from www.money.cnn.com
AMT fix means tax-refund delays for millions
IRS says Congress' late fix to alternative minimum tax could hold back about 3 million refund checks until February.
WASHINGTON (AP) -- More than 3 million people will have to wait until February to get their tax refunds because of Congress' late fix to the alternative minimum tax, the IRS said Thursday.
Congress put a one-year freeze on growth of the alternative minimum tax last week, shielding many middle- and upper-middle income taxpayers from first exposure to the tax. But Congress' late action means the Internal Revenue Service won't be able to start processing five AMT-related forms until February, delaying potential refunds for those people until that month.
Between 3 million and 4 million people filed in January of last year using those forms, with many of those people expecting a refund, the IRS said.
The average refund in 2007 was $2,324, the agency said.
"We regret the inconvenience the delay will mean for millions of early tax filers, especially those expecting a refund," acting IRS Commissioner Linda Stiff said.
As many as 13.5 million people will have to wait until February 11 to start filing with the five AMT-related forms, but the IRS said filing patterns show only between 3 million to 4 million of those people file during the early tax season anyhow.
The IRS was able to reprogram its computers to begin accepting the seven other AMT-related forms when the tax season opens in early January.
But the tax packages that will start arriving in the mail beginning after New Year's Day were printed in November, before the AMT fixes were approved by Congress. The IRS has created a special section on its Web site, irs.gov, with updated copies of AMT forms.
The alternative minimum tax was passed in 1969 and was aimed at about 155 very wealthy families, who used deductions to avoid paying any federal income tax. The AMT disallows certain deductions and credits. It was not adjusted for inflation; as a result, over the years it has hit a growing number of middle-income taxpayers.
More than 4 million were subject to it in the 2006 tax year. Without the congressional fix, more than 20 million families would have been faced with an extra $2,000 tax hit on average.
The five forms affected by the delay are:
Form 8863, Education Credits.
Form 5695, Residential Energy Credits.
Form 1040A's Schedule 2, Child and Dependent Care Expenses for Form 1040A Filers.
Form 8396, Mortgage Interest Credit and
Form 8859, District of Columbia First-Time Homebuyer Credit.
Any taxpayer using those forms will have to wait until February to file their taxes, the agency said. The IRS will begin processing those forms on Feb. 11, and the first refunds for those people will start going out 10 to 14 days later.
More than 100 million people got refunds during the last tax season.
An executive at Kansas City, Mo.-based H&R Block (HRB, Fortune 500), the nation's largest tax preparer, suggested there might be ways for people to increase the speed of their refunds.
"We can help taxpayers claiming the child and dependent-care credit avoid the delay by using alternative forms to file their return," said Tim Gokey, group president of H&R Block Tax Services. "Taxpayers can also file their return earlier by not claiming the credits being blocked until Feb. 11, and then filing an amended return later to claim the additional credits."
The Associated Press reported on Dec. 1 that the IRS Oversight Board was warning that taxpayers could expect refund delays because Congress hadn't acted on an AMT fix.
Congress passes legislation every year to keep the tax from expanding. The fix this year was delayed by an argument between Republicans and Democrats over whether some taxes should rise to offset the cost of correcting the AMT.
The House's Democratic majority demanded that the $50 billion cost of the tax relief be paid for, mainly by closing a loophole on offshore tax havens. But Republicans' argument that the AMT shouldn't be fixed with increased taxes prevailed, with the backing of a White House veto threat.
The Dec. 19 passage of the AMT fix threw the IRS's schedule off because it takes seven weeks to reprogram the agency's computers to adjust for congressional action, the agency said.
IRS officials suggest that people file electronically to get faster refunds. People who file electronically and get direct deposits into their accounts can expect refunds in 10-14 days, while those who file with paper forms can expect a wait of as long as six weeks.
The IRS is also working with tax professionals and the makers of tax preparation software to make sure their information is as up-to-date as possible.
"The IRS is going to continue to do everything it can to make this a fully successful filing season for the nation's taxpayers," Stiff said.
Sunday, December 30, 2007
Saturday, December 22, 2007
$ 65,100.00
from www.boston.com
I have a number in mind and it should figure prominently in your tax decisions
My plans for substantial tax savings next year, including tax-free stock dividends and long-term capital gains, revolve around one figure: $65,100.
more stories like this
While not official yet, $65,100 is projected to be the top of the 15 percent tax bracket for spouses filing jointly in 2008, based on how brackets are adjusted annually for inflation. For single filers, it would be $32,550. For every extra dollar, Uncle Sam would take a progressively bigger cut (first 25 percent, then 28, 33, and 35).
That's reason enough for my wife, Georgina, and me - and all taxpayers - to try to stay within the 15 percent bracket (by contributing to deductible retirement plans, for example, and claiming deductions and adjustments to income).
But there is another incentive: From 2008 through 2010, current tax law calls for a "0 percent" rate - that's right, nada - on qualifying stock dividends and long-term capital gains on the sale of securities for people in the two lowest tax brackets.
