Tax Debt Reduction: New Flexibility for Offers In Compromise

New Flexibility for Offers in Compromise

For some taxpayers, an offer in compromise –– an agreement between a taxpayer and the IRS that settles the taxpayer’s debt for less than the full amount owed –– continues to be a viable option. IRS employees will now have additional flexibility when considering offers in compromise from taxpayers facing economic troubles, including the recently unemployed.

Specifically, IRS employees will be permitted to consider a taxpayer’s current income and potential for future income when negotiating an offer in compromise. Normally, the standard practice is to judge an offer amount on a taxpayer’s earnings in prior years. This new step provides greater flexibility when considering offers in compromise from the unemployed. The IRS may also require that a taxpayer entering into such an offer in compromise agree to pay more if the taxpayer’s financial situation improves significantly.

These immediate steps are part of an on-going effort by the IRS to ensure the availability of the Offer in Compromise program for taxpayers.

Contact First Tax Solution to see if you qualify for assistance. With our Professional Personalized Accounting Management Team we can find any tax solution to fit your personal needs.

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CORPORATE TAXES ARE DUE MARCH 15

Corporate taxes are due. Are you a small business? even though you file a corporate tax return.

Your 1120 C or 1120 S corporate return is due on March 15, 2010.

Are you one of the many 1120C's and 1120S corporate tax filers that are required to file electronically?

If you do not meet the requirements to file electronically, small Corporate Business's may elect to file electronically for convenience.

Filing Electronically save a great deal of time and money for you the tax payer. First Tax Solution LLC is a Small Business Accounting Firm; that specializes in Online Business Tax Preparation.

We can help you file you Corporate Business Tax Return in plenty of time to meet the March 15, 2010 deadline.

Our Motto is Accounting and Tax Service When You Need It

Contact First Tax Solution

Help I am drowning in Tax worries!!

Are you a working mom or dad? or a professional business person consistently on the go?
Do you regret tax season? Do you regret having to gather all your receipts for the entire year?

And gosh where in the world are all your receipts. In the sofa cushions, on the kitchen counter, in the junk drawer, on your desk under all the paperwork that has been laying there for 3 months.

In the ash tray in the car, in the console in the car, in the glove box or stuck in the visor of the car. How many have you washed because you forgot to take them out of your pockets before putting your clothes in the washing machine.

And you look at the calender and see Oh! no it is April 14, and you have not even thought about scheduling an appointment with a tax preparer to file your taxes.

Believe me when I tell you, been there done that and it is no picnic. But, there is a solution. First Tax Solution offers not only full accounting services but Tax Service When You Need It.

First Tax Solution offers Virtual Accounting, Virtual Bookkeeping and Virtual Tax Preparation, while you are in the comforts of your own home. You scan and up load your tax information using our secure on line client portals and 'voila" your taxes are done.

Contact First Tax Solution to schedule an appointment.

Free Tax Organizer

Tax Credits Help Homeowners Winterize Their Homes and Save Energy

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 non business energy property credit and the residential energy efficient property credit.

Non-business 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.

Residential Energy Efficient Property Credit

Homeowners going green should also check out a second tax credit designed to spur investment in alternative energy equipment. The residential energy efficient property credit, equals 30 percent of what a homeowner spends on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property. Generally, labor costs are included when calculating this credit. Also, no cap exists on the amount of credit available except in the case of fuel cell property.

Not all energy-efficient improvements qualify for these tax credits. For that reason, homeowners should check the manufacturer’s tax credit certification statement before purchasing or installing any of these improvements. The certification statement can usually be found on the manufacturer’s website or with the product packaging. Normally, a homeowner can rely on this certification. The IRS cautions that the manufacturer’s certification is different from the Department of Energy’s Energy Star label, and not all Energy Star labeled products qualify for the tax credits.

Eligible homeowners can claim both of these credits when they file their 2009 federal income tax return. Because these are credits, not deductions, they increase a taxpayer’s refund or reduce the tax he or she owes. An eligible taxpayer can claim these credits, regardless of whether he or she itemizes deductions on Schedule A.

contact First Tax Solution Our Motto is Accounting and Tax Service When You Need It

The 19 most-overlooked tax deductions

Don't throw money away by missing these easy tax breaks. Pay attention if you've hired child care, bought or improved a home, sent kids to college or given to charity.

