FindAGoodCPA.com Message Board

IRS Transcripts - Form 2848

C Lamon — Wed, 16 Sep 2009 03:51:43 GMT

Outside of IRS e-services, do you have recommendations on a fast method on getting transcripts? We need to request a good deal of them immediately, but having trouble with the e-services product.

Forum: IRS Problem Resolution

Best Corp Formation

Don — Wed, 31 Dec 2008 19:54:43 GMT

I am a sole proprietor and would like to incorporate my business. What is the best corporate structure for a solo attorney?

Forum: Real Estate Professionals

Let's work together on this FICA issue

Andrew Schwartz CPA — Fri, 26 Dec 2008 02:23:41 GMT

Please remember to post whatever you hear or read regarding this FICA issue on this forum. The IRS keeps losing in the courts. Hopefully at some point you and your colleagues will be entitled to receive a refund of the FICA and Medicare taxes paid while completing your medical residency.

On a stipend of $50k, you would have paid in $3,750 of FICA and Medicare taxes. Multiply that by three or four years, and you're talking about a good amount of money.

Forum: Medical Resident FICA Forum

rebates paid by agent , not broker

S Crooks — Fri, 31 Oct 2008 15:13:54 GMT

An agent pays a legal and ethical cash rebate after closing not specified or identified in listing agreement. Would this be deducted on the C under returns and allowances? Thanks

Forum: Real Estate Professionals

Earn Money!

Enyaw — Thur, 11 Sep 2008 16:52:08 GMT

" THIS IS NOT A SCAM OR A SPAM!!!!!!!!! THIS IS MONEY
FOR YOUR HOUSE !!!!!!!!!!GREAT WAY TO MAKE MONEY-READ
THIS!!!!!! Monday,25-Nov-05 01:09:13 writes: HOW TO
TURN $6 INTO $6,000!!!!!! READING THIS COULD CHANGE
YOUR LIFE! I found this on a bulletin board and
decided to try it. A little while back, I was browsing
through newsgroups, just like you are now, and came
across an article similar to this that said you could
make thousands of dollars within weeks with only an
initial investment of $6.00! So I thought, Yeah right,
this must be a scam,but like most of us, I was
curious, so I kept reading. Anyway, it said that you
send $1.00 to each of the 6 names and address stated
in the article. You then place your own name and
address in the bottom of the list at #6, and post the
article in at least 200 newsgroups. (There are
thousands) No catch, that was it. So after thinking it
over, and talking to a few people first, I thought
about trying it. I figured: what have I got to lose
except 6 stamps and $6.00, right? Then I invested the
measly $6.00. Well GUESS WHAT!!... within 7 days, I
started getting money in the mail! I was shocked! I
figured it would end soon, but the money just kept
coming in. In my first week, I made about $25.00. By
the end of the second week I had made a total of over
$1,000.00! In the third week I had over $2,500.00 and
it's still growing. This is now my fourth week and I
have made a total of just over $5,000.00 and it's
still coming in rapidly. It's certainly worth $6.00,
and 6 stamps, I have spent more than that on the
lottery!! Let me tell you how this works and most
importantly, why it works.. Also, make sure you print
a copy of this article NOW, so you can get the
information off of it as you need it. I promise you
that if you follow the directions exactly, that you
will start making more money than you thought possible
by doing something so easy! Suggestion: Read this
entire message carefully! (print it out or download
it.) Follow the simple directions and watch the money
come in! It's easy. It's legal. And, your investment
is only $6.00 (Plus postage) IMPORTANT: This is not a
rip-off; it is not indecent; it is not illegal; and it
is virtually no risk - it really works!!!! If all of
the following instructions are adhered to, you will
receive extraordinary dividends. PLEASE NOTE: Please
follow these directions EXACTLY, and $15,000 or more
can be yours in a month or two. This program remains
successful because of the honesty and integrity of the
participants. Please continue its success by carefully
adhering to the instructions. You will now become part
of the Mail Order business. In this business your
product is not solid and tangible, it's a service. You
are in the business of developing Mailing Lists. Many
large corporations are happy to pay big bucks for
quality lists. However, the money made from the
mailing lists is secondary to the income which is made
from people like you and me asking to be included in
that list. Here are the 4 easy steps to success:

STEP 1: Get 6 separate pieces of paper and write the
following on each piece of paper; PLEASE PUT ME ON
YOUR MAILING LIST. Now get 6 US $1.00 bills and place
ONE inside EACH of the 6 pieces of paper so the bill
will not be seen through the envelope (to prevent
thievery). Next, place one paper in each of the 6
envelopes and seal them. You should now have 6 sealed
envelopes, each with a piece of paper stating the
above phrase, your name and address, and a $1.00 bill.
What you are doing is creating a service. THIS IS
ABSOLUTELY LEGAL! You are requesting a legitimate
service and you are paying for it! Like most of us I
was a little skeptical and a little worried about the
legal aspects of it all. So I checked it out with the
U.S. Post Office (1-800-725-2161) and they confirmed
that it is indeed legal!
STEP 2: Mail the 6 envelopes to the following
addresses:

