it completes the updating and testing of systems to meet the law’s new requirements. The updates allow the IRS to put in place critical systemic checks to deter fraud related to the homebuyer credit.
- December 23, 2009
First-Time Homebuyer Credit Extended to April 30, 2010; Some Current Homeowners Now Also Qualify
First-Time Homebuyer Credit Extended to April 30, 2010; Some Current Homeowners Now Also Qualify
A new law that went into effect Nov. 6 extends the first-time homebuyer credit five months and expands the eligibility requirements for purchasers.
The Worker, Homeownership, and Business Assistance Act of 2009 extends the deadline for qualifying home purchases from Nov. 30, 2009, to April 30, 2010. Additionally, if a buyer enters into a binding contract by April 30, 2010, the buyer has until June 30, 2010, to settle on the purchase.
The maximum credit amount remains at $8,000 for a first-time homebuyer –– that is, a buyer who has not owned a primary residence during the three years up to the date of purchase.
But the new law also provides a “long-time resident” credit of up to $6,500 to others who do not qualify as “first-time homebuyers.” To qualify this way, a buyer must have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new home as a primary residence.
For all qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 tax returns.
A new version of Form 5405, First-Time Homebuyer Credit, will be available in the next few weeks. A taxpayer who purchases a home after Nov. 6 must use this new version of the form to claim the credit. Likewise, taxpayers claiming the credit on their 2009 returns, no matter when the house was purchased, must also use the new version of Form 5405. Taxpayers who claim the credit on their 2009 tax return will not be able to file electronically but instead will need to file a paper return.
- November 6, 2009
Worker, Homeownership and Business Assistance Act of 2009
House Passes Worker, Homeownership, and Business Assistance Act of 2009
The U.S. House of Representatives approved essential legislation to stimulate the economy and provide stability to American families. The House Passed H.R. 3548, the Worker, Homeownership and Business Assistance Act of 2009 by an overwhelmingly bipartisan vote of 403 to 12. President Obama signed the legislation into law on November 6, 2009. The legislation will help continue America’s economic recovery by extending unemployment benefits for millions of workers looking for jobs, as well as extending, expanding and improving the homebuyer tax credit, and providing tax relief for military families and businesses. Many of the provisions in today’s legislation originated in the Committee on Ways and Means, and Committee leaders offered the following statements upon passage:
"Passage of this bill will give critical benefits to the millions of unemployed workers struggling in the current downturn, giving them some measure of relief while they search for the next opportunity to build a brighter future for their families,” said Ways and Means Committee Chairman Charles B. Rangel (D-NY). “This legislation also extends the homebuyer tax credit and provides tax relief for struggling businesses to build upon recent gains in the housing market and give American companies a foundation for future growth."
- October 30, 2009
Expanded Recovery Act Tax Credits Help Homeowners Winterize their Homes, Save Energy
Expanded Recovery Act Tax Credits Help Homeowners Winterize their Homes, Save Energy; Check Tax Credit Certification Before You Buy, IRS Advises
IR-2009-98, Oct. 29, 2009
WASHINGTON — People can now weatherize their homes and be rewarded for their efforts. According to the Internal Revenue Service, homeowners making energy-saving improvements this fall can cut their winter heating bills and lower their 2009 tax bill as well.
The American Recovery and Reinvestment Act (Recovery Act), enacted earlier this year, expanded two home energy tax credits: the nonbusiness energy property credit and the residential energy efficient property credit.
Nonbusiness Energy Property Credit
This credit equals 30 percent of what a homeowner spends on eligible energy-saving improvements, up to a maximum tax credit of $1,500 for the combined 2009 and 2010 tax years. The cost of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass all qualify, along with labor costs for installing these items. In addition, the cost of energy-efficient windows and skylights, energy-efficient doors, qualifying insulation and certain roofs also qualify for the credit, though the cost of installing these items does not count.
By spending as little as $5,000 before the end of the year on eligible energy-saving improvements, a homeowner can save as much as $1,500 on his or her 2009 federal income tax return. Due to limits based on tax liability, other credits claimed by a particular taxpayer and other factors, actual tax savings will vary. These tax savings are on top of any energy savings that may result.
- September 10, 2009
Back-to-School Tax Breaks, Popular 529 Plans Expanded, New $2,500 College Credit Available
Back-to-School Tax Breaks, Popular 529 Plans Expanded, New $2,500 College Credit Available
In support of the Administration's efforts to promote access to and the affordability of college education, the Internal Revenue Service today launched a new Web section highlighting various tax breaks and 529 plan changes designed to help parents and students pay for college.
The new Tax Benefits for Education section on IRS.gov includes tips for taking advantage of long-standing education deductions and credits. The “one-stop” location for higher education information includes a special section highlighting 529 plans and frequently asked questions. The Web section also features two key changes that will be in effect during 2009 and 2010 that were included in the American Recovery and Reinvestment Act (ARRA), enacted earlier this year.
One change allows families saving for college to use popular 529 plans to pay for a student’s computer-related technology needs. Under the other change, more parents and students will be able to use a federal education credit to pay part of the cost of college using the new American opportunity credit.
“With many families struggling to afford college, we want every eligible taxpayer to know about their options and take advantage of all the tax breaks they can,” said IRS Commissioner Doug Shulman. “529 plans have become a very attractive way to save for college, and our Web section is designed to help people get information about these plans. In addition, the new American opportunity credit can help many parents and students pay part of the cost of the first four years of college.”
- July 22, 2009
IRS Reminds Taxpayers to Take Advantage of Recovery Act Benefits
IRS Reminds Taxpayers to Take Advantage of Recovery Act Benefits
IR-2009-67, July 20, 2009
WASHINGTON — With 2009 now half over, the Internal Revenue Service reminds taxpayers to take advantage of the numerous tax breaks made available earlier this year in the American Recovery and Reinvestment Act (ARRA).
The recovery law provides tax incentives for first-time homebuyers, people purchasing new cars, those interested in making their homes more energy efficient and parents and students paying for college. But all of these incentives have expiration dates so taxpayers should take advantage of them while they can.
First-Time Homebuyer Credit
The Recovery Act extended and expanded the first-time homebuyer tax credit for 2009.
Taxpayers who didn’t own a principal residence during the past three years and purchase a home this year before Dec. 1 can receive a credit of up to $8,000 on either an original or amended 2008 tax return, or a 2009 return. But the purchase must close before Dec. 1, 2009, and an eligible taxpayer cannot claim the credit until after the closing date. This credit phases out at higher income levels, and different rules apply to home purchases made in 2008.
- June 9, 2009
IRS Launches Tax Return Preparer Review; Recommendations to Improve Compliance Expected by Year End
IRS Launches Tax Return Preparer Review; Recommendations to Improve Compliance Expected by Year End
IR-2009-57, June 4, 2009
WASHINGTON — IRS Commissioner Doug Shulman announced today that by the end of 2009, he will propose a comprehensive set of recommendations to help the Internal Revenue Service better leverage the tax return preparer community with the twin goals of increasing taxpayer compliance and ensuring uniform and high ethical standards of conduct for tax preparers.
Some of the potential recommendations could focus on:
- A new model for the regulation of tax return preparers;
- Service and outreach for return preparers;
- Education and training of return preparers; and
- Enforcement related to return preparer misconduct.
The Commissioner will submit recommendations to the Treasury Secretary and the President by the end of the year.
“Tax return preparers help Americans with one of their biggest financial transactions each year. We must ensure that all preparers are ethical, provide good service and are qualified,” Shulman said. “At the end the day, tax preparers and the associated industry must be part of our overall game plan to strengthen the integrity of the tax system.”
- May 13, 2009
Tax Breaks Available for Taxpayers Who Purchase Qualified Plug-In Electric Vehicles
Tax Breaks Available for Taxpayers Who Purchase Qualified Plug-In Electric Vehicles
IR-2009-45
WASHINGTON — Plug-in electric vehicles using certain types of batteries may qualify for a new tax credit if purchased this year, the Internal Revenue Service said.
The Emergency Economic Stabilization Act of 2008 (EESA) and the American Recovery and Reinvestment Act of 2009 (ARRA) created two new tax credits for various types of electric vehicles, which may include what are commonly referred to as neighborhood electric vehicles.
ARRA creates a tax credit for low-speed or two- or three-wheel electric vehicles, such as motor scooters, purchased after Feb. 17, 2009, and before Jan. 1, 2012. The amount of the credit is 10 percent of the cost of the vehicle, up to a maximum credit of $2,500. To qualify, a vehicle must be either a low-speed vehicle that is propelled to a significant extent by a rechargeable battery with a capacity of at least 4 kilowatt hours or be a two- or three-wheeled vehicle that is propelled to a significant extent by a rechargeable battery with a capacity of at least 2.5 kilowatt hours.
EESA created a tax credit for vehicles that have at least four wheels and draw propulsion using a rechargeable traction battery with at least four kilowatt hours of capacity. For 2009, the minimum credit is $2,500 and the credit tops out at $7,500 to $15,000, depending on the weight of the vehicle and the capacity of the battery.
- April 23, 2009
Energy-Saving Steps This Year May Result in Tax Savings Next Year
Energy-Saving Steps This Year May Result in Tax Savings Next Year
IR-2009-44, April 22, 2009
WASHINGON — The Internal Revenue Service today reminded individual and business taxpayers that many energy-saving steps taken this year may result in bigger tax savings next year. The recently enacted American Recovery and Reinvestment Act (ARRA) of 2009 contained a number of either new or expanded tax benefits on expenditures to reduce energy use or create new energy sources.
The IRS encouraged individuals and businesses to explore whether they are eligible for any of the new energy tax provisions. More information on the wide range of energy items is available on the special Recovery section of IRS.gov. For a larger listing of ARRA’s energy-related tax benefits, see Fact Sheet 2009-10.
Tax Credits for Home Energy Efficiency Improvements Increase
Homeowners can get bigger tax credits for making energy efficiency improvements or installing alternative energy equipment.
The IRS also announced homeowners seeking these tax credits can temporarily rely on existing manufacturer certifications or appropriate Energy Star labels for purchasing qualifying products until updated certification guidelines are announced later this spring.
“These new, expanded credits encourage homeowners to make improvements that will make their homes more energy efficient,” said IRS Commissioner Doug Shulman. “People can improve their homes and save money over the long run.”
- March 20, 2009
First-Time Homebuyers Have Several Options to Maximize New Tax Credit
First-Time Homebuyers Have Several Options to Maximize New Tax Credit
IR-2009-27, March 18, 2009
WASHINGTON — As part of the Treasury Department’s consumer outreach effort and with the April 15 individual tax filing deadline approaching, the Internal Revenue Service today began a concerted effort to educate taxpayers about additional options at their disposal to claim the new $8,000 first-time homebuyer credit for 2009 home purchases. For people who recently purchased a home or are considering buying in the next few months, there are several different ways that they can get this tax credit even if they’ve already filed their tax return.
The Treasury Department encourages taxpayers to explore these options to maximize their credit and get their money back as fast as possible.
“The new credit can get money in the pockets of first-time homebuyers quickly,” said IRS Commissioner Doug Shulman. “For people who recently purchased a home or are considering buying in the next few months, there are several different ways that they can get this tax credit even if they’ve already filed their tax return.”
First-time homebuyers represent a significant portion of existing single-family home sales. The expansion in the first-time homebuyer credit will make it easier for first-time homebuyers to enter the housing market this year.
