What Now?

Your return's been filed. Don't relax yet. IRS and the Congress never rest. Be ready for what may happen before next year.

On Extension? October 15 is the return deadline, but April 15 was the deadline for payments. If you owe tax IRS adds carrying charges. Gather missing information quickly. I won't rest easy until you're safely filed. Any last-minute surprise can be expensive!

Refund Late? IRS can track e-filed returns within days, but for paper returns won't help until 4-6 weeks after you file. Try:
1-800-829-4477 - automated help
1-800-829-1954 - refund hotline
The IRS website www.irs.gov has a "Where 's My Refund?" link.

Still Owe? IRS sends bills in June. They show the balance, plus any interest and/or penalty. The bills only allow a 10-day "grace period" before the amount changes again. Write your Social Security Number on the check and "Income Tax - Year 2009". If you can payoff the bill within a couple of months, do it.

Installment Plans. IRS has installment plans, but charge up to $105 to set one up. If you can pay the balance with the second billing from IRS, don't waste money by asking for a plan.

Pay by Credit Card. You can pay this way, but "convenience fees" up to 3.5% apply. The fee is now deductible, but there's still a cost. Call: 1-800-UPAY-TAX, or 1-888- PAY-1040. Or, go to www.irs.gov.

Find Late Information? If you forgot some key information, we can file an amendment. Both you and IRS have 3 years after the filing deadline to change a return. If you owe IRS, you pay tax plus interest. If they owe you, it works the same. You collect the savings plus interest.

Uh-Oh - an IRS Letter! If you get a letter from IRS, call me. The letters are confusing. Don't risk making an even bigger mess - I'll be glad to handle it.

Will You Be Audited? There's no sure way to know. Most "audits" are done by computer. It compares your return with W -2 forms and 1099 reports from banks and brokers. If there is a discrepancy, you get a letter showing how much you owe if IRS is right - it looks like a bill. Don't pay! Send it to me, and we'll see what's what. Many of these "audits" contain errors!

About 15% of "audits" involve a face-to-face meeting with an IRS employee. Call me right away if you get a letter requesting a meeting!

Keep Your Records. For now, put your return and all records in a safe place. You might need to dig them out for an audit some day.

Older Records. It's a good idea to keep tax returns indefinitely. Also, keep records of investments and properties you still own. Other records - cancelled checks, receipts, bank statements, etc. - I recommend you keep five years' worth of these for safety. Destroy or shred older records to protect sensitive financial information. DO NOT simply toss them in the trash!

So Many New Laws! The past couple of years have seen more new tax laws than any period in our history.

Protect Yourself. Please take note of items that may affect you. Some are so new IRS has not yet given complete rules. Others are more familiar. If you need help, I welcome your calls. It's your money. Let me help you protect it.

Estate Tax Dead? Estate tax laws ended December 31, 2009. Congress wants to fix this, but so far, nothing. Current rules are a mess. Suppose Uncle Ben passed away and left you his home and a couple of stocks. Old law caused no estate tax unless Ben's assets were worth more than $3.5 Million. No tax then, no tax now. But, look at your inheritance. Old law set a value for the home and stocks at what they would sell for when Ben died. Now we must find what Ben paid for the items, then apply complex "carryover basis" rules to know if you face a tax when you sell Congress wants to reinstate the simpler rules. Wait and see.

Homebuyer Credits. This was passed last November and is already dead. Direct refunds of up to $8,000 applied to some home purchases. The law ended on April 30, with an extension until June 30 for those who were already working under a written contract to buy. Members of the Military and Foreign Services have an extra one year to qualify. Will it be extended? Not likely.

Health Care Reform. This one's only a couple of months old. Most rules kick in over several years.

Small Employers who provide health insurance get a tax credit in 2010. Lots of rules. The credit can be as much as 35% of what employer spends on premiums. The maximum applies for employers who have no more than 10 employees and/or who pay salaries under $25,000. The credit is reduced and eventually disappears for businesses with more employees and as salaries increase. IRS is struggling to explain all this, and has posted some early rules at their website.

