The Tax Goddess Blog

Nine Tax Deductions That Will Dissappear This Year

Here are the top nine ways to say your money that will only be good through the end of 2009!

1. Up to $2,400 of unemployment compensation is excluded from the gross income of the recipient, good until 12/31/09.

2. You can claim a deduction for sales or excises taxes paid on the purchase of a new vehicle (may depend on your income), good before 12/31/09.

3. If you haven't owned a home in the previous three years, you can claim a first-time home buyer credit of up to $8,000 (phased out at higher income levels) for the purchase of a principal residence. The credit can be claimed only for homes purchased before December 1, 2009. It is rumored that this credit may rise to $15,000 in 2010, but that's still just a rumor.

4. If you are covered by employer-sponsored health plans and are laid off before January 1, 2010, you can qualify for subsidized plan continuation (COBRA) coverage for up to nine months. Employers can claim a credit against employment taxes for the subsidies provided to employees.

5. For tax years beginning before 2010, teachers in grades K-12 and other eligible educators can claim an above-the-line deduction for up to $250 of their out-of-pocket expenses for books and supplies used in the classroom.

6. You can claim an additional 50% depreciation allowance for qualifying business machinery and equipment placed in service before January 1, 2010.

7. You can claim a Section 179 expensing deduction for the first $250,000 of qualifying equipment and machinery placed in service during this year. For tax years beginning after December 31, 2009, the maximum Section 179 deduction drops to $125,000.

8. Employers may claim a 20% income tax credit for qualifying differential pay paid to employees on active military duty. The credit expires for payments made after December 31, 2009.

9. Eligible contractors may claim a credit of up to $2,000 for each qualified new energy efficient home that the contractor constructs and that is acquired from the contractor for use as a residence. The credit does not apply to homes acquired after December 31, 2009.


Looking our for your best interests,

Your Tax Goddess~
Shauna~

Contractor vs Employee Status

Independent Contractor (Self-Employed) or Employee?
 
It is critical that you, the business owner, correctly determine whether the individuals providing services are employees or independent contractors.

Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors. 

If you are an independent contractor and hire or subcontract work to others, you will want to review the information below to determine whether individuals you hire are independent contractors (subcontractors) or employees.

Before you can determine how to treat payments you make for services, you must first know the business relationship that exists between you and the person performing the services.

The person performing the services may be -

An independent contractor

An employee (common-law employee)

A statutory employee

A statutory nonemployee

In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.

Common Law Rules
Facts that provide evidence of the degree of control and independence fall into three categories:

Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?

Financial: Are the business aspects of the worker's job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)

Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no "magic" or set number of factors that "makes" the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.

The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.

If you have any questions on how you should be taxing your staff or vendors PLEASE speak with your CPA to get more information (our Tax Goddess can be found here if you have any questions)!

Looking our for your best interests,

Your Tax Goddess~
Shauna~

New Credit Card Rules Go Into Effect

Credit card rules have changed, in ways to help protect customers against changing terms without notice.

Starting Thursday, August 20th banks must now comply with parts of the recently passed Credit Card Act of 2009 by

• mailing bills at least 21 days before their due dates; currently this is set to 14 days in advance 
• providing at least 45 days' notice before making a significant change to their rates or fees. Currently this is set to a 15-day notice of altered fees or rates.
• Banks will also be barred from increasing fees and rates without warning when a consumer misses a payment or exceeds a credit limit.
• Consumers will be allowed to avoid future interest-rate increases and pay off any outstanding balance over time under the original rate terms. Currently, if a consumer gets hit with a penalty rate, for example, they aren't given the option to reject the rates.

Additional changes will follow in Feb of 2010, but for now, this is a great start towards helping customers maintain healthy credit and work towards payment in full of these debts.

According to Consumer Action's 2009 credit-card survey, more credit cards now come with minimum cash-advance fees and higher balance-transfer and foreign-transaction fees. The banks have used this time frame to make the changes they wanted as freely as before so as not to fall under today's implemented rules.

