It’s the 2009 tax season, and you should already be looking for those federal income tax deductions that can legally lower your tax bill.

Here are a number of the typical deductions that you want to make sure your tax preparer knows about so you get the full federal income tax deduction allowed.

2009 Mileage Deductions

Business Mileage 55-cents per mile
Charitable Work Mileage 14-cents per mile
Medical & Moving Mileage 24-cents per mile

Tax Benefits For Education

There are a number of tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. They are the Hope Credit and the Lifetime Learning Credit, also referred to as education credits.

To learn about these tax credits, who can claim them, what expenses qualify, and more, visit the website www.irs.gov and in the search bar type in either ‘child education expenses’ or ‘Publication 970.’

For dependents in daycare through middle school, deductible expenses do not include tuition. However, after-school care expenses and a few other types of expenses are deductible. Ask your tax preparer for advice and be prepared to supply the name, address and federal tax ID number or social security number of the care provider.

For each dependent, whoever prepares your income taxes will need the child’s full name, date of birth and social security number.

Schedule A Itemized Deductions

If your itemized deductions exceed your standard deduction, then you are allowed to take the greater of the two. Here are the standard deductions for 2009.

$5,700 – Single or Married filing Separately
$11,400 – Married filing jointly or qualified widow(er)
$8,350 – Head of Household

Here is a partial list of Schedule A deductions – for details visit the website www.irs.govand in the search bar type in ‘schedule A’ and look at the instruction form:

1. Mileage (not claimed as business mileage on another form)
2. Medical expenses
3. Charitable Contributions (there are new record keeping rules that apply for cash donations)
4. Mortgage Insurance premiums for contracts issued after December 31, 2006
5. Mortgage Interest & Points
6. Real Estate Property Taxes (on residences not used for business or rental)
7. Sales tax you paid on retail purchases
8. Investment interest on money borrowed for a property held for investment
9. Job expenses you paid as an employee (if you are not filing Form 2106)
10. Tax preparation fees paid to a professional

Special Schedule A Deductions for 2009 - Certain Cash Contributions for Haiti Relief Can Be Deducted on Your 2009 Tax Return

A new law allows you to choose to deduct certain charitable contributions of
money on your 2009 tax return instead of your 2010 return. The contributions
must have been made after January 11, 2010, and before March 1, 2010, for the
relief of victims in areas affected by the January 12, 2010, earthquake in Haiti.

Contributions of money include contributions made by cash, check, money order,
credit card, charge card, debit card, or via cell phone.

The new law was enacted after the 2009 forms, instructions, and publications
had already been printed. When preparing your 2009 tax return, you may
complete the forms as if these contributions were made on December 31, 2009,
instead of in 2010. To deduct your charitable contributions, you must itemize
deductions on Schedule A (Form 1040) or Schedule A (Form 1040NR).

The contribution must be made to a qualified organization and meet all other
requirements for charitable contribution deductions. However, if you made the
contribution by phone or text message, a telephone bill showing the name of the
donee organization, the date of the contribution, and the amount of the
contribution will satisfy the recordkeeping requirement. If, for example,
you made a $10 charitable contribution by text message that was charged to
your telephone or wireless account, a bill from your telecommunications
company containing this information satisfies the recordkeeping requirement.

Schedule E Deductions for Rental Properties

If you own rental properties then the income and deductions go on Schedule E.

Here is a partial list of Schedule E deductions you can take on rental properties – for details visit the website www.irs.gov and in the search bar type in “schedule E.”

1. Advertising
2. Auto & Travel
3. Cleaning & Maintenance
4. Commissions
5. Legal & Other Professional Fees
6. Management Fees
7. Mortgage Interest
8. Other Interest
9. Repairs
10. Supplies
11. Property Taxes
12. Utilities

While we must pay some taxes, it’s smart to use a professional tax preparer and be sure you are getting the maximum allowable deductions to reduce your tax bill.

And now I would like to invite you to claim your FREE Debt Reduction Solutions Guide and join the millions who are on the path to becoming debt free.

Hold onto your wallets, and tighten up your money management controls!

Here is a brief summary of tax law changes for 2010.

By Patti S. Spencer of Spencer Law Firm

The New Year brings many tax changes. Many tax breaks are phased out. The changes below are the current state of the law. It is always possible for Congress to act to extend or replace disappearing provisions.

The House passed a bill that extended many of these provisions, but the Senate was unable to schedule a vote on it. The Senate has been tied in knots over the health care bill.