Future Years will bring more changes. Higher penalties will apply to using money from HSA accounts for non-medical items. The "floor" for deducting medical expenses goes from 7.5% to 10% of income in 20 II, but only for those under 65. High income folks will pay surtaxes after 2012. Eventually all employers must provide coverage or pay fines, and low-income folks will receive vouchers to buy coverage. It'll take at least a year to sort this out.

Special "Stimulus" Provisions. Most Workers got the "Making Work Pay" credit of up to $400 in 2009. Couples got up to $800. This will apply in 2010, but disappears in 2011. Withholding tables will go up to keep most folks at the same tax position for 2011.

Most retired folks got a $250 one-time check in May 2009 - some got their $250 when we filed the tax return. These payments were for 2009 only.

Education Credits. For 2009 we saw the new American Opportunity Tax Credit (AOTC). New rules, but what a pleasant surprise! It'll be here for 2010, but then expires.

Undergrads Only. The credit can only be used for the first four years of college. Students must be enrolled at least half-time, and must be enrolled in a degree or certificate program.

Tuition plus Supplies! Until 2009 we could only look at tuition and class fees (net of any grants or scholarships). Now we include books and class supplies. Today most students need computers, and it appears we may include this cost if the machine is purchased during the year. Add needed software and other class supplies.

Valuable Credit. The credit can be as high as $2,500 per student. It's a dollar- for-dollar tax reduction on the first $2,000 spent, then 25% of the next $2,000. Costs above $4,000 offer no help. Even if your tax bill is low, the first 40% of the credit is "refundable" - you get it even if you owe no tax.

Easier To Qualify. Before 2009 phaseout rules kept many from getting the education credits. The new credit has higher limits. Single filers can get the full credit until income passes $80,000 - double this for couples.

Other Changes. Several items which already expired are listed in the box below. Other helpful rules are due to expire after 20 I O. They may or may not be extended:

• Election to expense up to $250,000 of new equipment.
• Marriage Penalty issues. Until 2001 people saw a tax increase if they married. In 2001, new rules removed many inequities. Problem -- those rules are set to expire after 2010.
• Capital gains rates of 0% / 15% depending on income. They are set to return to 10% / 20%.
• Most dividends being taxed at the favorable capital gain rates.
• Loss of deductions/exemptions based on income.
• Mileage deductions were 55¢ per mile in 2009. They drop to 50¢ this year.

Estimated Tax. If you send out estimated tax payments, we may need to re-think your position if any of these apply to you. Also check the items in the box below.

Please call me if one of these affects you and we didn't plan for it.

Familiar Rules Expired -Will They Return?

Over 40 Rules used by individuals expired back on December 31,2009. Congress wants to extend several, but no results yet. Here are some of the best known:

Non-Itemizers were allowed to claim extra deductions for sales tax on new cars, real estate taxes, and disaster losses. All three of these have expired.

Education & Educators. The "Tuition & Fees Deduction" up to $4,000 for post-secondary tuitions (including vocational schools) expired. Educators could deduct up to $250 of classroom supplies - also gone.

Age Over 70½. These folks lost two valuable rules. Required Minimum Distributions from IRAs were gone in 2009, return in 2010, and aren't likely to be extended. Also these folks could make charitable contributions directly from IRA accounts and get the deduction without a need to itemize deductions. Plus, it was considered as part of the required distribution even though not taxed.

Alternative Minimum Tax was enacted over 26 years ago to keep the wealthy from taking undue advantage of tax laws. Unfortunately, the measure of "wealthy" in 1983 looks "normal" today. Since 2001 we've had annual "patches" to keep the tax at bay. The 2009 patch expired in December. Unless Congress acts, single filers can run into this at income of $45,000 or so, couples at around $70,000. It raises taxes and eats up valuable tax credits.

Several Other Provisions died on December 3l. We might or might not see a revival of:

• Sales Tax vs. State Income Tax choice for itemizers.
• COBRA subsidies for laid-off employees.
• Research Credits for small businesses.
• Bonus Depreciation - 50°/c, of costs in first year, then depreciate the balance.
• Shorter depreciation lives for leasehold improvements, retail spaces, and farming machinery.

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