[Related content: taxes, cut taxes, tax breaks, tax write-offs, deductions]
By Kiplinger's Personal Finance Magazine
Every year, the Internal Revenue Service dutifully reports the most common blunders that taxpayers make on their returns. And every year, at or near the top of the "oops" list, is forgetting to enter a Social Security number at the top of the tax form -- or entering those nine digits wrong.

No doubt about it: The opportunity to make mistakes is almost unlimited, and missed deductions can be the most costly. About 46 million of us itemize on our Form 1040s, claiming nearly $1 trillion worth of deductions. That's right, $1,000,000,000,000 -- a number rarely spoken out loud until Congress started debating economic-stimulus plans to combat the Great Recession.

Strategies for saving more and spending less

An additional 85 million taxpayers claim more than half a trillion dollars' worth using standard deductions, and some of you who take the easy way out probably shortchange yourselves. (If you turned 65 in 2009, for example, remember that you now deserve a bigger standard deduction than younger folks.)

Yes, friends, tax season is a dangerous time. It's all too easy to miss a trick and pay too much. Years ago, the fellow who ran the IRS at the time told Kiplinger that he figured millions of taxpayers overpaid their taxes every year by overlooking just one of the items listed below.

1. State sales taxes: Although all taxpayers have a shot at this write-off, it makes sense primarily for those who live in states that do not impose an income tax. You must choose between deducting state and local income taxes or state and local sales taxes. For most citizens of income tax states, the income tax is a bigger burden than the sales tax, so the income tax deduction is a better deal.

The IRS has tables that show how much residents of various states can deduct. But the tables aren't the last word. If you purchased a vehicle, boat or airplane, you get to add the state sales tax you paid to the amount shown in the IRS tables for your state, to the extent that the sales tax rate you paid doesn't exceed the state's general sales tax rate.

The same goes for any home building materials you purchased. These items are easy to overlook, but they could make the sales tax deduction a better deal even if you live in a state with an income tax. The IRS has a calculator on its Web site to help you figure the deduction, which varies depending on the state where you live and your income level.

2. Reinvested dividends: This isn't really a deduction, but it is a subtraction that can save you a bundle. And this is the break that former IRS Commissioner Fred Goldberg told Kiplinger that a lot of taxpayers miss.

If, like most investors, your mutual fund dividends are automatically used to buy extra shares, remember that each reinvestment increases your tax basis in the fund. That, in turn, reduces the taxable capital gain (or increases the tax saving loss) when you redeem shares. Forgetting to include the reinvested dividends in your basis results in double taxation of the dividends -- once when you receive them and later when they're included in the proceeds of the sale. Don't make that costly mistake. If you're not sure what your basis is, ask the fund for help.

3. Out-of-pocket charitable contributions: It's hard to overlook the big charitable gifts you made during the year, by check or payroll deduction (look at your December pay stub).

But little things add up, too, and you can write off out-of-pocket costs you incur while doing good works. For example, ingredients for casseroles you prepare for a nonprofit organization's soup kitchen and stamps you buy for your school's fund raising mailing count as charitable contributions. If you drove your car for charity in 2009, remember to deduct 14 cents per mile. For more, read "Give and grow rich with charitable deductions."

4. Student-loan interest paid by Mom and Dad: Generally, you can deduct mortgage or student loan interest only if you are legally required to repay the debt. But if parents pay back a child's student loans, the IRS treats the money as if it were given to the child, who then paid the debt.

So a child who is not claimed as a dependent can qualify to deduct up to $2,500 in student loan interest paid by Mom and Dad. And he or she doesn't have to itemize.

5. Moving expenses to take your first job: Job-hunting expenses you incur while you're looking for your first job are not deductible. But moving expenses to get to the job are. And you get this write-off even if you don't itemize. If you moved more than 50 miles, you can deduct the cost of getting yourself and your household goods to the new area -- including 24 cents per mile for driving your own vehicle for a 2009 move -- plus parking fees and tolls. The same holds true for any new job you take. For more, read "On the move? Watch for deductions."

