What is the First Time Homebuyers Tax Credit?

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.

The filing options to consider are:

• File an extension — Taxpayers who haven’t yet filed their 2008 returns but are buying a home soon can request a six-month extension to October 15. This step would be faster than waiting until next year to claim it on the 2009 tax return. Even with an extension, taxpayers could still file electronically, receiving their refund in as few as 10 days with direct deposit.
• File now, amend later — Taxpayers due a sizable refund for their 2008 tax return but who also are considering buying a house in the next few months can file their return now and claim the credit later. Taxpayers would file their 2008 tax forms as usual, then follow up with an amended return later this year to claim the homebuyer credit.
• Amend the 2008 tax return — Taxpayers buying a home in the near future who have already filed their 2008 tax return can consider filing an amended tax return. The amended tax return will allow them to claim the homebuyer credit on the 2008 return without waiting until next year to claim it on the 2009 return.
• Claim the credit in 2009 rather than 2008 — For some taxpayers, it may make more financial sense to wait and claim the homebuyer credit next year when they file the 2009 tax return rather than claiming it now on the 2008 tax return. This could benefit taxpayers who might qualify for a higher credit on the 2009 tax return. This could include people who have less income in 2009 than 2008 because of factors such as a job loss or drop in investment income.

The IRS reminds taxpayers the amount of the credit begins to phase out for taxpayers whose modified adjusted gross income is more than $75,000, or $150,000 for joint filers. Taxpayers can claim 10 percent of the purchase price up to $8,000, or $4,000 for married individuals filing separately.

IRS.gov provides more information, including guidance for people who bought their first homes in 2008. To learn more about the overall implementation of the Recovery Act, visit www.Recovery.gov.

Top 10 Facts About Deducting Your College Student's Tuition

From the desk of the IRS:

The Tuition and Fees deduction of up to $4,000 is available to help parents and students pay for post-secondary education. Below are ten important facts about this deduction every student and parent should know.

1. You do not have to itemize to take the Tuition and Fees deduction. You claim a tuition and fees deduction by completing Form 8917 and submitting it with your Form 1040 or Form 1040A.
2. You may be able to claim qualified tuition and fees expenses as either an adjustment to income, a Hope or Lifetime Learning credit, or – if applicable – as a business expense.
3. You cannot take the tuition and fees deduction on your income tax return if your filing status is married filing separately.
4. You cannot take the deduction if you are claimed, or can be claimed, as a dependent on someone else's return.
5. The deduction is reduced or eliminated if your modified adjusted gross income exceeds certain limits, based on your filing status.
6. You cannot claim the tuition and fees deduction if you or anyone else claims the Hope or Lifetime Learning credit for the same student in the same year.
7. If the educational expenses are also allowable as a business expense, the tuition and fees deduction may be claimed in conjunction with a business expense deduction, but the same expenses cannot be deducted twice.
8. You cannot claim a deduction or credit based on expenses paid with tax-free scholarship, fellowship, grant, or education savings account funds such as a Coverdell education savings account, tax-free savings bond interest or employer-provided education assistance.
9. The same rule applies to expenses you pay with a tax-exempt distribution from a qualified tuition plan, except that you can deduct qualified expenses you pay only with that part of the distribution that is a return of your contribution to the plan.
10. IRS Publication 970, Tax Benefits for Education, can help eligible parents and students understand the special rules that apply and decide which tax break to claim. The publication is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

• Form 8863, Education Credits (PDF 82K)
• Publication 970, Tax Benefits for Education (PDF 368K)
• Tax Topic 605

What Qualifies as a Home Office Deduction?

From the desk if the IRS:

Claiming a Deduction for Your Home Office

Taxpayers who use a portion of their home for business purposes may be able to take a home office deduction if they meet certain requirements.

In order to claim a business deduction, you must use part of your home for one of the following two reasons:

1. Exclusively and regularly as either: your principal place of business, or as a place to meet or deal with patients, clients or customers in the normal course of your business. Where there is a separate structure not attached to your home, the regular and exclusive use does not need to be your principal place of business as long as the use is in connection with your trade or business.


2. On a regular basis for certain storage use -- such as storing inventory or product samples -- as rental property, or as a home daycare facility.

Generally, the amount you can deduct depends on the percentage of your home that you used for business. Your deduction for certain expenses will be limited if your gross income from your business is less than your total business expenses.

If you use a separate structure not attached to your home for an exclusive and regular part of your business, you can deduct expenses related to it.

There are special rules for qualified daycare providers and for persons storing business inventory or product samples.

If you are self-employed, use Form 8829 to figure your home office deduction and report those deductions on line 30 of Schedule C, Form 1040.

Different rules apply to claiming the home office deduction if you are an employee. For example, the regular and exclusive business use must be for the convenience of your employer.

