Travis Raml, CPA - Blog

IR-2009-42, April 16, 2009

WASHINGTON — The tax credit for hybrid passenger automobiles and light trucks manufactured by Ford Motor Company has begun to phase out for purchases made after March 31, 2009.

Taxpayers may claim the full amount of the credit only on purchases made before April 1, 2009, because the total number of vehicles sold reached the 60,000 vehicle threshold in the last quarter of 2008. The cumulative sales of qualified Ford hybrid vehicles sold from the period of Jan. 1, 2006, to Dec. 31, 2008 is 66,157.

For vehicles purchased for use or lease on or after April 1, 2009, and on or before Sept. 30, 2009, the credit is 50 percent of the full amount. For vehicles purchased for use or lease on or after Oct. 1, 2009, and on or before March 31, 2010, the credit is 25 percent of the full amount. For vehicles purchased for use or lease on or after April 1, 2010, no credit is allowable.

The full credit amount for vehicle purchases made prior to April 1, 2009 is:

* 2005, 2006, 2007 Ford Escape 2WD, $2,600;
* 2008, 2009 Ford Escape 2WD, $3,000;
* 2005, 2006, 2007, 2009 Ford Escape 4WD, $1,950;
* 2008 Ford Escape 4WD, $2,200;
* 2010 Ford Fusion, $3,400;
* 2008, 2009 Mercury Mariner 2WD, $3,000;
* 2006, 2007, 2009 Mercury Mariner 4WD, $1,950;
* 2008 Mercury Mariner 4WD, $2,200;
* 2010 Mercury Milan, $3,400

http://www.irs.gov/newsroom/article/0,,id=206579,00.html

It’s a moment many taxpayers dread. A letter arrives from the IRS — and it’s not a refund check. Don’t panic; many of these letters can be dealt with simply and painlessly.

Each year, the IRS sends millions of letters and notices to taxpayers to request payment of taxes, notify them of a change to their account or request additional information. The notice you receive normally covers a very specific issue about your account or tax return. Each letter and notice offers specific instructions on what you are asked to do to satisfy the inquiry.

If you receive a correction notice, you should review the correspondence and compare it with the information on your return.

* Agree? If you agree with the correction to your account, usually no reply is necessary unless a payment is due.
* Disagree? If you do not agree with the correction the IRS made, it is important that you respond as requested. Write to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.

Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call to help us respond to your inquiry.

Be sure to keep copies of any correspondence with your records.

For more information about IRS notices and bills, see Publication 594, What You Should Know about the IRS Collection Process. Information about penalties and interest charges is available in Publication 17, Your Federal Income Tax. Both publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Issue Number: TT-2009-72
Information provided by the IRS newswire service

Taxpayers who do not file their return and pay their tax by the due date may have to pay a penalty. Here are seven things you should know about failure-to-file and failure-to-pay penalties.

1. The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return and explore other payment options in the meantime.
2. The penalty for filing late is usually 5 percent of the unpaid taxes for each month of part of a month that a return is late. This penalty will not exceed 25 percent of the taxpayer’s unpaid taxes.
3. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
4. You will not have to pay a failure-to-file penalty if you can show that you failed to file on time because of reasonable cause and not because of willful neglect.
5. You will have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid.
6. If you filed an extension and you paid at least 90 percent of your actual tax liability by the due date, you will not be faced with a failure-to-pay penalty.
7. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty. However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.

Bartering is the trading of one product or service for another. Usually there is no exchange of cash. Barter may take place on an informal one-on-one basis between individuals and businesses, or it can take place on a third party basis through a modern barter exchange company.

