This law exclude from income any debt forgiven or cancelled as a result of modification of the terms of the mortgage, or foreclosure on your principal residence.
Usually, debt forgiven or cancelled by a lender must be included as income on your tax return as income. What the new law does for you? The new law allows you to exclude certain cancelled debt on your principal residence from income.
Do you need to report it on your ax return? Yes. As a general rule, must taxable and non taxable items are reportable events, and this one is reportable.
What about debt on a second home, credit card or car loans? Not contemplated under this provision. This provision applies to your principal residence. The law can be used for taxable years: 2007, 2008, and 2009.
Thursday, August 14, 2008
On Retirement
Penalty for early withdrawals from pension plans or IRAs prior to attain age 59 1/2. If you make withdrawal before attained the required age, you will be penalized 10% of the amount withdraw.
After tax IRA. If you have an after tax IRA, you need to keep track of your basis on the IRA by filing Form 8606. Why?. The IRS needs to know the after tax portion of your IRA, and so do you. You do not want to pay taxes a second time, Do you?
Rollover a 401K and/or a traditional IRA. Generally, do not result in a taxable transaction if is roller over within 60 days from the distribution date.
What is the date you should start receiving your minimum required distributions (MRD) payments after reaching 70 1/2? If you reach 70 1/2 in March 5, 2007 (or any date in 2007), you should begin making your 1st MRD by April 1, 2008 , and his/her second distribution by Dec. 31, 2007. VERY IMPORTANT. (Exceptions apply.)
After tax IRA. If you have an after tax IRA, you need to keep track of your basis on the IRA by filing Form 8606. Why?. The IRS needs to know the after tax portion of your IRA, and so do you. You do not want to pay taxes a second time, Do you?
Rollover a 401K and/or a traditional IRA. Generally, do not result in a taxable transaction if is roller over within 60 days from the distribution date.
What is the date you should start receiving your minimum required distributions (MRD) payments after reaching 70 1/2? If you reach 70 1/2 in March 5, 2007 (or any date in 2007), you should begin making your 1st MRD by April 1, 2008 , and his/her second distribution by Dec. 31, 2007. VERY IMPORTANT. (Exceptions apply.)
Owe money to the IRS, consider these tax payment options.
E-options?
These options offer taxpayers the easiest and fastest way to make a full or partial payments. You can either pay by phone, online or using your credit card.
A short-term extension gives a taxpayer up to 120 days to pay without processing fee, but the late payment penalty and interest still apply.
A monthly payment plan or installment agreement gives the taxpayer more time to pay. Under this method the interest still apply but the late payment penalty is cut in half to 0.25 percent for any month an installment agreement is in effect.
Penalties for filing or paying taxes late.
Filing late. You must pay a failure- to-file penalty. The penalty is usually 5% per month for each month that a return is late, not to exceed 25%. The penalty is based on the tax not paid by the due date.
Paying tax late. The penalty is 0.5% of your unpaid taxes for each month that the tax is due. This could increase to 1 percent per month after a notice of deficiency is received.
Combined Penalties. The penalty for filing late is reduced by the penalty for paying late for that month, unless the minimum penalty for filing late is charged.
Accuracy related penalties. If due to understatement could reach 20 percent. (Source: IRS)
These options offer taxpayers the easiest and fastest way to make a full or partial payments. You can either pay by phone, online or using your credit card.
A short-term extension gives a taxpayer up to 120 days to pay without processing fee, but the late payment penalty and interest still apply.
A monthly payment plan or installment agreement gives the taxpayer more time to pay. Under this method the interest still apply but the late payment penalty is cut in half to 0.25 percent for any month an installment agreement is in effect.
Penalties for filing or paying taxes late.
Filing late. You must pay a failure- to-file penalty. The penalty is usually 5% per month for each month that a return is late, not to exceed 25%. The penalty is based on the tax not paid by the due date.
Paying tax late. The penalty is 0.5% of your unpaid taxes for each month that the tax is due. This could increase to 1 percent per month after a notice of deficiency is received.
Combined Penalties. The penalty for filing late is reduced by the penalty for paying late for that month, unless the minimum penalty for filing late is charged.
Accuracy related penalties. If due to understatement could reach 20 percent. (Source: IRS)
A Tax Incentive you should know.
