Tax Evaders Refuse to Recognize New Charges

CONCORD, N.H. — A couple convicted of tax evasion said Thursday that the federal government has no right to bring 11 new charges against them, including gun violations and obstruction of justice.

Ed and Elaine Brown and at least four co-conspirators stockpiled explosives and firearms at the couple's home for possible use against law enforcement, according to the indictment.

Officials entered not guilty pleas on the Browns' behalf at a hearing Thursday in U.S. District Court in Concord.

They were convicted in January 2007 of failing to pay taxes on $1.9 million of income over eight years. The couple claims the federal income tax is not legitimate. Their argument — repeatedly rejected by courts — is that no law authorizes the federal income tax and that the 1913 constitutional amendment permitting it was never properly ratified.

The Browns fled to their Plainfield home before the trial ended, and Ed Brown threatened to kill any officers who attempted to arrest them. U.S. marshals posing as supporters apprehended them in October 2007. The new charges stem from that incident.

They appeared separately Thursday, shackled at the ankles. Elaine Brown, who was arraigned first, said she would not attend the new trial. Her husband said the couple lived under a different form of law.

"I thought today was here to release us," he said, adding that authorities have kept him in solitary confinement for more than a year. "I have not been able to find out anything about anything."

U.S. Marshal Stephen Monier and U.S. Attorney Tom Colantuono declined to comment on Brown's accusation. Monier added that authorities would grant the couple a brief meeting in a holding cell after the hearing — the couple's first time together since October 2007.

The Browns say they will represent themselves, but Judge James Muirhead appointed standby lawyers for the couple. Those attorneys — Bjorn Lange and Michael Iacopino — declined to comment.

The couple also waived their right to bail hearings.

Judge George Singal of Maine will preside over the trial scheduled for April 13. Federal judges in New Hampshire recused themselves after the Browns threatened to harm New Hampshire Judge Steven McAuliffe in 2007. Both McAuliffe and Judge Paul Barbadaro said they would be worried that their impartiality would be questioned because of the threats.

The Brown's home — now under the control of federal authorities — became a rallying place for the couple's anti-government, anti-tax supporters in 2007, some of whom pledged to use violence to defend them. Four have since been convicted and sent to prison.

The Browns, both in their late 60s, are currently serving five-year prison sentences.

Four supporters of the Browns have been sent to prison for helping the couple resist efforts to arrest. Some of the explosive devices prosecutors say were seized from the Browns' property included nine homemade antipersonnel mines intended to fire shotgun shells from trees when approaching marshals hit tripwires.

(Source)

If you ever needed a reason to sit down and do some tax planning, the new $787 billion fiscal stimulus bill -- includin

SAN FRANCISCO (MarketWatch)

From an earlier-than-usual red flag on who might fall into the alternative minimum tax this year to a new question on paycheck withholding, the final bill, expected to be signed into law by President Obama early next week, should prompt taxpayers to consider how best to lower their tax bill in the year ahead.

Of course, there are some straight-up tax breaks that don't necessarily require much tax planning per se.

Unemployed people will find their first $2,400 of benefits is untaxed, and they may qualify for reduced health-insurance premiums through their former employer's group plan, or Cobra.
There's the $8,000 tax credit for first-time home buyers who buy between Jan. 1 and Dec. 1, 2009 -- this credit doesn't have to be paid back, unlike the $7,500 perk available in 2008.
But there is one aspect of the home-purchase credit that could require planning: You can claim the credit on your 2008 taxes, even if you bought the house in 2009, according to Mark Luscombe, a principal analyst with CCH Inc., a Riverwoods, Ill., tax publisher and unit of Wolters Kluwer.

"There may need to be a little IRS instruction in that regard because the [2008] forms and instructions probably don't at present contemplate an $8,000 credit," he said. "But it is fairly clear that making that election will not change the 2009 purchase to a 2008 purchase." The home-buyer credit starts to phase out for taxpayers with adjusted gross income above $75,000 for single filers and $150,000 for joint filers, according to CCH.
Then, there's the above-the-line deduction for sales tax paid to buy a new car in 2009. You can only deduct the tax on the purchase price up to $49,500. Luscombe warns that taxpayers shouldn't take both this deduction and the itemized deduction for state sales tax. This deduction on a car purchase phases out at AGI of $125,000 for single files and $250,000 for joint returns. According to CCH, the new-car credit is only for vehicles bought on or after the law's effective date.

AMT relief

Thanks to the stimulus bill, taxpayers now know the precise alternative-minimum tax exemption amounts earlier than usual. For the past few years, Congress has waited until year's end to pass the "patch" that prevents more taxpayers falling into this parallel tax system. The exemption reduces the amount of income taxed at the AMT rate.

Knowing the 2009 exemption amounts now -- $70,950 for joint filers and $46,700 for single and head-of-household filers -- gives taxpayers more time to run scenarios to see where their tax bill is likely to fall, and figure out how to lower that bill. (Absent a patch this year, those figures would have gone back down to just $45,000 for couples filing jointly and $33,750 for individuals, according to CCH.)

