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Archive for the ‘IRS/Tax Articles’ Category

IRS Releases Guidance on How to Claim Expanded Veterans Tax Credit

9 February 2012 | Hertsel Shadian
The IRS today released guidance and forms that employers can use to claim the newly-expanded tax credit for hiring veterans. The IRS also announced that employers will have more time to file the required certification form for employees hired on or after November 22, 2011, and before May 22, 2012. The VOW to Hire Heroes Act of 2011, enacted Nov. 21, 2011, provides an expanded Work Opportunity Tax Credit (WOTC) to businesses that hire eligible unemployed veterans and for the first time also makes the credit available to certain tax-exempt organizations. The credit can be as high as $9,600 per veteran for for-profit employers or up to $6,240 for tax-exempt organizations. The amount of the credit depends on a number of factors, including the length of the veteran’s unemployment before hire, hours a veteran works and the amount of first-year wages paid. Employers who hire veterans with service-related disabilities may be eligible for the maximum credit. Normally, an eligible employer must file Form 8850 with the state workforce agency within 28 days after the eligible worker begins work. But according to the new guidance, employers have until June 19, 2012, to complete and file this newly-revised form for veterans hired on or after Nov. 22, 2011, and before May 22, 2012. The 28-day rule will again apply to eligible veterans hired on or after May 22, 2012.

Also, in an effort to streamline the certification requirements, IRS clarified and expanded upon 2002 guidance to facilitate employers’ use of electronic signatures when gathering the Form 8850 for transmission to state workforce agencies. The guidance confirms that employers can transmit the Form 8850 electronically, and also allows employers to transmit the Form 8850 via facsimile, subject to the ability of the state workforce agencies to accept submissions in those formats. The IRS expects the Department of Labor to issue further guidance to the state workforce agencies providing further clarification.

IRS Notice 2012-13, posted today on www.IRS.gov, and the instructions for Form 8850 provide further details. Businesses claim the credit on their income tax return. The credit is first figured on Form 5884 and then becomes a part of the general business credit claimed on Form 3800. This credit is also available to certain tax-exempt organizations by filing Form 5884-C. The guidance released today also provides instructions and a new set of forms for tax-exempt organizations to claim the credit.

For more information, including how to claim the credit, call your professional tax advisor or tax preparer, or go to the official IRS website at www.IRS.gov, or click here [Expanded Work Opportunity Tax Credit Available for Hiring Qualified Veterans] to read an expanded IRS article on this issue. Please also feel free to forward this article to others that might benefit from this information.

What to Do If You Are Missing a W-2

2 February 2012 | Hertsel Shadian

Before you file your 2011 tax return, make sure you have all the needed documents, including all your Forms W-2. You should receive an IRS Form W-2, “Wage and Tax Statement,” from each of your employers. Employers have until Jan. 31, 2012 to issue your 2011 Form W-2 earnings statement.

If you haven’t received your W-2, the IRS suggests that you follow these four steps:

1. Contact your employer If you have not received your W-2, contact your employer to inquire if and when the W-2 was mailed.  If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address.  After contacting the employer, allow a reasonable amount of time for them to resend or issue the W-2.

2. Contact the IRS  If you do not receive your W-2 by Feb. 14, contact the IRS for assistance at 800-829-1040. When you call, you must provide your name, address, Social Security number, phone number and have the following information:

  • Employer’s name, address and phone number
  • Dates of employment
  • An estimate of the wages you earned, the federal income tax withheld, and when you worked for that employer during 2011. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.

3. File your return You still must file your tax return or request an extension to file by April 17, 2012, even if you do not receive your Form W-2. If you have not received your Form W-2 in time to file your return by the due date, and have completed steps 1 and 2, you may use IRS Form 4852, “Substitute for Form W-2, Wage and Tax Statement” (see link below). Attach Form 4852 to the return, with an estimate of income and withholding taxes which is as accurate as possible.  There may be a delay in any refund due while the information is verified.

4. File a Form 1040X  On occasion, you may receive your missing W-2 after you file your return using Form 4852, and the information may be different from what you reported on your return. If this happens, you must amend your return by filing an IRS Form 1040X, “Amended U.S. Individual Income Tax Return” (see link below). Form 4852, Form 1040X and instructions also are available on the IRS’s official website at www.IRS.gov, or by calling 800-TAX-FORM (800-829-3676).

Links to brief IRS prepared YouTube videos (in English, Spanish and ASL) about this topic are included below. For more information, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Please also share this article with others that might benefit from this information.

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W-2 Missing? English | Spanish | ASL

Tax Tips for the Self-employed

25 January 2012 | Hertsel Shadian

There are many benefits that come from being your own boss. If you work for yourself, as an independent contractor, or you carry on a trade or business as a sole proprietor, you generally are considered to be self-employed. Following are six key points you should know about self-employment and self-employment taxes, some of which might be basic, but nonetheless will serve as a handy reminder:

1. Self-employment can include work in addition to your regular full-time business activities, such as part-time work you do at home or in addition to your regular job.

2. If you are self-employed you generally have to pay self-employment tax as well as income tax. Self-employment tax is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. You can calculate self-employment tax using a Form 1040 Schedule SE. Also, you can deduct half of your self-employment tax when you calculate your adjusted gross income.

3. If you are self-employed you might have to make estimated tax payments. This applies even if you also have a full-time or part-time job and your employer withholds taxes from your wages. Estimated tax is the method used to pay tax on income that is not subject to withholding. If you fail to make quarterly payments you may be penalized for underpayment at the end of the tax year.

4. You can deduct the costs of running your business or which otherwise are related to the income earned from the business. These costs are known as business expenses. These are costs you do not have to capitalize or include in the cost of goods sold, but rather can deduct in the current year.

