Tax News and updates

• Recovery Rebate Credit
• Stimulus Payments Checks Returned to IRS
• IRS Announces Increase in Tax Deductions
• New Property Tax Deduction
• Individual Retirement Arrangement Changes
• Reimbursements by Flex Plans
• First Time Homebuyer's Credit
• Hurricane Ike Victims Qualify for IRS Disaster Relief
• Hurricane Gustav Victims Qualify for IRS Disaster Relief
• Standard Mileage Rate Increases
• Reporting IRS Email Scams

Recovery Rebate Credit

If you did not qualify for the 2008 economic stimulus payment, or did not receive the maximum amount allowable, you may be entitled to a recovery rebate credit when you file your 2008 tax return. If you are preparing your own return, review the tax return filing instructions including the recovery rebate credit worksheet. You will need to know the amount of the payment you received in 2008, which can be found on your Economic Stimulus Payment Notice (Notice 1378). Two online tools on IRS.gov will be available soon — the Recovery Rebate Credit Calculator will help taxpayers figure the amount they should claim on their 2008 tax return, and How Much Was My 2008 Stimulus Payment? helps you determine what your stimulus payment was.

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Stimulus Payments Checks Returned to IRS

Are you still waiting on your Stimulus Payment? Nationwide, more than 279,000 Stimulus Payment/rebate checks totaling about $163 million and more than 104,000 income tax refund checks totaling about $103 million have been returned to the IRS, because of mailing address errors. Some of the errors are as simple as an unknown apartment number.

The IRS is trying to get the returned checks mailed to taxpayers, by December 31, 2008: but they must have a correct address by November 28, 2008 to meet that deadline. Taxpayers who do not receive their stimulus payment checks by December 31, 2008 will be eligible to receive a credit on their 2008 income tax returns.

If you have been waiting to recieve a stimulus check you can call 866-234-2942, or visit the IRS website to determine the status of your stimulus payment check, and if necessary, change your address. To access information about your check you will need the following information from your 2007 tax return:

• Social Security Number
• Filing status (Single, Married Filing Joint Return, Married Filing Separate Return, Head of Household, or Qualifying Widow
• Number of Exemptions shown

The IRS uses the address on your most recently filed income tax return as your address of record, and will mail any correspondence to that address. To provide a change of address to the IRS you can download Form 8822 here: complete it, and mail it to your local filing center.

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IRS Announces Increase in Tax Deductions

By law, the dollar amounts for a variety of tax provisions must be revised each year to keep pace with inflation. Key changes affecting 2008 returns, filed by most taxpayers in early 2009, include the following:

• The value of each personal and dependency exemption, available to most taxpayers, is $3,500, up $100 from 2007.
• The new standard deduction is $10,900 for married couples filing a joint return (up $200), $5,450 for singles and married individuals filing separately (up $100) and $8,000 for heads of household (up $150). Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
• Tax-bracket thresholds are increased for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $65,100, up from $63,700 in 2007.
• The maximum earned income tax credit for low and moderate income workers and working families with two or more children is $4,824, up from $4,716.
• The income limit for the earned income tax credit for joint return filers with two or more children is $41,646, up from $39,783.
• The maximum Hope credit, available for the first two years of post-secondary education, is $1,800, up from $1,650 in 2007.
• The income limit for the savers credit is $53,000 for joint filers (up $1,000), $39,750 for heads of household (up $750) and $26,500 for singles and married persons filing separately (up$500). Low-and moderate income workers who contribute to a retirement plan, such as an IRA or 401(k), may qualify for the credit, which is available in addition to any other tax savings that apply.
• The allowable contribution amount allowed for Roth IRAs begins to phase out for joint filers with incomes exceeding $159,000 (up from $156,000) and $101,000 (up from $99,000) for singles and heads of household.
• For contributions to a traditional IRA, the allowable deduction phase-out range for an individual covered by a retirement plan at work begins at income of $85,000 for joint filers (up from $83,000) and $53,000 for a single person or head of household (up from $52,000).
• Participants in most employer-sponsored 401(k) plans and 403(b) plans for employees of public schools and certain tax-exempt organizations can contribute up to $15,500, unchanged from 2007. Individuals, age 50 or over, can make an additional contribution of up to $5,000, also unchanged from 2007.
• Individuals participating in SIMPLE retirement plans can contribute $10,500, unchanged from 2007. Those, age 50 or over, can make an additional contribution of up to $2,500, also unchanged from 2007.
• The annual contribution limit for most defined contribution retirement plans rises to $46,000, up from $45,000 in 2007.

Other adjustments can be found at the IRS in Revenue Procedure 2007-66.

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New Property Tax Deduction

Everyone probably knows that if you itemize deductions on your tax return, you can deduct your property taxes. Many people are unable to take advantage of this simply because the standard deduction is larger than their itemized deductions would be.

New for 2008: A taxpayer can use the standard deduction on their 2008 tax return and still deduct a limited amount of property taxes. The additional deduction is capped at $1000. for a married couple filing a joint return, or $500. for a single taxpayer-not a lot, but more than last year!

NOTE- this law is only for 2008 returns: if it is not extended or renewed in 2009 we will again be limited to actual itemized or standard deductions.

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Individual Retirement Arrangement Changes (IRAs)

In the past if you had non-deductable contributions in your retirement account, and took a distribution from it the taxable amount distributed was determined by proration of the taxed contributions/non-taxed contributions. If 75% of the account was made up of non-taxed contributions, and the rest (25%) was non-deductable or after tax contributions: 75% of your distribution would be a taxable distribution. This prevented taxpayers from being able to convert or rollover the non-deductable contributions in Traditional IRAs, 401-Ks, etc. to Roth IRAs, without creating a tax liability.