This Act provide some incentive for businesses, among those you find;
50 Percent Special Depreciation deduction Allowance-to recover the cost of assets placed in service.
New depreciation limits on Business Vehicles-the maximum that can be taken for assets placed in service is $3,160 to $11,160.
Section 179 Expensing deduction was double from last year. -Business can expense up to $250,000 in assets placed in service in 2008.
These incentives are created to stimulate the economy. (Source IRS
50 Percent Special Depreciation deduction Allowance-to recover the cost of assets placed in service.
New depreciation limits on Business Vehicles-the maximum that can be taken for assets placed in service is $3,160 to $11,160.
Section 179 Expensing deduction was double from last year. -Business can expense up to $250,000 in assets placed in service in 2008.
These incentives are created to stimulate the economy. (Source IRS
A perspective on the social security fund.
Do you think that by the time all baby boomers retire will be enough social security (SS) money to pay everyone in the system?
That is a good question, for which they are multiple good answers if you consider this or that... Common wisdom tells you that the Social Security System is a pay as you go system. Meaning, those that work pay for those that are retired. They also say, that the ratio of workers to retire will continue to shrink to the point where there will be four workers for every retiree, 10 to 30 years into the future.
Based on those premises alone, the numbers do not add up to pay all retirees.
Is that really the case?
Consider this; a worker who earned $40,000 each thru most part of his working life will be supported by four new workers earning a salary of over $100,000 each.
Perhaps, the total contribution of these new workers could possible be enough to pay out one retiree.
Maybe true or maybe false! I do not know, until I do the math. If anyone can do the math right...
That is a good question, for which they are multiple good answers if you consider this or that... Common wisdom tells you that the Social Security System is a pay as you go system. Meaning, those that work pay for those that are retired. They also say, that the ratio of workers to retire will continue to shrink to the point where there will be four workers for every retiree, 10 to 30 years into the future.
Based on those premises alone, the numbers do not add up to pay all retirees.
Is that really the case?
Consider this; a worker who earned $40,000 each thru most part of his working life will be supported by four new workers earning a salary of over $100,000 each.
Perhaps, the total contribution of these new workers could possible be enough to pay out one retiree.
Maybe true or maybe false! I do not know, until I do the math. If anyone can do the math right...
Charitable Gifts! How much you want to give out.
If you gave any one person gifts in 2007 that are valued at more than $12,000, you must report the total gifts to the Internal Revenue Service and may have to pay tax on the gifts. The person who receives your gift does not have to report the gift to the IRS or pay gift or income tax on its value..
There are some exceptions to the tax rules on gifts. The following gifts generally are not taxable and do not count against the annual limit:
· Tuition or Medical Expenses that you pay directly to an educational or medical institution for someone's benefit
· Gifts to your Spouse
With the consent from your spouse, you can make a gift of up to $24,000 ($12,000 x 2) to the same person without making a taxable gift. This is commonly known as splitting gifts between spouses. Essentially, it means a gift by you or your spouse to a third person can be considered as made one-half by each of you provided there is consent by both spouses. (Source IRC)
There are some exceptions to the tax rules on gifts. The following gifts generally are not taxable and do not count against the annual limit:
· Tuition or Medical Expenses that you pay directly to an educational or medical institution for someone's benefit
· Gifts to your Spouse
With the consent from your spouse, you can make a gift of up to $24,000 ($12,000 x 2) to the same person without making a taxable gift. This is commonly known as splitting gifts between spouses. Essentially, it means a gift by you or your spouse to a third person can be considered as made one-half by each of you provided there is consent by both spouses. (Source IRC)
Are you ready for a Tax Audit?
In a tax emergency, would you be ready? Well–organized records not only help you prepare your tax return, but they also help you answer questions if your return is selected for examination or prepare a response if you are billed for additional tax.
Fortunately, you don’t have to keep all tax records around forever. Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property — should be kept longer.
If you are an employer, you must keep all your employment tax records for at least 4 years after the tax becomes due or is paid, whichever is later.
If you are in business, there is no particular method of bookkeeping you must use. However, you must clearly and accurately show your gross income and expenses. The records should substantiate both your income and expenses.
Fortunately, you don’t have to keep all tax records around forever. Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property — should be kept longer.
If you are an employer, you must keep all your employment tax records for at least 4 years after the tax becomes due or is paid, whichever is later.