"This expected bit of tax help probably won't have a very stimulative effect, but it will lessen uncertainty and help people plan their tax moves earlier in the year," Luscombe said.
"As a result of the AMT exemption amounts going up, fewer people should be subject to the AMT," said Greg Rosica, tax partner at Ernst & Young LLP, in a conference call with reporters Friday.

Credit for workers

Those taxpayers eligible for the "make work pay" credit -- up to $400 for single workers and $800 for couples -- may want to assess their withholding before this credit starts showing up in their paychecks.
The credit, available in 2009 and 2010, was trimmed to $400 per worker per year, from a draft stimulus bill's $500 payout.

The credit begins to phase out for single filers with adjusted gross income of $75,000 and married-filing-joint filers with AGI of $150,000. The credit isn't available to taxpayers with AGI topping $95,000 for single filers and $190,000 for joint filers, according to CCH.
It's still uncertain exactly how the credit will be paid out. While some tax experts say employers will automatically adjust workers' paychecks, others say that's not so.
"There's supposed to be a choice between having it as a credit on your tax return or having it deducted from your payroll taxes," Luscombe said. "I would think the employee would have to make some input on that regard, rather than having the employer automatically start the deduction. Some people have suggested maybe a revised W-4 would have to be submitted [to] reflect the employee's choice."
That means workers will need to decide whether they want the money in their paycheck or as a tax refund later. Given the variability of individual's tax situations, some taxpayers could find the credit leads to a larger-than-expected refund come tax time in April 2010 -- or a bill for money owed (if, say, a couple's overall income picture means they're not eligible for a credit but a spouse received one anyway).

Meanwhile, some fixed-income people -- including those who receive Social Security, railroad retirement benefits and veterans' benefits -- will get a one-time $250 payment, a decrease from $300 in an earlier draft of the bill.

Child and education breaks

Got kids? If you're a lower-income taxpayer, you may benefit from the expanded child tax credit. This refundable credit, worth up to $1,000 per child, now starts kicking in on income of $3,000 and up, compared to current law of $8,500 and higher, according to CCH. Lower-income taxpayers also get the benefit of an expanded earned income tax credit.
Meanwhile, more higher-income taxpayers get access to the valuable Hope college-education credit, expanded to $2,500, up form $1,800 currently, and renamed under the stimulus bill to the American Opportunity Tax Credit.

"It's figured as 100% of eligible expenses to $2,000 plus 25% of expenses above $2,000, so someone with total eligible expenses of $4,000 or more would reach the maximum amount," according to a press release by CCH.

The credit phases out when adjusted gross income hits $80,000 for single filers or $160,000 for joint filers. That means more people are eligible: Under current law, the Hope credit phase-out in 2009 starts at $50,000 for single filers and $100,000 for married filers.

Breaks for the bus ride

Mass-transit commuters get a bigger benefit, too. Right now you can pay some of your commuting costs with pre-tax dollars -- if your employer offers this perk. The stimulus bill raises the maximum dollar amount eligible under this perk to $230 for transit passes and van pooling, up from $120, according to CCH. The change brings up the transit limit to match the $230 already allowed for parking costs.

Business breaks

The stimulus bill reduces the required estimated tax payments people in business must make for 2009. "It does not eliminate any of the tax you have to pay," Rosica said. "You're still responsible for your full tax bill come tax filing time for 2009, but it does allow more of a conservation of cash throughout the year."

And there are more perks for small businesses in the bill, including an extension of the current Section 179 expense and the bonus depreciation provisions.

That other stimulus bill in 2008 increased the Section 179 expense deduction to $250,000 from $128,000, and offered 50% bonus depreciation, allowing certain businesses to immediately write off one-half of the cost of a capital expense. This stimulus bill allows those perks in 2009 as well.
Small firms also benefit from the net operating loss carry-back provision, which allows them to use existing losses to offset taxes paid on profits in previous years. Already, firms could do that for the two most recent years, but the stimulus bill expands that to five years.
While early drafts of the stimulus plan offered that break to all companies, the final bill limits it to those with $15 million or less in gross revenue.

That's a big hit to bigger companies who were hoping to collect some quick cash to invest back into their firms, said Clint Stretch, managing principal of tax policy at Deloitte Tax.
And some say lawmakers might have missed a chance to stimulate greater business activity.
"Our best estimate is that taxpayers with less than $15 million of gross receipts are 98% of all corporations, but only 5% of taxable income, so Congress has covered most corporations, but not the ones who account for 95% of corporate tax activity," Stretch said in an email message Friday.

UBS admits helping tax evaders

Swiss banking giant agrees to pay $780 million and hand over account information after helping U.S. clients evade the IRS.

WASHINGTON (CNN) -- Switzerland's largest bank, UBS, has admitted helping U.S. taxpayers hide money from the IRS, and has agreed to pay $780 million in fines and restitution, and to turn over account information.

The deferred prosecution agreement was approved Wednesday by a federal court judge in Fort Lauderdale, Fla.

"UBS admitted to conspiring to defraud the United States by impeding the IRS," the Justice Department announced late Wednesday.

The statement says that UBS, "in an unprecedented move" based on an order by Swiss authorities, has agreed "to immediately provide the U.S. government with the identities of, and account information for, certain U.S. customers of UBS's cross-border business."

UBS (UBS) also has agreed to end its business practice of providing banking services to U.S. customers with undeclared accounts.