Under the American Recovery and Reinvestment Act of 2009, qualifying taxpayers who purchase a home before Dec. 1 receive up to $8,000, or $4,000 for married individuals filing separately. People can claim the credit either on their 2008 tax returns due April 15 or on their 2009 tax returns next year.
- February 4, 2009
American Recovery and Reinvestment Act of 2009
American Recovery and Reinvestment Act
Congress has passed the American Recovery and Reinvestment Act of 2009 and President Obama signed the bill into law on February 17, 2009.
United States Congress
The final recovery and reinvestment plan contained approximately $287 billion in tax cuts for families and businesses, with a particular focus on creating jobs in the green energy, highway, and school building sectors. The tax cuts included a $400‐per‐worker tax credit – known as Making Work Pay credit – to put cash in the hands of America’s working families in the next few months. Additional Finance Committee provisions included a $14.4 billion measure providing a one‐time, $250 payment to seniors, veterans, and retirees, and approximately $177 billion more in investments to create jobs in health information technology, to help out‐of‐work Americans keep their health care coverage and find new employment, and to give aid to struggling state economies. The legislation also included a major expansion of Trade Adjustment Assistance to help American firms avoid layoffs due to international competition, and to help workers negatively affected by trade stay on their financial feet and retrain for new, good‐paying jobs here at home.
- December 18, 2008
Worker, Retiree and Employer Recovery Act of 2008
Worker, Retiree and Employer Recovery Act of 2008
On December 11, 2008, Congress approved legislation that temporarily suspends an excise tax which is assessed on seniors who fail to take a required minimum distribution (RMD) from their retirement accounts including IRAs, 401(k)s, and 403(b)s. The bill waives the penalty on RMD for 2009, thereby allowing seniors to recoup some of the losses they have experienced as the stock market plummeted.
Under the Worker, Retiree and Employer Recovery Act (H.R. 7327), all taxpayers, those who usually take the required minimum distribution amount monthly and those who take a lump sum amount at the end of the year, would have equal treatment. Under current law, individuals who have reached age 70½ must take required an annual required minimum amount from their retirement plan or IRA. Failure to take the distribution would subject the individual to a 50-percent excise tax penalty of the amount that should have been withdrawn.
“This relief will help workers and seniors safeguard their retirement savings during the economic crisis.” said Ways and Means Committee Chairman Charles B. Rangel (D-NY). “Every segment of our economy is experiencing financial pain and this bipartisan legislation will go a long way to help employers do the right thing for their workers even in these difficult economic times.”
“Americans have seen trillions of dollars evaporate from their retirement accounts over the last few months as a result of our economic crisis,” said U.S. Rep. George Miller (D-CA), the chairman of the House Education and Labor Committee. “I’m glad that Congress worked swiftly, and in a bipartisan way, to provide important relief to seniors who may face a steep tax if they do not make a withdrawal from their depleted retirement accounts.”
- December 5, 2008
2009 Exemptions, Standard Deduction and Mileage Rates
2009 Inflation Adjustments Widen Tax Brackets and Expand Tax Benefits
IR-2008-117, Oct. 16, 2008
WASHINGTON — For 2009, personal exemptions and standard deductions will rise and tax brackets will widen because of inflation adjustments announced today by the Internal Revenue Service.
By law, the dollar amounts for a variety of tax provisions must be revised each year to keep pace with inflation. As a result, more than three dozen tax benefits, affecting virtually every taxpayer, are being adjusted for 2009. Key changes affecting 2009 returns, filed by most taxpayers in early 2010, include the following:
The value of each personal and dependency exemption, available to most taxpayers, is $3,650, up $150 from 2008. The new standard deduction is $11,400 for married couples filing a joint return (up $500), $5,700 for singles and married individuals filing separately (up $250) and $8,350 for heads of household (up $350). Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $67,900, up from $65,100 in 2008. The maximum earned income tax credit for low and moderate income workers and working families with two or more children is $5,028, up from $4,824. The income limit for the credit for joint return filers with two or more children is $43,415, up from $41,646.
The annual gift exclusion rises to $13,000, up from $12,000 in 2008.
Information about the pension and retirement plan-related changes can be found in IR-2008-118. Other inflation adjustments are described in Revenue Procedure 2008-66.
- October 7, 2008
Emergency Economic Stabilization, Energy Improvement and Extension, and Tax Extenders and AMT Relief Acts of 2008
On October 3, 2008, Congress passed and President Bush signed H.R. 1424, Emergency Economic Stabilization, Energy Improvement and Extension, and Tax Extenders and AMT Relief Acts of 2008, into law.
Senate Finance Committee Chairman Max Baucus (D-Mont.) said that Congress has “done its job” as the House of Representatives approved the Emergency Economic Stabilization Act of 2008 – a financial rescue plan that will allow the U.S. Treasury to purchase bad assets threatening the solvency of American financial institutions.
The following is a summary of the tax provisions of the law.
Tax Relief Promoting Jobs, Energy, Families
The financial rescue plan contains the entire text of H.R. 6049 as amended by the Senate on September 23 – including
- Clean energy tax incentives,
- Alternative minimum tax relief,
- Extensions of expiring business and family tax cuts,
- Disaster relief,
- Mental health parity, and
- Other provisions.
The Senate amended H.R. 6049 with two measures – one containing energy tax incentives and the other containing all remaining provisions. The combined cost for all measures – energy, AMT, “extenders,” and other provisions – is approximately $150 billion, and the offsets in the package total approximately $43.5 billion. Energy provisions are completely offset, and “extenders” and other provisions are partially offset. Of the total cost, $64.1 billion is unoffset AMT relief. Both the House and Senate have previously passed unoffset AMT relief this year.
- September 16, 2008
Tax Credit to Aid First-Time Homebuyers; Must Be Repaid Over 15 Years
Tax Credit to Aid First-Time Homebuyers; Must Be Repaid Over 15 Years
First-time homebuyers should begin planning now to take advantage of a new tax credit included in the recently enacted Housing and Economic Recovery Act of 2008.
Available for a limited time only, the credit:
- Applies to home purchases after April 8, 2008, and before July 1, 2009.
- Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
- Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.
However, the credit operates much like an interest-free loan, because it must be repaid over a 15-year period. So, for example, an eligible taxpayer who buys a home today and properly claims the maximum available credit of $7,500 on his or her 2008 federal income tax return must begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on his or her 2010 return.
Eligible taxpayers will claim the credit on new IRS Form 5405. This form, along with further instructions on claiming the first-time homebuyer credit, will be included in 2008 tax forms and instructions and be available later this year on IRS.gov, the IRS Web site.
If you bought a home recently, or are considering buying one, the following questions and answers may help you determine whether you qualify for the credit.
Q. Which home purchases qualify for the first-time homebuyer credit?
A. Only the purchase of a main home located in the United States qualifies and only for a limited time. Vacation homes and rental property are not eligible. You must buy the home after April 8, 2008, and before July 1, 2009. For a home that you construct, the purchase date is the first date you occupy the home.
Taxpayers who owned a main home at any time during the three years prior to the date of purchase are not eligible for the credit. This means that first-time homebuyers and those who have not owned a home in the three years prior to a purchase can qualify for the credit.
If you make an eligible purchase in 2008, you claim the first-time homebuyer credit on your 2008 tax return. For an eligible purchase in 2009, you can choose to claim the credit on either your 2008 (or amended 2008 return) or 2009 return.
- July 29, 2008
American Housing Rescue and Foreclosure Prevention Act of 2008
American Housing Rescue and Foreclosure Prevention Act of 2008
On July 26, 2008, Congress passed the American Housing Rescue and Foreclosure Prevention Act of 2008. President Bush signed the measure into law on July 30.
The legislation, H.R. 3221, the American Housing Rescue and Foreclosure Prevention Act, would help stem the tide of foreclosures, stabilize local housing markets and provide incentives for first-time homebuyers. Chairman Rangel, a longtime advocate and leader for improved access to low-income housing was the author of the tax provisions contained in the bill.
“This bill received strong bipartisan support because it is the right thing to do for our country during this economic downturn,” said Chairman Rangel. “Provisions in this bill represent the most significant expansion and improvement of tax programs designed to provide affordable housing for low and moderate-income individuals since the inception of the low-income housing tax credit in 1986.”
“First, the bill would expand and improve the low-income housing tax credit, which is the largest source of federal support for the construction and rehabilitation of affordable housing,” continued Rangel. “Second, the bill increases volume limits on housing bonds to finance low-income rental housing and first-time homebuyers, while also providing states with greater flexibility on how to use those bonds efficiently. These improvements will go a long way to address the shortage of affordable housing options in our cities and towns.”
- The Low-Income Housing Tax Credit (LIHTC) has been responsible for the development of over 2 million rental units across the nation since its inception in 1986.
- The LIHTC is the most successful, longest running Federal program for supporting the development of affordable rental housing.
- Included in the package is a ten percent increase in the credits allocated among states, and an $11 billion increase in tax exempt bond authority to support single family and rental housing, as well as many changes in the tax code to make the use of the LIHTC more efficient. Housing advocates agree these changes will result in additional units of housing and, especially, more units for lower-income families.
- Also included in the package is a provision to enable cities and towns to more efficiently use tax-exempt bonds in the effort to develop affordable rental housing. The provisions will enable New York City to issue significantly more bonds so that it can support the development of thousands more rental units for low-and moderate-income families.
- June 24, 2008
IRS Increases Mileage Rates through Dec. 31, 2008
IRS Increases Mileage Rates through Dec. 31, 2008
WASHINGTON — The Internal Revenue Service today announced an increase in the optional standard mileage rates for the final six months of 2008. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
The rate will increase to 58.5 cents a mile for all business miles driven from July 1, 2008, through Dec. 31, 2008. This is an increase of eight (8) cents from the 50.5 cent rate in effect for the first six months of 2008, as set forth in Rev. Proc. 2007-70.
In recognition of recent gasoline price increases, the IRS made this special adjustment for the final months of 2008. The IRS normally updates the mileage rates once a year in the fall for the next calendar year.
"Rising gas prices are having a major impact on individual Americans. Given the increase in prices, the IRS is adjusting the standard mileage rates to better reflect the real cost of operating an automobile," said IRS Commissioner Doug Shulman. "We want the reimbursement rate to be fair to taxpayers."
While gasoline is a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.
The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.
The new six-month rate for computing deductible medical or moving expenses will also increase by eight (8) cents to 27 cents a mile, up from 19 cents for the first six months of 2008. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.
The new rates are contained in Announcement 2008-63 on the optional standard mileage rates.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
- June 2, 2008
House Reaffirms Commitment to America’s Armed Forces
Bill would provide essential tax relief to military families
WASHINGTON, D.C. - The House of Representatives approved bipartisan legislation to deliver tax relief to the men and women of our nation’s armed services, as well as others volunteering in service in America. The bill, H.R. 6081, the Heroes Earnings Assistance and Relief Tax (HEART) Act of 2008, also makes a critical change to current law that will enable thousands of active duty military families to qualify for economic stimulus payments. H.R. 6081 passed the House by a vote of 403-0.
“This bill is called the HEART Act, but I would prefer to call it the thank you bill – thank you to the tens of thousands of American men and women who have responded to America’s call to fight this war and place themselves in harm’s way to serve this nation,” said Chairman Charles B. Rangel (D-NY), chief sponsor of the HEART Act. “This bill enhances their ability to get tax benefits such as the Earned Income Tax Credit, buy homes, make penalty-free withdrawals from their pension plans, access amounts held in a Flexible Savings Account, and remove other impediments that keep them from getting the relief they deserve.
