STIMULUS PACKAGE (1)
STIMULUS PACKAGE (2)
STIMULUS PACKAGE (3)
STIMULUS PACKAGE (4)
STIMULUS PACKAGE (5)
MYTHS ABOUT STUDENTS
MYTH ABOUT EXEMPTIONS
MYTH ABOUT HOME SALES
MYTH ABOUT 1040X
GAMBLING
FINANCIAL AID FOR COLLEGE
SOCIAL SECURITY INCOME
2007 TAX AUDITS
TAX CHEATS
2007 REFUNDS
401K CONTRIBUTIONS
WITHHOLDINGS
CHILD CARE EXPENSES
FAMILY SUPPORT
IRA ACCOUNTS
2008 HOME SALES
BOATS
UNEMPLOYMENT
THE MARRIAGE SURPRISE
COLLEGE SCHOLARSHIPS

STIMULUS PACKAGE (1)

We have received so many calls with questions on the stimulus payments in the last few weeks I decided it would be a great idea to discuss it again. So for those of you who like the words "free money," listen up! As you may already know, President Bush recently signed an Economic Stimulus Package, which will result in a minimum of a $300 check for almost everybody within the sound of my voice! And unlike the last time we received checks to help stimulate the economy during the summer of 2002, this time the check you receive now is not going to reduce any refund you would get next year. As this is a topic that I’m sure is near and dear to everyone out there, we’ll discuss it more tomorrow.

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STIMULUS PACKAGE (2)

Yesterday we started talking about the economic stimulus package that the President recently signed. Under the new legislation, beginning May 2nd through July 11th most individuals who pay Federal income tax will receive up to $600 and married couples will receive up to $1,200. In addition, anyone who qualifies for the child tax credit will receive an additional $300 per child as part of their rebate. These rebates are designed to stimulate our sagging economy and, therefore, the amount of your refund begins to phase out for individuals making over $75,000 and married couples filing jointly making over $150,000.

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STIMULUS PACKAGE (3)

The past couple of days we've been talking once again about the economic stimulus package that President Bush recently signed. Even if you have not paid any Federal income taxes listen up because this also affects you! Specifically, those of you out there who receive social security as your only source of income or disabled veterans who have non-taxable disability payments are also eligible to receive this refund. As long as you had a minimum of $3,000 in social security benefits or disability payments in 2007, you are eligible for a rebate check of $300 this summer. And although there are no requirements to file a tax return, you will need to file your 2007 Federal income tax return this year in order to receive your "free money." And you can take that, to the bank.

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STIMULUS PACKAGE (4)

All this week we have been talking about the economic stimulus package and how to get yours. Have you received an e-mail or a phone call from someone claiming to be an IRS agent regarding your stimulus rebate? Have they asked for your social security number, bank account number or credit card number? Well if you have, then you have been "phished!" And for those of you in the know, like me, that’s not good news. These are scammers who are trying to get your personal and financial information so they can empty your bank account and run up charges on your credit cards. If the IRS needs to contact you, initially you will receive written correspondence, never phone calls or e-mail. So if you feel that you have received an e-mail like this you can forward it to phishing@irs.gov to report it to the IRS. That’s phishing with a "ph."

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STIMULUS PACKAGE (5)

This week we have been talking about the stimulus package that most of you out there will be receiving. In order to further stimulate our sagging economy, the Congress and the IRS have implemented additional tax breaks for small businesses. For 2008, the limits for Section 179 EXPENSE, which is a deduction for assets that you would normally need to depreciate over THEIR USEFUL LIFE, has dramatically increased. Small businesses can write off up to $250,000 of asset purchases this year as long as their total asset purchases do not exceed $800,000. In addition, to stimulate spending by business, on top of the increased Section 179 expense allowances, business are allowed to take an expense equal to 50% of the cost of many assets that they place in service during 2008.

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MYTHS ABOUT STUDENTS

This week we're going to be talking about tax myths. So what's a myth? The tooth fairy is a myth, Goldilocks is a myth, and someone who knocks on your door, smiles and announces I'm from the IRS and I'm here to help you, that's a myth too. Many students think that because they are in college they don't have to pay taxes. Wouldn't that be nice. But it's a myth too. The fact is, there is no special tax status given to any college students. They're subject to tax on all their income just like mom and dad are. On the other hand, they may qualify for special tax credits, like the Hope Scholarship Credit and the Lifetime Learning Credit and distributions from their 529 Plans are tax-free.

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MYTH ABOUT EXEMPTIONS

This week we're talking about tax myths. Here's a good one; "my little girl is working, so I can’t claim her as a dependent." Fact or myth? As long as you provide more than half of her support she qualifies as your dependent. Sounds simple, but what does "support" mean? Support is what's spent, not what's earned. So let's say your little princess makes zillions as a teenage fashion model. If she banks it all and you actually shell out the money to support her, you've provided 100% of her support. In addition, you can qualify for her exemption if she doesn’t earn more than $3,500 this year even if she's not under 19 or is not a full-time student and under 24.