"Now, that's a free lunch," said Mike Swenson, certified public accountant with Thomson Tax and Accounting. (Through Dec. 31, the tax rate for qualifying dividends and long-term gains in these two brackets is 5 percent.)
Unless the law is renewed, stock dividends will be taxed as ordinary income in 2011 and the rate on long-term gains will revert to a maximum 20 percent.
The uncertainty about what Congress may do next - including repealing the lower rates before 2011 - is prompting many advisers to suggest investors sitting on gains don't wait too long to sell.
Given the government deficit, "low rates for investors may disappear sooner rather than later," said Grace Allison, vice president and tax strategist for Northern Trust. Investors with large unrealized gains in concentrated portfolios (a lot of money in a few stocks) should consider selling and diversifying now, she said.
Even investors with diversified portfolios can benefit from selling, particularly if they can do it tax-free.
"While the low capital-gains rates appear safe for now, tax laws can be unpredictable," Swenson said. "The rule of thumb is to take advantage of the low rates while you can."
Tax reasons alone normally should not drive sell decisions. But in this case, you can buy the same securities right back - or if you have enough money, sell and buy simultaneously - without adverse tax consequences. (There is no "wash-sale" rule when selling at a gain, only when selling at a loss). Your only concerns may be transaction costs, possible fluctuations in share price from sale to repurchase, and whether your fund imposes a waiting period to buy again after you sell.
To qualify for long-term rates, securities must be held more than a year. Gains and dividends count as taxable income to determine your bracket. Next year, we plan to sell selected no-load fund shares for solid gains but not enough to push us beyond the 15 percent bracket (and nowhere near enough that the alternative minimum tax becomes an issue). We'll buy the same number of shares the same day, keeping our portfolio intact and establishing a new and higher tax basis. We'll also refrain from selling investments at a loss in taxable accounts because losses must first be used to offset gains, and the gains will be tax-free anyway.
Humberto Cruz is a columnist for the South Florida Sun-Sentinel. He can be reached at AskHumberto@aol.com
© Copyright 2007 Globe Newspaper Company.
I have a number in mind and it should figure prominently in your tax decisions
My plans for substantial tax savings next year, including tax-free stock dividends and long-term capital gains, revolve around one figure: $65,100.
more stories like this
While not official yet, $65,100 is projected to be the top of the 15 percent tax bracket for spouses filing jointly in 2008, based on how brackets are adjusted annually for inflation. For single filers, it would be $32,550. For every extra dollar, Uncle Sam would take a progressively bigger cut (first 25 percent, then 28, 33, and 35).
That's reason enough for my wife, Georgina, and me - and all taxpayers - to try to stay within the 15 percent bracket (by contributing to deductible retirement plans, for example, and claiming deductions and adjustments to income).
But there is another incentive: From 2008 through 2010, current tax law calls for a "0 percent" rate - that's right, nada - on qualifying stock dividends and long-term capital gains on the sale of securities for people in the two lowest tax brackets.
"Now, that's a free lunch," said Mike Swenson, certified public accountant with Thomson Tax and Accounting. (Through Dec. 31, the tax rate for qualifying dividends and long-term gains in these two brackets is 5 percent.)
Unless the law is renewed, stock dividends will be taxed as ordinary income in 2011 and the rate on long-term gains will revert to a maximum 20 percent.
The uncertainty about what Congress may do next - including repealing the lower rates before 2011 - is prompting many advisers to suggest investors sitting on gains don't wait too long to sell.
Given the government deficit, "low rates for investors may disappear sooner rather than later," said Grace Allison, vice president and tax strategist for Northern Trust. Investors with large unrealized gains in concentrated portfolios (a lot of money in a few stocks) should consider selling and diversifying now, she said.
Even investors with diversified portfolios can benefit from selling, particularly if they can do it tax-free.
"While the low capital-gains rates appear safe for now, tax laws can be unpredictable," Swenson said. "The rule of thumb is to take advantage of the low rates while you can."
Tax reasons alone normally should not drive sell decisions. But in this case, you can buy the same securities right back - or if you have enough money, sell and buy simultaneously - without adverse tax consequences. (There is no "wash-sale" rule when selling at a gain, only when selling at a loss). Your only concerns may be transaction costs, possible fluctuations in share price from sale to repurchase, and whether your fund imposes a waiting period to buy again after you sell.
To qualify for long-term rates, securities must be held more than a year. Gains and dividends count as taxable income to determine your bracket. Next year, we plan to sell selected no-load fund shares for solid gains but not enough to push us beyond the 15 percent bracket (and nowhere near enough that the alternative minimum tax becomes an issue). We'll buy the same number of shares the same day, keeping our portfolio intact and establishing a new and higher tax basis. We'll also refrain from selling investments at a loss in taxable accounts because losses must first be used to offset gains, and the gains will be tax-free anyway.
Humberto Cruz is a columnist for the South Florida Sun-Sentinel. He can be reached at AskHumberto@aol.com
© Copyright 2007 Globe Newspaper Company.