6. Military reservists' travel expenses: Members of the National Guard or military reserve may tap a deduction for travel expenses to drills or meetings. To qualify, you must travel more than 100 miles from home and be away from home overnight. If you qualify, you can deduct the cost of lodging and half the cost of your meals, plus 55 cents per mile for 2009 for driving your own car to get to and from drills. In any event, add parking fees and tolls. You get this deduction regardless of whether you itemize.

7. Child care credit: A credit is so much better than a deduction, as it reduces your tax bill dollar for dollar. So missing one is even more painful than missing a deduction that simply reduces the amount of income that's subject to tax.

If you pay your child care bills through a reimbursement account at work, it's easy to overlook the child care credit. Although only $5,000 in expenses can be paid through a tax-favored reimbursement account, up to $6,000 (for the care of two or more children) can qualify for the credit. So if you run the maximum through a plan at work but spend even more for work-related child care, you can claim the credit on as much as $1,000 in additional expenses. That would cut your tax bill by at least $200.


8. Inherited IRA assets: This break can save you a lot of money if you inherited an individual retirement account from someone whose estate was big enough to be subject to the federal estate tax.

Basically, you get an income tax deduction for the amount of estate tax paid on the IRA assets you received. Let's say you inherited a $100,000 IRA, and the fact that the money was included in your benefactor's estate added $45,000 to the estate tax bill. You get to deduct that $45,000 on your tax return as you withdraw the money from the IRA. If you withdraw $50,000 in one year, for example, you get to claim a $22,500 itemized deduction on Schedule A. That would save you $6,300 in the 28% bracket.

9. State tax paid last spring: Did you owe tax when you filed your 2008 state tax return in 2009? Then, for goodness' sake, remember to include that amount in your state tax deduction on your 2009 return, along with state income taxes withheld from your paychecks or paid via quarterly estimated payments.

10. Refinancing points: When you buy a house, you get to deduct in one fell swoop the points paid to get your mortgage. When you refinance a mortgage, though, you have to deduct the points over the life of the loan. That means you can deduct 1/30th of the points each year if it's a 30-year mortgage. That's $33 a year for each $1,000 in points you paid -- not much, maybe, but don't throw it away.

Even more important, in the year you pay off the loan -- because you sell the house or refinance again -- you get to deduct all points that have not yet been deducted. There's one exception to this sweet rule: If you refinance a refinanced loan with the same lender, you add the points paid on the latest deal to the leftovers from the previous refinancing, then deduct the amount gradually over the life of the new loan.

11. Jury pay turned over to your employer: Many employers continue to pay employees' full salary while they serve on jury duty, and some require employees to turn over their jury pay to the company. The only problem is that the IRS demands that you report those payments as taxable income. To even things out, you get to deduct the amount you pay to your employer.

But how do you do it? There's no line on Form 1040 labeled "jury fees." Instead, the write-off goes on line 36, which purports to be for simply totaling up the deductions that get their own lines. Add your jury fees to the total of your other write-offs and write "jury pay" on the dotted line.

12. Property tax deduction for non itemizers: This break, new in 2008, also works in 2009, but millions of taxpayers who claim the standard deduction might miss it. Normally, to write off property taxes, you must itemize deductions. But this new rule lets homeowners who don't itemize boost their standard deduction amount -- by up to $500 if they're single and up to $1,000 if they're married and file a joint return -- to account for property taxes paid during 2009.

You'll need to include Schedule L with your 2009 tax return to get this break.

13. Casualty-loss deduction for non itemizers: For 2009, taxpayers who claim the standard deduction can add casualty losses to their standard deduction amounts -- if the loss occurred in a presidentially designated disaster area. Also, this deduction is not subject to the usual reduction equal to 10% of your adjusted gross income. If you suffered such a loss, be sure to let Uncle Sam help you by lowering your tax bill.

As with the property tax deduction for non itemizers, you'll need to file a Schedule L with your return to pump up your standard deduction to include the loss.


