Your Year-End Personal Finance Checklist
Real Estate Professional Loophole CLOSED??
Tax Breaks for Home Improvements - Kiplinger.com
Foreclosure Tax Help
Tax Law Changes—Two Acts Sent to President: The Mortgage Forgiveness Debt Relief Act of 2007 ("Mortgage Act") and the Energy Independence and Security Act of 2007 ("Energy Act") both have been sent to the President for signature. It is expected that he will sign them both. The Mortgage Act includes provisions that would exclude debt forgiveness income on a qualified principal residence from taxable income if occurring on or after January 1, 2007 and before January 1, 2010; extend the deduction for mortgage insurance premiums through December 31, 2010; provide two alternate methods for a co-op to qualify for certain tax benefits; exclude from income certain payments to qualified volunteer emergency response organizations; allow certain full-time students who are single parents to live in units eligible for the low-income housing tax credit; and allow a surviving spouse to exclude up to $500,000 of gain on his/her principal residence if sold within two years of the deceased spouse's date of death. The Energy Act extends the FUTA surcharge for an additional year and increases the amortization period for geological and geophysical expenditures of major integrated oil companies from five years to seven years.
Dependents—Qualifying Child Rule Clarified: The IRS has issued a notice clarifying when an individual will not be a "qualifying child" of another taxpayer. Under IRC Sec. 152(d)(1)(D) , an individual is not a qualifying relative of the taxpayer (and thus eligible for the dependency exemption) if that individual is the "qualifying child" of any other taxpayer. The notice provides that the dependent will not be a "qualifying child" of any individual that is not required to file a tax return under IRC Sec. 6012 and either does not file a tax return or else files a return solely to obtain a refund of income tax withholding. Notice 2008-5, 2008-2 IRB .
S Corporation Shareholder-employee's Health Insurance Costs: This notice provides rules for 2% S corporation shareholder-employees (2% shareholders) to claim the Section 162(l) deduction for accident and health insurance premiums that are paid or reimbursed by the S corporation. [ Editor's Note: For this purpose, a 2% shareholder is any person owning, directly or indirectly, more than 2% of the corporation's stock on any day during the tax year.] A 2% shareholder who meets the requirements of IRC Sec. 162(l) can claim the deduction if the plan providing medical care coverage is established by the S corporation, which means that the (1) S corporation pays the premiums for a policy covering the 2% shareholder (and spouse or dependents, if applicable) in the current tax year; or (2) 2% shareholder pays the premiums and is reimbursed by the S corporation in the current tax year. The S corporation must report the premiums paid or reimbursed as wages on the 2% shareholder's Form W-2 for that same year, and the 2% shareholder must report the premium payments or reimbursements as gross income on his or her Form 1040. Notice 2008-1, 2008-2 IRB .
Sole Proprietor Health Insurance Premiums: Taxpayer operated a grain and livestock farm, and employed his wife to care for the livestock, help with repairs, and perform other "usual and customary" farming tasks. The Tax Court held that he could deduct premiums paid to a medical reimbursement plan that covered his spouse as an employee, and himself as her family member, as ordinary and necessary business expenses under IRC Sec. 162(a) . [ Editor's Note: Although self-employed individuals can now deduct 100% of their health insurance under IRC Sec. 162(l) , a lesser percentage was deductible in the years of this case.] In so holding, the court rejected the IRS's argument that only the payments made for the medical expenses of the employee, and not payments for the medical expenses of the employee's spouse or dependents, constitute payments made pursuant to such a plan. Ralph Frahm , TC Memo 2007-351 (Tax Ct.).
Deductible Medical Expenses: The IRS ruled that the amount paid for an annual physical exam qualifies as an expense for medical care even though taxpayer is not experiencing any symptoms of an illness. Similarly, the amount paid for a full-body scan qualifies even though taxpayer is not experiencing symptoms of an illness, a physician has not recommended that the scan be done, and there are less expensive alternatives. In so ruling, the IRS notes that the scan serves no nonmedical purpose. Finally, the amount paid for a pregnancy test qualifies as a medical expense even though it tests the healthy functioning of the body rather than detect a disease. All three amounts are deductible under IRC Sec. 213(a) , subject to the 7.5% floor. Rev. Rul. 2007-72, 2007-50 IRB .
IRS Tips for Choosing a Return Preparer: In the 11/28/07 issue of IRS E-news for Small Businesses, the IRS cautions taxpayers to choose a tax return preparer wisely, since they are "legally responsible for what's on [their] tax return—even if prepared by someone else." Taxpayers should (1) avoid preparers who claim they can obtain larger refunds than other preparers; (2) beware of preparers who guarantee results or who base fees on a percentage of the refund; (3) avoid firms where your work may be delegated down to someone with less training or some unknown worker; (4) determine if the preparer is exporting returns to a foreign country for preparation, since foreign countries do not have the same security and privacy laws; and (5) find out if the preparer is affiliated with a professional organization that requires continuing education and holds members accountable to a code of ethics.
Tax Return Mailing Addresses: IRS addresses for mailing individual income tax returns for the 2008 filing season can be found at www.irs.gov/file/article/0,,id=129870,00.html
Two Identification Numbers for Single Member LLCs: According to Internal Revenue Manual (IRM) 21.7.13.5.4.3, two employer identification numbers (EINs) are assigned to single member LLCs with employees because a single member LLC that is a disregarded entity (i.e. has not elected to be taxed as a corporation) can't be an employer. The owner is the employer of record, and the employment tax regulations require that the employer have an EIN. If the taxpayer chooses to calculate, report, and pay the employment taxes under the LLC's name, one EIN is assigned to the owner and the other to the disregarded entity. The IRM notes that the taxpayer/preparer must make a concerted effort not to get the two confused. Furthermore, once this choice is made, the taxpayer cannot change for 60 months without the IRS's permission.
Claiming Charitable Contributions on 2007 Returns: The IRS released Publication 526 , "Charitable Contributions," for use in preparing 2007 returns. The "What's New" section has information on the new recordkeeping requirements for cash contributions, paying the filing fee for contributing easements on buildings in historic districts, and deducting contributions to donor advised funds. The publication notes that taxpayers can't deduct a cash contribution, regardless of the amount, unless they keep a (1) bank record, such as a cancelled check, bank or credit union statement, or credit card statement; or (2) letter or other written communication from the charity showing the name of the charity, the date of the contribution, and the amount of the contribution. Publication 526 can be viewed on the IRS website at www.irs.gov/pub/irs-pdf/p526.pdf
IRS Announces 2008 Standard Mileage Rates: The IRS issued the 2008 standard mileage rates for determining the deductible costs of operating a vehicle for business, charitable, medical, or moving purposes. Beginning on 1/1/08, the standard mileage rates for the use of a car (including vans, pickups, or panel trucks) will be (1) 50.5 cents per mile for business miles driven, compared to 48.5 cents per mile for 2007; (2) 19 cents per mile for medical or moving purposes, compared to 20 cents per mile last year; and (3) 14 cents per mile for service to a charitable organization, which is set by law and so is the same as last year. Taxpayers can't use the business standard mileage rate for a vehicle if they (1) claim accelerated (MACRS) depreciation or a Section 179 deduction for the vehicle, (2) use the vehicle for hire (such as a taxi), or (3) use more than four vehicles simultaneously (as in fleet operations). News Release IR-2007-192 and Rev. Proc. 2007-70, 2007-50 IRB
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Thrift shop values of commonly donated items
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Common business deductions