Roth IRA conversions

Starting in 2010 the income cap for converting a traditional IRA to a Roth IRA is eliminated. Now anyone can do a Roth conversion. If the conversion is done in 2010, taxpayers can spread the income tax attributable to it over two years: 2011 and 2012. Note that while the income cap is removed for purposes of qualifying for the conversion of a traditional IRA to a Roth IRA, there remains an income cap on regular contributions to a Roth IRA. The income phase-out begins at $167,000 for joint filers.

New vehicle sales tax

Individuals will no longer be able to take an itemized deduction or increase the standard deduction for the sales tax on the purchase of a new motor vehicle. Vehicles had to be purchased after Feb. 16, 2009, and before Jan. 1, 2010, to qualify for the deduction.

Sales tax

The choice to deduct state sales tax payments instead of deducting state and local income taxes is gone. This provision was very important for taxpayers in such states as Florida, where there is no income tax.  THIS IS REALLY UNFAIR TO LOW TAX STATES.

End to phaseouts

In 2010 there will be no phaseout of itemized deductions and personal exemptions for higher-income taxpayers. This will greatly benefit high earners.

Teachers’ deduction

The $250 deduction for teachers who buy classroom supplies with their own money is eliminated.

Tuition and fees

The $4,000 deduction for college tuition and fees expires after 2009. This deduction was permitted “above the line,” meaning it could be taken even if the taxpayers didn’t itemize.

Contribution from IRAs

IRA owners older than 70½ who make contributions from their IRAs directly to charity will no longer be able to exclude these withdrawals from income.

Property tax deduction

Non-itemizers will no longer be able to deduct up to $1000 in property taxes paid. This provision had been a help to homeowners who had no mortgage so that there was no interest deduction to help make itemization worthwhile.

AMT exemptions

The Alterative Minimum Tax exemption levels fall back to $45,000 for married filing jointly and $33,750 for singles and heads of household. (In 2009 the exemption was $70,950 for married filing jointly and 46,700 for singles and heads of household.) Some commentators say that as many as 1 in 5 taxpayers will be subject to the AMT in 2010.

Unemployment benefits

The first $2,400 of unemployment benefits will no longer be tax-free.

Energy credit reduced

The 30 percent tax credit for the cost of energy-saving home improvements is reduced to 19 percent and is capped at $500.

Section 179 expensing

The maximum amount of equipment that can be expensed (instead of depreciated) is reduced to $135,000 from $250,000. Businesses can no longer claim 50 precent bonus depreciation on assets placed in service in 2010.

Tax on dividends

For taxpayers in brackets higher than 15 percent, qualified dividends are taxed at a maximum rate of 15 percent through Dec. 31, 2010. For taxpayers in the 10 percent and 15 percent brackets, qualified dividends are taxed at 0 percent through Dec. 31, 2010. The provisions sunset at the end of the year, and dividend taxation reverts to former 2002 rates.

Mileage reimbursement

The mileage rates in 2010 are 50 cents for business, 16½ cents for medical and 14 cents for charitable purposes.

Home buyers credit

If you used the home buyers credit in 2008, you must start paying it back in 2010. The qualification period for first-time home buyers to purchase a home and qualify for the credit continues through May 1.

Retirement accounts

Remember you have until April 15 to contribute to a traditional or a Roth IRA. If you have Keogh or SEP and you get a filing extension for your 2009 return until Oct. 5, you have until that date to make contributions.

No estate tax

The federal estate tax is repealed for individuals who die in 2010.

Wild cards

If the Senate and House eventually hammer out a health care bill that becomes law, there are various provisions in the current legislation on how to pay for it. The House bill includes a 5.4 percent surtax on high earners and would curtail flexible spending accounts. The Senate bill includes a 40 percent surtax on high-end employer-sponsored health plans that provide health coverage valued at more than $8,500 for individuals and $23,000 for families (they call them “Cadillac plans”) and increases the Medicare payroll tax. Hold on to your wallet.

Article Source: http://articles.lancasteronline.com/local/4/247022

Write your congressional representatives and urge them to support the FairTax Act http://www.FairTax.org and leave a comment here that you took action!

You can apply for income tax relief for up to $2 million (or $1 million if married and filing separately) in debt that is cancelled, or forgiven, by your mortgage lender on your primary residence. The law has been extended through 2012 under the Emergency Economic Stabilization Act.

If you have lost your home through foreclosure or have restructured your mortgage loan, you may qualify for this tax relief under the extended tax law called the Mortgage Forgiveness Debt Relief Act of 2007. The claim can be made by using IRS Form 982.