#1). Martin Fredrickson 67 Hull Road Mt Maunganui 3002 New Zealand

#2). J. Batty 9 Collingwood Street Tauranga 3001 New Zealand

#3). J. Fava, Octavius, Durell Street, Sannat, Malta

#4). James Vanazia 1858 Shenango Rd Wampum Pa 16157

#5). Brandon Edwards 229 Glenmere Way Toledo OH 43615

#6). Wayne Cecil 10347 Broom Lane, Lanham MD. 20706

STEP 3: Now take the #1 name off the list that you see
above, move the other names up (6 becomes 5, 5 becomes
4, etc...) and add YOUR Name as number 6 on the list.
STEP 3: Change anything you need to, but try to keep
this article as close to original as possible. Now,
post your amended article to at least 200 newsgroups.
(I think there are close to 24,000 groups) All you
need is 200, but remember, the more you post, the more
money you make! This is perfectly legal! If you have
any doubts, refer to Title 18 Sec. 1302 & 1341 of the
Postal lottery laws. Keep a copy of these steps for
yourself and, whenever you need money, you can use it
again, and again. PLEASE REMEMBER that this program
remains successful because of the honesty and
integrity of the participants and by their carefully
adhering to the directions. Look at it this way. If
you are of integrity, the program will continue and
the money that so many others have received will come
your way. NOTE: You may want to retain every name and
address sent to you, either on a computer or hard copy
and keep the notes people send you. This VERIFIES that
you are truly providing a service. (Also, it might be
a good idea to wrap the $1 bill in dark paper to
reduce the risk of mail theft.) So, as each post is
downloaded and the directions carefully followed, six
members will be reimbursed for their participation as
a List Developer with one dollar each. Your name will
move up the list geometrically so that when your name
reaches the #1 position you will be receiving
thousands of dollars in CASH!!! What an opportunity
for only $6.00 ($1.00 for each of the first six people
listed above) Send it now, add your own name to the
list and you're in business! ---DIRECTIONS ----- FOR
HOW TO POST TO NEWSGROUPS------------ Step 1) You do
not need to re-type this entire letter to do your own
posting. Simply put your cursor at the beginning of
this letter and drag your cursor to the bottom of this
document, and select 'copy' from the edit menu. This
will copy the entire letter into the computer's
memory. Step 2) Open a blank 'notepad' file and place
your cursor at the top of the blank page. From the
'edit' menu select 'paste'. This will paste a copy of
the letter into notepad so that you can add your name
to the list. Step 3) Save your new notepad file as a
.txt file. If you want to do your postings in
different settings, you'll always have this file to go
back to. Step 4) Use Netscape or Internet explorer and
try searching for various newsgroups (on-line forums,
message boards, chat sites, discussions, mailing
lists.) Step 5) Visit these message boards and post
this article as a new message by highlighting the text
of this letter and selecting paste from the edit menu.
Fill in the Subject, this will be the header that
everyone sees as they scroll through the list of
postings in a particular group, click the post message
button. You're done with your first one!
Congratulations...THAT'S IT! All you have to do is
jump to different newsgroups and post away, after you
get the hang of it, it will take about 30 seconds for
each newsgroup! **REMEMBER, THE MORE NEWSGROUPS YOU
POST IN, THE MORE MONEY YOU WILL MAKE!! BUT YOU HAVE
TO POST A MINIMUM OF 200** That's it! You will begin
receiving money from around the world within days! You
may eventually want to rent a P.O.Box due to the large
amount of mail you will receive. If you wish to stay
anonymous, you can invent a name to use, as long as
the postman will deliver it. **JUST MAKE SURE ALL THE
ADDRESSES ARE CORRECT.** Now the WHY part: Out of 200
postings, say I receive only 5 replies (a very low
example). So then I made $5.00 with my name at #6 on
the letter. Now, each of the 5 persons who just sent
me $1.00 make the MINIMUM 200 postings, each with my
name at #5 and only 5 persons respond to each of the
original 5, that is another $25.00 for me, now those
25 each make 200 MINIMUM posts with my name at #4 and
only 5 replies each, I will bring in an additional
$125.00! Now, those 125 persons turn around and post
the MINIMUM 200 with my name at #3 and only receive 5
replies each, I will make an additional $626.00! OK,
now here is the fun part, each of those 625 persons
post a MINIMUM 200 letters with my name at #2 and they
each only receive 5 replies, that just made me
$3,125.00!!! Those 3,125 persons will all deliver this
message to 200 newsgroups with my name at #1 and if
still 5 persons per 200 newsgroups react I will
receive $15,625,00! With an original investment of
only $6.00! AMAZING! When your name is no longer on
the list, you just take the latest posting in the
newsgroups, and send out another $6.00 to names on the
list, putting your name at number 6 again. And start
posting again. The thing to remember is: do you
realize that thousands of people all over the world
are joining the internet and reading these articles
everyday?, JUST LIKE YOU are now!! So, can you afford
$6.00 and see if it really works?? I think so...
People have said, "e;what if the plan is played out
and no one sends you the money? So what! What are the
chances of that happening when there are tons of new
honest users and new honest people who are joining the
internet and newsgroups everyday and are willing to
give it a try? Estimates are at 20,000 to 50,000 new
users, every day, with thousands of those joining the
actual internet. Remember: play FAIRLY and HONESTLY
and this will really work. Good Luck!!"

