There have been speculations on whether to convert your qualified retirement plan or IRA to a Roth IRA due to the elimination of income limits in 2010. Depending on your future financial situation, this may be a good or bad idea.

WASHINGTON — People who give to charities providing earthquake relief in Haiti can claim these donations on the tax return they are completing this season, according to the Internal Revenue Service.

Taxpayers who itemize deductions on their 2009 return qualify for this special tax relief provision, enacted Jan. 22. Only cash contributions made to these charities after Jan. 11, 2010, and before March 1, 2010, are eligible. This includes contributions made by text message, check, credit card or debit card.

Check Your Withholding

How will the Making Work Pay tax credit affect you?

Most wage earners will benefit immediately — or already have — with a larger paycheck as a result of the changes made to the federal income tax withholding tables to implement the Making Work Pay tax credit. Some people may find that the changes built into the withholding tables result in less tax being withheld than they prefer.  

WASHINGTON — The Internal Revenue Service is looking for taxpayers who are due to receive a combined $123.5 million in the form of 107,831 refund checks that were returned to the IRS by the U.S. Postal Service due to mailing address errors.

First-Time Homebuyer Credit: Members of the Military and Certain Other Federal Employees

The Worker, Homeownership and Business Assistance Act of 2009, which was signed into law on Nov. 6, 2009, extends and expands the first-time homebuyer credit allowed by previous Acts. The new law:

• Extends deadlines for purchasing and closing on a home.
• Authorizes the credit for long-time homeowners buying a replacement principal residence.
• Raises the income limitations for homeowners claiming the credit.  

Guidance from the IRS allows a more than 2% shareholder-employee of an S-Corporation to deduct an above the line health insurance deduction on line 29 of Form 1040, even if the policy is purchased in the name of the shareholder. The deduction is allowed if;

1. The S-Corporation makes the premium payment for the policy covering the more than 2% shareholder-employee in the current tax year, or
2. The more than 2% shareholder employee makes the premium payment, furnishes proof of payment to the S Corporation, and is reimbursed within the current tax year.
    

The Premiums will not qualify if they are not paid or reimbursed by the S Corporation and included in the shareholder’s gross income on Form W-2

The deduction is limited to the smaller of eligible health insurance premiums or net profit from the business. Net profit for a more than 2% shareholder-employee of an S-Corporation is taxable W-2 wages.

Health insurance for 2% shareholders must be included on the Form W-2. The amount must be included in gross income in box 1 and also must be shown in box 14 described as health insurance.

Taxable cost of group-term life insurance over $50,000 paid by the S-Corporation must be included in gross wages, social security wages (up to social security wage base) and Medicare wages (boxes 1, 3, and 5). You must also put code C in box 12 with the associated cost.

There have been several changes to the document retention requirements for charitable contributions in the last several years. It is important to familiarize yourself with the new requirements to insure your compliance. Terry&Company, P.C. will be able to help you along the way. Below are the document requirements for the 2009 tax year regarding cash and noncash contributions.

To accommodate the change in tax law, the IRS has updated Publication 536, as well as the instructions for Form 1045 and Form 1139, which small businesses will use to take advantage of the carryback provision.

Under the American Recovery and Reinvestment Act (ARRA), the first $2,400 of unemployment benefits an individual receives in 2009 are tax free. This provision applies only to benefits received in 2009: Normally, unemployment benefits are taxable.

Individuals who receive unemployment benefits this year should check their withholding to ensure they are not having unnecessary tax withheld. IRS News Release 2009-29 has more detail on this provision.

Under the American Recovery and Reinvestment Act (ARRA), the monthly tax exclusion for employer-provided commuter highway vehicle transportation and transit pass benefits increased to $230, effective from March through December 2009.

Under the American Recovery and Reinvestment Act (ARRA), more families will be eligible for the additional child tax credit because of a change to the way the credit is figured.

The American Recovery and Reinvestment Act (ARRA) provides a temporary increase in the earned income tax credit (EITC) for taxpayers with three or more qualifying children. The maximum EITC for this new category is $5,657. ARRA also increases the beginning point of the phaseout range for the credit for all married couples filing a joint return, regardless of the number of children. These changes apply to 2009 and 2010 tax returns.

What is a 529 plan? They are investment vehicles designed to help families pay for future expenses associated with college or other qualified post-secondary training. Though contributions to a 529 plan are not deductible, these plans offer other tax advantages and are named after Section 529 of the Internal Revenue Code. All 50 states and the District of Columbia sponsor at least one type of 529 plan.

Under the American Recovery and Reinvestment Act (ARRA), more parents and students will qualify over the next two years for a tax credit, the American Opportunity Credit, to pay for college expenses.

The American Recovery and Reinvestment Act permits taxpayers to take a deduction for state and local sales and excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles. The deduction is available on new vehicles purchased from Feb. 17, 2009, through Dec. 31, 2009. In states that don't have a sales tax, the law provides a deduction for other taxes or fees paid. This deduction is available whether or not a taxpayer itemizes deductions on Schedule A.