Farm Bill’s Disaster Aid, Reforms & Tax Relief Become Law As Senate Overrides Veto
Finance Chairman Baucus led fight for new disaster assistance trust fund, $2 billion in farm tax reforms funding farm tax relief
Washington, DC – The U.S. Senate voted 82-13 to override a presidential veto of the 2008 farm bill, giving America’s farming families a permanent agriculture disaster assistance trust fund and nearly $2 billion in farm tax relief as part of comprehensive farm legislation. Senate Finance Committee Chairman Max Baucus (D-Mont.) led the creation and the passage of the reliable disaster assistance program and the bill’s tax and trade title, as well as the successful effort to fully pay for the bill’s $10 billion in new spending over the next ten years. The bill’s farm tax relief is also fully funded with nearly $2 billion in strong farm tax reforms. “When the sun sets on farm country tonight, hard-working folks can know that this Congress believes in America’s agricultural sector. By voting to override the President’s veto, we did what’s right for farm families in Montana and across the country today,” said Baucus. “Farm life will never be easy, but the disaster assistance and tax relief in this new law will help American ag producers shoulder the load of providing food and fuel to the world. Strong reforms make the farm bill fairer and require everyone to do their share. I’m proud to stand up for Montana and for all of America to support this farm bill.”
- May 22, 2008
House Extends Bipartisan Tax Relief to Families and Businesses
House Extends Bipartisan Tax Relief to Families and Businesses
Bill would keep millions of families from paying higher taxes, extend expiring tax benefits
WASHINGTON – The House of Representatives today passed legislation to extend vital tax relief to millions of families, strengthen investment opportunities for American businesses and encourage the production and use of renewable energy, by a strong bipartisan vote of 263-160. The legislation, H.R. 6049, the Renewable Energy and Job Creation Act of 2008, was introduced by Committee Chairman Charles B. Rangel (D-NY), who delivered the following remarks during debate on the House Floor:
“We now have an opportunity to reverse the trend of dangerous addiction to foreign oil and the lack of political will to do something to beat that addiction. Under the leadership of Speaker Pelosi, we have taken the initiative to pass legislation that will enhance our ability to promote our energy independence through the use of renewable sources and create green-collar jobs for American workers.
“The possibilities of this legislation are virtually endless when you think of the variety of sources we can use to produce renewable energy. This bill presents a great opportunity to explore new areas and develop new technologies.
“This legislation will also extend vital tax relief to American families and businesses whose tax bill would increase at the end of the year if we did not act. Tax relief provided in this bill include the research and development credit to help American businesses remain competitive, as well as deductions for State and local sales tax, real property tax for non-itemizers, tuition expenses, and out-of-pocket expenses for teachers. This bill would also expand the refundable child tax credit to help more than 13 million children and their families. Especially during tough economic times, there are millions of families who rely on these deductions for their economic security and this bill delivers the tax relief they deserve.”
- April 28, 2008
Economic Stimulus Payments on the Way
Economic Stimulus Payments on the Way
The Internal Revenue Service has begun to transfer economic stimulus payments to millions of Americans, some of whom will see payments in their bank accounts as early as today. The IRS will issue payments of up to $600 ($1,200 for married couples) plus $300 for eligible children younger than 17, throughout the spring and summer. The first wave of payments will go to people who opted for direct deposit on their 2007 income tax returns.
“People who chose direct deposit will receive their economic stimulus payments the quickest,” IRS Commissioner Doug Shulman said. “We know there are many people who are eligible for an economic stimulus payment who have not filed a tax return. If you think you may be eligible, even if you don’t normally file a tax return, please check it out. And, use direct deposit to get your payment faster.”
Whether a taxpayer opted for direct deposit determines how soon the payment will arrive. The first cycle of paper checks will be mailed starting May 9.
Even people who normally do not have a filing requirement may be eligible for the stimulus payment. People who have no filing requirement must have at least $3,000 in qualifying income. Qualifying income includes any combination of earned income, nontaxable combat pay they elect to include in earned income and certain payments from Social Security, Veterans Affairs and Railroad Retirement.
People with at least $3,000 in qualifying income may qualify for an economic stimulus payment of $300 ($600 for married couples) plus the $300 per qualifying child payment. However, they must file a 2007 income tax return by Oct. 15 , 2008, to receive a stimulus payment. They can use the simple Form 1040A and provide basic information. Form 1040A is available on IRS.gov, the official IRS Web site.
The payment schedule announced earlier this year is for people who filed early enough to have their tax returns processed by April 15. People who did not submit a return in time for it to be processed by April 15 may see their stimulus payments later than the scheduled dates.
- May 24, 2008
Combat Pay Can Count toward Economic Stimulus Payment Eligibility
Combat Pay Can Count toward Economic Stimulus Payment Eligibility
Military personnel serving in combat zones have the option of including their nontaxable combat pay on their 2007 or 2008 income tax returns if it helps their eligibility for the 2008 economic stimulus payments.
To receive the stimulus payment this year, combat zone personnel or their spouses must file a 2007 income tax return by Oct. 15. Otherwise, they can claim the economic stimulus payment on next year’s income tax return.
“The last thing we want our troops in Iraq or other war zones to worry about are their tax returns. But we do want the troops, and their families stateside, to know they may qualify for the economic stimulus payment,” said Linda E. Stiff, Acting Commissioner of the Internal Revenue Service.
Starting in May, the IRS will issue economic stimulus payments of up to $600 ($1,200 for married couples) plus a $300 payment for each qualifying child younger than 17. The payments are based on 2007 income tax returns. The payments for individuals will begin to phase out starting at $75,000 in adjusted gross income ($150,000 for married couples).
Even individuals and families who normally do not file a tax return because they have no filing requirement may qualify for an economic stimulus payment. They may be eligible for the minimum payment of $300 ($600 for married couples) plus the $300 for each qualifying child younger than 17.
People must have at least $3,000 in qualifying income to get a payment. Qualifying income is defined as any combination of earned income (such as wages or taxable income from self-employment), nontaxable combat pay and certain benefits from Social Security, Veterans Affairs and Railroad Retirement.
Military personnel who normally would not file an income tax return because their 2007 income is not taxable can file a simple Form 1040A with the IRS if they want to receive the economic stimulus payment. They should report their nontaxable combat pay on Line 40b of the Form 1040A to show at least $3,000 in qualifying income. The Department of Defense lists the amount of excluded combat pay, along with the designation, “Code Q,” in Box 12 of Forms W-2.
If a military person is serving in a combat zone, his or her normal tax filing requirement is extended until at least 180 days after leaving a combat zone. However, spouses or others with a power of attorney can prepare and file a 2007 income tax return on their behalf so that the stimulus payment is received this year.
The IRS has developed Package 1040A-3, an 8-page publication containing tax tips, a sample Form 1040A and a blank Form 1040A.
- February 15, 2008
Information on Stimulus Payments
Information on Stimulus Payments
Starting in May, the Treasury will begin sending economic stimulus payments to more than 130 million individuals. The stimulus payments will go out through the late spring and summer.
The vast majority of Americans who qualify for the payment will not have to do anything other than file their 2007 individual income tax return to receive their payment this year. The IRS will use information on the tax return to determine eligibility and calculate the amount of the stimulus payments.
For more information on the stimulus payments, including the amounts and eligibility requirements:
- View IR-2008-18, IRS Will Send Stimulus Payments Automatically Starting in May; Eligible Taxpayers Must File a 2007 Tax Return to Receive Rebate.
- View FS-2008-15, Facts about the 2008 Stimulus Payments.
Stimulus Payment Examples
The eligibility for and amount of stimulus payments to taxpayers will vary according to their income and family situations. Here are the various scenarios:
- Married with Children
- Married without Qualifying Children
- Single (Head of Household) with Children
- Single without Qualifying Children
- February 8, 2008
Congress Passes Stimulus Tax Relief for Lower- and Middle-Income Families
Final bill provides relief to more than 20 million seniors, 250,000 disabled veterans
WASHINGTON – The U.S. House of Representatives voted in strong bipartisan support for the Senate Amendment to H.R. 5140, the Economic Stimulus Act of 2008.
H.R. 5140 will now go to the President’s desk where he is expected to sign the bill into law.
Provisions included in H.R. 5140 will:
- Put hundreds of dollars into the hands of more than 130 million American families including seniors and disabled veterans – who will spend it immediately to reinvigorate the economy;
- Build on the child tax credit by offering a one-time rebate of $300 per child;
- Expand financing opportunities for Americans in danger of losing their homes because of the mortgage crisis;
- Promote small business investment in plants and equipment; and
- Help create 500,000 jobs by the end of the year.
Details
Ways and Means Committee Chairman Charles B. Rangel (D-NY) issued the following remarks during consideration of the bill on the House Floor:
“I want to thank Speaker Pelosi, the Republican Leadership and Secretary Paulson for their willingness to work toward a bipartisan agreement on this critical bill. I also want to thank the Senate leadership for recognizing the urgency of this relief, and for finally getting to work to ensure its quick passage today, enabling the House to pass the Senate amendment and deliver the bill to the President for signature.
- January 25, 2008
New Growth Package Meets Criteria to Keep Our Economy Healthy
New Growth Package Meets Criteria to Keep Our Economy Healthy
On January 24, 2008, President Bush announced his Administration reached a bipartisan agreement with House leadership on an economic growth package, and he encouraged Congress to deliver a bill to his desk as soon as possible to bolster the economy this year. The President's advisors and many outside experts expect that our economy will continue to grow over the coming year, but at a slower rate than we have enjoyed for the past few years – and there is the risk of a downturn. The agreement reached today meets the criteria the President set forward last week to provide an effective, robust, and temporary set of incentives to protect the health of our economy and encourage job creation. If enacted in a timely manner, it is expected to help create more than half a million jobs by the end of 2008.
The Growth Package Includes Measures To Bolster Both Business Investment And Consumer Spending, Which Are Critical To Economic Growth
- The agreement reached today would allow Americans to keep more of their money to stimulate consumer spending. The growth plan provides approximately $100 billion in temporary relief that will allow Americans to keep or spend more of their incomes. Under the agreement:
- In 2008, taxes would be cut from 10 percent to zero percent on the first $6,000 dollars of taxable income for individual taxpayers and the first $12,000 of taxable income for couples. Taxpayers could receive rebates of up to $600 for individuals and $1,200 for couples. A minimum of $300 per person and $600 per couple would be available to those with at least $3,000 of earned income. This relief would be available to everyone with adjusted gross income less than $75,000 for singles and $150,000 for married couples filing jointly. It will be phased out for taxpayers above those income thresholds.
- Everyone eligible for this relief would also receive an additional $300 per child. For example, this would mean up to $1,800 of tax relief for an eligible couple with two children.
- The agreement would also offer incentives to spur business investment. The agreement would save businesses approximately $50 billion in near-term taxes through a temporary change to the tax code that will allow American businesses that buy new equipment this year to deduct an additional 50 percent of the cost of their investment in 2008. This will encourage businesses to expand and create new jobs now because buying equipment, software, and tangible property this year will dramatically lower their taxes. The agreement also increases expensing for small businesses.