Forum: Seniors/Retirees

Reduction of income tax

Joe — Thur, 10 Jan 2008 01:08:02 GMT

I am the owner of a debris removal company in NJ & my business is set up as a LLC (individual). If I changed to a C Corp. LLC would I be able to lower my income tax(self employment) from my current 20% to 5%? If this is not true, then what method would you suggest for me to be able to lower those taxes? Thank you so much.

Forum: General Questions

What A Relief!

Andrew — Wed, 26 Dec 2007 00:06:06 GMT

Christmas came a few days early for approximately nineteen million taxpayers. On December 19th, the House finally passed the Senate's version of a bill extending the annual fix to the Alternative Minimum Tax through 2007. Had nothing been done about the AMT, the number of taxpayers paying this tax was expected to jump six-fold - from 4 million in 2006 to 23 million in 2007.

Each year since 2001, Congress has provided for a temporary fix to the AMT. So what took so long this year? With a projected loss of $50 billion in tax revenues due to this one-year fix, the House wanted to include revenue raisers of at least that amount in their version of the bill. The Senate, however, was opposed to including any tax increases in their bill, so it wasn't until late in December that both houses of Congress could finally agree on the current version of AMT relief.

What is the AMT? The AMT is a parallel tax system that was instituted in the late 1960's to ensure that high income taxpayers pay at least a minimum amount of taxes. Thirty-eight years ago, the tax laws were much different then today's tax code. Back then, the top tax bracket was 70% or higher, and deductions, credits, and other tax breaks were abundant. As a general rule, only high income taxpayers were hit by this tax.

In recent years, however, more and more middle-income taxpayers are finding themselves paying this tax. Over the years, the top bracket has been cut in half to 35% while the upper limit for each of the tax brackets has increased substantially because of inflation. Even so, the AMT rates have held steady at 26% and 28%, and the allowable AMT exemption has not kept pace with inflation over this time period.

Increased Exemption

Even though Congress made millions of people nervous about the impact of the 2007 AMT, they did reward U.S. taxpayers for their patience. As part of this one-year fix, the AMT exemption for married couples has been increased to $66,250 for 2007, up from $62,550 allowed for 2006. Had Congress not acted, the AMT exemption was slated to be cut to just $45,000.

Remember, the purpose of this exemption is to protect middle-income taxpayers from paying the AMT. This increase of $3,700 in the AMT exemption should help keep even more taxpayers from being hit by this tax in 2007.

Time Heals AMT Things

Now for the bad news. Expect delays in being able to submit your tax return to get your refund this winter. The IRS anticipates that they will need seven weeks to update their systems to reflect the one-year fix to the AMT. And since most taxpayers and tax preparers rely on computer programs to correctly process tax returns these days, software companies will also need some time to correct and test their programs.

Assuming all goes to plan, the IRS should be all set to begin accepting tax returns early in February, which is less than a month after the planned mid-January start date to the 2008 filing season. Even so, the twenty million taxpayers who will now avoid the AMT for 2007 probably all agree that it's definitely worth the wait.

Forum: Andrew's Tax Tips

Tax Saving Opportunities For Self-Employed Individuals

Andrew — Fri, 23 Nov 2007 19:05:55 GMT

Are you self-employed or a partner in a small professional practice? If so, you're probably very familiar with all the different challenges of running a business. Ultimately, you're responsible for attracting and retaining patients, clients, or customers, providing them with quality services or products, getting paid for your work, and then paying your employees and vendors - all before ever drawing a dime for yourself.

Then, from the remaining profits, the government wants their "fair share" of your success. Fortunately, with some planning, you can take steps to minimize the taxes you end up paying. Here are five ways that self-employed individuals and owners of professional practices can cut their tax bill.

1. Employ your child

While you get to deduct the wages you pay to your son or daughter as a business expense, your child doesn't pay any federal income taxes on the first $5,350 of wages earned (in 2007). Plus, if your practice is a sole proprietor or a two-person partnership consisting of the child's parents, wages paid to your child under the age of 18 are exempt from social security and Medicare taxes as well.

Using the wages paid to your child to fund a Roth IRA is another perk of employing your child . The maximum IRA contribution is $4,000 in 2007, increasing to $5,000 in 2008. Imagine 60 years of more of tax-free growth within your child's Roth IRA.

We addressed the topic of employing a child in our May 2007 Newsletter (http://www.mdtaxes.com/news0507.html) in an article called, "Arbitrage In The Tax Code Equates To Free Money For Your Family" .

For example:

Let's say you're in the top tax bracket, and you pay your child who is under the age of 18 wages of $5,000 in 2007.

Cost	No cost if you're a sole proprietor. Otherwise, the cost is $765 for social security and Medicare taxes
Benefit	A tax savings of $1,895, plus the opportunity to contribute to your child's Roth IRA

2. Employ Your Spouse of Other Family Member

If your practice has a 401(k) plan or SIMPLE IRA in place, consider paying your spouse or other family member over the age of 21 enough in wages to max out their allowable salary deferrals, provided he or she isn't already doing so through another employer. For 2007 and 2008, a person can contribute up to $15,500 ($20,500 if 50 or older) into a 401(k) plan, and up to $10,500 ($13,000 if 50 or older) into a SIMPLE IRA. Remember, money contributed into these plans grows tax deferred and is usually protected from your creditors too.