14. Credit for college students: Parents of college kids know the $2,000 Hope credit is just for the first two years of college. After that, the lower Lifetime Learning credit applies.

But that's not how it works for 2009. Instead, the credit has been renamed, increased and expanded. It's now called the American Opportunity Credit, and it will rebate up to $2,500 for each qualifying student for the first four years of college.

The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above those levels. The income limits are higher than last year's. (Read more on the American Opportunity Credit here.)

15. Making Work Pay credit: You've probably been enjoying the fruits of this credit via reduced payroll tax withholding since spring 2009. But to lock in your savings -- by reducing your tax bill by $400 if you're single or $800 if you're married and file a joint return -- you'll need to claim the credit on your 2009 tax return. You'll use the brand-new Schedule M to do so.

The credit is equal to 6.2% of your earned income, capped at $400 or $800. For single filers, it starts phasing out at $75,000 of adjusted gross income and dries up at $95,000. The phase-out zone for couples is $150,000 to $190,000.


16. Sales tax deduction for new vehicles: If you bought a new car, truck, motorcycle or motor home after Feb. 16, 2009, and before the end of the year, you can deduct the sales tax paid -- up to a maximum purchase price of $49,500 per vehicle -- as an itemized deduction or, if you claim the standard deduction, as a supercharged standard deduction.

The benefit begins phasing out for married couples with adjusted gross income above $250,000 and singles with AGI above $125,000. It is completely gone for single filers with AGI of $135,000 or more and joint filers with AGI of at least $260,000. Non itemizers need to file a Schedule L with to get the benefit. Itemizers who elect to deduct state income taxes will claim the car sales tax as a separate itemized deduction.


17. Credit for energy-saving home improvements: The tax credit equal to 10% of the cost of energy-saving home improvements is increased to 30% for 2009 and 2010, up to a maximum of $1,500 in the two-year period. The credit applies to biomass-fuel stoves; qualifying skylights, windows and outside doors; and high-efficiency furnaces, water heaters and central air conditioners. The dollar limit on a particular type of improvement, such as the $200 cap on the credit for windows, has been repealed, so don't limit yourself to the old rules.

Finally, there's also no dollar limit on the credit for qualified residential alternative-energy equipment, such as solar water heaters, geothermal heat pumps and wind turbines. Your credit can be 30% of the total cost of such systems.

18. Sale of demutualized stock: Taxpayers won an important court battle with the IRS in 2009 over the issue of demutualized stock. That's stock that a life insurance policyholder receives when the insurer switches from being a mutual company owned by policyholders to a stock company owned by stockholders. The IRS' long-standing position was that such stock had no tax basis, so that when the shares were sold, the taxpayer owed tax on 100% of the proceeds of the sale. But after a long legal struggle, a federal court ruled that the IRS was wrong. The court didn't say what the basis of the stock should be, but many experts think it's whatever the shares were worth when they were distributed to policyholders. If you sold stock in 2009 that you received in a demutualization, be sure to claim a basis to hold down your tax bill.

19. Homebuyer credit: We put this last on the list because it's hard to imagine any taxpayer missing this big a tax break. But the rules changed late in the year, so snafus are certain.

For most of the year, only first-time homebuyers qualified for this credit. A first-time buyer is defined as someone who didn't own a home in the three years leading up to the purchase of a new home. But big changes apply to homes purchased after Nov. 6, 2009. First, in addition to the $8,000 credit for first-time homebuyers, there's a $6,500 credit for longtime homeowners, those who continuously owned a home for at least five of the eight years leading up to the purchase of a new home.

The new law also increases how much buyers may earn and still claim the credit. For deals closed before Nov. 7, the right to the first-time-buyer credit gradually disappears as adjusted gross income rises between $75,000 and $95,000 on single returns and between $150,000 and $170,000 on joint returns. For purchases after Nov. 6, the phase-out zones -- for both the $8,000 credit and the $6,500 credit -- are $125,000 to $145,000 for singles and $225,000 to $245,000 for married couples. More questions? See "Homebuyer credits: Who qualifies now?"