If you are in business, there is no particular method of bookkeeping you must use. However, you must clearly and accurately show your gross income and expenses. The records should substantiate both your income and expenses.
Child Investment Income
Part or all of a child's investment income may be taxed at the parent's rate rather than the child's rate. Because a parent's taxable income is usually higher than a child's income, the parent's top tax rate will often be higher as well.
This special method of figuring the federal income tax only applies to children who are under the age of 18. For 2007, it applies if the child's total investment income for the year was more than $1,700. Investment income includes interest, dividends, capital gains, and other unearned income.
Alternatively, a parent can, in many cases, choose to report the child's investment income on the parent's own tax return. Generally speaking, this option is available if the child's income consists entirely of interest and dividends (including capital gain distributions) and the amount received is less than $8,500. However, choosing this option may reduce certain credits or deductions that parents may claim.
For 2007, these special tax rules do not apply to investment income received by children who are age 18 and over. In addition, wages and other earned income received by a child of any age are taxed at the child's normal rate.
Source: IRS
This special method of figuring the federal income tax only applies to children who are under the age of 18. For 2007, it applies if the child's total investment income for the year was more than $1,700. Investment income includes interest, dividends, capital gains, and other unearned income.
Alternatively, a parent can, in many cases, choose to report the child's investment income on the parent's own tax return. Generally speaking, this option is available if the child's income consists entirely of interest and dividends (including capital gain distributions) and the amount received is less than $8,500. However, choosing this option may reduce certain credits or deductions that parents may claim.
For 2007, these special tax rules do not apply to investment income received by children who are age 18 and over. In addition, wages and other earned income received by a child of any age are taxed at the child's normal rate.
Source: IRS
Consumer Price Index
Percentage change for 12 months-ending December—Year comparisons:
|<——————————NATIONAL———————————————–>| |<—Houston———>|
CPI-U by Category 2004 2005 2006 2007 2008 (6 mo.) (12 mo.) 2 month
Combined 3.3 3.4 2.5 4.1 5.5 4.9 2.5
Food and beverages 2.6 2.3 2.2 4.8 6.6 5.9 2.4
Medical Care 4.2 4.3 3.6 5.2 2.7 4.8 0.3
Energy 16.6 17.1 2.9 17.4 29.1 24.3 17.6
Apparel -0.2 -1.1 0.9 -0.3 -1.9 -9.2 -9.2
Housing 3 4 3.3 3 4.3 4.9 3.5
(Source: U.S. DOL)
|<——————————NATIONAL———————————————–>| |<—Houston———>|
CPI-U by Category 2004 2005 2006 2007 2008 (6 mo.) (12 mo.) 2 month
Combined 3.3 3.4 2.5 4.1 5.5 4.9 2.5
Food and beverages 2.6 2.3 2.2 4.8 6.6 5.9 2.4
Medical Care 4.2 4.3 3.6 5.2 2.7 4.8 0.3
Energy 16.6 17.1 2.9 17.4 29.1 24.3 17.6
Apparel -0.2 -1.1 0.9 -0.3 -1.9 -9.2 -9.2
Housing 3 4 3.3 3 4.3 4.9 3.5
(Source: U.S. DOL)
Saving for your child education?
A Coverdell Education Savings Account (ESA) is an account created as an incentive to help parents and students save for education expenses. The total contributions for the beneficiary of this account cannot be more than $2,000 in any year, no matter how many accounts have been established. A beneficiary is someone who is under age 18 or is a special needs beneficiary. Contributions to a Coverdell ESA are not deductible, but amounts deposited in the account grow tax free until distributed. The beneficiary will not owe tax on the distributions if they are less than a beneficiary’s qualified education expenses at an eligible institution. This benefit applies to qualified higher education expenses as well as to qualified elementary and secondary education expenses. The Hope and lifetime learning credits can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell ESA, as long as the same expenses are not used for both benefits.
If the distribution exceeds qualified education expenses, a portion will be taxable to the beneficiary and will usually be subject to an additional 10% tax. The beneficiary receives a qualified scholarship. (Source IRC.)
If the distribution exceeds qualified education expenses, a portion will be taxable to the beneficiary and will usually be subject to an additional 10% tax. The beneficiary receives a qualified scholarship. (Source IRC.)
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