Please be aware that there are some costs to you. Expect to pay social security and Medicare taxes at a rate of 15.3 cents for every $1.00 of wages paid to your spouse or family member. You'll generally owe unemployment taxes and workers' compensation insurance on their wages as well.

For example:

Let's say you're in the top tax bracket, pay your spouse $17,000 in wages, from which your spouse contributes $15,500 into a 401(k) plan through salary deferrals.

Cost	$2,601 in social security and Medicare taxes
Benefit	A tax savings of $5,918, plus $15,500 growing in a tax-advantage, creditor-protector 401(k) account

3. Take A Look At HSA's

With the rising cost of health insurance, high-deductible plans are becoming more attractive to healthy professionals. The rules now allow you to combine a high-deductible plan with a tax-advantaged Health Savings Account (HSA).

Here are the basics about HSA's:

Your practice can make pre-tax contributions into an HSA on behalf of you and your family members.

Money can be withdrawn tax-free from your HSA at any time to pay qualifying medical expenses.

Any money remaining in your HSA upon your reaching the age of 65 can be withdrawn penalty-free to help fund your retirement.

For 2008, people with family coverage can contribute up to $5,800 into their HSA, while people with individual coverage are capped at $2,900. The government really wants HSAs to succeed, so you should be able to find an adequate high-deductible health insurance option within your state.

For example:

Let's say you switch to a high-deductible health insurance plan and contribute $5,800 into a Health Savings Account.

Cost	Higher out of pocket costs associated with the high deductible health insurance plan
Benefit	Tax savings of $2,030, plus $5,800 growing tax-deferred within your HSA to fund your family's medical expenses now and/or your retirement later

4. Incorporate Your Practice

Once the profits in your practice exceed $230,000 (in 2008) per owner, you could save some taxes by incorporating. That's because you avoid paying the 2.9% Medicare tax on money withdrawn from your practice as S-Corp dividends instead of as salary.

Why is $230,000 the magic number? That's the maximum amount of salary that you can use to calculate your retirement plan contributions in 2008.

Beware of the costs of incorporating, however, including having an accountant prepare your corporate tax return, additional payroll taxes and worker's compensation insurance now that you'll be on the company's payroll, and a variety of minimum taxes and filing fees assessed by many states.

For example:

Let's say you change your business structure from a sole-proprietor to an S-Corporation, earn $330,000 in profit, from which you take a salary of $230,000 and S-Corp distributions of $100,000.

Cost	$1,000 or more in additional fees and taxes
Benefit	Save $2,900 in Medicare taxes on your S-Corp distributions

5. Set Up A More Sophisticated Retirement Plan

From what I've seen, most practices have relatively basic retirement plans in place, such as a SIMPLE IRA or a Safe-harbor 401(k) plan. While these plans are generally more than adequate, you should be aware that there are more sophisticated plans that you can establish that allow for increased annual contributions for you and your partners, without requiring you to contribute more money into the plan on behalf of your staff. You'll want to find a retirement plan specialist to help you design the best type of plan to fit the specific needs of you and your practice.

Cost	Potentially higher retirement plan contributions on behalf of your staff
Benefit	The ability to contribute more money into your retirement account each year.

Five Ways To Save

As the year winds down, see if it makes sense to institute any of these five tax-saving strategies prior to December 31st, or early in 2008. By investing some time now, you could earn substantial dividends in the form of reduced taxes down the road.

Forum: Andrew's Tax Tips

Affordable on-line financial planning

Andrew — Sat, 27 Oct 2007 17:29:21 GMT

Hi,

Over the years, many of my clients have complained to me that it can be very tough to find answers to their basic financial planning questions.

While you'll probably benefit by working with a Fee Only planner for the tougher financial planning issues, there is a now a site that may provide you with answers to many of your basic financial planning questions. For very affordable, on-line financial planning, check out:

http://www.efinplan.com/idevaffiliate/pages/100.php.

Andrew

Forum: "Fee Only" Financial Planning

Social Security Max Increases to $102,000 For 2008

Andrew — Wed, 24 Oct 2007 13:19:49 GMT

Each year, the government bumps up the maximum social security taxes that you can pay. For 2008, the maximum wage base jumps to $102,000, an increase of $4,500, or 4.6%, over the 2007 max of $97,500.

The Social Security Administration predicts that 12 million individuals will end up paying higher taxes due to this increase, out of the estimated 164 million workers who will pay social security taxes next year.

At a rate of 6.2%, the maximum social security taxes that your employer will withhold from your salary increases by $279, from $6,045 in 2007 to $6,324 in 2008. In addition, your employer also withholds Medicare taxes from your pay at a rate of 1.45%. There is no limit on your wages subject to this tax.

Calculating the Self-employment Tax:

If you're self-employed and earn more than $400 in net profit from your business, you're subject to social security and Medicare taxes as well. Known as the "self-employment tax", you'll need to complete a Schedule SE to calculate this tax, and then report the amount due on page 2 of your Form 1040.