This article was reported by Kevin McCormally for Kiplinger's Personal Finance Magazine.
Re published
Msnmoney.com http://moneycentral.msn.com/home.asp

Tax And Accounting Services When You Need It.

Are you a working mom or dad? or a professional business person consistently on the go?
Do you regret tax season? Do you regret having to gather all your receipts for the entire year?

And gosh where in the world are all your receipts. In the sofa cushions, on the kitchen counter, in the junk drawer, on your desk under all the paperwork that has been laying there for 3 months.

In the ash tray in the car, in the console in the car, in the glove box or stuck in the visor of the car. How many have you washed because you forgot to take them out of your pockets before putting your clothes in the washing machine.

And you look at the calender and see Oh! no it is April 14, and you have not even thought about scheduling an appointment with a tax preparer to file your taxes.

Believe me when I tell you, been there done that and it is no picnic. But, there is a solution. First Tax Solution offers not only full accounting services but Tax Service When You Need It.

First Tax Solution offers Virtual Accounting, Virtual Bookkeeping and Virtual Tax Preparation, while you are in the comforts of your own home. You scan and up load your tax information in our secure on line client portals and walla your taxes are done.

Charitable Contributions Must Be Made to Qualified Organizations

Tax Payers Be Ware The Irs is cracking down on Charitable Contributions.
YOU MUST HAVE RECEIPTS, STATEMENTS AND DOCUMENTS TO SUPPORT YOUR DEDUCTION.

1. If your contribution entitles you to merchandise, goods, or services, including admission to a charity ball, banquet, theatrical performance, or sporting event, you can deduct only the amount that exceeds the fair market value of the benefit received.

2. For a contribution of cash, check, or other monetary gift (regardless of amount), you must maintain as a record of the contribution either a bank record or a written communication from the qualified organization containing the date and amount of the contribution and the name of the organization.

3. You generally can deduct the fair market value of any property you donate, as well as your cash contributions, to qualified organizations. See Publication 561, Determining the Value of Donated Property.

4. For any contribution of $250 or more (including contributions of cash or property), you must obtain and keep in your records a contemporaneous written acknowledgment from the qualified organization indicating the amount of the cash and a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift.

5. One document from the qualified organization may satisfy both the written communication requirement for monetary gifts and the contemporaneous written acknowledgment requirement for all contributions of $250 or more.

6. You must fill out Form 8283, and attach it to your return, if your total deduction for all noncash contributions is more than $500.

7. If you claim a deduction for a contribution of noncash property worth $5,000 or less, you must fill out Form 8283, Section A. If you claim a deduction for a contribution of noncash property worth more than $5,000, you will need a qualified appraisal of the noncash property and must fill out Form 8283, Section B. If you claim a deduction for a contribution of noncash property worth more than $5,000,000, you will also need to attach the qualified appraisal to your return.

For more information contact us a http://firsttaxsolution.com

You May Qualify Credit for Qualified Retirement Savings Contributions

For tax year 2009, if you make a contribution to a traditional or Roth IRA or to a qualified employer plan (like a 401(k)), you may be eligible to receive a tax credit of up to $2,000 for the year. To qualify, your adjusted gross income for the year must be less than $27,750 if you are single ($41,6250 for head of household and $55,500 if married filing jointly).

This is one of the very many credits tax payers miss. When filing his or her own tax return without a professional tax preparer.

Your tax preparer will need to prepare form 8880 to reflect this credit. See Irs.gov

contact us for more help. http://firsttaxsolution.com

Is Borrowing from your 401 k plan The Best Solution?