"Swiss bankers routinely traveled to the United States to market Swiss bank secrecy to United States clients interested in attempting to evade U.S. income taxes," the Justice Department said.

The government document says Swiss bankers made a total of about 3,800 trips to discuss their clients' accounts.

The government said that because the bank has acknowledged responsibility for its actions, has cooperated fully, and has taken remedial actions, the United States will recommend dismissal of the criminal charge "provided the bank fully carries out its obligations under the agreement."

Two former UBS bankers have pleaded guilty to charges of conspiracy for similar conduct.

The acting head of the Justice Department Tax Division called Wednesday's agreement "but one milestone" in the effort to make sure U.S. citizens pay their fair share of taxes.

"The veil of secrecy has been pulled aside, and we will continue to aggressively pursue those who shirk their federal tax obligations, or assist others in doing so," said John DiCicco, acting assistant attorney general for the Justice Department Tax Division.

IRS Commissioner Doug Shulman issued a warning to the taxpayers who held the accounts, telling them to voluntarily pay up.

Shulman said the taxpayers should note that Wednesday's agreement also stipulates that the U.S. government will continue to seek enforcement of its court action.

"People who have hidden unreported income off shore need to get right with their government. They should come forward and take advantage of our voluntary disclosure process," Shulman said.

FACTBOX - Tax details of US stimulus plan

Feb 17 (Reuters) - The $787 billion U.S. economic stimulus package contains about $287 billion in tax cuts, according to the latest congressional calculations on the value of the package and its impact on U.S. budget deficits.

President Barack Obama signed the bill on Tuesday, saying he wants quick action to boost the struggling economy.

Here are some of the major tax provisions in the bill:

FOR WORKERS, CONSUMERS AND RETIREES

* A "making work pay" refundable tax credit championed by Obama of up to $400 per individual and $800 for couples in 2009 and 2010. It is calculated at a rate of 6.2 percent of earned income and is phased out for individuals with adjusted incomes over $75,000 and couples with incomes over $150,000.

* A one-time payment of $250 to Social Security beneficiaries, railroad retirees and veterans receiving benefits from the Department of Veterans Affairs. State government retirees not eligible for Social Security would also get the $250 payment.

* Increases the earned income tax credit for low-income workers with three or more children.

* Increases eligibility for the refundable child tax credit to more low-income workers. The bill reduces the income floor to $3,000 in 2009 and 2010 from the current floor of $8,500.

* A new $2,500 tax credit for college education expenses. The credit phases out for individuals earning more than $80,000 and couples with incomes over $160,000.

* An $8,000 tax credit for first-time home buyers for homes purchased between Jan. 1 and Dec. 1, 2009. The tax credit phases out for individuals earning more than $75,000 and couples earning more than $150,000.

* Temporary relief from the alternative minimum tax for millions of middle-class taxpayers who otherwise would be ensnared by the tax originally meant for the very wealthy.

FOR BUSINESSES

* Small businesses with gross receipts of up to $15 million can write off 2008 losses against five previous tax years. Current laws allows a two-year carryback of losses.

Businesses will also be allowed to immediately write off more of their investments in computers and other equipment.

* Businesses that repurchase debt at a lower amount than when it was issued will be able to defer taxes on it. Usually reduced or canceled debt is treated as income and taxed. The break applies to debt repurchased adjusted after Dec. 31, 2008, and before Jan. 1, 2011.

* A tax break on capital gains from the sale of stock held in a small business for more than five years.

* The bill raises about $7 billion in revenues by repealing a Treasury Department decision last year to liberalize rules that were intended to prevent companies in a merger from taking huge tax breaks on losses of firms they were acquiring.

FOR STATE AND LOCAL GOVERNMENTS

* Creates a new category of tax-preferred bonds for investment in economic recovery zones for job training, education and economic development.

* Creates a new category of tax-preferred bonds for the construction, and repair of public schools and the purchase of land for schools.

* Creates a federal subsidy for state and local governments offering bonds that give investors credits against their federal taxes in place of interest payments.

FOR RENEWABLE ENERGY

* Extends tax breaks for wind facilities and other renewable energy facilities and provides other tax incentives to encourage development of renewable energy facilities.

* Authorizes an additional $1.6 billion of new clean renewable energy bonds as well as $2.4 billion of energy conservation bonds to finance state and local government projects to reduce greenhouse gas emissions.

* Extends tax credits for energy-efficient improvements to existing homes.

* Provides a tax credit for purchase of "plug-in" electric vehicles of at least $2,500. The credit is increased depending on the battery capacity of the car purchased.

* Provides a new 30 percent investment tax credit for facilities engaged in producing renewable energy technology and conservation. (Editing by Peter Cooney and David Wiessler)

Is mark-to-market accounting right for you?

Jim Crimmins explains how the most popular tax accounting method doesn’t fit all!


One of the most important decisions you’ll make as a trader is whether to elect the mark-to-market (MTM) accounting method.

Although MTM is only available to traders, not investors, and does offer some significant tax advantages, it’s not right for everyone. (If you’re wondering if you qualify as a trader, check out my first post – the answer isn’t as clear-cut for the IRS as you may think.)