For more information see IRS Publication 587, Business Use of Your Home, available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Need an IRS Tax Payment Plan? Here are your options!

More often than not, when you owe the IRS you will be put into a payment plan. This sounds simple, but it's not, since there are various plans you may or may not qualify for. Below is the "down and dirty", nuts & bolts list. As always, I recommend having someone negotiate these for you if you owe a significant amount, that is, over $10,000.

Streamline Installment Agreement

This agreement spreads your payments over 6o months.

To qualify for this installment plan agreement, you must...

• Be fully compliant. This means that all your returns are fully filed for the last 3-4 yrs.
• Your liability's CSED, or tax expiration date, cannot expire within 5 years and 7 months. So, if your liability expires in 5 years and 6 months, you won't qualify.
• You cannot owe more than $25,000.

Negotiated Installment Agreements

These agreements are generally more complex and are for tax debtors owing over than $25,00. They are termed "negotiated" because the IRS requires full financial disclosure, whereas with streamline agreements they don't.

1. "Ability to Pay" Installment Agreement

This agreement will fully pay off your liability. Payments are based on your monthly disposable income. The IRS will also make sure that before you enter into this agreement, you have liquidated all assets in order to lower your liability.

2. Conditional Installment Agreement

This agreement uses your actual expenses, if they are necessary living expenses, when trying to determine income and expenses. However, you must pay off your liability both before the CSED expires and within 5 years.

3. Partial Pay Installment Agreement

This payment agreement is the Holy Grail of installment agreements and is very rare. This is because the amount you pay monthly will not pay the tax in full before it expires. This agreement uses the IRS' allowable living expenses in calculating your agreement. This means that the expenses included are the ones the IRS says are OK for you to include, which may differ greatly from your actual expenses.

4. Lifestyle Adjustment Installment Agreement

This installment agreement allows for payment with actual expenses for a determined period of time (usually a year) in order for you to change your lifestyle. In essence, the IRS is giving you time here to decrease your expenses to an acceptable level, as determined by the IRS' allowable living expenses. Then, your IRS payment goes up to your "ability to pay" amount.

If you wish to read more on payment plans with the IRS, I recommend these posts...

Installment Plan Agreements
More on the Partial Pay Installment Agreement
When You Owe Over $100,000
The Streamline Payment Plan
Installment Agreement Alternatives

Six Tax Breaks for Companies That Go Green

(Borrowed from the newsletter Bottom Line Secretes...)

Carolyn R. Turnbull, CPA, MST

Grant Thornton LLP

ompanies gain multiple benefits for being green. In addition to helping the environment, they save money on fuel and energy consumption... gain a marketing edge by promoting their environmentally responsible behavior... and become eligible for tax breaks at the federal and/or state levels. Here are six ways companies can go green and gain tax breaks...

1. Allow staff to telecommute. Recent survey: Just one day of telecommuting by one employee saves, on average, an amount of energy equivalent to 12 hours of electricity (measured as equal to 12 hours of an average household’s electricity use). Note: The amount of electricity used was based on energy used for transportation (aside from gasoline) and energy associated with use of commercial office space.

Tax savings: A company does not currently receive a federal tax break for allowing employees to telecommute, but Georgia recently implemented a tax credit for companies whose employees agree to telecommute and other states may follow suit.

Allowing workers to telecommute can also help them qualify for the home-office income tax deduction on their personal returns -- which may help with the business’s labor costs and employee retention.

Helpful support for the employee deduction: A formal written agreement between the company and the employees at the time the telecommuting arrangement goes into effect stating that the arrangement is for the convenience of the company. Note: Be aware that if any of your employees telecommute from a state other than the state where your company is physically located, you need to check what taxes you might owe the other state.

2. Encourage the use of mass transit. Workers can help the environment by using public transportation rather than driving to work. Companies can encourage this practice by offering monthly transit passes as an employee benefit. Payment for the passes can be set up so that employees either pay for them on a pretax basis using an arrangement similar to making pretax contributions to a 401(k) plan, or the company pays for them as a tax-free fringe benefit.

Tax break: The following income tax savings are available to either employees or the company, depending on who pays for monthly transit passes...

If an employee pays for his/her transit passes on a pretax basis, the portion of wages used to pay for the passes is not subject to income tax.

If a company pays for the passes, the company can deduct the cost of the passes. Furthermore, a company can save on employment taxes because employment taxes are not imposed on tax-free transit passes (up to $115 monthly in 2008).

Alternative break: Commuting in a company-provided “commuter highway vehicle” (a vehicle that seats at least six adults, not including the driver) is also tax free up to $115 per employee per month in 2008. At least 80% of the vehicle’s mileage must be used for transporting employees between home and work, and on those trips, at least half of the adult seating capacity of the vehicle (excluding the driver) must be occupied by employees.