Individuals who participate in a 401(k) plan sometimes borrow from their
plan. While you may justifiably feel squeamish about taking out a 401(k)
plan loan, it can actually make good sense in appropriate
circumstances?assuming it is paid back on time. For instance, in today's
tough economy, plan loans can be a source of much-needed cash when bank
loans are unavailable or prohibitively expensive.
401(k) plan loans are generally economical and easy to obtain. In
particular, a 401(k) plan participant with less-than-stellar credit or
tapped out credit lines may find it much easier and cheaper to borrow from
their 401(k) plan than from a commercial lender.
401(k) plan loans provide participants with access (within limits) to
their 401(k) plan dollars without incurring income tax liabilities and the
10% premature withdrawal penalty tax. The 10% penalty tax generally applies
to withdrawals before age 59 1/2, however, exceptions are available. In
essence, the participant (borrower) pays interest to himself or herself when
taking out a plan loan.
401(k) plan loans are only permitted if the plan document allows them,
and many plans do. The maximum amount that can be borrowed is generally the
lesser of $50,000 or 50% of the participant's (borrower's) vested account
balance. Most 401(k) plan loans are secured exclusively by the participant's
vested account balance (although other forms of security, such as a lien
against the participant's home, are sometimes seen).
At least two major potential pitfalls are associated with 401(k) plan
loans. First, the participant's account balance is irreversibly diminished
if the loan is not paid back. Second, the federal income tax consequences
are harsh for failure to pay back a plan loan according to its terms, and
the loan will usually have to be repaid in full soon after the employee
leaves the job for any reason. Such failure to repay the loan can result in
a deemed distribution of the unpaid loan balance that triggers a federal
income tax hit (possibly a state income tax hit, too). In addition, the
dreaded 10% premature withdrawal penalty will generally apply unless the
participant is age 59 1/2 or older.
Interest paid on a loan secured by the participant's (borrower's) 401(k)
plan account balance is nondeductible if any of the account balance used to
secure the loan is attributable to elective deferrals (i.e., elective salary
reduction contributions the employee signed up for). This is true regardless
of how the loan proceeds are used and regardless of the existence of other
security for the loan, such as the participant's home. Since 401(k) account
balances will almost always include at least some elective deferral dollars,
interest on loans from such plans will usually be nondeductible.
In most cases, borrowing from your 401(k) plan should only be done when
funds are not available elsewhere. But, during this difficult economic time,
it may be prudent to do so. But, for me use this as the last resort.

Please contact us if you have questions on the tax ramifications of
401(k) plan loans or other tax compliance or planning issues.
www.firsttaxsolution.com

Home Office Deduction Are you taking Advantage

Web site www.firsttaxsolution.com
Generally, you cannot deduct items such as mortgage interest and real estate taxes as business expenses. However, you may be able to deduct expenses related to the business use of part of your home if you meet specific requirements. Even then, your deduction may be limited. Use this section and Figure A, later, to decide if you can deduct expenses for the business use of your home.

To qualify to deduct expenses for business use of your home, you must use part of your home:

*

Exclusively and regularly as your principal place of business (defined later),
*

Exclusively and regularly as a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business,
*

In the case of a separate structure which is not attached to your home, in connection with your trade or business,
*

On a regular basis for certain storage use (see Storage of inventory or product samples, later),
*

For rental use (see Publication 527), or
*

As a daycare facility (see Daycare Facility, later).

Additional tests for employee use. If you are an employee and you use a part of your home for business, you may qualify for a deduction for its business use. You must meet the tests discussed above plus:

*

Your business use must be for the convenience of your employer, and
*

You must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer.

If the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home.

Exclusive Use

To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. The area used for business can be a room or other separately identifiable space. The space does not need to be marked off by a permanent partition.

You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes.

Example.

You are an attorney and use a den in your home to write legal briefs and prepare clients' tax returns. Your family also uses the den for recreation. The den is not used exclusively in your profession, so you cannot claim a deduction for the business use of the den.
Exceptions to Exclusive Use

You do not have to meet the exclusive use test if either of the following applies.

*

You use part of your home for the storage of inventory or product samples (discussed next).
*

You use part of your home as a daycare facility, discussed later under Daycare Facility.

Storage of inventory or product samples. If you use part of your home for storage of inventory or product samples, you can deduct expenses for the business use of your home without meeting the exclusive use test. However, you must meet all the following tests.

*

You sell products at wholesale or retail as your trade or business.
*

You keep the inventory or product samples in your home for use in your trade or business.
*

Your home is the only fixed location of your trade or business.
*

You use the storage space on a regular basis.
*

The space you use is a separately identifiable space suitable for storage.

Example.