- December 20, 2007
December 2007 Legislation
House Protects Millions of Families from AMT
The House of Representatives voted in favor of the Senate Amendment to H.R. 3996, the Tax Increase Prevention Act of 2007, legislation providing immediate tax relief to millions of families who would otherwise pay higher taxes under the alternative minimum tax (AMT) this year. Today’s action followed recent efforts by Senate Republicans to block consideration of House-passed legislation to provide AMT relief without adding to the national debt. The House twice passed revenue neutral AMT relief earlier this fall, but both measures, H.R. 3996 and H.R. 4351 fell victim to filibuster threats by Senate Republicans.
Ways and Means Committee Chairman Charles B. Rangel offered the following remarks during debate on the bill:
"This is an extraordinary time because the Republican minority in the Senate, bolstered by a lame-duck President, has actually dictated to the House of Representatives what they will or will not do with regards to this critical tax relief. The House has twice presented them with AMT relief that would not add to the national debt and they have twice blocked its consideration.
"So, what are our options? We could stick to our fiscal guns, saying that the right thing to do is not to pass a bill that we cannot pay for and that taxpayers are not really entitled to the benefits of waiving PAYGO rules. Or, we could say, why hold 23 million taxpayers hostage because of the irresponsibility of the minority in not being willing to pay for this relief, no matter how many alternatives we give them?
"We chose to protect the taxpayers. Forget the loopholes, forget the revenue losses, forget the indebtedness – at least for now – because we do not want those hardworking families to wake up in the morning and find that there is a feud between Republicans and Democrats that would cause them to carry this burden. We have come out on the side of the taxpayers and we hope we can pass this bill to offer protection from the AMT and then, in a responsible way, maybe Republicans and Democrats in the House and Senate can deal with this issue in a more permanent way next year.
H.R. 3996 would extend for one year AMT relief for nonrefundable personal credits and increase the AMT exemption amount to $66,250 for joint filers and $44,350 for single filers to ensure that no additional taxpayers are liable for the AMT this year.
- November 20, 2007
IRS Reminds Charities and Churches of Political Activity Ban
IRS Reminds Charities and Churches of Political Activity Ban
The Internal Revenue Service today reminded Section 501(c)(3) organizations, including charities and churches that federal law prohibits them from becoming directly or indirectly involved in campaigns of political candidates.
The prohibition against political campaign activity has been in effect for more than half a century and bars certain tax-exempt organizations from engaging on behalf of or in opposition to political candidates. However, these organizations can engage in advocating for or against issues and, to a limited extent, ballot initiatives or other legislative activities.
“The political contests, especially for president, are starting earlier than usual. The IRS, as it has in the past, wants to remind charities and churches of the ban on political campaign activity. We also want to urge nonprofit and religious organizations to review the guidance we have issued to help them avoid any problems,” said Steven T. Miller, Commissioner of IRS’ Tax Exempt and Government Entities Division.
The IRS’ goal is to educate the leadership of these organizations to help them stay within the legal boundaries. In this regard, IRS Rev. Rul. 2007-41 outlines a number of scenarios to help charities and churches understand the ban on political campaign activity and actions that may arise.
In addition to the revenue ruling, the IRS has other helpful information for churches and charities on its website at www.irs.gov/eo. For example, IRS Publication 1828, Tax Guide for Churches and Religious Organizations, contains a discussion of the law affecting political campaign activity by churches and religious institutions.
Violation of the law can result in imposition of an excise tax or, in extreme cases, a loss of tax exempt status.
In June 2007, the IRS released its Report on the Political Activity Compliance Initiative for the 2006 election cycle. This report, PACI 2006, follows the report on prohibited political campaign intervention in the 2004 election cycle, which was issued in February 2006.
- October 30, 2007
IRS Grants Tax Relief for Southern California Wildfire Victims
IRS Grants Tax Relief for Southern California Wildfire Victims
The Internal Revenue Service is extending tax return filing and payment deadlines for victims of the severe Southern California wildfires.
Taxpayers in the Presidential Disaster Area –– consisting of Los Angeles, Orange, Riverside, San Bernardino, San Diego, Santa Barbara and Ventura counties –– will have until Jan. 31, 2008, to file returns, pay taxes and perform other time-sensitive acts.
The extended deadline applies to items due on or after Oct. 21, 2007, when the fires began, and on or before Jan. 31, 2008. This includes the federal withholding tax return, Form 941, normally due Oct. 31, and the estimated tax payment for the fourth quarter, normally due Jan. 15.
In addition, the IRS is waiving the failure to deposit penalty for employment and excise deposits due on or after Oct. 21, 2007, and on or before Nov. 5, 2007, as long as the deposits are made by Nov. 5, 2007.
If any affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply during the period from Oct. 21, 2007, to Jan. 31, 2008, or Oct. 21, 2007, through Nov. 5, 2007, for failure to deposit penalties. No penalty or interest will be abated for taxpayers that do not have a filing, payment or deposit due date, including an extended filing or payment due date, during this period.
“As California taxpayers start the recovery process, the last thing they should worry about is meeting a tax deadline,” said IRS Acting Commissioner Linda Stiff. “The IRS offers many resources for disaster victims online at IRS.gov, over the phone and in person.”
IRS computer systems automatically identify taxpayers located in the covered disaster area and apply automatic filing and payment relief. Taxpayers within the covered disaster area do not need to identify themselves as affected by the wildfires by writing on their returns or using the disaster designation in their tax software.
- September 26, 2007
New Online Employer Identification Number Application Processes Requests in Minutes
New Online Employer Identification Number Application Processes Requests in Minutes
Taxpayers can now request an Employer Identification Number (EIN) through a Web-based system that instantly processes requests and generates identification numbers in real time, the Internal Revenue Service announced today.
"This new and improved online application will reduce the time it takes taxpayers to get an EIN," said Richard Morgante, Commissioner of the IRS Wage & Investment Division. "Essentially they can get one while they wait –– within minutes."
Here's how it works. A taxpayer accesses the Internet EIN system through IRS.gov and enters the required information. If the information passes the automatic validity checks, the IRS issues a permanent EIN to the taxpayer. If the information does not pass the validity checks, it is rejected. The taxpayer then has an opportunity to correct the information and resubmit the application.
The Internet EIN application is interactive and asks questions tailored to the type of entity the taxpayer is establishing. This is similar to popular tax processing software packages on the market.
The system provides "help" screens throughout the application process. This means taxpayers will no longer have to print the EIN instructions and separately search for answers while requesting an EIN.
When the EIN application process is complete, a taxpayer has the option to view, print and save his or her confirmation notice, as opposed to waiting for the IRS to mail it. Third parties authorized by the taxpayer can also be provided with the EIN, but the third party cannot view, print or save the confirmation notice. Instead, the confirmation notice is mailed to the taxpayer.
An EIN assigned through Internet submission is immediately recognized by IRS systems. Taxpayers can begin using the EIN immediately for most business purposes.
- September 12, 2007
Back-to-School Tax Breaks Help Teachers Pay Classroom Costs; Aid Parents, Students With College Tuition
With the new school year now under way, the Internal Revenue Service today reminded teachers, parents and students that saving receipts and keeping good records can help them take advantage of various education-related deductions and credits on their 2007 federal income tax return.
“The start of the school year is a good time to remind parents, students and teachers to save all receipts related to tax-advantaged education expenses,” said IRS Acting Commissioner Linda Stiff. “Good recordkeeping makes sense because it can help avoid missing a deduction or credit at tax time.”
Deductions reduce the income on which tax is figured. Credits reduce the overall tax. Though both can lower a person’s year-end tax bill or increase their refund, credits normally result in greater tax savings.
The educator expense deduction allows teachers and other educators to deduct the cost of books, supplies, equipment and software used in the classroom. Eligible educators include those who work at least 900 hours during a school year as a teacher, instructor, counselor, principal or aide in a public or private elementary or secondary school.
Worth up to $250, the educator expense deduction is available, whether or not the educator itemizes their deductions on Schedule A. In tax-year 2005, teachers and educators deducted just over $893 million of these out-of-pocket classroom expenses. Under current law, this deduction is scheduled to expire at the end of this year.
Three key tax breaks — the tuition and fees deduction, the Hope credit and the lifetime learning credit — help parents and students pay for the cost of post-secondary education. All three are available, regardless of whether an eligible taxpayer itemizes their deductions. Under current law, the tuition and fees deduction is scheduled to expire at the end of this year, but the two credits remain in effect. In tax-year 2005, taxpayers claimed tuition and fees deductions totaling nearly $11 billion and education credits of almost $6.2 billion.
Normally, a taxpayer can claim tuition and required enrollment fees paid for their own and their dependent’s college education. A taxpayer cannot take both an education credit and the tuition and fees deduction for the same student in the same year. Income limits and other special rules apply to each of these provisions. Education credits are claimed on Form 8863, and the tuition and fees deduction for 2007 will be claimed on new Form 8917.
- August 28, 2007
Home Foreclosures (FAQs)
Why is it that I may have both gain (or loss) and cancellation of debt (COD) income upon foreclosure of my house? In many home foreclosures, the mortgage debt is recourse and the fair market value (FMV) of the house is less than the unpaid face amount of the debt. Often in this situation the borrower/debtor transfers the house to the lender (or to a third party), either through a deed in lieu of foreclosure or as a result of a foreclosure proceeding. This transfer is treated as a sale or other disposition of the property and results in the borrower/transferor realizing gain or loss. At the time of the transfer, the lender often cancels the remaining mortgage debt, leading to COD income.
Different rules may apply if the mortgage debt is nonrecourse.
What is COD income, and how is it calculated? Loan proceeds are not included in income when received because there is an offsetting obligation to repay. However, if the debt is cancelled in part or full in a foreclosure proceeding, you will have COD income equaling the difference between the unpaid amount of the debt and the FMV of the property you transfer to the lender or a third party to discharge that debt. For example, if your debt prior to foreclosure was $200,000 and the FMV of the property was $170,000, you would have $30,000 of COD income.
Note: If you borrow money from a friend or relative and he or she cancels all or part of the debt, the cancellation often is treated as a gift from the lender to you. Gifts, including gifts of cancelled debts, are excludible from income. However, the cancellation of debt by a commercial lender is not a gift.
- August 9, 2007
Alternative Motor Vehicle Credit
Purchasers of Ford Hybrids Still Qualify for Tax Credit
The Internal Revenue Service announced that purchasers of qualified Ford Motor Company vehicles may continue to claim the Alternative Motor Vehicle Credit. The announcement comes after the IRS concluded its quarterly review of the number of hybrid vehicles sold. Ford sold 6,272 qualifying vehicles to retail dealers during the quarter ending June 30, 2007. This brings the total number of Ford qualifying hybrids reported to date to 33,547.
The credit amount and make and model of the certified vehicles sold are:
- Ford Escape 2WD Hybrid, Model Year 2008 — $3,000
- Ford Escape 2WD, Model Years 2005, 2006 and 2007 — $2,600
- Ford Escape 4WD Hybrid, Model Year 2008 — $2,200
- Ford Escape 4WD, Model Years 2005, 2006 and 2007 — $1,950
- Mercury Mariner 4WD Hybrid, Model year 2008 — $2,200
- Mercury Mariner 4WD, Model Years 2006 and 2007 — $1,950
- Mercury Mariner 2WD Hybrid, Model Year 2008 — $3,000
Taxpayers may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th vehicle. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter.