The self-employment tax is based on a social security tax rate of 12.4% and a Medicare tax rate of 2.9%. These rates are double those paid by employees, since a self-employed person must pay both the employee's portion and the employer's portion of both taxes. Remember, when you work as an employee, your employer matches the social security and Medicare taxes withheld from your pay.

Unlike most other taxes, when dealing with self-employment taxes, the more you earn, the less you pay in taxes. If you earn income as an employee and as an independent contractor, and your combined income exceeds $97,500 in 2007, make sure to complete Section B of the Schedule SE. Otherwise, your tax calculation will be incorrect and you'll end up overpaying your self-employment taxes.

Do You Work For More Than One Employer in 2007 and Earn More Than $97,500?

For 2007, each of your employers withholds social security taxes from the first $97,500 that you earn from them. If you work for more than one employer and your total salary from all sources exceeds that threshold, you'll have excess social security taxes withheld. Make sure to claim a credit for these excess taxes on your 1040 as additional federal taxes paid in.

For Example:

Let's say you work for two employers and earn $75,000 from each employer. Employer #1 withholds $4,650 in social security taxes ($75,000 * 6.2%). Employer #2 also withholds $4,650 in social security taxes - for a total of $9,300 in social security taxes withheld during the year. Since the maximum social security taxes that you should pay through payroll withholdings for 2007 is limited to $6,045, the excess of $3,255 counts as additional federal income taxes paid in by you.

A) Social security taxes withheld by Employer #1	$4,650.00
B) Social security taxes withheld by Employer #2	$4,650.00
C) Total social security taxes withheld during the year (A+B)	$9,300.00
D) Social security max for 2007	$6,045.00
E) Excess social security taxes withheld (C-D)	$3,255.00

http://www.ssa.gov

A great place to find out more about your social security taxes and projected benefits is at the Social Security Administration's website located at http://www.ssa.gov.

FYI: The social security wage base has been increased each year. The wage base maximum has been increased as follows:

2008 wage base max: $102,000
2007 wage base max: $97,500
2006 wage base max: $94,200
2005 wage base max: $90,000
2004 wage base max: $87,900
2003 wage base max: $87,000
2002 wage base max: $84,900
2001 wage base max: $80,400
2000 wage base max: $76,200
1999 wage base max: $72,600
1998 wage base max: $68,400
1997 wage base max: $65,400
1996 wage base max: $62,700
1995 wage base max: $61,200
1994 wage base max: $60,600

Forum: General Questions

IRS Announces Few Increases to Retirement Savings Limits For 2008

Andrew — Wed, 24 Oct 2007 13:15:07 GMT

Last month, the IRS announced the cost of living adjustments applicable to the various retirement plan limitations. Unfortunately, the bulk of the retirement savings limits will not increase from 2007.

Don't Go Changin'

Most working professionals have access to a 401(k) plan or a 403(b) plan at work. Amounts contributed to these plans generally reduce your taxable earnings and always grow tax deferred. Like 2007, you can contribute up to $15,500 into a 401(k) or 403(b) plan through salary deferrals in 2008.

Anyone 50 or older by December 31, 2008 can contribute an extra $5,000 into their 401(k) or 403(b) plan through salary deferrals next year, for a total annual contribution of $20,500. That is the same as what was allowed during 2007.

Many smaller employers offer their staff access to SIMPLE/IRAs instead. SIMPLE's work just like 401(k) plans, which means it's up to you to fund the bulk of this retirement savings account through salary deferrals. For 2008, the maximum contribution into your SIMPLE remains at $10,500. Anyone 50 or older by December 31st can sock away an additional $2,500 in 2008, for a total annual contribution of $13,000, unchanged from 2007.

Small Change

Are you self-employed? Each year, you can contribute up to 20% of your net self-employment income into a SEP IRA. The maximum contribution into your SEP IRA for 2008 has been increased by $1,000, up to $46,000.

Solo 401(k)'s are an attractive alternative to many sole proprietors and business owners with no full time employees who work more than 1,000 hours per year besides a spouse. If you don't have access to a 401(k) or 403(b) plan through another employer, the Solo 401(k) plan makes it easier for you to hit next year's max of $46,000. If you're 50 or older, your maximum contribution into a Solo 401(k) jumps to $51,000, due to a "catch up" contribution of $5,000 allowed with these types of plans.

The IRS also announced that the maximum amount of wages and net self-employment income that you can use to determine certain retirement plan contributions has increased to $230,000 for 2008, up from $225,000 in 2007.

Increase to IRAs

Don't forget about IRA's. Thanks to the 2001 Tax Act, the amount you and your spouse can each contribute into an IRA is scheduled to increase by 25%, from $4,000 in 2007 up to $5,000 in 2008. Anyone 50 or older can also contribute an extra $1,000 into their IRA, increasing the total allowable contribution to $6,000. You have until April 15, 2009 to max out your IRA contributions for 2008.

