Education Credits
For 2009 and 2010,
the American Opportunity Tax Credit increases the per-student Hope credit to up
to $2,500 of the cost of tuition and related expenses paid during the tax year
(100% of the first $2,000 of tuition and related expenses (including books),
and 25% of the next $2,000 of tuition and related expenses).
The credit is
available for the first four years of post-secondary education in a degree or
certificate program. (This has only been available for the first two years of
post-secondary education in prior years.) A portion of the credit may be
refundable. (This is also new and means that if the credit is more than your
tax, a portion of it can be refunded rather than lost.)
New temporary deduction for sales and excise taxes on car purchases
For purchases on or after Feb. 17, 2009 and before Jan. 1, 2010, the Recovery Act provides a deduction for qualified motor vehicle taxes. It expands the definition of taxes allowed as a deduction to include qualified motor vehicle taxes paid or accrued within the tax year. The deduction generally is allowed to itemizers. It also is allowed to those claiming the standard deduction.
Qualified motor vehicle taxes are State or local sales or excise taxes imposed on the purchase of a qualified motor vehicle. Only taxes on that portion of the cost of qualified motor vehicle not exceeding $49,500 may be deducted. The amount of sales or excise taxes that may be treated as qualified motor vehicle taxes is phased out ratably for a taxpayer with modified AGI between $125,000 and $135,000 ($250,000 and $260,000 on a joint return). A qualified motor vehicle is a (1) passenger automobile, light truck or motorcycle the gross vehicle rating of which is not more than 8,500 pounds and (2) a motor home. The original use of the motor vehicle must commence with the taxpayer.
Recordkeeping for Small Business
The system you use to record business
transactions will be more effective if you follow good recordkeeping practices.
For example, record expenses when they occur, and identify the source of
recorded receipts. Generally, it is best to record transactions on a daily basis.Use the business account for business purposes only. Indicate the source
of deposits and the type of expense in the checkbook. You should
reconcile your checking account each month. You must keep your records as
long as they may be needed for the administration of any provision of the
Internal Revenue Code. Generally, this means you must keep records that support
an item of income or deduction on a return until the period
of limitations for that return runs out (usually 3-6 years). Keep records
relating to property until the period of limitations expires for the year in
which you dispose of the property in a taxable disposition.
Employing your children
If you own a business, you can hire your children and deduct their pay. They can earn as much as $5,700 (2009) and pay zero federal income tax. Also, they can earn an additional $5,000 without paying current tax if they contribute it to a traditional IRA. Your children must perform actual work and be paid in line with what you'd pay non-family employees. If you are a sole proprietor, you are not required to pay FICA on your children under age 18. Use their pay to buy school clothes, pay school fees, etc. That way you are generating a business expense for money you would pay out anyway.
Making Work Pay
The American Recovery and Reinvestment Act of 2009 included "Making Work Pay" credit legislation. By April 1, 2009 the federal withholding tables were adjusted to allow this credit to be paid out by the taxpayer receiving a little more money each paycheck. You may have noticed an increase in your paycheck or pension check at this time. However, the change in withholding may result in not enough tax being withheld for certain taxpayers.
You may need a withholding "checkup" due to tax law changes if you are:
· an employee with multiple jobs;
· a married couple where both the husband and wife work;
· a retiree who receives a pension and does not have any wage income;
· an employee who does not have a valid Social Security Number;
· an employee who can be claimed as a dependent on someone else’s return; and
· an employee who receives Social Security, SSI, railroad retirement, or veteran's disability payments.
Not having enough tax withheld may reduce your refund or you may owe tax when you file your tax return. If any of the categories listed above apply to you, please contact our office for assistance in adjusting your withholding for the rest of the tax year. You may also calculate the adjustment yourself by following the instructions in IRS Publication 919, How do I Adjust My Tax Withholding? Or by accessing the withholding calculator on the IRS website at www.irs.gov. Then give your employer or pensioner a corrected Form W-4 or W-4P.