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MYTH ABOUT HOME SALES

This week we're talking about tax myths and I've heard this one so often I could scream. "I'm over age 55 so I can sell my house tax-free." It's a myth, it's wrong, it's old law. It used to be that if you were older than 55, you could exclude, one time only, $125,000 in gain from the sale of your house. Today, the rule is a lot better. First, age no longer matters. Second, if you owned and lived in your house for at least 2 out of the last 5 years you can exclude as much as $250,000 in gain if you're single and $500,000 in gain if you’re married. And get this, you can do it once every two years.

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MYTH ABOUT 1040X

If you're having second thoughts about your 2007 tax return, you're not alone. According to the IRS, more people than ever are expected to "amend" their 2007 tax return this summer. In fact, the IRS expects to receive about 5 million "amended" 1040's before the end of the year on Form 1040X. Contrary to another popular myth, amending your tax return does not increase your chances of getting audited. It's what's on your return that counts, not whether you amend it. So whether it's a mistake you need to correct or a deduction that you forgot to take, don't wait until it's too late to fix it. Get it right now, and to get the correct form now, call me on the Tax-Line, that’s 508-829-5463 or the IRS at 800-829-3676.

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GAMBLING

This past March, did you enter your office NCAA basketball pool? I bet they laughed at you when you picked San Diego to knock-off Connecticut! And they mocked you when you announced that Kansas would go all the way. But when the clock ran out, you won the pool and $500 in cash. And, of course, you intend to report that cash next April - right? Do you? What do you think will happen to you if you "forget" to report your winnings and get caught? Well, first, you'll pay the same tax you would have had to if you had reported the income in the first place. Second, you'll pay nondeductible interest, currently 6% and third, you'll pay a 20% penalty if the IRS decides you're guilty of negligence or a 75% penalty if it decides you've committed fraud. To all you winners out there, I just thought you’d like to know.

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FINANCIAL AID FOR COLLEGE

Is your son or daughter in high school and planning on attending college next year? Have you set up a savings or investment account in your child's name to try reducing your taxes? If you have, this could drastically lower the amount of financial aid you receive. One way around this, is to use the money that is in your child name to buy them a new car, furniture or a computer that they will use while they are in college. They'll get what they need for school and you'll get the financial aid you deserve.

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SOCIAL SECURITY INCOME

So you've worked all your life and spent over 50 years contributing to social security. Every dollar you contributed was taxed when it was earned so of course that money is going to come back to you tax-free, right? Wrong! Years ago it was tax-free, after all you already paid tax on it. Depending on your income, as much as 85% of what you collect from social security may be subject to income tax. Some of us may call that "double taxation," but the government disagrees. They claim that you're getting your contributions returned tax-free from the whopping 15% that they don't tax.

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2007 TAX AUDITS

Now that tax season is over, get ready, it's audit season! So let me ask you, what are the chances that your 2007 tax return will be audited? For those of us in the know, like me, the answer is, slim to none. The fact is, last year the IRS audited just about 1 out of every 300 tax returns, but even those odds overstate the risk. About two-thirds of the audits were so-called "correspondence" audits in which the IRS merely sends you a letter asking for back up information about something in your tax return. The odds are actually about 600 to 1 against your having any face time with an IRS auditor. So what do all these numbers really mean, they mean go back to summer and forget about taxes, until I tell you otherwise.

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TAX CHEATS

Did you cheat on your taxes this year? Not many of us want to pay taxes, but most of us do. It's one of those facts of life. But did you cheat this year? Have you ever cheated, maybe just a little? Come on, tell the truth! For instance, have you ever deducted dinner with a friend as an unreimbursed business expense or forget to report the "cash rent" you received? If you said "no," you're in good company. The fact is, the majority of us are honest Abes. But our numbers are shrinking. In a recent poll, only 76% of us said we had never cheated on our taxes. And according to Nina Olsen, the IRS National Taxpayer Advocate, the annual gap between what we owe, and what we actually pay, is over $390 billion. $390 billion. What a joke!

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2007 REFUNDS

Let's face facts, those record setting tax refunds sent by the IRS this spring were not the result of mistakes by 100 million taxpayers who accidentally let the IRS withhold too much from their paychecks. The fact is, over-withholding has become a fashionable way for many to save. When all is said and done, more than $200 billion will be refunded this year with the average check falling somewhere between $2,000 and $2,500. If you need some help figuring out what to do with your refund, let me suggest that if you carry any credit card balances that you use your refund to attack that debt. Or if you're looking to put some fun in your refund, maybe it's time for a Sea-Doo or a scooter. And speaking of splurges, how about a cabin with a view on the Queen Mary 2, the largest and most luxurious ship ever built. Hey, what are you going to do with your refund?

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401K CONTRIBUTIONS

Over the next few days we're going to be talking about ways that you can reduce your taxable income and save for next year. Be sure to make contributions to your 401K, it's one of the easiest ways to cut your taxes and watch your retirement savings grow at the same time. Not only will your money grow tax deferred until you withdraw it at retirement, but it will significantly reduce your taxable income. For example, if you're in the 25% tax bracket, then listen up! Every $1,000 that you contribute to your 401K saves you $250 in Federal taxes and as a bonus many employers will match that contribution. So not funding your account is like throwing away free money.