There are two qualifying factors that must be met on the mortgage debt exclusion: 1) it must be your primary home, and 2) the debt must have been used to buy, build, or make substantial improvements to the residence to which the mortgage applies. Certain business or farm property may also qualify for tax-free treatment, so check with your accountant or tax attorney in this situation.

When a lender forgives debt, it is typically a taxable event. You would receive a 1099-C (Cancellation of Debt) and the income would be claimed on Line 21 on your personal 1040 income tax Form. (IRS Publication 525)

While mortgages for second homes and rental properties do not qualify for the exclusion, some or all of this debt might qualify for other exclusions if you are insolvent at the time the debt was settled.

Canceled credit debt does not have to be included in income if it was a gift, or if the individual is insolvent, or in a bankruptcy case. The exclusion for insolvency is particularly important in this case, because it will likely apply to borrowers with home equity loans or mortgages on second homes and rental properties, and will be helpful in this situation. This is an important point for borrowers whose property has dropped in value below what is owed on the mortgage.

According to the IRS, “A debtor is insolvent when, and to the extent, the debtor’s liabilities exceed the FMV (fair market value) of the assets. Determine the debtor’s liabilities and the FMV (fair market value) of the assets immediately before the cancellation of the debtor’s debt to determine whether or not the debtor is insolvent and the amount by which the debtor is insolvent.”  (IRS Publication 908)

The value of all of your assets and all of the liabilities you owe have to be calculated to figure out if you are insolvent, and by what amount, so as always, check with your professional accountant to see how you can best take advantage of these tax relief measures for exclusions of cancelled or settled credit  and mortgage debts.

REMINDER:

Corporate tax returns are due March 15th and extension deadline filing is September 15th

Personal tax returns are due April 15th and extension deadline filing is October 15th

The tax planning clock is clicking away toward the end of the year.  Is your business ready to take advantage of the tax saving measures available to you? Tax planning is essential for business owners, and should be done on a quarterly basis. However, it’s not too late if you do it before mid-December. Here are some words of wisdom from financial planner, P. Christopher Music.

Well, the year is coming to an end and many business owners are meeting with their accountants and tax advisors to figure out how to reduce that inevitable income tax burden coming in April.  Here are a few strategic ways to keep some more of that money at home.

Business owners are often successful in earning some money beyond the expenses of acquiring it—in short, profit.  The only problem is, the profit is taxed.  So, we work with our tax advisors to lower this burden by strategically spending money in various ways by the end of the year in an attempt to cut off the bleeding.

One of the most popular techniques is to “spend the money since it’s going to be taxed anyway”.  I always get a charge out of this technique since it does not evaluate on what the money is spent.  One of the laws of economics is that money derived from production must be reinvested into production to expand the organization.  In other words, the expense must buy something of value that can further grow in value.

This technique can be summed up in “accelerating expenses”.  Next year the company will have expenses like rent, promotion and marketing, utilities, etc.  Accelerating these expenses only defer the tax owed since you will have to do the same thing next year to avoid the tax.  This has some limited workability, especially if you have volatility in your annual income and can pay the taxes at lower rates in a year with lower income.

There are, however, other options.  One of these options is to use some form of retirement plan.  These can range from a traditional Individual Retirement Account (IRA) where a person can invest up to $5000 ($6000 over age 50), to something called a “Super 401k” that combines various types of retirement plans to allow someone to contribute upwards of $200,000 or more per year.  That’s right.  Now, the benefit of this kind of expense is that it can not only save income taxes in the current year, but it will create an additional asset of value that can be used in the future to create retirement income.

If you have a C corporation, there is a plan called a Section 79 plan (so named after the IRS Code section) that will allow a business owner to purchase cash value life insurance with potentially tax-deductible dollars.  Of course, you have to purchase life insurance on your employees (inexpensive term) and you will only be able to deduct a portion of the annual life premiums, but this may make sense if you qualify for such a plan.  This type of benefit plan would allow the business owner to accumulate assets inside a life insurance policy that can later be used to provide supplemental retirement income.

These are just a couple of options available to business owners besides just spending money “because it will be taxed anyway”.  Use the tools available to lower your taxes and build wealth for the future.

For more information, contact Christopher Music. Wealth Advisory Associates www.wealthadvisoryassociates.com a Registered Investment Advisor, is a comprehensive financial planning firm serving professionals and small business owners nationally. We focus on assisting our clients in achieving a truly affluent lifestyle by using the natural laws of personal economics.