3. Use hybrids. A company can purchase a vehicle that runs on alternative fuel, such as the 2008 Honda Civic GX, which operates on compressed natural gas, or a hybrid vehicle (a vehicle that combines gasoline and electric power).

Tax break: The federal government offers a tax credit for purchasing a hybrid vehicle. The amount of the credit is determined by the IRS.

Example: The 2008 Ford Escape two-wheel-drive hybrid is eligible for a $3,000 credit.

For a complete list of available credits, go to the IRS newsroom page at www.irs.gov. State tax breaks (exemption from sales tax on qualified purchases, for example) may also be available.

Caution: Because of their popularity, Toyota hybrid vehicles are no longer eligible for credits, and the credits for Honda hybrids have been reduced in 2008.

4. Buy energy-efficient equipment. Use computers, office machines, etc., that meet energy-saving standards -- they are less costly to run. Information: Visit the Energy Star Web site, www.energystar.gov, and click on “Office Equipment.”

Tax breaks: There are no special tax breaks for energy-efficient office equipment, but small businesses can choose to fully expense the cost of up to $128,000 of equipment purchases in 2008. If total equipment purchases for the year exceed $510,000, then the $128,000 is reduced dollar for dollar by each one dollar of excess purchases (i.e., no deduction once purchases exceed $638,000). If a business doesn’t qualify for expensing or chooses not to use it, the business can depreciate the cost of equipment over a five-year, seven-year, or longer period fixed by law.

5. Make commercial space energy efficient. Energy usage in commercial buildings accounts for 40% of US global warming emissions (excessive amounts of carbon dioxide pumped into the atmosphere). Making buildings more energy efficient can contribute significantly to conservation efforts.

Tax breaks: Companies that own their facilities (buildings, factories, etc.) can qualify for a special tax deduction if their space meets certain federal energy standards. The deduction is $1.80 per square foot of space for buildings that achieve a 50% energy reduction from the target for that type of building (60¢ a square foot for more modest energy-efficiency improvements). You get the deduction for being energy efficient -- it doesn’t matter how much it cost to achieve that efficiency. See IRS Notice 2006-52 for the rules for qualifying for this break.

There may also be state tax breaks and other incentives (loan programs, property tax exemptions) available. In Maine, there is a utility rebate program for half the installation costs and a portion of the equipment costs for energy-efficient water heaters, building insulation, and certain other equipment in commercial and industrial buildings.

6. Convert to solar energy. It can cost thousands to millions of dollars to convert to solar energy, depending on the size of the facility, but it may take only seven years before savings start to materialize.

Tax breaks: There is a 30% federal tax credit for converting to solar power that applies to equipment used to generate electricity, or heat or cool a building, as well as to equipment that uses solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight. Details: See the instructions to Form 3468, Investment Tax Credit.

There may also be significant state-level breaks. In California, there is a utility rebate program for installing solar units (also called photovoltaic cells) to convert sunlight into electricity in commercial and residential property. Details: EcoBusinessLinks, which links to solar energy retailers by state, www.ecobusinesslinks.com/solar_wind_power.htm.

________________________________________________________________

Tax Hotline interviewed Carolyn R. Turnbull, CPA, MST, senior tax manager, Grant Thornton LLP, Atlanta, www.grantthornton.com, and a member of The Tax Adviser editorial board, American Institute of Certified Public Accountants. She has recently been named to the IRS Advisory Council.

Getting A Large Tax Refund? Maybe You Should Have Less Tax Withheld.

Everyone always brags about how much money they get back at the end of the year. But did you know the best way to manage your money is to break even? Think about it... When you get a refund at the end of the year, it's because you gave the IRS too much of your money. And, by doing so, you've basically given them an interest free loan!

So, how do you know exactly how much to have withheld? Well, luckily the IRS.gov website has a handy dandy tax calculator for you.

Use it to compute your withholding for the coming year and stop loaning the government your hard-earned cash!

Further Reading

Tax Refunds

E-Filing: The IRS Wants You To, But It My Be Smart Not To

The IRS wants you to e-file. This we know. It cuts down on manpower for them since it automates much of the process and it gets returns in quicker. For you...

1. It’s easy. You can usually file a state tax return at the same time you electronically file your federal tax return.

2. It’s accurate. No more human errors because e-file checks for math errors and necessary information. This not only increases the accuracy of your return, but it also reduces the need for correspondence with the IRS to clarify errors or omissions.

3. No more second-guessing yourself. When you file electronically, the computer software or online program guides you through the process step-by-step.

4. You’ll get your refund faster. When you use e-file, you can get your refund in as little as ten days.

5. There are more payment options. With e-file, you can file your return early, but wait to pay any balance due by the April deadline. You can also pay electronically using a credit card, electronic funds withdrawal or in some cases the Electronic Federal Tax Payment System.