What makes this decision so important is that once you select MTM, you’re stuck with it – there is no going back simply because it would be to your advantage tax-wise to do so.

Here are some basics you need to know about mark-to-market: how it works, advantages and disadvantages, the process to elect it, and how to separate and exempt long-term investments

The MTM Method

Since 1997, mark-to-market accounting has enabled traders to change the tax status of their earnings from capital gains/losses to ordinary income/losses.

This occurs on the last day of the year, at which time you tally all of your open holdings as if you were selling them at the market price that day – in other words, they are “marked to market.”

Then, on New Year’s Day, you re-tally your holdings as if you were repurchasing them at the current price. The basis of each holding is then adjusted to reflect these hypothetical gains and losses for tax purposes.

There are numerous advantages to electing mark-to-market:

• No wash sales: MTM traders are exempt from the wash sale rule. Because holdings are tallied at year’s end, there is no need to account for gains or losses that might occur within the 30-day wash sale restrictions. Many traders elect MTM specifically to avoid cumbersome wash sale accounting.

• Favorable tax rate: Under MTM, income is taxed at a lower rate than capital gains. Losses are fully deductible: Because your profits/losses are treated as ordinary income and not capital gains/losses, you are not bound by the $3,000 capital loss limitation. This means you can deduct all losses in the year they occur, providing tax relief when you need it most.

• No change to self-employment exemption: Even though MTM income is not considered capital gains, traders who elect MTM remain exempt from self-employment tax, the same as investors and non-MTM traders.
  

Now let’s look at the disadvantages of mark-to-market:

• No capital loss carryover: Capital losses can only be offset by capital gains. If you are carrying forward a substantial capital loss, beware: by selecting MTM, your gains would be considered ordinary income moving forward; hence only $3,000 per year could be used to offset your capital loss.

• Loss of long-term capital gains: A trader who deals mainly with 1256 contracts may not want to elect MTM because they would lose the favorable 60% long-term capital gain on futures.

• Election is permanent: As an individual trader, once you’ve made the MTM election, you’re stuck with it. You can petition the IRS, but don’t expect leniency, especially if there is a tax advantage to you. One way you may be able to avoid the MTM “life sentence” is establishing a legal entity (general partnership, LLC, C corporation) and not electing MTM. Alternately, you might be able to dissolve the entity that is currently using MTM and form a new one.

How to elect MTM

To elect mark-to-market as your accounting method, you must enclose a statement of intent with your tax return or extension request and file by the tax deadline the year prior to beginning MTM accounting.

The one exception: if you file as a new legal entity, such as an LLC, you have two months from opening to note your accounting preference in your meeting minutes.

Your first year using MTM, you will fill out IRS Form 3115 (Application for Change in Accounting Methods) and submit it with your tax return. This form contains an adjustment, Section 481(a), which captures duplications and omissions resulting from the change in accounting methods.

If the adjustment is $25,000 or less, you may deduct the full amount on your return; if it exceeds $25,000, you may deduct 25% each year for the next four years.

How to exempt your investments from MTM

Before you elect mark-to-market, be sure to separate your investment holdings from your trading stocks and options. Why? Because unless they are clearly separated, you will be required to mark them to market at year’s end and report any gain as ordinary income. That could prove disastrous for stocks that have greatly increased in value over the years.

The IRS lets you exempt your personal investments from your trading business, but only if you identify those investments up front.

Like the MTM election itself, this designation is irrevocable – you cannot decide later to fold your investment losers into your trading stock for ordinary losses or cherry-pick your trading winners for capital gains treatment.

Under the IRS guidelines, you must clearly identify your investment stock as such in your records by the close of the day on which you acquired it or when the MTM election was made.

There are two ways to do this: you may establish a separate account for your investment stocks (the wisest course of action for MTM traders), or simply note in your records which securities are not part of your trading business.

Be prepared to convince the IRS that your investments have “no connection” to your trading business. Otherwise, you’ll be required to mark them to market at year’s end and report any gains as ordinary income.

Get Advice Before You Decide

Is the mark-to-market method right for you? Every trader faces different circumstances.

For some, MTM is the obvious solution to the time-consuming task of tracking wash sales. For others, the ability to fully deduct their losses in the year they occur can make a big difference starting out.

Oddly enough, traders who close their positions daily may not ever have to go through the MTM since there is typically nothing left at year’s end to reclassify.

If you find yourself carrying forward a capital loss or have other questions relating to mark-to-market accounting, be sure to consult one of our Traders Accounting tax professionals about your situation before you decide.

Cheers,

Jim Crimmins

10 Tips for Taxpayers Hit by the Recession

For many tax filers, this tax season may be unlike any other.

If you’ve lost your job, are searching for a new one or attempting to strike out on your own, your tax return may be affected. The same is true if you are collecting unemployment, lost your home in foreclosure or tapped your retirement accounts early.

These tough financial times, in fact, are raising so many, and so varied, tax-related questions that the Internal Revenue Service has set up a special section on its Web site addressing them: What if I lose my job? What if I can’t pay my taxes? What if my income declines?

The answers to these questions could change your usual strategy, which is why many of you need to take extra care when doing your taxes this year. And if there’s any silver lining to earning less money, it may be that you’re more likely to qualify for the many tax breaks that come with limits on how much you can earn to claim them.