There is also good news for people looking to contribute to a Roth IRA in 2008. The amount you can earn and still contribute to a Roth has increased by $3,000 for married couples and by $2,000 for single individuals, as follows:

	Single Individuals	Married Couples
Phase-out begins	$101,000	$159,000
Phase-out ends	$116,000	$169,000

If your income is too high for a Roth, don't forget that the rules changed last year, eliminating the income limitation as of 2010 for people looking to convert their IRAs to a Roth IRA. This tax law change provides high-income taxpayers with a great opportunity to get money into these tax-free investment accounts. For more information, please check out the article, The Re-Emergence of Non-Deductible IRAs, available on our March 2007 Newsletter.

And if you're married and your spouse isn't covered under either an employer sponsored or self-employed retirement plan during the year, the phase-out range for your spouse making a deductible IRA contribution has increased to $159,000 - $169,000, which is identical to the Roth IRA phase-out limits.

Monthly Budget

Most people won't be able to max out these tax-advantaged retirement options unless they get on a budget and put away a set amount of money each month. With 2007 winding down, now's the time to start thinking about resetting your monthly retirement savings goals for 2008.

2008 Maximum Retirement Account Contributions

Retirement Savings Option	Under the age of 50	50 or older by December 31st
401(k) or 403(b)	$15,500 ($1,291.67/month)	$20,500 ($1,708.33/month)
SIMPLE IRA DEFERRALS	$10,500 ($875.00/month)	$13,000 ($1,083.33/month)
SEP IRA	$46,000 ($3,833.33/month)	$46,000 ($3,833.33/month)
Solo 401(k)	$46,000 ($3,833.33/month)	$51,000 or ($4,250.00/month)
IRA	$5,000 ($416.67/month)	$6,000 ($500.00/month)

Forum: Andrew's Tax Tips

Andrew D. Schwartz CPA to host weekly radio show on taxes

Andrew — Wed, 19 Sep 2007 15:13:14 GMT

Andrew D Schwartz CPA has agreed to host a weekly, one-hour radio show on taxes through WorldTalkRadio.com. The show can be heard live each Wednesday at 7 pm ET (4 pm PT) at http://www.worldtalkradio.com starting on December 5th. Each week, Andrew will interview various guests who can add information and insight to that week's topics, as well as take questions directly from the listeners.

This year marks Andrew's 20th year in public accounting, primarily as a tax practitioner. Each winter, he prepares personal income tax returns for more than 1,000 of his clients. And throughout the year, Andrew helps these clients with tax planning and strategies.

Andrew is also the founder and editor of many nationally recognized websites, including FindAGoodCPA.com (www.FindAGoodCPA.com) and The MDTAXES Network (www.mdtaxes.com).

Forum: Andrew's Tax Tips

Real Risks With Rental Real Estate

Andrew — Mon, 27 Aug 2007 00:59:19 GMT

Financial markets are cyclical in nature. While the stock markets and the real estate markets have a proven track record of appreciation over time, both markets go through periods during which their underlying assets decrease in value.

Since beginning my career as a CPA twenty years ago, I've seen two significant stock market corrections - a massive one day sell-off during the fall of 1987, and the extended correction during the first few years of the twenty-first century following the tech bubble.

Even after factoring in both sizeable corrections, the Dow Jones Industrial Average is sitting above $12,000, a six-fold increase from its pre-1987 level of $2,000. Anyone who held the basket of 30 Dow stocks since the mid-eighties pocketed a return in excess of 9 percent per year on that investment portfolio over the years.

Real estate has taken a similar path, and is now entering its second major correction in twenty years. The red hot real estate market of the mid-eighties was followed by a steep decline in property values during the early nineties. Over the next ten years, the real estate markets boomed. And today, we won't know the full extent of the current real estate correction until prices once again begin to rebound.

Do you think it's a coincidence that both markets have had two corrections during the past twenty years? Or are periodic downturns just an unavoidable symptom of a cyclical market?

No Sure Thing

Following the tech bubble correction, I had more than a few clients who gave up on stocks in favor of investing in real estate. "You can't make money in the stock market. And real estate never goes down in value," they would explain to me.

"Both stocks and real estate generally make great long-term investments," I would respond. "But real estate can definitely go down in the short-term. Around Boston during the early nineties, they were giving the stuff away to anyone who would take it. Someone even managed to purchase the million square foot Wang Towers for just $500,000 during those years."

Well, all signs indicate that we are in the midst of a real estate correction right now. For property owners, dealing with declining values is tough enough. Here are some other risks and pitfalls associated with owning rental real estate:

Victim of Your Vacancies

A key indicator of the success for any real estate investor is vacancy rates. The less time your units spend vacant, the more rent you will collect.

What happens if you purchase a two-family home, and vacancy rates for residential rentals in the area are running at 6 percent? Owners of large apartment buildings should expect to have six vacant units for every hundred units they own. Because you only own two units, however, you can't possibly match the market vacancy rate in the short-term.

Unless your two family home is fully occupied, there are only two possible vacancy rates for you - 50% or 100%. Over the long-term, the vacancy rates for your two rental units might end up close to the market rate, but those months that you don't have a tenant can be financially devastating.

My brother and I owned a rental condominium for about ten years. Over that period of time, the condo was vacant for about 6 months - or about 5 percent of the time. We survived the six consecutive months with no rental income, but those six months were so financially painful that we ended up selling the condo soon after. (We do continue to own an office condo purchased during the previous market correction that we rent to our CPA firm.)