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WITHHOLDINGS

Yesterday we talked about ways to save on next year's taxes. To everyone who loves to get a tax refund, make sure you claim the right amount of tax exemptions because if you don't, what you're really doing is making an interest free loan to the IRS. So if you received a refund this year of $1,000 or more from the IRS you should start thinking about decreasing your exemptions now. This will not lower your taxes, however, it will allow you to have more of your money now rather than waiting until next spring. This also applies to those of you who have had some new life adjustments, like a new baby or the purchase of a new home. Make sure you ask your employer for Form W-4 and fill out the comprehensive worksheet on the back to calculate your allowable exemptions.

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CHILD CARE EXPENSES

A recent caller to the Tax-Line asked an interesting question, she asked if she would benefit more by hiring a Nanny or bringing her child to a day care center outside of her home. Do you know the answer? I do. Bringing your child to a day care center outside of your home would be more beneficial. Here's why. Whether you hire a Nanny or take your child to a day care center you will be able to take advantage of the child care credit or a dependent care flexible savings account, which will save you big time when it comes to paying taxes. However, when you hire a Nanny, not only do you have to pay her for caring for your child, you also need to file Schedule H with your tax return to pay what is called the "Nanny Tax" which can add up to 20% to your out-of-pocket costs.

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FAMILY SUPPORT

Are you thinking about filing for a divorce? Well, make sure you ask for child support, not alimony. Remember, alimony is taxable and child support is not. So, given the choice, you're going to want to take the child support. Of course, you may be entitled to both. If that’s the case, make sure that the alimony and child support payments you receive are not rolled into one monthly payment called "family support" unless, of course, you would like to pay taxes on the entire amount.

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IRA ACCOUNTS

Let's finish up this week by talking about one more way you can save on your 2008 income taxes. Open and IRA. Don't worry, you don’t have to rush out today and do it because technically you have until April 15, 2009 to set aside this money and still be able to claim the deduction on your 2008 tax return. On the other hand, the sooner you start saving, the more time it will have to grow. The best part about this is, just like a 401K, your IRA contributions grow tax-free and you get to reduce your current years taxable income by up to $5,000 for qualified contributions. And you can take that, to the bank.

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2008 HOME SALES

Owning a home has always been the American dream – now it's the best investment most of us will ever make. That’s because as a result of a 1997 change in the tax law, if you now sell your home at a profit you may never have to pay capital gains tax on it. You heard me – never! Here's why. Now, gains on home sales of up to $500,000 are entirely tax-free for married couples who file joint returns. It's $250,000 for singles. And if that isn't good enough, you should also know that this tax break can be recycled every two years, so you can buy and sell and buy and sell tax-free all along the way. To qualify, your home must only have been owned and used as your principal residence for two out of the last five years. If that's you – you can then take it all, to the bank.

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BOATS

Yesterday we talked about owning a house. Today we're going to talk about owning a boat. Do you own a boat, you know, that hole in the water that you pour money into every spring? If you do, did you know it may qualify as a second home, which means that you can get a tax deduction just for the pleasure of it. It's true. If you have a secured loan on the boat, you can deduct the interest you pay. According to the IRS, a second home is one that has basic living accommodations, like sleeping space, toilets and cooking facilities. Interest paid on a secured loan for a second home is treated for tax purposes as home mortgage interest and is deductible on Schedule A. Remember, if you qualify, this tax deduction means smooth sailing.

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UNEMPLOYMENT

All signs are pointing to a sluggish economy and job growth is on the decline. Some of you may have recently lost your job. At least you have some unemployment compensation to help you pay the rent and put food on the table. Historically, unemployment was meant to provide cash flow and keep you off of welfare. But welfare is a state expense, so the Federal government doesn't really care. Here's a big surprise, the IRS wants a piece of your unemployment check. That's right, unemployment is taxed just like any other ordinary income. Check out line 19 of your 2007 Form 1040 for the proof.

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THE MARRIAGE SURPRISE

Most married couples file a joint return. That's because it normally provides a lower total tax. But beware, because this creates what those in the know, like me, call "joint and several liability." What that means is that both or either spouse is responsible for the full tax regardless of who earned the income or who had the deductions. The IRS can come after either party for the full amount owed. And this is true even if you are divorced and your ex has cleared out the bank account and left you high and dry. You could end up paying taxes on the entire amount.

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COLLEGE SCHOLARSHIPS

Did your son or daughter win a "college scholarship" to attend school next fall? If they did, they may have won an unexpected tax bill too! That's because while scholarship's are generally tax-free, they're only tax-free to the extent that they're used for tuition, fees, books, supplies and other items that are directly connected to their education. Any amount of their scholarship that's used for room, board or personal expenses is taxable. And for students who aren't candidates for college degrees, the news is even worse. All of their scholarships are taxable. If you didn’t already know – now you do!

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For further information, contact Hershman, Fallstrom & Crowley, Inc. at PC@hfctax.com or 508.754.0800. Legal Disclaimer