Indeed, taxpayers who earned too much to collect the stimulus checks mailed out last year — but have watched their income decline or disappear altogether since then — may have a chance to collect the extra cash now.

When every dollar counts, you want to be sure to take advantage of all breaks available. Below are 10 tips for tax filers feeling the ill effects of the recession:

1. UNEMPLOYMENT The good news is that unemployment benefits were extended last year. The bad news is that those benefits are taxable. Your tax bracket is based on total income, including any money earned before you were laid off. “That catches a lot of people off guard,” said Mark Steber, vice president of tax resources at Jackson Hewitt. You should receive a 1099-G that will show what you received from unemployment and any tax you elected to have withheld. If you didn’t elect to withhold taxes, you may owe them now. Severance and pay for vacation or sick time is also taxable.

2. MORE DEDUCTIONS When you income drops, you’re more likely to qualify for certain tax breaks that phase out if you earn too much money. Tax professionals said that more people are qualifying for the Earned Income Tax Credit, which is aimed at working people and families with low incomes: a married couple filing jointly with two children and an adjusted gross income less than $41,646 in 2008 may be eligible for a maximum tax credit of $4,824. The credit is refundable, which means that even if you do not owe any taxes, you’ll receive the credit in the form of a check from Uncle Sam.

If you’re on the hunt for a new job, many of your costs may also be deductible, as long as you itemize your deductions instead of taking the standard deduction. Deductible expenses include résumé paper, printing, travel expenses, long-distance calls and faxes, postage, even meals and lodging expenses. But job expenses are considered a miscellaneous deduction, which means you can only deduct costs that exceed 2 percent of your adjusted gross income. Since other expenses can also be included in the miscellaneous bucket — from tax preparation fees to work uniforms — be sure you’re including them all, said George Jones, a senior tax analyst at CCH.

If you need to relocate for a new job, moving expenses are deductible for all taxpayers, as long as your new job is located at least 50 miles farther from your old residence than your old job was.

A smaller paycheck will also make it more likely to qualify for the medical deduction: Medical expenses, including health insurance costs, exceeding 7.5 percent of your adjusted gross income are deductible, as long you itemize.

And more taxpayers are also likely to qualify for the child tax credit, the additional child tax credit, as well as the Saver’s Credit, which allows some I.R.A. and 401(k) plan participants to reduce their tax bill by up to $1,000 — even though they’ve already received a tax benefit by excluding their contribution amount from their gross income. But to qualify, married couples filing jointly need to have adjusted gross income of $53,000 or less, according to CCH.

3. REBATE Remember the stimulus checks distributed last year in an attempt to jump-start the economy? If you earned too much to qualify, but your income dropped last year (or you had a child), you may still have a chance to claim it (or more of it). Here’s why: Since the government wanted to get the money into people’s hands quickly, eligibility was based on taxpayers’ 2007 tax returns. But taxpayers have the chance to claim the Recovery Rebate Credit — or a larger portion of it — based on their 2008 income if they didn’t receive the maximum amount.

Single taxpayers with incomes of less than $75,000 will get the full $600 credit, though people with incomes up to $87,000 will receive a reduced amount. Married taxpayers filing jointly with income up to $150,000 will qualify for the $1,200 check, though it phases out completely at $174,000, according to Mr. Jones. You can claim the rebate on line 70 of your 1040 tax return.

4. DISCHARGED DEBT Normally, if a portion of your mortgage debt is forgiven, the amount erased is considered taxable income. But Congress has temporarily lifted that rule for debts wiped out on your primary home. So if your lender restructured your loan and reduced the amount, or you had debt forgiven as part of a foreclosure, you will not owe taxes on that amount — up to $2 million, or $1 million for married people filing separately — as long as the debt reduction occurred from 2007 to 2012, according to Mr. Jones.

There are caveats. This only applies to debt used to purchase, build or improve your home. It does not apply to those who used cash from refinancing their mortgage to pay off credit card debt, for example. And it comes at a cost. When you sell your home, you may end up paying more in capital gains taxes. That’s because participating in this break will reduce the cost basis of your home by the amount of the debt forgiven.

If you’ve had other debts discharged, you may be exempt from paying taxes on the forgiven debt if you have declared bankruptcy or are insolvent (your total debts exceed assets), according to the I.R.S.

5. I.R.A. AND 401(K) WITHDRAWALS Taxpayers who tapped their I.R.A. (and did not repay it within 60 days) will owe income taxes. Those under age 59 ½ will also owe a 10 percent penalty. There are some cases where the penalty is waived. If, for instance, you used the money to pay for your medical insurance after you lost your job, according to the I.R.S., you would not pay a penalty. Participants in 401(k) plans are subject to similar rules, though withdrawals that are deemed qualifying hardships — like costs tied to foreclosure, eviction and education — are still subject to the penalty if made before age 59 ½. But you can take penalty-free withdrawals if you left your job the year you turned 55 or later.

Roth I.R.A.’s can be tapped without penalty, as long as you withdraw your own contributions and not investment earnings.