Thursday, December 20, 2007
Tax Advisors for Personal and Business Use
from www.banks.com
By Chris Bibey December 18th, 2007
No matter who you are, being able to lean on a tax advisor may be a huge benefit in your life. This holds true no matter if you simply file individual income taxes, or you are in the midst of starting a business. The tax process in the United States can be very difficult to get along with. And if you are not sure of what you are doing, you could end up being hit with big penalties or worse from the IRS. For this reason, more and more people are hiring tax advisors to work with them.
What can a tax advisor do for you? The better question may be: what can’t a tax advisor do. The fact of the matter is that when you hire an advisor they are meant to help with anything and everything. Not only can they overlook your entire tax situation, but they can also answer your questions. Simply put, you are hiring an advisor to work for you so nothing tax related is off limits.
Do you need pay your tax advisor year round? This is a tricky question, and should be answered only after considering your situation. For instance, if you own a business you may need to have a tax advisor available to you at all times. Remember, you will probably have tax related questions that need answered on a daily basis. On the other side of things, as an individual you may not need to speak with your advisor more than once a year. Of course, if you have a large portfolio of investments this may not be the case.
Hiring a tax advisor to oversee your situation may be the best financial decision that you ever make.
By Chris Bibey December 18th, 2007
No matter who you are, being able to lean on a tax advisor may be a huge benefit in your life. This holds true no matter if you simply file individual income taxes, or you are in the midst of starting a business. The tax process in the United States can be very difficult to get along with. And if you are not sure of what you are doing, you could end up being hit with big penalties or worse from the IRS. For this reason, more and more people are hiring tax advisors to work with them.
What can a tax advisor do for you? The better question may be: what can’t a tax advisor do. The fact of the matter is that when you hire an advisor they are meant to help with anything and everything. Not only can they overlook your entire tax situation, but they can also answer your questions. Simply put, you are hiring an advisor to work for you so nothing tax related is off limits.
Do you need pay your tax advisor year round? This is a tricky question, and should be answered only after considering your situation. For instance, if you own a business you may need to have a tax advisor available to you at all times. Remember, you will probably have tax related questions that need answered on a daily basis. On the other side of things, as an individual you may not need to speak with your advisor more than once a year. Of course, if you have a large portfolio of investments this may not be the case.
Hiring a tax advisor to oversee your situation may be the best financial decision that you ever make.
Saturday, December 8, 2007
IRS Issues List of Vehicles that Qualify for the Alternative Motor Vehicle Credit
from www.irs.gov
IRS Issues List of Vehicles that Qualify for the Alternative Motor Vehicle Credit
IR-2007-196, Dec. 5, 2007
WASHINGTON — Purchasers of certain large trucks, buses or other heavy vehicles running on alternative fuel can claim a credit of up $32,000, and purchasers of certain large hybrid trucks and other heavy hybrid vehicles can claim a credit of up to $12,000 if they qualify for the Alternative Motor Vehicle Credit.
Qualified Alternative Fuel Motor Vehicles (QAFMV) are powered solely by alternative fuels, such as compressed natural gas, liquefied natural gas, liquefied petroleum gas, hydrogen and any liquid at least 85 percent of the volume of which consists of methanol. Vehicles powered by a combination of an alternative fuel and a petroleum-based fuel may qualify for a reduced credit. Purchases of new vehicles with special equipment, as well as ones converted for alternative power, may qualify.
A credit also is available for certain new qualified heavy hybrid vehicles with a gross vehicle weight rating in excess of 8,500 pounds. A qualifying heavy hybrid motor vehicle draws propulsion energy from onboard sources of stored energy which are both an internal combustion or heat engine using consumable fuel, and a rechargeable energy storage system. This credit should be not confused with the alternative motor vehicle credit for qualified hybrid passenger automobiles and light trucks.
The list of vehicles is updated periodically
Subscribe to IRS Newswire
IRS Issues List of Vehicles that Qualify for the Alternative Motor Vehicle Credit
IR-2007-196, Dec. 5, 2007
WASHINGTON — Purchasers of certain large trucks, buses or other heavy vehicles running on alternative fuel can claim a credit of up $32,000, and purchasers of certain large hybrid trucks and other heavy hybrid vehicles can claim a credit of up to $12,000 if they qualify for the Alternative Motor Vehicle Credit.
Qualified Alternative Fuel Motor Vehicles (QAFMV) are powered solely by alternative fuels, such as compressed natural gas, liquefied natural gas, liquefied petroleum gas, hydrogen and any liquid at least 85 percent of the volume of which consists of methanol. Vehicles powered by a combination of an alternative fuel and a petroleum-based fuel may qualify for a reduced credit. Purchases of new vehicles with special equipment, as well as ones converted for alternative power, may qualify.
A credit also is available for certain new qualified heavy hybrid vehicles with a gross vehicle weight rating in excess of 8,500 pounds. A qualifying heavy hybrid motor vehicle draws propulsion energy from onboard sources of stored energy which are both an internal combustion or heat engine using consumable fuel, and a rechargeable energy storage system. This credit should be not confused with the alternative motor vehicle credit for qualified hybrid passenger automobiles and light trucks.
The list of vehicles is updated periodically
Subscribe to IRS Newswire
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