For now, things you should check:

• Your statement due dates (to make sure you are getting the additional time required)
• Check around for better deals.  In a good competitive nature, many cards are offering great benefits and rewards, and some even have better rates.

A good example of these benefits is with Chase: (Taken from WSJ Online Edition)

"Consumers are likely to find better credit-card deals if they also have a checking account at the bank. Under Chase Card Services' Chase Exclusives program, for example, Chase Freedom card holders who also have checking accounts at the bank can earn up to 10% more points on their spending. The bank also rolled out a new credit card, "Slate From Chase," that automatically refunds the 12th month's interest charges each year if customers enroll in the bank's AutoPay program from a Chase checking account."

So there are some great deals to be had, you just, as usual, have to call around and find them!

If you have any questions on how to find a credit system for you, or if you shoukld be using a credit system at all PLEASE speak with your CPA to get more information (our Tax Goddess can be found here if you have any questions)!

Looking our for your best interests,

Your Tax Goddess~
Shauna~

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If you think that you might need some help growing your business and saving you tax please make sure that you talk to a good CPA who can help you find the right way to move ahead on track!

Energy Effecient Tax Incentives

The American Recovery and Reinvestment Act (ARRA) provides numerous tax incentives for individuals to invest in energy-efficient products.

Some of the more useful ones are:

1) Residential Energy Property Credit (Section 1121):

if you are adding insulation, energy efficient exterior windows and energy-efficient heating and air conditioning systems you can receive up to a 30% CREDIT (dollar for dollar) (maximum of $1500) of all the costs!

A similar credit was available for 2007, but was not available in 2008. Homeowners should be aware that the standards in the new law are higher than the standards for the credit that was available in 2007 and that The IRS has issued guidance that will allow manufacturers to certify that their products meet these new standards.

Until the guidance is released, homeowners generally may continue to rely on manufacturers' certifications that were provided under the old guidance.

For exterior windows and skylights, homeowners may continue to rely on Energy Star labels in determining whether property purchased before June 1, 2009, qualifies for the credit.

2) Residential Energy Efficient Property Credit (Section 1122):

This nonrefundable energy tax credit will help individual taxpayers pay for qualified residential alternative energy equipment, such as solar hot water heaters, geothermal heat pumps and wind turbines.

The new law allows for a credit equal to 30 percent of the cost of qualified property.

3) Plug-in Electric Drive Vehicle Credit (Section 1141):

The new law modifies the credit for qualified plug-in electric drive vehicles purchased after Dec. 31, 2009.

To qualify, vehicles must be newly purchased, have four or more wheels, have a gross vehicle weight rating of less than 14,000 pounds, and draw propulsion using a battery with at least four kilowatt hours that can be recharged from an external source of electricity.

The minimum amount of the credit for qualified plug-in electric drive vehicles is $2,500 and the credit tops out at $7,500, depending on the battery capacity.

4) Plug-In Electric Vehicle Credit (Section 1142):

The new law also creates a special tax credit for two types of plug-in vehicles - certain low-speed electric vehicles and two- or three-wheeled vehicles. (Like Golf Carts!)

The amount of the credit is 10 percent of the cost of the vehicle, up to a maximum credit of $2,500 for purchases made after Feb. 17, 2009, and before Jan. 1, 2012.

To qualify, a vehicle must be either a low speed vehicle propelled by an electric motor that draws electricity from a battery with a capacity of 4 kilowatt hours or more or be a two- or three-wheeled vehicle propelled by an electric motor that draws electricity from a battery with the capacity of 2.5 kilowatt hours.

A taxpayer may not claim this credit if the plug-in electric drive vehicle credit is allowable.

More information can be found at the IRS website along with additional information on the ARRA.

If you have any questions on how these new credits could apply to you PLEASE speak with your CPA to get more information (our Tax Goddess can be found here if you have any questions)!

Looking our for your best interests,

Your Tax Goddess~
Shauna~