6. NEWLY SELF-EMPLOYED Many people who have lost their jobs are attempting to strike out on their own. Just “be aware you are now self-employed and there are whole series of new rules,” Mr. Steber said. Some of those rules are good — “There are a lot of deductions and benefits,” Mr. Steber said. And some are bad — “You owe self-employment taxes, including Medicare and Social Security, and you are responsible for both parts.” While most workers typically split this 15.3 percent combined tax with their employer, the self-employed must pay the entire amount. It’s also important to keep meticulous records of all expenses.

7. CAN’T PAY TAXES If you can’t afford to pay your taxes, you should still file your return on time and pay as much as you can to avoid penalties and interest, the I.R.S. said. But call the I.R.S. to see whether you can get an extension, a payment plan or other relief.

8. INVESTMENT LOSSES Most Americans are fortunate enough to still be employed, though their retirement accounts have been decimated. The upside, at least for eternal optimists is that investors can use their investment losses (in taxable accounts only) to offset an equal amount of gains. But if you don’t have any gains, or your losses exceed your gains, losses can be used to offset up to $3,000 of ordinary income (or $1,500 for married individuals filing separately). Remaining losses can be carried over to future years — indefinitely.

9. FILE ONLINE If you file your taxes electronically and chose to receive your refund via direct deposit, it could take as few as 10 days to receive the money. Filing on paper could take several weeks.

10. GET HELP If you’re entering uncharted territory, you may want to consult with a professional. And make sure your tax preparer knows all the facts pertinent to your changing circumstances. “Not telling them is not going to give you the best answer,” Mr. Steber said.

Source: NY Times
By TARA SIEGEL BERNARD

Comments Sought on New Broker Reporting Requirements with Respect to Customers' Basis in Securities Transactions (Notice 2009-17)

The Treasury Department and the IRS invite public comments regarding guidance to be provided to brokers, transferors, issuers, customers, and other affected persons concerning new requirements under Code Sec. 6045(g), Code Sec. 6045A and Code Sec. 6045B with respect to the reporting of a customer's basis in securities transactions, and new rules for determining the basis of certain securities subject to the new reporting requirements. Topics for which comments are specifically requested include reporting requirements, basis method elections, dividend reinvestment plans, reconciliation with customer reporting, special rules and mechanical issues, transfer reporting, issuer reporting, and broker practices and procedures. These new requirements and rules generally begin to take effect on January 1, 2011.

Interested parties are invited to submit comments by Monday, March 2, 2009. Written comments should be submitted to: Internal Revenue Service, CC:PA:LPD:PR (Notice 2009-17), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044.

Notice 2009-17, 2009FED ¶46,265

Congress made 500 changes last year, and some could affect and even help you. Here are some highlights.

If you thought it was daunting to file a federal tax return last year, this year's filing season will give you the willies.

Congress passed five major tax bills in 2008, making about 500 changes affecting parents, homeowners, philanthropists and disaster victims, among others. Half a dozen new tax breaks went into effect; some can be confusing.

Here are some things to keep in mind as you deal with your taxes:

Got stimulus?

The most widely misunderstood new tax break is the recovery rebate credit, according to the Internal Revenue Service. That's because most people received an economic stimulus payment last year as an "advance" on their 2008 taxes that was calculated based on their 2007 income.
But if you didn't get that rebate last year -- by check or by direct deposit into your bank account -- or if you didn't get the full amount, you might qualify for a rebate credit this year if one or more of these situations describes you:

* You were claimed as a dependent on someone else's tax return in 2007 but were on your own in 2008.
* You had a significant change in 2008 income.
* You had a child in 2008, which could qualify you for an additional $300 credit.
* You didn't have a valid Social Security number in 2007 but got one in 2008.
* You didn't file a 2007 tax return but earned money in 2008.

If one of those five factors pertains to you, fill out the 29-line work sheet on pages 62 and 63 of the instruction booklet that comes with the new Form 1040 to see how much you get. You enter the result on line 70 of this year's 1040, where you can claim your adjusted credit amount.
Keep in mind that the credit is phased out starting at incomes of $75,000 for individuals and $150,000 for couples. And you can't get a rebate at all if you have no qualifying income -- mainly wages or Social Security benefits.

If you can't remember whether you got a rebate last year, or how much it was, you can find out on the IRS website. Go to www.irs.gov and click on the "How Much Was My Stimulus Payment?" link on the home page. You'll need to plug in a few pieces of information including your Social Security number. Enter the result on line 28 of the rebate credit work sheet.

Property tax aid

If you own a home but don't itemize deductions, you can boost your standard deduction to compensate for some of the property tax you pay. The maximum increase is the amount of tax paid, up to $500 for an individual or $1,000 for a married couple. For example, a married couple who paid $1,000 or more in property taxes could claim an $11,900 standard deduction, up from $10,900. To take advantage of the provision, check line 39C on Form 1040.

Disaster benefits

If you lost personal property in a federally declared disaster (not counting the stock market), you can claim the net loss -- the loss minus any insurance reimbursements -- as an additional standard deduction. Normally, such "casualty" losses are deductible only to the extent that they exceed $100 plus 10% of your adjusted gross income. That requirement has been waived this year, said Amy McAnarney, executive director of the Tax Institute at H&R Block in Kansas City, Mo. Claiming a casualty loss is complicated, however. If you had a big one, it's wise to consult a tax advisor.