New Set Of Headaches

Think back to your days as a tenant. When something broke in the apartment, you didn't hesitate to call the landlord to fix it.

Now think about being a homeowner. How tough is it to get a plumber or electrician to come your home to do anything?

Businesses who own a lot of rental property hire people to deal with the repairs and maintenance of their units. When you're a small landlord, you're generally the one stuck with the ongoing task of keeping your tenants happy.

Can't Call "Uncle"

Before the 1986 Tax Act, tax rates were higher than today's rates, and rental losses were fully deductible. If you lost money from your rental property, the government would subsidize a decent percentage of your losses through a tax refund. Thanks to depreciation, you could actually have positive cash flow from your property, and still end up with rental losses and a tax refund from the IRS.

Back in 1986, everything changed for owners of rental real estate due to the introduction to the Passive Loss rules. Allowable rental losses are now limited to just $25,000 per year. Plus, the passive loss rules further reduce your allowable rental losses once your Adjusted Gross Income (AGI) exceeds $100,000, and then fully disallow any losses once your AGI exceeds $150,000. None of these limits have changed in twenty years.

What happens if you're unlucky enough to own a two family property that costs you $2,000 per month to carry, but fortunate enough to earn more than $150k per year? You'll be out of pocket $24,000 each year, and won't be eligible to get any current year tax relief from the IRS.

The good news is that you don't completely lose out on those losses. Any suspended losses are carried forward indefinitely, and can be used to offset future rental gains, including gains realized on the sale of other rental properties. And when you sell a piece of rental property, any unused losses derived from that property are fully allowable to offset your wages and other income.

Lost Tax Break

Many homeowners ask me about converting a principal residence into rental property. For these clients, there is potentially a huge tax pitfall if their home has appreciated in value.

When you sell your home that you have owned and lived in for at least two years out of the five years up to the date of sale, you don't pay any taxes on the first $250,000 ($500,000 if married) of gain realized on the sale of that property, subject to certain exceptions.

So what happens if you decide to hold onto your residence and switch the property into rental use? If you sell the property after renting it out for more than three years, you can no longer exclude paying taxes on the gain (unless you move back into it for a while or purchase a replacement property through a tax deferred exchange).

Plus, you can only use this exclusion once every two years, subject to certain specific exceptions. So if you sell your new home and your former principal residence within two years of each other, you'll most likely end up paying taxes on the gains realized from one of the sales.

I have had a few clients over the years who have sold their converted principal residence just after the three year window has closed. For these clients, they ended up paying substantial taxes due to missing that deadline.

Re-Cycled Cyclical Advice

Since markets tend to be cyclical, the advice tends to be cyclical as well. Here is the generic advice you hear during any market downturn as people begin to panic about their investments. Portfolios that are non-speculative and well balanced tend to rebound at some point following a correction.

The same advice applies to your real estate holdings. If you currently own rental real estate, you should be able to ride out this current correction, provided you aren't too leveraged and your properties aren't too concentrated in the least desirable neighborhoods.

If you're thinking about purchasing some rental real estate or converting your home to a rental property as values decline, keep in mind that there is a chance that the values will decline even further in the short-term. Plus, don't overlook the other risks and pitfalls that are unique to real estate investments.

Even so, by understanding the risks and pitfalls associated with owning rental real estate, you might find that your rental properties make a nice complement to your stocks, bonds, and mutual funds in long run.

Forum: Real estate development & management

Clock Is Ticking For Environmentally Friendly Tax Breaks

Andrew — Tue, 24 Jul 2007 00:17:23 GMT

The tax code is full of a continually changing array of tax breaks. While some tax breaks are permanent, others are instituted for a set number of years.

Back in 2005, the Energy Tax Incentives Act of 2005 was passed into law, rewarding those businesses and individuals for making certain energy efficient improvements. All of the Act's provisions had a limited shelf life, however, with most slated to expire at the end of 2007.

Then, during 2006, President Bush signed the Tax Relief and Health Care Act of 2006 into law. Among it's many provision, this Tax Act extended some of the tax breaks of the 2005 Energy Tax Incentives Act through 2008.

Let's look at when certain environmentally friendly tax breaks are set to expire.

September 30, 2007

Thinking about buying a Toyota or Lexus hybrid vehicle? If so, you only have until September 30, 2007 to purchase one and qualify for the Hybrid Vehicle Tax Credit.

As part of the 2005 Tax Act, a new Hybrid Vehicle Tax Credit was introduced to replace the $2,000 Clean Fuel deduction. To level the playing field for Ford and other newcomers into the hybrid market, the Act included the "Ford Escape Clause", causing the allowable tax credit to phase-out for a manufacturer once they have sold 60,000 hybrid vehicles subsequent to January 1, 2006.

