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Archive for January, 2009

Is my Tax Stimulus Payment Taxable Income On My 2008 Tax Return?


This seems to be a popular question this year. Last year’s Tax Stimulus Payments are Not Taxable! That’s good news, but it has caused some confusion about filing this year’s 2008 tax return. Taxpayers that did not receive their stimulus payment last year may qualify for the Recovery Rebate Credit on this year’s tax return.

The IRS has received a number of recurring questions involving stimulus payments and the recovery rebate credit. Here are some important tips to keep in mind:

Taxability:
Again, the economic stimulus payment is not taxable and it should not be reported as income on the 2008 Form 1040, 1040A or 1040EZ.

Refund delays:
IRS personnel are aware of reports that errors in claiming the recovery rebate credit could delay tax refunds for as much as eight to 12 weeks. These reports are false. As the IRS detects and corrects return errors concerning the recovery rebate credit, refund delays are currently no longer than about one week.

One payment:
In addition, the IRS notes taxpayers will receive a single refund that includes any recovery rebate credit to which they are entitled. The IRS will not be issuing separate recovery rebate credit payments.

Refund amounts:
The IRS reminds taxpayers they should not use their regular refund from last year in calculating the recovery rebate credit. Some taxpayers may be confusing their regular tax refunds with the economic stimulus payment they received when completing their 2008 tax return.

Please feel free to contact E-File Florida at 954-583-8534 or visit us on the internet at www.efileflorida.com for more great tax tips and articles.

IRS CIRCULAR 230 Required Notice – IRS regulations require that we inform you as follows: Any Federal tax advice contained in this communication (including any attachments) is not intended to be used and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction as tax related matter(s).

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Categories: Strictly TAXES!

Are You a Rental Property Owner Facing Foreclosure? Read on…..


I’m getting phone calls every other day from investors facing foreclosure on their rental properties. What are the tax consequences of such an occurence? They can be costly! The Mortgage Forgiveness Debt Relief Act does not cover rental properties. What this means is that when the bank forecloses on your investment property, you may likely be issued a 1099C form. (Your tax liability depends on whether you have a recourse or non-recourse loan. Recourse means you, the borrower, has personal liability for the loan, in addition to the risk of losing your real property. ) The IRS will also recieve a copy of the same form. This form shows the amount of “cancelled debt” that will be considered income to you. In other words, if your mortgage on your rental property was $200,000 and the bank was only able to sell it for $120,000, the difference of $80,000 is now considered cancelled debt income to you. You must add this amount on your tax return and be taxed on an additional $80,000 income. OUCH!

I want to propose an idea if you are an investor who unfortunately finds him/herself in this situation. It’s called a Deed in lieu of foreclosure.

A Deed in lieu of foreclosure is a deed instrument in which a mortgagor (i.e. the borrower) conveys all interest in a real property to the mortgagee (i.e. the lender) to satisfy a loan that is in default and avoid foreclosure proceedings.
The deed in lieu of foreclosure offers several advantages to both the borrower and the lender. The principal advantage to the borrower is that it immediately releases him/her from most or all of the personal indebtedness associated with the defaulted loan. The borrower also avoids the public notoriety of a foreclosure proceeding and may receive more generous terms than he/she would in a formal foreclosure. Another benefit to the borrower is that it hurts their credit less than a foreclosure does. Advantages to a lender include a reduction in the time and cost of a repossession, and additional advantages if the borrower subsequently files for bankruptcy.

In order to be considered a deed in lieu of foreclosure, the indebtedness must be secured by the real estate being transferred. Both sides must enter into the transaction voluntarily and in good faith. The settlement agreement must have total consideration that is at least equal to the fair market value of the property being conveyed. Sometimes, the lender will not proceed with a deed in lieu of foreclosure if the outstanding indebtedness of the borrower exceeds the current fair market value of the property. This is an important point. If you have equity in this property, no matter how small, you may want to contact your lender to see if this is something you can work out. Other times, lenders will agree since they will end up with the property anyway and the foreclosure process is costly to the lender. Be sure that the lender agrees, in writing, to forgive any deficiency (the amount of the loan that isn’t covered by the sale proceeds) that remains after the house is sold.

Because of the requirement that the instrument be voluntary, lenders will often not act upon a deed in lieu of foreclosure unless they receive a written offer of such a conveyance from the borrower that specifically states that the offer to enter into negotiations is being made voluntarily. This will enact the parol evidence rule (get it in writing!) and protect the lender from a possible subsequent claim that the lender acted in bad faith or pressured the borrower into the settlement. Both sides may then proceed with settlement negotiations.

Neither the borrower nor the lender is obliged to proceed with the deed in lieu of foreclosure until a final agreement is reached.

For you New Yorkers out there….the Home Equity Theft Prevention Act has created some confusion regarding this frequently-used method of settlement. It is unclear whether HETPA applies to deeds in lieu of foreclosure since there is no clear exclusion as there is for a referee’s deed, for example. The 2-year right of recission is not a risk that banks or title insurers are comfortable with, especially given the complexities of compliance, so many banks and title insurers in New York are not willing to work with deeds in lieu.

Please feel free to contact E-File Florida at 954-583-8534 or visit us on the internet at http://www.efileflorida.com/ for more great tax tips and articles.

IRS CIRCULAR 230 Required Notice – IRS regulations require that we inform you as follows: Any Federal tax advice contained in this communication (including any attachments) is not intended to be used and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction as tax related matter(s).

Categories: Strictly TAXES!

How Much Should You Pay For Your Tax Preparation?


The price you will pay for tax preparation services depends upon one thing: How complex your tax return is. The more complicated your return, the higher the price will be.