- July 23, 2007
New Electronic PIN Signature Requirement Begins in 2008
The Internal Revenue Service will simplify the signature process for electronically filed individual income tax returns submitted by tax practitioners. The simplification eliminates the need for a paper signature document to be sent to the IRS in support of electronically filed tax returns.
Beginning with the 2008 filing season, tax practitioners can e-file individual income tax returns only if the returns are signed electronically using one of two methods: either a Self-Select Personal Identification Number (PIN) or a Practitioner PIN. A Self-Select PIN allows taxpayers to electronically sign their e-filed return by selecting a five-digit PIN. A Practitioner PIN is used when a taxpayer authorizes an Electronic Return Originator (ERO) to input an electronic signature on behalf of the taxpayer.
Practitioner PINs require the use of Form 8879, IRS e-file Signature Authorization, which is retained by the ERO.
“Nearly 90 percent of tax professionals already use electronic signatures to sign returns,” Acting IRS Commissioner Kevin M. Brown said. “It’s the right time to take the next step toward truly paperless filing.”
Out of some 55 million e-filed returns that have come from tax professionals this year, more than 49 million used the Self-Select PIN or the Practitioner PIN. Overall, more than 77 million individual tax returns have been e-filed so far this year.
The change will simplify tracking, verification and follow-up on the paper signature documents, which were required for tax returns that did not use an electronic signature.
Tax practitioners will no longer submit a paper signature for e-filed returns by using Form 8453, U.S. Individual Income Tax Declaration for an IRS e-file Return. Instead, a newly designed Form 8453 will be used to transmit supporting paper documents that are required to be submitted to the IRS with e-filed returns. The new Form 8453 will be released later for use during the 2008 filing season.
- July 13, 2007
Revised Innocent Spouse Form Now Available
IR-2007-125
The Internal Revenue Service announced a redesigned Form 8857, Request for Innocent Spouse Relief, that will help reduce follow-up questions and reduce the burden on taxpayers.
The form will ask more questions initially, but collecting critical information early in the process will mean faster processing of the request. Previously, Form 12510, Questionnaire for the Requesting Spouse, was separate from Form 8857. The redesign will combine and streamline the two forms. The redesigned form will be easier to understand and complete and will help educate taxpayers about the process.
The new design will eliminate an estimated 30,000 follow-up letters annually. This will result in reduced burden, quicker responses to taxpayers and less cost to the government. The revisions were based on suggestions from an IRS process improvement team led by the Office of Taxpayer Burden Reduction.
When a taxpayer files a joint return, both spouses are jointly and individually responsible for the tax. Innocent Spouse relief provides an opportunity for a spouse to be relieved from the joint debt under certain circumstances. If a taxpayer believes that only his or her spouse or former spouse should be responsible for the tax, the taxpayer can request relief from the tax liability.
Related Items:
- April 25, 2007
Highlights of 2007 Tax Changes
Estate and Gift Taxes
Annual Exclusion for Gifts to Spouses Increased
The annual exclusion for gifts made to spouses who are not U.S. citizens has increased to $125,000.
Maximum Estate and Gift Tax Rate Reduced
For estates of decedents dying, and gifts made, after 2006 and before 2010, the maximum rate for the estate tax and the gift tax is 45%.
Foreign Issues
Foreign Earned Income and Housing Exclusions
- Exclusion amount. The maximum foreign earned income exclusion has increased to $85,700.
- Housing expenses—base amount. The base housing amount has increased to $37.57 per day, or $13,712 for an entire calendar year.
Foreign Tax Credit
- Income categories eliminated. For tax years beginning after 2006, the following categories of income will be eliminated for purposes of computing the foreign tax credit limit. Income that previously fell in these categories will fall in either the passive income category or the general limitation income category.
- High withholding tax interest.
- Financial services income.
- Shipping income.
- Dividends from a domestic international sales corporation (DISC) or former DISC.
- Certain distributions from a foreign sales corporation (FSC) or former FSC.
- High withholding tax interest and shipping income will fall in the passive income category or general limitation income category, depending on the circumstances. Financial services income will fall in the general limitation income category if you are predominantly engaged in the active conduct of a banking, insurance, financing or similar business. Dividends from a DISC or former DISC and certain distributions from a FSC or former FSC will fall in the passive income category. See Publication 514 for more information on the foreign tax credit for individuals.
- April 17, 2007
IRS Offers Last-Minute Reminders
With the April 17 tax return filing and tax payment deadline imminent, the Internal Revenue Service offers last-minute tips for those who haven’t yet filed or paid. Taxpayers can minimize any possible interest assessments and late filing or late payment penalties by filing and paying by the due date.
File Electronically
Filing electronically is fast, accurate and easy. The electronic filing program checks for errors and necessary information, increasing the accuracy of the return and reducing the need for correspondence with the IRS to clarify errors or omissions. The computer software leads the user step-by-step. Most people can usually file a state tax return at the same time they electronically file their federal return. Once the return is accepted for processing, the IRS electronically acknowledges receipt of the return. Generally, when someone files electronically, their refund will be issued in about half the time it would take if they had filed a paper return. Those who choose direct deposit will get their refund in even less time. More information on e-file is available on this Web site.
Use IRS Free File
Nearly 20 companies are offering free electronic filing to taxpayers whose 2006 adjusted gross income was $52,000 or less. That means 70 percent of all taxpayers, 95 million individuals, can take advantage of the IRS-sponsored Free File program. Free File cannot be accessed through tax preparation Web sites that inaccurately say they are part of the Free File Alliance. The only way to access this program is through the IRS’s own secure, official Web site, IRS.gov, where a link to Free File may be found on the home page.
Don’t Overlook These Benefits
- Telephone Excise Tax Refund - This is a one-time refund of long distance excise taxes available on 2006 income tax returns. The refund applies to charges billed from March 2003 through July 2006. The IRS offers a standard refund amount of $30 to $60, or taxpayers can calculate the actual tax paid. Even if the taxpayer does not normally have to file a return, Form 1040EZ-T can be used to request this refund. Businesses and exempt organizations can also request it. Taxpayers can find more information on this special payment on this Web site.
- March 26, 2007
IRS Announces Enhancements to Online Payment Agreement Application
With the filing deadline approaching, the Internal Revenue Service today announced enhancements to the interactive Online Payment Agreement application on IRS.gov. The Web-based application allows eligible taxpayers or their authorized representatives to self-qualify, apply and receive immediate notification of approval for installment agreements –including paperless direct debit agreements.
Two recent enhancements provide added functionality. The first permits individuals who have not yet received a bill to establish pre-assessed agreements on current tax year Form 1040 liabilities. The second allows practitioners with valid authorizations to remain in the application to request agreements for multiple clients.
The IRS estimates that over 75% of those eligible for an installment agreement can establish one using this application. Since launching in October, about 3,000 taxpayers have successfully used it to set up a payment agreement with the IRS.
Paying taxes on time and in full avoids unnecessary penalties and interest. However, taxpayers who cannot pay in full may request a payment agreement. To be eligible, a taxpayer must first file all required tax returns and be current with estimated tax payments if applicable.
Individuals with a balance due notice can access the application using the following information:
- Taxpayer identification number (generally a Social Security Number) and
- Personal identification number, which can be established online using the caller identification number from the balance due notice.
- March 1, 2007
IRS Extends Attributed Tip Income Program Deadline to June 30
The IRS has extended the 2007 deadline until June 30 for restaurant or beverage businesses to elect to participate in the Attributed Tip Income Program.
The extension is in response to requests from restaurant and beverage industry members and is only applicable for the 2007 calendar year.
Normally, eligible establishments must elect to participate in ATIP by Feb. 28 when they timely file their Form 8027, “Employer’s Annual Information Return of Tip Income and Allocated Tips.”
To participate in the program for calendar year 2007, employers should have started to attribute tips under the provisions of Revenue Procedure 2006-30 beginning with the first payroll period on or after Jan. 1, 2007. However, for calendar year 2007 only, employers will be granted until June 30, 2007, to begin the tip attribution process and make the election to participate in ATIP. As long as the employer notifies the Service that they would like to participate in the program via Form 8027, the safe-harbor protection will begin the first pay-roll period that the employer attributes tips based on the prescribed formula under the Revenue Procedure. The ATIP participation extension does not extend the Form 8027 filing deadline.
If the employer has already filed Form 8027 without electing ATIP participation, but now desires to participate, the employer should file a duplicate Form 8027 before June 30, 2007, electing to participate in the ATIP with a notation “Duplicate Filing to Elect ATIP Participation” prominently displayed on the Form. A copy of the duplicate filing must also be sent to the attention of the Employment Tax/ATIP Coordinator in Covington, Ky., as prescribed in the Revenue Procedure.
- February 13, 2007
IRS Moves to Prevent Telephone Tax Refund Abuse; Help Taxpayers Make Accurate Requests
The Internal Revenue Service announced today it is taking additional steps to prevent abuse by tax preparers and help taxpayers make accurate requests for the one-time telephone excise tax refund.
This week, IRS Criminal Investigation special agents and IRS revenue agents are conducting special site visits with tax preparers across the nation to prevent inflated requests made for the one-time telephone tax refund. Visits began this week to 22 different tax preparers who have handled more than 1,500 tax returns.
“We are taking this unusual step to confront blatant abuse of this important refund program,” said IRS Commissioner Mark W. Everson. “We want tax preparers to prepare accurate tax returns. If they don’t, we will move swiftly to impose civil penalties and, where warranted, seek criminal sanctions.”
The government stopped collecting the long-distance excise tax last August after several federal court decisions held that the tax does not apply to long-distance service as it is billed today. The IRS also authorized a one-time refund of the federal excise tax collected on service billed during the previous 41 months, stretching from the beginning of March 2003 to the end of July 2006. The tax continues to apply to local-only phone service.
The IRS has monitored telephone excise tax refund requests for potential problems since the tax-filing season opened in early January. The IRS has seen some problems with returns from tax preparers that may indicate criminal intent.
Some tax-return preparers are requesting thousands of dollars of refunds for their clients in instances where clients are entitled to only a tiny fraction of that amount. In some cases, taxpayers requested a refund in the thousands of dollars, suggesting that the taxpayer paid more for telephone service than they received in income. In several instances, taxpayers requested a refund of $30,000 – hundreds of times of what could be reasonably expected. Some refund requests appear to be for the entire amount of the taxpayer’s phone bill, rather than just the three-percent long-distance tax.
- January 25, 2007
Taxpayers Have Until April 17 to File and Pay
Taxpayers across the nation will have until Tuesday, April 17, 2007, to file their 2006 returns and pay any taxes due, the Internal Revenue Service announced today.
Taxpayers will have extra time to file and pay because April 15 falls on a Sunday in 2007, and the following day, Monday, April 16, is Emancipation Day, a legal holiday in the District of Columbia.
“This year, taxpayers have additional time to file and pay beyond the traditional April 15 deadline,” said IRS Commissioner Mark W. Everson. “As we always do, we encourage taxpayers to get an early start on their taxes to make sure they have plenty of time to accurately prepare their return.”
This means the entire country has an April 17 deadline. Previously, the April 17 deadline applied just to individuals in the District of Columbia and six eastern states who are served by an IRS processing facility in Massachusetts, where Patriots Day will be observed on April 16.
The April 17, 2007 deadline will apply to any of the following:
- 2006 federal individual income tax returns, whether filed electronically or on paper.