Provided by the IRS e-mail service

HEALTH INSURANCE ASSISTANCE

Premium Subsidies for COBRA Continuation Coverage for Unemployed Workers. Recession-related job loss threatens health coverage for many families. To help people maintain coverage, the bill provides a 65% subsidy for COBRA continuation premiums for up to 9 months for workers who have been involuntarily terminated, and for their families. This subsidy also applies to health care continuation coverage if required by states for small employers. With COBRA premiums averaging more than $1000 a month, this assistance is vitally important. To qualify for premium assistance, a worker must be involuntarily terminated between September 1, 2008 and December 31, 2009. The subsidy would terminate upon offer of any new employer-sponsored health care coverage or Medicare eligibility. Workers who were involuntarily terminated between September 1, 2008 and enactment, but failed to initially elect COBRA because it was unaffordable, would be given an additional 60 days to elect COBRA and receive the subsidy. To ensure that this assistance is targeted at workers who are most in need, participants must attest that their same year income will not exceed $125,000 for individuals and $250,000 for families. The Joint Committee on Taxation estimates that this provision would help 7 million people maintain their health insurance by providing a vital bridge for workers who have been forced out of their jobs in this recession. This provision is estimated to cost $24.7 billion.

http://waysandmeans.house.gov/media/pdf/111/arra.pdf

Education tax credits can help offset the costs of higher education for yourself or a dependent. The Hope Credit and the Lifetime Learning Credit are two education credits available which may benefit you. Because they are credits rather than deductions, you may be able to subtract them in full, dollar for dollar, from your federal income tax.

For more information, see Publication 970, Tax Benefits for Education, which can be obtained online at IRS.gov or by calling the IRS at 800-TAX-FORM (800-829-3676).

Issue Number: TT-2009-30
Provided by the Internal Revenue Service (IRS)

While most income you receive is generally considered taxable, there are some situations when certain types of income are partially taxed or not taxed at all.

Information provided by the IRS Newswire Service
Issue Number: TT-2009-25

WASHINGTON ― Many investors will receive their year-end tax statements later than in past years, but these forms are likely to be more accurate, according to the Internal Revenue Service.

Issue Number: IR-2009-011
Information provided by the IRS Newswire

Don’t wait around for a paper check. Have your federal tax refund deposited directly into your bank account. Choosing Direct Deposit is a secure and convenient way to get your money in your pocket faster.

Here are the main reasons 66 million taxpayers chose Direct Deposit in 2008:

1. Direct Deposit is secure. There is no chance for a check to get lost in the mail. Thousands of checks are returned to the IRS by the US Post Office every year as undeliverable mail. Direct Deposit eliminates the possibility you won’t receive your check and prevents your refund from being stolen.

2. Direct Deposit is convenient. The money goes directly into your bank account. You won’t have to make a special trip to the bank to deposit the money yourself.

3. Direct Deposit is easy. When you’re preparing your return, simply follow the instructions for “refund” on your return. Just make sure you entered the correct bank account and bank routing numbers on your tax form and you’ll receive your refund quicker than ever.

4. Direct Deposit offers options. You can also electronically direct your refund to multiple accounts. With the “split refund” option, taxpayers can divide their refunds among as many as three checking or savings accounts and three different U.S. financial institutions. A word of caution — some financial institutions do not allow a joint refund to be deposited into an individual account. Check with your bank or other financial institution to make sure your direct deposit will be accepted.

For more information about direct deposit of your tax refund and the split refund option, check the instructions for your tax form.

This and other helpful tips are available in IRS Publication 17, Your Federal Income Tax. To get a copy, visit the Forms and Publications section of the IRS Web site, IRS.gov, or call 800-TAX-FORM (800-829-3676).

Issue Number: TT-2009-19
Provided by the IRS Newswire service

Issue Number: IR-2009-005

WASHINGTON — The Internal Revenue Service today announced the Jan. 16 opening of an expanded IRS e-file program for 2008 federal tax returns, highlighted by new features that will allow expanded access to electronic filing and help people looking for faster refunds.

IRS Commissioner Doug Shulman encouraged taxpayers to explore e-file this year as the best option to file accurate tax returns and get fast refunds during the current economic downturn. The e-file program also includes new improvements to the Free File program that will allow nearly all taxpayers to e-file for free.

“These are tough times, and e-file is the best way for people to get cash in their pocket quickly,” said IRS Commissioner Doug Shulman. “Filing electronically with direct deposit can get refunds to taxpayers in as few as 10 days. Combined with important changes in the Free File program, we believe e-file is a better option than ever before for the nation’s taxpayers.”

Last year the average refund was $2,429. The IRS realizes people need their refunds quickly. Shulman urged people who haven’t e-filed before to consider the e-file option this year.