This is true whether your preparer charges a flat-rate, an hourly rate, or has a price for each tax form.For a relatively straightforward tax return (for income such as wages, interest, and dividends, and no itemization), expect to pay between $125 and $200. If you are self-employed, a landlord, or have brokerage trades to report, expect to pay between $200 and $450. If you claim the Earned Income Credit, expect to pay between $150 and $200 due to the complexity of the EIC tax form.

In my experience, retail and independent tax offices tend to charge about the same for tax preparation. It is advisable and wise to seek the services of either a CPA or an Enrolled Agent. Enrolled Agents are Federally licensed by the IRS in the specific area of taxation.

Your tax preparation fee should include electronic filing of your return, or extra copies of the return to file on paper, as well as a brief consultation before or after your taxes are prepared to discuss any concerns you have.

Feel free to visit our website at http://www.efileflorida.com for more informative articles and tax tips.

Categories: Strictly TAXES!

Pay Stub Loans/Tax Returns


OK. Every year around this time I undoubtedly receive several phone calls that goes something like this: ” Hi. I have my last paycheck stub of the year and I’d like to go ahead and file my tax return. I really need the money. My company probably wont give me my W2 until the very last minute (Jan 31st). When can I come in and get that done?” My typical response is, we’re not allowed to submit your tax return without your official W2. “Well, that ‘other big chain tax store’ (we won’t mention any names, but you know who they are) will do it, OR, the guy down the street at such and such company did it for my co-worker.”

I want to say it loud and clear. You must have a valid and current W2 in order to file your income tax return. If, by Feb 15th, after exhausting every effort to get your W2 from your employer has failed, then and only then can we submit a “Substitute W2” form based on that last paycheck stub.

I want to help clarify some of the confusion out there. We all know that certain companies have huge advertising budgets. You may hear something on TV that sounds something like this: “Bring in your last pay stub and let us see if you qualify for up to $1000.” The only reason they ask for the paystub is for proof of income. What you are applying for has nothing to do with a tax return! It is merely a line of credit! PERIOD! If you have a decent credit score and proof of income, they will open up a line of credit (aka- A Loan) for UP TO $1000. It may not be the full $1000. You may only qualify for $400, for example. Just depends. They will pre-load these funds on a Debit Mastercard for you and say, “Have a nice day.”

There is an initial cost associated with this line of credit and that does not include the high interest that you will pay when the loan needs to be repaid by the Feb 15th due date!

Don’t take my word for it. Call these companies and ask the right questi0ns. These are NOT BASED on your anticipated tax refund!!! It’s just kind of easy for it to sound that way in the advertisements, if you’re not paying close attention.

I hope that this helps clear up some of the confusion.

As licensed tax professionals, we must adhere to a code of ethics. We are not allowed to submit a tax return without a W2, if you were an employee.

Feel free to call us with any questions at 954-583-8534. You may also visit our website at www.efileflorida.com for more informative tips and articles.

Categories: Strictly TAXES!

IRS Mileage Rates Adjusted for 2008


The standard mileage rate for business use of a car, van, pick-up or panel truck is 50.5 cents per mile from Jan. 1, 2008, to June 30, 2008, up 2 cents from 2007. The rate is 58.5 cents for each mile driven during the rest of 2008.

From Jan. 1, 2008, to June 30, 2008, the standard mileage rate for the cost of operating a vehicle for medical reasons or as part of a deductible move is 19 cents per mile, down a penny from 2007. The rate is 27 cents from July 1 to Dec. 31.

The standard mileage rate for using a car to provide services to charitable organizations is set by law and remains at 14 cents a mile. Special rates apply to the Midwest disaster area.

Visit our website at http://www.efileflorida.com for more up to the minute informative tips and articles. If you would like to schedule and appointment for professional income tax preparation, call us at 954-583-8534. New customers, mention this blog and recieve a $25 discount!

Categories: Strictly TAXES!

Expiring Tax Breaks Renewed


Several popular tax breaks that expired at the end of 2007 were renewed for tax-years 2008 and 2009. As a result, eligible taxpayers can claim:

The deduction for state and local sales taxes on Form 1040 Schedule A , Line 5
The educator expense deduction on Form 1040, Line 23 or Form 1040A, Line 16
The tuition and fees deduction on Form 8917 and
The District of Columbia first-time homebuyer credit on Form 8859

In addition, the residential energy-efficient property credit is extended through 2016. In general, solar electric, solar water heating and fuel cell property qualify for this credit. Starting in 2008, small wind energy and geothermal heat pump property also qualify.

The non-business energy property credit for insulation, exterior windows, exterior doors, furnaces, water heaters and other energy-saving improvements to a main home is not available in 2008 but will return in 2009.

Visit our website at www.efileflorida.com for more up to the minute informative tips and articles. If you would like to schedule and appointment for professional income tax preparation, call us at 954-583-8534. New customers, mention our blog and recieve a $25 discount!

Categories: Strictly TAXES!

Economic Stimulus Payments Tax Free


Economic stimulus payments are not taxable, and they are not reported on 2008 tax returns. However, the stimulus payment does affect whether a taxpayer can claim the Recovery Rebate Credit and how much credit he or she can get. The credit is figured like last year’s economic stimulus payment except that the amounts are based on tax year 2008 instead of 2007. A taxpayer may qualify for the Recovery Rebate Credit if, for example, she did not get an economic-stimulus payment or had a child in 2008.

Visit our website at www.efileflorida.com for more informative articles and tips. Feel free to call us at 954-583-8534 if you would like to schedule an appointment for professional tax preparation.

Categories: Strictly TAXES!
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