- Requests for an automatic six-month tax-filing extension, whether submitted electronically or on Form 4868.
- Tax year 2006 balance due payments, whether made electronically (direct debit or credit card) or by check.
- Tax-year 2006 contributions to a Roth or traditional IRA.
- Individual estimated tax payments for the first quarter of 2007, whether made electronically or by check.
- Individual refund claims for tax year 2003, where the regular three-year statute of limitations is expiring.
- January 5, 2007
2007 Filing Season Kicks Off with New Features, Extended Tax Breaks; Tax Forms in Mail This Week
The Internal Revenue Service today began a busy 2007 filing season that features telephone excise tax refunds, a new refund deposit feature and recently enacted tax breaks that may require extra attention from taxpayers.
“Taxpayers will have a number of new tax benefits and features available this year,” IRS Commissioner Mark W. Everson said. “We encourage taxpayers to take a few minutes to review these changes, particularly those involving the recently enacted tax law provisions. The IRS will do everything it can to minimize the impact on taxpayers.”
This week, the agency is sending 17 million 1040 tax packages for 2006 to taxpayers who have previously filed paper returns. The number of paper tax booklets being mailed to Americans continues to decline as more people opt for electronic filing. The IRS expects to process about 136 million individual tax returns for 2006, with more than half of those filed electronically.
Among the major changes taking place this year:
Telephone Excise Tax Refund
Individual taxpayers will be able to request a refund if they paid the federal excise tax on long-distance or bundled service. The government stopped collecting the federal excise tax on long-distance service in August and announced plans to provide refunds of these taxes billed after Feb. 28, 2003, and before Aug. 1, 2006. More than 146 million individual taxpayers are expected to request the refund.
- December 11, 2006
Tax Relief and Health Care Act of 2006
Congress recently passed H.R. 6111, the Tax Relief and Health Care Act of 2006. President Bush signed the bill into law on December 20, 2006.
The following Short Summary of Tax and Other Provisions in H.R. 6111 was released by the Committee on Ways and Means.
Extension and Modificaiton of Certain Tax Relief Provisions
The Tax Relief and Health Care Act of 2006 extends through 2007, and in certain circumstances modifies, provisions which either expired at the end of 2005 or will expire at the end of 2006.
- Above-the-line deduction for higher education expenses.
- Extension of new markets tax credit and modification for rural counties.
- State and local sales tax deduction.
- Extension of the Research and Development (R&D) Tax Credit and expansion to enhance alternative methods of determining the credit.
- Extension and expansion of the Work Opportunity Tax Credit (WOTC) for hiring individuals who face barriers to employment – and combination of the credit with the Welfare-to-Work Tax Credit in 2007.
- Welfare-to-Work Tax Credit for hiring individuals who have received public assistance for an extended period of time – and combination with the WOTC in 2007.
- Treating combat pay as earned income for purposes of the earned income credit calculation.
- Authority to issue Qualified Zone Academy Bonds (QZABs) for school modernization, equipment and teacher training in high-poverty areas.
- Above-the-line deduction for out-of-pocket teacher classroom expenses.
- November 6, 2006
IRS Expands Taxpayers’ Options for Direct Deposit of Refunds
General
Hoping to encourage higher savings and more banking, the Internal Revenue Service announced that it will create a new program to allow taxpayers who use direct deposit to divide their refunds in up to three financial accounts.
New Form
The IRS will create a new form, Form 8888, which will give taxpayers greater control over their refunds. Form 8888 will give taxpayers a choice of selecting one, two or three accounts such as checking, savings and retirement account. Taxpayers who want all their refund deposited directly into one account can still use the appropriate line on the Form 1040 series.
"Direct deposit is growing rapidly and is now used by over half of all refund filers,” said IRS Commissioner Mark W. Everson. “This program will give taxpayers the option of depositing a refund into more than one account. Split refunds should encourage saving, and we hope it will dampen demand for refund anticipation loans.”
The program will take effect in January 2007.
Background
More than three-quarters of the nation’s taxpayers receive refunds each year. Last year, the average refund was $2,171. The IRS repeatedly has encouraged taxpayers to adjust their payroll withholding to ensure they pay only the taxes required, but some people appear to view payroll withholding as a way to save money.
Direct deposit of refunds was first offered in 1987. Last year, the IRS issued 100 million refunds (from 133 million tax returns) amounting to $217.6 billion. Of those figures, 52.7 million refunds amounting to $134.2 billion were deposited directly into bank accounts.
- September 19, 2006
Hybrid Cars and Alternative Motor Vehicles
Vehicles Purchased or Placed in Service in 2006
The Energy Policy Act of 2005 replaced the clean-fuel burning deduction with a tax credit. A tax credit is subtracted directly from the total amount of federal tax owed, thus reducing or even eliminating the taxpayer’s tax obligation. The tax credit for hybrid vehicles applies to vehicles purchased or placed in service on or after January 1, 2006.
The credit is only available to the original purchaser of a new, qualifying vehicle. If a qualifying vehicle is leased to a consumer, the leasing company may claim the credit.
Hybrid vehicles have drive trains powered by both an internal combustion engine and a rechargeable battery. Many currently available hybrid vehicles may qualify for the tax credit.
These models have been certified for the credit in the following amounts:
Model Year 2007
- Chevrolet Silverado 2WD Hybrid Pickup Truck — $250
- Chevrolet Silverado 4WD Hybrid Pickup Truck — $650
- Ford Escape Hybrid 2WD — $2,600
- Ford Escape Hybrid 4WD — $1,950
- GMC Sierra 2WD Hybrid Pickup Truck — $250
- GMC Sierra 4WD Hybrid Pickup Truck — $650
- Lexus GS 450h — $1,550
- Mercury Mariner 4WD Hybrid — $1,950
- Saturn Vue Green Line — $650
- Toyota Camry Hybrid — $2,600
- August 12, 2006
Pension Protection Act of 2006
Summary
On August 3, 2006, Congress passed the Pension Protection Act of 2006 (H.R. 4). President Bush signed the legislation into law on Thursday, August 17, 2006. Below is a summary of the major provisions.
Tax Provisions
- Makes permanent the provisions from the Economic Growth and Tax Relief Reconciliation Act of 2001 related to individual retirement accounts and pensions
- Increase in annual contribution limit for IRAs
- Increase in the contribution limits on 401(k) plans
- Catch-up contributions for people age 50 and over
- Tax credit for pension start-up costs
- Treatment of elective deferrals as after-tax Roth contributions
- Makes permanent the saver's tax credit aimed at lower income taxpayers
- Provides for increased flexibiility and favorable tax treatment of annuity and life insurance contracts with a long-term care insurance option
- Provides for direct deposit of tax refunds into IRAs
- Waives the 10 percent early withdrawal penalty for distributions to public safety employees over 50 who may retire early
- Waives the early withdrawal penalties on distributions from an IRA or pension plan taken by members of the National Guard and Reserves called to active duty
- Permanently extends Section 529 qualified tuition programs
Charitable Provisions
- Provides for tax-free distributions from IRAs for chariable purposes
- Provides a basis adjustment to stock of S corporation contributing property
- Extends the charitable deduction for contributions of book inventory
- Extends the charitable deduction for contributions of food inventory
- Changes the tax treatment of certain payments to controlling exempt organizations
- Raises the deduction limit for qualified conservation contributions
- Provides for an excise tax exemption for blood collector organizations
- Provides for recapture of tax benefit for charitable contributions of exempt use property
- Modifies the record keeping requirements for certain charitable contributions
- Modifies the rules for chariable contributions of clothing and household items
- Changes the rules relating to donations of a fractional interest in property
- July 20, 2006
TaxAlmanac continues to provide updated tax code
Overview
Taxalmanac has now been updated with the provisions of the Tax Increase Prevention and Reconciliation Act of 2005 and Heroes Earned Retirement Opportunities Act. Although these tax acts were signed into law by the President in May, 2006, we needed to wait for the public law version of the legislation to be posted by the Government Printing Office. The public law version is most suitable for importing.
As far as we know, TaxAlmanac is the only website to provide a free, up to date version of the tax code. The federal government provides a version of the tax code that is several years old. Please read more about the version of the tax code residing on TaxAlmanac: About the Internal Revenue Code.
- June 20, 2006
 | TaxAlmanac Receives Distinguished Industry RecognitionRecognized as a Top Innovation of 2006 by CPA Technology Advisor |
Intuit's TaxAlmanac was recently awarded one of five Tax and Accounting Technology Innovation Awards given annually by CPA Technology Advisor at the California Accounting & Business Show & Conference in Los Angeles on June 5th.
Selected from over 75 entries, TaxAlmanac is the innovative tax research web site that allows registered users to update and maintain research content and assist each other through collaboration. Since being launched in May of 2005, participation and feedback have been outstanding.
During the awards ceremony, TaxAlmanac was noted for its use of "Wiki" technology to provide a free interactive tax research portal for professionals. Each year, the awards are given to recognize significant developments or advancements in technologies that benefit the tax and accounting professions.
More details? Read the article in full. view
- May, 2006
 | Happy Birthday... TaxAlmanac!Celebrating One Year of a Tax and Accounting Professional Community |
Just one year ago, Intuit launched a new online community called TaxAlmanac – an innovative tool that brings together tax and accounting professionals who want to share knowledge, information and insight about tax law research. Created to offer an alternative to expensive and complex tax research solutions, the site has experienced an overwhelming response since its inception – now boasting more than 10,000 registered users and 169,000 unique visitors.
The feedback from those who use the site - some of whom are our customers and others who are not – has been phenomenal. Tax preparers across the country are initiating dialogue and discussions on a wide-range of topics thanks to the recently-added Discussion Forums launched late last year. Registered users simply ask questions of their online peers and receive quick and useful responses.
While those who frequent the site have come to appreciate all that TaxAlmanac has to offer, business and industry publications are also taking note. Since being launched last June, TaxAlmanac has been featured in several accounting trade magazines, blogs, and major publications, including:
- The CPA Technology Advisor, "TaxAlmanac.org Offers Interactive Online Resource", 9/1/05 - "TaxAlmanac.org offers the promise of a revolutionary leap forward in how tax professionals research tax laws and create and share knowledge."
- Warrillow Weekly, "Intuit's wiki ways win word-of-mouth", 4/18/06 - "A cutting-edge example..."
- Time Magazine, "It’s a Wiki, Wiki World," 6/6/05 - Highlighted as "A Community of Customers"
- Business Week, "50 Smart Ways to Use the Web," 11/21/05 - Selected as one of the top 50 and cited as a best practice in the collaboration category.
In the upcoming year, we look to you - members of the TaxAlmanac Community - to help us make the site an even better resource for you and your peers. Simply tell us how we can improve the site to better meet your tax research needs by posting a comment in the Discussion Forum.
We hope to continue to learn from you and thank all of our TaxAlmanac visitors who have submitted and contributed tax information and research, making the site a valuable resource for all members of the TaxAlmanac community.
The entire TaxAlmanac team thanks you, the TaxAlmanac Community, for all of your support this past year!
Tim Doyle, Brian Andrews, Mike D'Avolio, Michael Rainwater, and Jeff Wolfe.
- Note: If you'd like to wish TaxAlmanac a Happy Birthday, or simply tell us what you'd like to see improved here in the next year, take a look at the Happy Birthday, TaxAlmanac Discussion.