The rule has NOT changed for a Traditional IRA, but for 401-Ks, 403(b) plans, and 457 plans, it is now possible to rollover just the non-deductacle portion of your retirement account to a Roth IRA.

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Reimbursements by Flex Plans

Pre paid orthodontist charges can be reimbursed upfront, even when services will not be completed until the following year-previously reimbursements were only allowed in the year service was performed.

Newly employed workers are now allowed to make retroactive elections for Flex accounts, but only within 30 days of hiring date.

Workers who leave their jobs can tap unused Flex account funds to pay child car expenses incurred after they left the company, to help avoid forfeiture of funds remaining in the Flex account.

Taxpayers who do not have health insurance, can use the set aside funds in their Flex plans to obtain medical coverage.

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New Credit Available for Taxpayers Purchasing a Main Home between April 8, 2008, and July 1, 2009.

The maximum credit is $7500.00 and actually works like a no-interest loan to assist non-homeowners in purchasing their main home. The credit can be applied to your balance due or refunded, as it is a fully refundable credit: however, it will increase your income taxes on future returns by 1/15 of the total credit you qualified for, over the next fifteen years (repayment). Anyone who has owned a main home in the previous three years, or is eligible for the D.C. First Time Homebuyer's Credit, will not qualify for this credit. For other restrictions, and more information click here .             

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Hurricane Ike Victims Qualify for IRS Disaster Relief

Thursday, Sept. 18, 2008, The IRS is postponing until Jan. 5, 2009 deadlines for taxpayers who reside or have a business in the disaster area. The federal government has designated the following Louisiana parishes as presidential disaster areas qualifying for individual assistance: Acadia, Beauregard, Calcasieu, Cameron, Iberia , Jefferson, Jefferson Davis, Lafourche, Plaquemines, Sabine, St. Mary, Terrebonne, Vermilion and Vernon.

The following Texas counties were also designated presidential disaster areas qualifying for individual assistance: Angelina, Austin, Brazoria, Chambers, Cherokee, Fort Bend, Galveston, Grimes, Hardin, Harris, Houston, Jasper, Jefferson, Liberty, Madison, Matagorda, Montgomery, Nacogdoches, Newton, Orange, Polk, Sabine, San Augustine, San Jacinto, Trinity, Tyler, Walker, Waller and Washington.

This extension applies to return filing, tax payment and other time-sensitive acts otherwise due on or after Sept. 7, 2008 and before Jan. 5, 2009, and includes:

• Individual estimated tax payments due Sept. 15, 2008.
• Corporate extended 1120 tax returns due Sept. 15, 2008.
• Individual extended 1040 tax returns due Oct. 15, 2008.

The IRS will also waive failure to deposit penalties for employment and excise deposits that are due on or after Sept. 7, 2008 and on or before Sept. 22, 2008 as long as the deposits are made by Sept. 22, 2008. Affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request tax relief.

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Hurricane Gustav Victims Qualify for IRS Disaster Relief

The IRS is postponing until Jan. 5, 2009 deadlines for taxpayers who reside or have a business in the disaster area. This applies to return filing, tax payment and other time-sensitive acts otherwise due between Sept. 1, 2008 and Jan. 5, 2009, and includes:

• Individual estimated tax payments due Sept. 15, 2008.
• Corporate extended 1120 tax returns due Sept. 15, 2008.
• Individual extended 1040 tax returns due Oct. 15, 2008.

The IRS will also waive failure to deposit penalties for employment and excise deposits that are due on or after Sept. 1, 2008 and on or before Sept. 16, 2008 as long as the deposits are made by Sept. 16, 2008. Affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request tax relief.

Click here for more information and a complete list of the areas included in the IRS disaster relief plan.             

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Standard Mileage Rate Increases

In recognition of recent gasoline price increases, the IRS has made a special adjustment in the Standard Mileage Rate for the final months of 2008. The rate will increase to 58.5 cents a mile for all business miles driven from July 1, 2008, through Dec. 31, 2008. This is an increase of eight (8) cents from the 50.5 cent rate in effect for the first six months of 2008. Deductible medical or moving expenses are increased by eight (8) cents to 27 cents a mile, up from 19 cents for the first six months of 2008. The rate for mileage used for charitable services remains at 14 cents a mile. The IRS normally updates the mileage rates once a year, for the following calendar year.

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Possible Tax Break for Home Foreclosure Victims

Generally, the IRS treats forgiven debt as taxable income on your tax return. The Mortgage Forgiveness Relief Act of 2007 allows taxpayers to exclude up to $2,000,000. of forgiven debt from taxable income when it is the result of a home foreclosure in tax years 2007, 2008, or 2009. Qualifying taxpayers must complete Form 982 and attach it to their income tax return. For more information click here

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Reporting IRS Email Scams

There has been a proliferation of emails stating they are from the IRS, requesting personal information for the purpose of obtaining additional, or lost tax refunds, or Economic Stimulus Payments. The IRS does not communicate through e-mail. If you receive an e-mail from someone claiming to be the IRS or directing you to a (supposed) IRS site, Do not reply. Do not open any attachments. Do not click on any links. Just forward the e-mail or Web site URL to the IRS at phishing@irs.gov.

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