New homeowners

If you bought a home after April 8, 2008 -- or you buy one before July 1, 2009 -- you may be able to claim a credit for up to 10% of the purchase price.
The credit, which is claimed on line 69 of Form 1040, is capped at $7,500.
The property must be your personal residence, and you can't have owned another home within three years of buying this one.

You can take the credit on your 2008 return even if you buy the house in 2009, said Mark Luscombe, principal tax analyst with CCH Inc., a tax research and publishing firm in Riverwoods, Ill.

But if you earn more than $75,000 and are single or $150,000 and are married, the credit is reduced until it disappears at $95,000 for an individual and $170,000 for a couple.
Under current law, this credit needs to be repaid over 15 years, but under a measure being considered in Congress, you wouldn't have to pay anything back.

Thank the oil bubble

If you drive for business purposes, the amount you can deduct has soared because of the spike last year in gasoline prices. For driving on the job in the first half of 2008, you can deduct 50.5 cents a mile, up from 48.5 cents for 2007. For driving in the second half of 2008, you can deduct 58.5 cents.

Business gear

If you own a small business, you can write off up to $250,000 in new-equipment purchases made in 2008. That's up from $128,000 in 2007. To claim this, you need to file Schedule C to show your profit or loss from a business.

'Kiddie' tax

Congress significantly tightened rules for children who have investment income. The so-called kiddie tax now can affect anyone under age 24, up from age 18 last year. If you have a son or daughter of that age who has $1,800 or more in investment income (a threshold raised from $1,700), you may have to claim his or her income on your return -- paying tax at your rate -- or the child will have to pay tax at a higher rate when filing his or her own return.
However, children who have significant earned income and are self-supporting are exempt from the provision.

Being charitable

Congress further tightened requirements on substantiating deductions for charitable contributions. For a donation in 2007 of clothing or cars, you had to have in your possession a receipt or canceled check verifying the contribution. For 2008, that requirement was expanded to include all charitable donations.

There's no need to send the receipts with your return. You just have to keep them in your files in case you're audited.

-Kathy Kristof

Five Important Changes for Taxpayers

Here are a few tax law changes you may want to note before filing your 2008 federal tax return:

1. Expiring Tax Breaks Renewed
The following popular tax breaks were renewed for tax-years 2008 and 2009:

Deduction for state and local sales taxes on Form 1040 Schedule A, Line 5
Educator expense deduction on Form 1040, Line 23 or Form 1040A, Line 16
Tuition and fees deduction on Form 8917
In addition, the residential energy-efficient property credit is extended through 2016. In general, solar electric, solar water heating and fuel cell property qualify for this credit. Starting in 2008, small wind energy and geothermal heat pump property also qualify.

2. Standard Deduction Increased for Most Taxpayers
The 2008 basic standard deductions all increased. They are:

$10,900 for married couples filing a joint return and qualifying widows and widowers
$5,450 for singles and married individuals filing separate returns
$8,000 for heads of household
Beginning this year, taxpayers can claim an additional standard deduction based on the state or local real-estate taxes paid in 2008. Also new for 2008, a taxpayer can increase his standard deduction by the net disaster losses suffered from a federally declared disaster.

3. Contribution Limits Rise for IRAs and Other Retirement Plans
This filing season, more people can make tax-deductible contributions to a traditional IRA. The deduction is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes between $53,000 and $63,000. For married couples filing jointly, the income phase-out range is $85,000 to $105,000.

4. Standard Mileage Rates Adjusted for 2008
The standard mileage rates for business use of a vehicle:

50.5 cents per mile from Jan. 1 to June 30, 2008
58.5 cents per mile driven during the rest of 2008
The standard mileage rates for the cost of operating a vehicle for medical reasons or a deductible move:

19 cents per mile Jan. 1 to June 30, 2008
27 cents from July 1 to Dec. 31, 2008
The standard mileage rate for using a car to provide services to charitable organizations remains at 14 cents a mile. Special rates apply to the Midwest disaster area.

5. Kiddie Tax Revised
The tax on a child's investment income previously only applied to children younger than age 18. It now applies if the child has investment income greater than $1,800 and is:

Younger than 18
18 years of age and had earned income that was equal to or less than half of his or her total support in 2008
Older than 18 and younger than 24, a student and during 2008 had earned income that was equal to or less than half of his or her total support.

Links:

IRS FS 2009-1 Highlights of 2008 Tax Law Changes
Form 1040 instructions (PDF 941K)
Publication 526 Charitable Contributions

Jim Crimmins Ponders the Mysteries of Trader Tax Status.

Just because you call yourself a securities trader doesn’t make you one in the eyes of the Internal Revenue Service.

In fact, Uncle Sam is predisposed to consider you merely a hyperactive investor – and thus deny you more favorable tax status – unless you meet a number of criteria that are frustratingly open to interpretation.

You read that right: the tax code contains no actual definition of trader tax status.

Instead, the IRS has issued guidelines that the tax courts have expanded upon with case law, most of which denied tax appeals by traders.

What we’re left with is a blurred image, like a photograph of a trader taken from a speeding car.