- April 25, 2006
Business Growth Community
|
Are you interested in growing your business? How do you increase your client base? How do you get off the ground in the first year or two? What alternative income streams are available? This TaxAlmanac Community is focused on just these questions and more. Would you like to network with others who are interested in growing their business and helping you to grow yours? To join this group, simply add the text "{{Grow}}" to your user page.
Business Growth Resources
- Growing and Managing your Business on the Small Business Administration website
- GoDaddy.com - Inexpensive website host with good support.
- VistaPrint.com - Free color business cards
- Entrepreneur.com
- Business 2.0 - A great magazine that will inspire your endeavors
Group Members
2lordis@gmail.com, 94nole, 99Hokie, AEM CPA, Aa1123, Aca2ea, Adinkra, Aes, Agham12, Anchorman, Andyjancpa, Asendro, BTax2010, Backtotx, Bbowers, BeanCounter1, Bert73, Bigtexcpa, Bluzman, Bx524 lca, CATaxGirl, Chardi7, Cobbcpa, ConservativeDC, Corptax, Cpaeth, CrowJD, DZCPA, Death&Taxes, Denisev1220, DerekCPA, Dingodile, Dnsr718, Donnie C, Doug-tax, Drawdy, Drohmcpa, DublinTax, Dusty, Dwaltman, EAinIL, EAinNH, EasternPA, Ecimi, EmpireCPA, Ex-IRS, FCGMinnesota, FHDCPA, Fletch, Fort Wayne CPA.
- To join this community, simply add the text "{{Grow}}" to your user page. Your user page can be accessed by clicking on your user name in the very top line after logging in.
Discussions
| Topic | Views | Replies | Last Edit |
|---|---|---|---|
| AICPA Membership | 1938 | 22 | 2 weeks ago ago |
| Tax Preparer Mistake | 5550 | 47 | 4 weeks ago ago |
| Selling business | 324 | 0 | 1 month ago ago |
| Intuit Payment Network alternatives? | 620 | 5 | 1 month ago ago |
| Do Any of You Share Space with Other Professionals? | 673 | 12 | 2 months ago ago |
- March 29, 2006
2006 Tax Law Changes
The following is a summary of the tax law changes impacting the 2006 tax year that we are aware of (based on IRS Publication 553). Please feel free to add any other provisions we may have missed. Note: This page is still being populated with applicable tax law changes. Please do not consider this list as complete.
| Category | Subject | High-Level Summary |
|---|---|---|
| General | Inflation Adjustments and Statutory Changes | Changes to exemptions, standard deduction, etc. Read more... |
| General | Expiring Provisions | Certain tax benefits will be expiring in 2006 unless Congress passes legislation to extend the provisions. Read more... |
| Individual | Alternative Minimum Tax (AMT) | Decreased AMT exemption amount for most taxpayers, increased AMT exemption for children and certain credits no longer allowed against AMT. Read more... |
| Individual | Residential Energy Credits | Non-business energy property credit and residential energy efficient property credit. Read more... |
| Individual & Business | Alternative Motor Vehicle Credit | The clean-fuel vehicle deduction and electric vehicle credit have been replaced by two new credits. Read more... |
| Business | Deduction for Energy Efficient Commercial Building Property | New tax deduction for property placed in service in 2006 or 2007. Read more... |
| Business | Energy Efficient Home Credit | New credit applies to eligible contractors. Read more... |
| Retirement Plans | Retirement Plans | Changes to limits on contributions, benefits and compensation. Read more... |
| Estate and Gift Taxes | Estate and Gift Taxes | Changes to exclusion amounts and tax rates. Read more... |
- March 3, 2006
Deduction for Domestic Production Activities
Overview
The American Jobs Creation Act of 2004 added the domestic production activities deduction, a tax benefit for certain domestic production activities. This deduction provides a tax savings against income attributable to domestic production activities. The Act created new Internal Revenue Code Section 199 and is available to corporations, individuals, and pass-thru entities such as S Corporations, partnerships, estates and trusts. For the pass-thru entities, the deduction is applied at the individual partner, shareholder, or similar level. This deduction is available for tax years beginning after December 31, 2004.
Computation
For 2005 and 2006, the deduction equals 3% of the lesser of: (a) qualified production activities income; or (b) taxable income for the taxable year. However, the deduction for a taxable year is limited to 50 percent of the W-2 wages paid by the taxpayer during the calendar year that ends in such taxable year. The deduction is phased-in; for 2007 through 2009 the percentage increases to 6% and for 2010 and after the percentage will be 9%.
Activities
Qualified production activities include manufacturing, producing, growing, and extracting tangible personal property, computer software, and sound recordings, and the construction and substantial renovation of real property including infrastructure. The production of certain films is also a qualifying activity as are certain engineering or architectural services.
Gross Receipts
For gross receipts to be considered domestic production gross receipts that are used in calculating qualified production activities income, ...
- February 9, 2006
Uniform Definition of a Qualifying Child
Beginning in 2005, one definition of a "qualifying child" will apply for each of the following tax benefits.
- Dependency exemption.
- Head of household filing status.
- Earned income credit (EIC).
- Child tax credit.
- Credit for child and dependent care expenses.
Tests To Meet
In general, all four of the following tests must be met to claim someone as a qualifying child.
- Relationship test. The child must be your child (including an adopted child, stepchild, or eligible foster child), brother, sister, stepbrother, stepsister, or a descendent of one of these relatives.
- An adopted child includes a child lawfully placed with you for legal adoption even if the adoption is not final.
- An eligible foster child is any child who is placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction.
- Residency test. The child must live with you for more than half of the year. Temporary absences for special circumstances, such as for school, vacation, medical care, military service, or detention in a juvenile facility count as time lived at home. A child who was born or died during the year is considered to have lived with you for the entire year if your home was the child's home for the entire time he or she was alive during the year. Also, exceptions apply, in certain cases, for children of divorced or separated parents and parents of kidnapped children. For more information, see Publication 501, Exemptions, Standard Deduction, and Filing Information.
- January, 2006
A Message to the TaxAlmanac Community
The TaxAlmanac team would like to wish everyone a successful tax season! We are looking forward to partnering with you throughout the year to ensure your tax research needs are met. We hope to continue to learn from you and are encouraged to see members of the community helping each other in the Discussion Forums. We would also like to thank TaxAlmanac contributors who have submitted articles, created user pages, and edited articles. All of this makes the site more valuable to other members of the TaxAlmanac community.
The site was created because many of our customers told us they felt that the current solution to tax research was expensive and difficult to use. Sounds like another great opportunity for Intuit! Since we launched about seven months ago, more than 7,500 people have signed up for a free TaxAlmanac account. Traffic has increased by nearly 500% unique visitors per day in the past few weeks. You're a big part of the success of this site and we thank you for contributions in helping to get this beta site launched.
We are also proud that in a very short period of time, this site has caught the attention of the accounting trade magazines, blogs, and major magazines. The June 6, 2005 edition of Time magazine featured an article on Wikipedia. TaxAlmanac was highlighted as "A Community of Customers" in the hard copy of the Time magazine article entitled "It's a Wiki, Wiki World." The November 21, 2005 edition of Business Week magazine featured an article titled "50 Smart Ways to Use the Web" in which TaxAlmanac was selected as one of the top 50. TaxAlmanac was cited as a best practice in the collaboration category. Again, thank you for helping make this site successful.
We plan on making some major improvements to the TaxAlmanac site during the coming year. If there's anything we can do to make TaxAlmanac a better resource for you, we would love to receive your feedback in the feedback section of the Discussion Forums.
Thank you and have a great 2006!
- December 28, 2005
Rebecca L. Martin's User Page
This page is an excellent example of a user page here on TaxAlmanac. Rebecca has described her professional background and also shared her interest in kayaking and the beauty of her state with other TaxAlmanac users. Each user has the ability to create their own customized user page. To start, log in and then select your name from the very top line on the screen.
Rebecca L. Martin, CPA (Alaska)
I am new to TaxAlmanac and heard about it from Lacerte.
I am an Alaska CPA and moved to Anchorage after my graduation with a BS/MS from the University of North Texas. I have over 9 years of experience, over 1 year with Deloitte & Touché and almost 5 years with a 32-person regional firm, leaving as a tax manager. In 2003, I began my own firm, specializing in estate, gift, and trust compliance, research and planning.
Although I would love to be completely specialized in estate, trust and gift, living in the Anchorage area lends itself to a more generalist practice. I continue to service small service businesses (of various entity types) and some individuals.
- September 22, 2005
Katrina Emergency Tax Relief Act of 2005
On September 21, 2005, Congress passed H.R. 3768, the Katrina Emergency Tax Relief Act of 2005. President Bush signed the bill into law on September 23, 2005. Congress is also expected to consider additional tax relief for Hurricane Katrina in the near future.
Technical Explanation of H.R. 3768, the Katrina Emergency Tax Relief Act of 2005: Joint Committee on Taxation
The TaxAlmanac website has been updated with the amendments to the Internal Revenue Code.
The following summary of the legislation has been provided by the Committee on Ways and Means just prior to passage of the bill.
RELIEF FOR INDIVIDUALS AFFECTED BY HURRICANE KATRINA
- Holds families harmless against the loss of tax benefits due to temporary relocations. Damage caused by the hurricane has displaced hundreds of thousands of individuals, who are temporarily living with family, friends or good Samaritans. Under current law, a prolonged change in their living situation could affect their eligibility for various tax benefits. The proposal allows individuals the option of using their 2004 income to calculate the child credit and the Earned Income Credit on their 2005 tax returns. This special rule applies to individuals who were displaced from their principal residence by reason of Hurricane Katrina. The proposal also grants the U.S. Treasury Department the authority to ensure that taxpayers do not lose tax benefits or experience a change in filing status in 2005 and 2006 due to temporary relocations.
- Ensures that families are not taxed on forgiven debt. Under current law, amounts realized from the discharge of indebtedness are generally treated as taxable income to the individual. The proposal ensures that individuals affected by the hurricane are not taxed on personal debt relief related to the hurricane, such as the cancellation of a mortgage, provided before 2007.
- Provides tax relief for housing assistance to dislocated persons. The proposal creates a special tax deduction for individuals who provide rent-free housing to dislocated persons for at least 60 days. The deduction is $500 for each dislocated person housed in the individual’s principal residence (up to a maximum of $2,000). The deduction can be claimed in either 2005 or 2006, but cannot be claimed in both years with respect to the same person.
- Allows full deductibility of personal casualty losses. Under current law, individuals who itemize their deductions may deduct personal casualty losses to the extent they exceed 10 percent of adjusted gross income and a $100 floor. The proposal waives the 10-percent and $100 floors, thus allowing individuals to fully deduct their losses.