Your home is the only fixed location of your business of selling mechanics' tools at retail. You regularly use half of your basement for storage of inventory and product samples. You sometimes use the area for personal purposes. The expenses for the storage space are deductible even though you do not use this part of your basement exclusively for business.
Regular Use

To qualify under the regular use test, you must use a specific area of your home for business on a regular basis. Incidental or occasional business use is not regular use. You must consider all facts and circumstances in determining whether your use is on a regular basis.
Trade or Business Use

To qualify under the trade-or-business-use-test, you must use part of your home in connection with a trade or business. If you use your home for a profit-seeking activity that is not a trade or business, you cannot take a deduction for its business use.

Example.

You use part of your home exclusively and regularly to read financial periodicals and reports, clip bond coupons, and carry out similar activities related to your own investments. You do not make investments as a broker or dealer. So, your activities are not part of a trade or business and you cannot take a deduction for the business use of your home.
Principal Place of Business

You can have more than one business location, including your home, for a single trade or business. To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that trade or business. To determine whether your home is your principal place of business, you must consider:

*

The relative importance of the activities performed at each place where you conduct business, and
*

The amount of time spent at each place where you conduct business.

Your home office will qualify as your principal place of business if you meet the following requirements.

*

You use it exclusively and regularly for administrative or management activities of your trade or business.
*

You have no other fixed location where you conduct substantial administrative or management activities of your trade or business.

If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. However, see the later discussions under Place To Meet Patients, Clients, or Customers or Separate Structure for other ways to qualify to deduct home office expenses.
Administrative or management activities. There are many activities that are administrative or managerial in nature. The following are a few examples.

*

Billing customers, clients, or patients.
*

Keeping books and records.
*

Ordering supplies.
*

Setting up appointments.
*

Forwarding orders or writing reports.

Homebuyer Credit Extended and Expanded

The First-time Homebuyer Tax Credit (Credit) allows new homeowners the opportunity to receive a tax credit of up to $8,000 to help them purchase a home. The Credit was originally set to expire on December 1, 2009, but was recently extended and expanded.

The Worker, Homeownership, and Business Assistance Act of 2009 (Act) extends and liberalizes the Credit by making it available to (a) higher income taxpayers and (b) existing homeowners who are qualifying long-time residents and purchase another principal residence. However, for the first time there will be a dollar cap on residences qualifying for the credit.

The Credit is now available on a principal residence purchased before May 1, 2010. The Credit also applies to the purchase of a principal residence that is closed before July 1, 2010, where the contract to purchase was binding before May 1, 2010. In addition, the homebuyer may elect to treat a qualifying home purchase after 2008 as made on December 31 of the calendar year preceding the purchase. Making this election allows homebuyers to claim the Credit on their prior year's tax return and may allow them to receive their money sooner.

The Act allows more taxpayers to qualify for the Credit by increasing the modified adjusted gross income (MAGI) limitations. For home purchases after November 6, 2009, eligibility for the Credit now phases out for individual taxpayers with a MAGI between $125,000 and $145,000 for the year of purchase. For joint filers, the phase-out range is $225,000 to $245,000. Prior to the Act, the phase-out ranges were between $75,000 and $95,000 ($150,000 and $170,000 for joint filers).

The Credit is now available to long-time residents for home purchases after November 6, 2009. An individual, and spouse if married, who has maintained the same principal residence for any five consecutive years during the eight-year period ending on the date of purchase of a subsequent principal residence is eligible for a reduced Credit. The maximum credit available for these taxpayers is $6,500 ($3,250 for a married individual filing separately).

Example: Homebuyer Credit Available to Long-time Residents. Joe and Cass purchased their home on Magnolia Street 15 years ago, and it has been their principal residence since. In 2010, they decide to downsize and close on a smaller $240,000 home on February 12. Their 2010 MAGI is estimated to be less than $150,000. At the time of purchase, Joe and Cass will be eligible for a Homebuyer Credit of $6,500, the maximum credit available to taxpayers who meet the definition of long-time resident.

The Act sets a maximum purchase price of $800,000 with no phase-out on homes qualifying for the Credit. Prior to the Act, there was no such limitation.