According to the IRS, to qualify as a trader:
· You must seek to profit from daily market movements in the prices of securities and not from dividends, interest or capital appreciation;
· Your activity must be substantial, and
· You must carry on the activity with continuity and regularity.

To help determine if you meet these three tests, the IRS considers these qualifiers:
· Typical holding periods for securities bought and sold;
· Frequency and dollar amount of trades during the year;
· Extent to which you pursue trading to produce income for a livelihood, and
· Amount of time you devote to the activity.

Swoosh, right? What is “substantial” activity? “Continuity and regularity?” And what’s an acceptable holding period? Is a week too long? A month?

We know who investors are: They’re our hardworking neighbors who buy securities and hold them for such long-term goals as a college fund or retirement.

Traders, on the other hand, buy and sell securities solely to take advantage of short-term market changes. Your profits come from price swings, not dividends and interests. Since your holding period is brief, often a day at most – hence the term “day trader” – there’s no need to perform due diligence on the companies you trade.

Who cares how the IRS classifies you? You do!

Investors are subject to the 2% threshold for deductible investment expenses – and hence cannot write off most of their expenses – and are limited to a $3,000 capital loss deduction.

But as a trader, you write off 100% of your expenses, and if you elect the mark-to-market accounting option, which we’ll discuss in our next post, you can offset all of your losses against income.

Three steps to claim and protect your trader tax status:

Step 1: Prove beyond doubt that you are a bona fide trader – that is, you “seek to profit from daily market movements.”

The best way to accomplish this is by showing a pattern of high trading volume and short holding periods. Keep your personal investments well separated from your trading business. The IRS is looking for “earnest intent;” that is, you work diligently to manage transactions, conduct strategy sessions and make frequent trades.

Step two: Clear the “substantial activity” hurdle.

The hallmarks the feds are looking for here are “frequent, regular and continuous” trading. That means volume. One court case ruled that 75 trades a year was insufficient to warrant trader status. The feds need to know that you approach this as a business, not a hobby. Fail to convince them of that and you’re back in investor-land.

Step three: Trade with “continuity and regularity.”

If you want trader tax treatment, it only stands to reason that you must actually be in – and remain in – the business of trading.

Here’s where the IRS is looking for a healthy flow of trades, significant dollar amounts, short holding periods – all the signs that you are at least attempting to make a living as a trader.

If you take the summer off or show other gaps in your trading, the IRS will be disinclined to grant you trader status. If you’re a newbie and flame out after nine months, while it seems unfair, the IRS has made it clear: no trader status for you.

Once you obtain trader tax status, you’re not entirely in the clear. Owing to the capricious nature of appellate rulings and the ever-evolving tax code, there are no guarantees that the trader status you enjoy today might not be gone tomorrow.

One good way to secure your trader status is to trade under the umbrella of a business. That’s not only where the most lucrative tax advantages reside, but a legal entity such as a general partnership, Limited Liability Company of C corporation sends a strong message to the IRS that yours is an earnest and legitimate business enterprise worthy of trader tax status.

As traders and accountants ourselves, Traders Accounting can help you choose and set up the business entity that best meets your trading needs and offers the greatest tax savings.

Cheers,

Jim Crimmins
Traders Accounting

IRS Crackdown on U.S. Persons with Foreign Bank Accounts

WASHINGTON - Many taxpayers opened foreign financial accounts without the benefit of tax professionals and are failing to comply with the FBAR disclosure rules. While in the past, criminal and civil prosecutions for those failing to comply had been rare, the IRS has now embarked upon a large-scale initiative to seek out taxpayers with undisclosed foreign bank accounts. Penalties for FBAR violations can be severe -- civil penalties can be up to the greater of $100,000 or 50% of the account balance, per violation; and criminal penalties can result in fines of up to $500,000 and imprisonment of up to 10 years.

Lots of early filers mistakenly try tax credit.

WASHINGTON -- The Internal Revenue Service warns that many taxpayers are mistakenly trying to double-dip on last year's federal tax rebate when they file their tax returns this year -- and the IRS is catching the errors.

A sampling of returns shows that 15 percent of early filers made mistakes in the section dealing with the rebate, the IRS said Friday. The errors were found using IRS software that checks for mathematical errors in returns.

The IRS corrects the errors, delaying tax refunds by about a week.

The IRS sent taxpayers nearly 119 million rebate checks as part of last year's economic stimulus package. Individuals received up to $600 and married couples $1,200, plus $300 for eligible children younger than 17.

The vast majority of taxpayers are ineligible for any more credits under the package. However, this year's tax returns include a section for the few taxpayers who are eligible for an additional credit.

Many taxpayers have incorrectly entered the amount of their rebate check on the line that calls for the amount of the credit they are claiming, the IRS said.

Instead, taxpayers should complete an accompanying worksheet to determine whether they qualify for an additional credit. Taxpayers must know the amount of last year's rebate to complete the worksheet.

If taxpayers forgot the amount they received, they can get the information through a link on the IRS Web site at http://www.irs.gov or by calling the IRS at 866-234-2942.

Eligible taxpayers include those whose financial situations changed dramatically from 2007 to 208, taxpayers who were claimed as dependents for 2007 but not for 2008, parents who had an additional qualifying child in 2008 and people who did not file a 2007 tax return.