- September 13, 2005
2005 Tax Law Changes
The following is a summary of the tax law changes impacting the 2005 tax year that we are aware of. Please feel free to add any other provisions we may have missed.
| Category | Subject | High-Level Summary |
|---|---|---|
| General | Inflation Adjustments and Statutory Changes | Changes to the exemptions, standard deduction, etc.. Read more... |
| Individual | Charitable Contributions of Cars, Boats, and Aircraft | Changes to the deduction limits, required acknowledgement, etc. Read more... |
| Individual | Uniform Definition of a Qualifying Child | Changes to dependents, head of household, earned income credit, child tax credit and dependent care credit. Read more... |
| Business | Deduction for Domestic Production Activities | Addition of a new tax deduction. Read more... |
| Business | Electing S Corporation Status | Change to the maximum number of shareholders. Read more... |
| Retirement Plans | Qualified Plans | Changes to Limits on Contributions, Benefits and Compensation. Read more... |
| Exempt Organizations | Acknowledgement Required for Car Donations | Qualified organizations that receive car donations after December 31, 2004, must give the donor a written acknowledgement of the donation. Read more... |
| Foreign Issues | Repeal of Extraterritorial Income Exclusion | After a 2 year transition period, this exclusion will be fully repealed. Read more... |
| Foreign Issues | Alternative Minimum Tax Foreign Tax Credit (AMTFTC) 90% Limit Repealed | The amount of AMTFTC you can use to offset your alternative minimum tax is increased to 100%. Read more... |
- August 11, 2005
Energy Policy Act of 2005 & Transportation Act of 2005
Summary
- On July 29, 2005, Congress passed the Energy Policy Act of 2005 (H.R. 6) and the Safe, Accountable, Flexible, and Efficient Transportation Equity Act of 2005 (H.R. 3). President Bush signed the first act into law on August 8, 2005 and the second act into law on August 10, 2005.
Discussions
- Discussions or questions about this subject can be made on the discussion page.
TaxAlmanac
- These two tax acts have now been incorporated into the Internal Revenue Code residing on the TaxAlmanac website. TaxAlmanac is the only known free website to feature a complete, updated tax code.
Highlights of the Energy Policy Act of 2005
- Offers consumers tax credits for making energy efficiency improvements in their homes
- Tax credits are available for highly efficient central air conditioners, heat pumps, and water heaters, as well as to upgrade thermostats, install exterior windows, and stop energy waste
- August 4, 2005
TaxAlmanac:User Introductions
Hi, and welcome to TaxAlmanac! If you're new to our community, drop us a note here and tell us a little bit about yourself. Most importantly, we would like to know about your interests, your areas of knowledge, and the sorts of things you'd like to work on here at TaxAlmanac. That makes it easier for us to help you start editing. We'd also appreciate it if you told us how you found out about TaxAlmanac.
Isabel A. D. Bengtson, E. A.
I am a tax accountant who is an Enrolled Agent. I also have a master's degree in Taxation. In the area of the country that I live in, the tax preparers/accountants were approached to add financial services to our practices. So, I hold a series 6 and 62 license. This allows me to service my clients in the area of mutual funds. I have been in practice 21 years. I do mostly personal, Sch C, partnership, trusts, estates. I am a member of NAEA and NATP. I also am a notary public. We do wear a lot of hats sometimes. I find that I collect resources for my clients, so that when they have a problem, I have someone that I can recommend that they use. My practice is year round, but I am busiest during tax season. I am a one person office since I decided when I started that I wanted to do taxes, not to manage other people. I heard about the TaxAlmanac through an email from Proseries (TurboTax Professional). Taxqueen Ben7440105 08:48, 7 Aug 2005 (CDT)
Taxladyml, EA, NTPI Fellow
Hi everyone! Since 1992 I have owned my own tax business in a town with a population of about 17,000. I earned my Enrolled Agent designation in 1999. I am a Fellow of NTPI (National Tax Practice Institute) having completed their three-year program in Representation and Practice before the IRS. I am a member of NAEA, NSTP & NATP. I started my tax career by working and teaching for 2 years for H&R Block. I offer ‘after the fact’ payroll quarterly forms preparation in addition to Washington State payroll & tax forms (we do not have a state income tax).
During the tax season I employ 3 preparers and a receptionist to assist me in preparing approximately 1200 returns, 95% of which we e-file. My office specializes in individuals and Sch C businesses, 25 – 30 of which are daycare operators.. We prepare approximately 25 partnerships and S-Corps. I have been an instructor for the AARP Tax Aide program and I currently teach Recordkeeping for Daycare Operators for Catholic Family Services.
I hope this resource grows as I would like to learn from others experiences. I found out about TaxAlmanac from a Lacerte Software Newsletter.
Taxladyml 17:02, 27 Jul 2005 (CDT)
- July 27, 2005
Clean-Fuel Deduction
The original purchaser of a qualifying hybrid gas-electric car may deduct $2,000 for the year the vehicle is first used, if that year is before 2006. In 2006, the deduction is scheduled to drop to $500.
These vehicles qualify for the clean-fuel vehicle deduction:
- Lexus RX 400h — Model Year 2006
- Ford Escape Hybrid — Model Year 2005
- Toyota Prius — Model Years 2001 through 2005
- Honda Insight — Model Years 2000 through 2005
- Honda Civic Hybrid — Model Years 2003 and 2005
- Honda Accord Hybrid — Model Year 2005
Deduction for nonbusiness clean-fuel vehicle property by individuals. Individuals can claim the deduction for clean-fuel vehicle property used for nonbusiness purposes by including the deduction in total adjustments on Form 1040, and by entering “Clean Fuel” and the dollar amount on the dotted line next to the total adjustments line. If the vehicle is used partly for business, see the next two discussions.
Deduction for business clean-fuel vehicle property by employees. Employees who use clean-fuel vehicle property for business, or partly for business and partly for nonbusiness purposes, should include the entire deduction in total adjustments on Form 1040, and enter "Clean Fuel" and the dollar amount on the dotted line next to the total adjusments line.
- July 15, 2005
Minister / Clergy Taxation
- Note: The following topic was contributed by TaxAlmanac member Gregg Gillaspy, CPA, CFP, who has done a great job with this article. If you have knowledge of this subject, Gregg invites you to join in and help to improve it. Simply select the Read more... link at the bottom, then select the edit tab at the top of that page.
Minister Parsonage and Housing Allowances (Sec. 107. Rental value of parsonages)
Parsonage
- Church owned parsonage provided to a minister to live in while performing ministerial duties for the church. The annual fair rental value is not included in the minister's compensation for federal income tax purposes.
Parsonage Allowance
- That portion of a minister's compensation received from a church which is designated as a parsonage allowance and is used to pay parsonage related expenses.
Housing Allowance
- That portion of a minister's compensation received from a church which is designated as a housing allowance and is used to pay housing related expenses.
Designating a parsonage or housing allowance
- Should be:
- Approved by the church board or congregation.
- Recorded in the church board minutes or in writing.
- Done before the year starts. It can only be put into effect prospectively. A retroactive designation is not allowed.
- July 11, 2005
Schedule K-1 - Line 20 (Form 1065) Code Definition
For 2004, schedule K-1 (1065) has been redesigned. Each amount on schedule K-1 now has a code next to it, with a list of codes being attached to the prepared K-1. The information below is from the schedule K-1 partners instructions that should be distributed to each partner.
Line 20 - Other Information
Code A - Investment Income = Report on line 4a of form (Form 4952) "Investment Interest Expense Deduction"
Code B - Investment Expenses = Report on line 5 of form (Form 4952) "Investment Interest Expense Deduction"
Code C - Fuel Tax Credit Information = Partnership will report the number of gallons sold of each fuel type sold or used during the tax year for a nontaxable use qualifying for the credit for taxes paid on fuel. Use this information to complete (Form 4136) "Credit for federal tax paid on fuels".
Code D - Look back interest - Completed long term contracts = The partnership will include any information you need to figure the interest due or to be refunded under the look-back method of section 460(b)(2) on certain long-term contracts. Use form (Form 8697) and (instructions), "Interest computation under the look-back method for completed long-term contracts", to report any such interest.
Code E - Income forecast method - Completed long term contracts = The partnership will include any information you need to figure the interest due or to be refunded under the look-back method of section 167(g)(2) on certain property placed in service after September 13, 1995 and depreciated under the income forecast method.Use form (Form 8866) and (instructions), "Interest computation under the look-back method for property depreciated under the forecast method", to report any such interest.
- July 5, 2005
About the Internal Revenue Code
The version of the Internal Revenue Code posted on TaxAlmanac has been updated and is current. We are not aware of any other free publications of the Internal Revenue Code that are as current as ours. The version of the Internal Revenue Code provided by the government and posted on other websites at no cost has been updated only through January 22, 2002.
We first imported the Internal Revenue code provided by the government into TaxAlmanac. Then, we reviewed the public laws enacted since 2001 and posted the amendments, technical corrections and additions. We also annotated the system to show the changes and amendments posted. During this project, over 1,000 pages of enacted legislation were reviewed and more than 2,500 amendments, changes and corrections were posted to the tax code on TaxAlmanac.
The following public laws were reviewed and posted into the 2002 version of the Internal Revenue Code provided by the government:
- PL 107-147 Job Creation and Worker Assistance Act of 2002
- PL 108-027 Jobs and Growth Tax Relief Reconciliation Act of 2003
- PL 108-121 Military Family Tax Relief Act of 2003
- PL 108-173 Medicare Prescription Drug, Improvement, and Modernization Act of 2003
- PL 108-218 Pension Funding Equity Act of 2004
- PL 108-311 Working Families Tax Relief Act of 2004
- PL 108-357 American Jobs Creation Act of 2004
- June 29, 2005
Roth Distributions
In determining the taxability of Roth IRA distributions, it is first necessary to determine if the distribution is a qualified distribution or a non-qualified distribution. IRS Publication 590 defines a qualified distribution as one that meets the following conditions:
- 1. It is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for the taxpayer's benefit, and
- 2. The distribution is:
- a. Made on or after the date the taxpayer reaches age 59 1/2, or
- b. Made because the taxpayer is disabled, or
- c. Made to a beneficiary or to the taxpayer's estate after death, or
- d. Made to buy, build, or rebuild a first home as defined in code section 72(t)(8).
If a distribution does not meet the conditions of a qualified Roth distribution (defined above), then the distribution is a non-qualified distribution.
Taxability of Roth Distributions
Qualified Roth distributions are not subject to income tax or the additional 10% tax on early distributions. Non-qualified Roth distributions are subject to income tax only after all contributions to the Roth IRA have been returned. For this purpose, contributions include all regular contributions to the Roth IRA, and amounts converted from traditional IRAs to Roth IRAs in prior years. Thus, the only component of a Roth IRA that can be taxable is the earnings portion of the Roth IRA that is included in a non-qualified distribution.
- June 21, 2005
Tax Freedom Day
Tax Freedom Day is the day each year when a nation as a whole has earned enough income to fund its annual cost of government. Tax Freedom Day is a registered trademark of the Tax Foundation, a Washington D.C.-based nonpartisan tax research group, and is used as a tool for illustrating the proportion of national income that goes to pay the annual cost of government.
In the United States, Tax Freedom Day for 2005 was April 17. The latest that Tax Freedom Day has occurred is May 3 in 2000. In 1910, Tax Freedom Day fell on January 20. Though Tax Freedom Day has risen and fallen with business cycles, it has steadily moved later into the year over time, which means that the nation's average tax burden has increased.
Methodology
Tax Freedom Day is an estimate of what the nation's tax burden will be in the current year. It is calculated by dividing the official government tally of all taxes collected in each year by the official government tally of all income earned in each year. All data is taken directly from the Bureau of Economic Analysis. Governments — federal, state and local — took 30.3% of income in 1980; 30.5% in 1990; 33.6% in 2000; and so on. This percentage is what is properly called the "nation’s total tax burden." The historical trend and the most recent economic data is used to make a projection of what the tax burden will be in the current year.