Please contact us if you have questions about how you might qualify for or benefit from this Credit.


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Am I Having Enough Withheld?

If you fail to estimate your federal income tax withholding properly, it may cost you in a variety of ways. If you receive an income tax refund, it essentially means that you provided the IRS with an interest-free loan during the year. By comparison, if you owe taxes when you file your return, you may have to scramble for cash at tax time--and possibly owe interest and penalties to the IRS as well.

When determining the correct withholding amount for your salary or wages, your objective should be to have just enough taxes withheld to prevent you from incurring penalties when your tax return is due. (You may owe some money at the time you file your return, but it shouldn't be much.) You can accomplish this by reading and understanding IRS Publication 505 and 919, properly completing Form W-4 (and accompanying worksheets), and providing an updated Form W-4 to your employer when your circumstances change significantly.
Form W-4 helps you determine the proper withholding amount

Two factors determine the amount of income tax that your employer withholds from your regular pay: the amount you earn and the information you provide on Form W-4. This form asks you for three pieces of information:

* The number of withholding allowances you want to claim: You can claim up to the maximum number you're entitled to, claim less than you're entitled to, or claim zero.
* Whether you want taxes to be withheld at the single or married rate: The married status, which is associated with a lower withholding rate, should generally be selected only by those taxpayers who are married and file a joint return. Other people (including those who are married and file separately) should generally have taxes withheld at the higher, single rate.
* The additional amount (if any) you want withheld from your paycheck: This is optional; you can specify any additional amount of money you want withheld.

When both spouses work and have taxes withheld at the married rate, they sometimes end up with insufficient taxes withheld. If this happens to you, remember that you can always choose to withhold at the single rate. In addition, you can determine the proper withholding amount by completing Form W-4's two-earner/two-job worksheet.
Complete the worksheets to claim the correct number of allowances

To understand Form W-4, you must understand allowances. Think of allowances as cash in your pocket at the time that you receive your paycheck. The more allowances you claim, the less taxes are taken from your paycheck (and the more cash ends up in your pocket on payday). For example, you can maximize the amount withheld from your paycheck to ensure that you have enough tax withheld to cover your tax liability by claiming zero allowances. This will reduce the amount of cash you take home in your paycheck. The following factors determine your number of allowances:

* The number of personal and dependency exemptions that you claim on your federal income tax return
* The number of jobs that you work
* The deductions, adjustments to income, and credits that you expect to take during the year
* Your filing status
* Whether your spouse works

To claim the correct number of allowances, you should complete Form W-4's worksheets. These include a personal allowances worksheet, a deductions and adjustments worksheet, and a two-earner/two-job worksheet. IRS Publication 505 (Tax Withholding and Estimated Tax) explains these worksheets.
Check your withholding

To avoid surprises at tax time, it's a good idea to periodically check your withholding. If you accurately complete all Form W-4 worksheets and don't have significant nonwage income (e.g., interest and dividends), it's likely that your employer will withhold an amount close to the tax you'll owe on your return. But in the following cases, accurate completion of the Form W-4 worksheets alone won't guarantee that you'll have the correct amount of tax withheld:

* When you're married and both spouses work, or if either of you start or stop working
* When you or your spouse are working more than one job
* When you have significant nonwage income, such as interest, dividends, alimony, unemployment compensation, or self-employment income, or the amount of your nonwage income changes
* When you'll owe other taxes on your return, such as self-employment tax or household employment tax
* When you have a lifestyle change (e.g., marriage, divorce, birth or adoption of a child, new home, retirement) that affects the tax deductions or credits you may claim
* When there are tax law changes that affect the amount of tax you'll owe

In these cases, IRS Publication 919 (How Do I Adjust My Tax Withholding?) can help you compare the total tax that you'll withhold for the year with the tax that you expect to owe on your return. It can also help you determine any additional amount you may need to withhold from each paycheck to avoid owing taxes when you file your return. Alternatively, it may help you identify if you're having too much tax withheld. If you find that you need to make changes to your withholding, you can do so at any time simply by submitting a new Form W-4 to your employer.

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