6. It’s fast. You don’t have to make a trip to the post office. In fact, you won’t even need to walk to the mailbox to send your return. Just click Send.

7. You’ll know the IRS received your return. The IRS will send you an electronic notification acknowledging receipt of your return.

8. You’ll have peace of mind. After clicking send and receiving your notification from the IRS that they received your return…kick back and relax – you’re done!


HOWEVER, you may want to rethink e-filing. It seems like a good deal for you, but it's actually a better deal for the IRS. Why?

1. By e-filing you're essentially giving the IRS more time to look over your return and potentially audit you. E-filing posts in 1o days. Paper returns post in 6-8 weeks. Basically, by e-filing you're giving the IRS an extra 2 months to audit you.

2. E-filing gives the IRS a much clearer picture of your tax return. This is because an e-file is fully inputted while a paper file only has key criteria entered into your master file. Why is more info bad? Because if something ever goes wrong, the IRS will have more info to argue against you with.

3. A paper return has documentation attached to act as proof, such as reasons why your charitable deductions are deductible and the amount is accurate. In e-filing, documentation is not always attached or may not make it to your file. In true government fashion, the IRS will usually choose the low hanging fruit, the easiest targets, the ones with the highest probability of not proving their case when choosing who to investigate. Do you want to be that person?

4. The IRS has significantly sped up the time it takes to receive a refund. In fact, if they are significantly late is paying a refund, they must pay interest on it. The difference between paper and e-file is usually 2-3 weeks. So, the argument that e-filing is a worth the risk since you get your money sooner is flawed.

5. Giving the IRS direct access to your banking info by e-filing and getting Direct Deposits only gives the IRS an easy source to levy if you get into trouble. If you change your bank account frequently, this shouldn't be an issue, but how often do you really do that?

So, why should you e-file? The only real reason is to lessen the government's expenses during the filing season. Other than that, I'd stay away from it.

To file your own taxes and get it right, see the following articles...

CPA?Software? E-File?

No W-2? No Problem

IRS Explains the "What If" Tax Implications Of An Economic Downturn

What if I lose my job? Is my unemployment check taxable? Can I afford to take money out of my retirement account? These are just a few of the "What If" questions people are dealing with these days.

The IRS recognizes that many people are going through difficult times financially. Often, there is a tax impact to events such as job loss, debt forgiveness or dipping into a retirement account. If your income has decreased, you may even be eligible for certain tax credits, such as the Earned Income Tax Credit, which can mean money in your pocket.

Most importantly, if you believe you may have trouble paying your tax bill, contact the IRS immediately. There are steps the IRS can take to help. To avoid additional penalties, you should always file your tax return on time even if you are unable pay your tax bill.

Here are some “What If” questions that are answered on the official IRS Web site. Simply go to IRS.gov and type the keywords "What If" in the Search box at the top of the page.

• Job Related
  What if I lose my job?
  What if my income declines?
  What if I withdraw money from my IRA?
  What if my 401(k) drops in value
• Debt Related
  What if I lose my home through foreclosure?
  What if I sell my home for a loss?
  What if my debt is forgiven?
• Tax Related
  What if I can’t pay my taxes?
  What if I can’t pay my installment agreement?
  What if I can’t resolve my tax problem with the IRS?
  What if I need legal representation to help with my tax problem but can’t afford it?

Remember: to access the genuine IRS Web site be sure to use .gov. Don't be confused by Internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Wondering About Interest Rates Charged by the IRS? Here Are The Rules.

The IRS charges high penalties and interest when you owe taxes. Usually it's hard to determine the rate, since there isn't a standard percentage that they go by. However, use the rules below to help guide you in figuring out or checking your interest:

1. The IRS changes the interest rate it charges each quarter. The rate is determined by taking the federal standard rate plus 3%. Currently for the first quarter of 2009, the rate is 5%. The IRS interest rate has ranged from 5% to 9% in the past 6 years. The amount of interest is computed based on the rate applied in each quarter to the amount owed.

2. The IRS changes this rate each quarter and publishes it in their Internal Revenue Bulletin. See this bulletin for this quarter's update.

3. The interest rate is compounded DAILY.

4. Interest is charged on the taxes and penalties assessed.

5. The interest rate does not change when you get into enforcement or into an installment agreement(IA). What changes during enforcement or an IA is the "failure to pay" penalty rate.

6. Interest is still charged when your are in currently not collectible or any other "collection hold" status.

7. If you are a large corporation, your interest rates is higher.

8. Any other interest rate remains at the standard federal rate plus 3% unless the you have a balance from a "tax shelter". In that case the IRS charges 120% of the rate - i..e. 6% now.

Hope this help!
-The Good Tax Helper

Peter Griffin's "Famous Tax Quotes"

"Alexander Hamilton started the U.S. Treasury with nothing and that was the closest our country has ever been to being even."

~ WILL ROGERS