Toyota and Lexus hit that threshold during the second quarter of 2006, so no credit will be allowed for people purchasing their hybrids as of October 1, 2007. According to the IRS, here are the already reduced credits available on the 2007 Toyota & Lexus hybrids through September 30th:

Lexus GS 450h $387.50
Lexus RX 400h 2WD and 4WD $550
Toyota Camry Hybrid $650
Toyota Prius $787.50
Toyota Highlander Hybrid 2WD and 4WD $650

Most of the other manufacturers are not very close to the 60,000 threshold, so you can still qualify for the full tax credit if you purchase one of their hybrids. This tax credit is set to expire at the end of 2010. More information about the Hybrid Tax Credit is available on IRS Form 8910, Alternative Motor Vehicle Credit.

December 31, 2007

You only have until the end of this year to make energy efficient improvements to your principal residence and still qualify for the $500 tax credit. The credit is equal to 10% of the money spent on the installation of certain energy efficient improvements to your home, including insulation and exterior windows, doors, and skylights.

You can also take a tax credit for "qualified energy property" including up to $50 spent per circulating fan, $150 on furnaces or hot water boilers, and $300 on heat pumps, water heaters, and central air conditioning.

The total combined tax credit applies for purchases made during 2006 and 2007, and is limited to a lifetime max of $500 per dwelling, with no more than $200 of the credit to be taken for replacement windows and skylights.

What should you do if you were eligible for this tax credit in 2006, but forgot to claim it on the tax return you originally filed? Don't worry, you have until April 15, 2010 to file a Form 1040X, Amended Tax Return, for 2006 with the IRS.

More information about the Residential Energy Property Credit is available on IRS Form 5695, Residential Energy Credits.

December 31, 2008

The following two other provisions of the 2005 Energy Tax Act were extended for one additional year through 2008:

Energy Efficient New Home: Contractors are eligible for a tax credit of up to $2,000 for each new (or significantly rehabilitated) home "substantially completed" and sold prior to December 31, 2008, provided the home meets certain energy savings criteria. If you're in the market for a brand new home, make sure the builder passes this lucrative tax break on to you.

Energy Efficient Commercial Improvements: If you own a commercial building or condo, you're eligible to claim an immediate deduction of up to $1.80 per square foot (versus depreciating the costs incurred over 39 years) by making major energy saving improvements to your building's lighting, hot water, and HVAC systems prior to December 31, 2008. Upgrading insulation, metal roofs, and exterior doors and windows also counts towards this deduction.

Green With Envy-ronmental Tax Breaks

With energy costs on the rise, many individuals are looking for ways to make their homes, cars, and businesses more energy efficient. If making environmentally friendly expenditures is in your plans, why not beat the clock to take advantage of these expiring tax breaks and let the government subsidize a portion of the costs incurred?

Forum: Andrew's Tax Tips

Kiddie Tax Increased For Second Time in Two Years

Andrew — Tue, 12 Jun 2007 20:30:53 GMT

As part of Small Business and Work Opportunity Tax Act signed into law on May 25th, the "Kiddie Tax" age was increased from 17 to as high as 23 for children who are full-time students, effective January 1, 2008. Many parents trying to save for a child's college education may find their tax burden increase because of this tax law change.

For the second time in just two years, the Kiddie Tax, introduced as part of the massive Tax Reform Act of 1986, was made even broader. Prior to 2006, any unearned income above a certain threshold earned by a child under the age of 14 was taxed at the parent's tax rate.

In 2006, the Tax Increase Prevention and Reconciliation Act of 2006 expanded the Kiddie Tax to include children 17 or younger who earn more than $1,700 (in 2007) in interest, dividends, capital gains, and other non-wage income. This year, as part of the Small Business and Work Opportunity Tax Act signed into law on May 25^th, the Kiddie Tax was bumped up to age 18, and up to age 23 for children who are full time students, for a child whose earned income does not exceed more than half of that years support, effective 2008.

Understanding how your child will be taxed is very important when determining how to best save money for their college education. Now parents who managed to build up an education nest egg can expect to be hit with higher tax bills throughout their childrens undergraduate years.

For 2007, the first $850 of net investment income earned by a child isn't taxed, and the next $850 is taxed at a rate of either 5% or 10%, depending on the type of income earned. Any additional income is taxed based on the child's age as follows:

Children under the age of 19: A child's net investment income earned during the year that exceeds the $1,700 threshold (in 2007) is generally taxed at the parent's marginal tax rate.

Children between the age of 19 and 23: If a child is a full-time student whose earned income does not exceed more than half of their support, a child is taxed under the Kiddie Tax rules.

Children over the age of 24: Upon reaching the age of 24, a child's income is taxed using the same tables that apply to single adults. For 2007, the first $7,825 of net taxable income is taxed at 10%, and then the next $24,025 is taxed at 15%. As with all taxpayers, corporate dividends and long-term capital gains are taxed at a lower rate.

Now that the Kiddie Tax applies to children through age 23, it makes even more sense for parents to consider saving for a child's college education either in their own name or within a 529 Plan or Coverdell Education Savings Account (ESA).

There are other variables to factor in as well. Investments made in a child's name tend to reduce the amount of financial aid available to pay for college. Plus, if a child receives a full scholarship or decides not to go to college, any money saved in that child's name becomes his or her property upon reaching the applicable age of majority in their home state. And don't forget that the Pension Protection Act of 2006 made tax-free distributions from 529 plans permanent.

Forum: Andrew's Tax Tips