IRS e-file totaled nearly 90 million tax returns in 2008. Almost 58 percent of all returns were filed electronically. Last year, there was a surge in e-file from home computers. Nearly 27 million people prepared their own e-file return. That’s an increase of more than 19 percent from the previous year.

IRS e-file meets the needs of nearly all taxpayers, no matter how complicated or simple their returns are. E-file helps taxpayers take advantage of the tax credits available to them to maximize their refunds during these tough economic times.

A variety of tax software products are available commercially that offer e-file. This year, several of them will not charge additional fees for e-filing for the first time.

In addition, most taxpayers qualify for free tax preparation offered through Free File on IRS.gov. Regardless of income level, taxpayers who are comfortable with filling out paper tax forms and who don’t need extra assistance can use the IRS’s new Free File Fillable Forms. These new online versions of paper tax forms that can be e-filed are available for the first time by visiting the IRS.gov Free File site.

Benefits of e-File

Taxpayers who use e-file and who choose direct deposit can receive their refund in as few as 10 days. That’s because with e-file, there’s no paper return going to the IRS. And with direct deposit, there’s no paper refund going to the taxpayer. So it’s all electronic and much faster than paper.

IRS e-file allows taxpayers to file their returns now and pay later if they owe taxes. It allows taxpayers to file both federal and most state returns at the same time.

Taxpayers may use IRS e-file through their tax preparers, or with a computer using tax preparation software. This software is available on the Internet for online use or for download. Many retail stores sell the software for offline use. The IRS does not charge taxpayers to e-file their completed returns, but some tax preparers and software manufactures may charge a fee. However, this year a number of large software companies are waiving this additional fee.

To get all the benefits of electronic filing, taxpayers must make sure that when they are done with their returns, they take the final step of e-filing them. Taxpayers who use a paid preparer should make sure their preparers are taking this final step, too. In addition to error checks contained in the return-preparation software, additional checks are done during the e-file transmission process. That’s why the error rate is so low for e-filed returns. In fact, the error rate is significantly reduced from 20 percent with paper returns to about 1 percent with e-filed returns.

E-filed tax return information is protected through encryption. Also, taxpayers receive an acknowledgement within 48 hours that the IRS has accepted their return.

Free File

Free File, which is a form of e-file, is a free federal tax preparation and electronic filing program for eligible taxpayers developed through a partnership between the IRS and the Free File Alliance LLC. The Alliance is a group of private-sector tax software companies. Since Free File’s debut in 2003, a total of more than 24 million returns have been prepared and e-filed through the program.

Free File offers 20 different software options that can assist taxpayers with an Adjusted Gross Income (AGI) of $56,000 or less in 2008 to e-file their federal tax returns for free. That means 70 percent of all taxpayers – 98 million taxpayers – can take advantage of tax software that will help them complete their returns through the Free File program. Three companies are offering their products in Spanish.

This year, the IRS and its partners are offering a new option, Free File Fillable Tax Forms, which opens up Free File to virtually everyone, even those whose incomes exceed $56,000.

Free File Fillable Tax Forms allows taxpayers to fill out and file their tax forms electronically, just as they would on paper. This option does not include an “interview” process like the other Free File offerings, but it does allow taxpayers to enter their tax data, perform basic math calculations, sign electronically, print their returns for recordkeeping and e-file their returns. This “self-service” option may be right for those who are comfortable with the tax law, know what forms they want to use or don’t need assistance to complete their returns.

Both the fillable-forms option and the previously available “full service” Free File offerings are available only through the IRS.gov Web site. Both new and returning taxpayers must access Free File through IRS.gov. Otherwise, the e-file provider may charge them a fee. Look for details on IRS.gov beginning Jan. 16.

Almost 4.8 million tax returns were filed through Free File last year, an increase of 24 percent over the previous year’s total of nearly 3.9 million returns.

History of IRS e-File

The IRS began the e-file program in 1986 as a pilot project in three cities: Cincinnati, Phoenix and Raleigh-Durham, N.C. That year, there were 25,000 tax returns filed electronically. The e-file program expanded nationwide in 1990 and 4.2 million tax returns were filed. IRS e-file has undergone tremendous growth each year, with nearly 90 million tax returns e-filed last year.

In formation provided by the IRS Newswire Service

Travis Raml, CPA
Columbia, MD