5. To be deductible, the IRS requires that a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be indispensable to be considered necessary.

6. To report income and deductible expenses from self-employment, including possible net business losses, you need to file an IRS Schedule C, Profit or Loss from Business, or IRS Schedule C-EZ, Net Profit from Business, with your Form 1040.

For more information about self-employment income and self-employment taxes, contact your professional tax preparer or tax advisor, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Additional information also is available from the IRS Self-employment Tax Center, and from IRS Publication 334, “Tax Guide for Small Business,” IRS Publication 535, “Business Expenses,” and IRS Publication 505, “Tax Withholding and Estimated Tax,” all available at the official IRS website at www.IRS.gov or by calling the IRS forms and publications order line at 800-TAX-FORM (800-829-3676), or by just clicking on the links below. Please feel free to share this article with others that might benefit from this information and the attached links.

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Six Year-End Tips to Reduce 2011 Taxes

28 December 2011 | Hertsel Shadian

The IRS recently reminded all taxpayers that with the New Year fast approaching, there is still time for you to take steps that can lower your 2011 taxes. However, you usually need to take action no later than Dec. 31 in order to claim certain tax benefits. Here are six tax-saving tips for you to consider before the calendar turns to 2012:

1. Make Charitable Contributions – If you itemize deductions, your donations must be made to qualified charities no later than Dec. 31 to be deductible for 2011. You must have a canceled check, a bank statement, credit card statement or a written statement from the charity, showing the name of the charity and the date and amount of the contribution for all cash donations. Donations charged to a credit card by Dec. 31 are deductible for 2011, even if the bill isn’t paid until 2012. If you donate clothing or household items, they must be in good used condition or better to be deductible. (For a fuller discussion, see the related article, Tax Tips for Year-End Giving.)

2. Install Energy-Efficient Home Improvements – You still have time this year to make energy-saving and green-energy home improvements and qualify for either of two home energy credits. Installing energy efficient improvements such as insulation, new windows and water heaters to your main home can provide up to $500 in tax savings. Homeowners going green should also check out the Residential Energy Efficient Property Credit, designed to spur investment in alternative energy equipment. The credit equals 30 percent of the cost of qualifying solar, wind, geothermal, or heat pump property. For details see Special Edition Tax Tip 2011-08, Home Energy Credits Still Available for 2011 on the www.IRS.gov website (see link to article below).

3. Consider a Portfolio Adjustment – Check your investments for gains and losses and consider sales by Dec. 31. You may normally deduct capital losses up to the amount of capital gains, plus $3,000 from other income. If your net capital losses are more than $3,000, the excess can be carried forward and deducted in future years.

4. Contribute the Maximum to Retirement Accounts – Elective deferrals you make to employer-sponsored 401(k) plans or similar workplace retirement programs for 2011 must be made by Dec. 31. However, you have until April 17, 2012, to set up a new IRA or add money to an existing IRA and still have it count for 2011. You normally can contribute up to $5,000 to a traditional or Roth IRA, and up to $6,000 if age 50 or over. The Saver’s Credit, also known as the Retirement Savings Contribution Credit, is also available to low- and moderate-income workers who voluntarily contribute to an IRA or workplace retirement plan. The maximum Saver’s Credit is $1,000, and $2,000 for married couples, but the amount allowed could be reduced or eliminated for some taxpayers in part because of the impact of other deductions and credits.

5. Make a Qualified Charitable Distribution – If you are age 70½ or over, the qualified charitable distribution (QCD) allows you to make a distribution paid directly from your individual retirement account to a qualified charity, and exclude the amount from gross income. The maximum annual exclusion for QCDs is $100,000. The excluded amount can be used to satisfy any required minimum distributions that the individual must otherwise receive from their IRAs in 2011. This benefit is available even if you do not itemize deductions.

6. Don’t Overlook the Small Business Health Care Tax Credit – If you are a small employer who pays at least half of your employee health insurance premiums, you may qualify for a tax credit of up to 35 percent of the premiums paid. An employer with fewer than 25 full-time employees who pays an average wage of less than $50,000 a year may qualify. For more information see the Small Business Health Care Tax Credit page on IRS.gov.

And here is one final tip to remember: you should always save receipts and records related to your taxes. Good record-keeping is a must because you need records to prepare your tax return, and it will help you to file quickly and accurately next year.

For more year-end tax information and to access all IRS forms and publications, visit the IRS website at www.IRS.gov. For additional information and assistance, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Please also forward this article to others that can benefit from this information.

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Year-End Tax Tips – December 2011 English | Spanish | ASL

Tax Tips for Year-End Giving

28 December 2011 | Hertsel Shadian

Individuals and businesses making contributions to charity should keep in mind several important tax law provisions that have taken effect in recent years. Some of these changes include the following:

Special Charitable Contributions for Certain IRA Owners

This provision, currently scheduled to expire at the end of 2011, offers older owners of individual retirement accounts (IRAs) a different way to give to charity. An IRA owner, age 70½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charity. This option, created in 2006, is available for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.

To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity. Amounts so transferred are not taxable and no deduction is available for the transfer. Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.

Amounts transferred to a charity from an IRA are counted in determining whether the owner has met the IRA’s required minimum distribution. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats transferred amounts as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions. See Publication 590, Individual Retirement Arrangements (IRAs), for more information on qualified charitable distributions.

Rules for Clothing and Household Items

To be deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances and linens.

Guidelines for Monetary Donations

To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.

Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.

Reminders

To help taxpayers plan their holiday-season and year-end giving, following are some additional reminders:

  • Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2011 count for 2011. This is true even if the credit card bill isn’t paid until 2012. Also, checks count for 2011 as long as they are mailed in 2011.
  • Check that the organization is qualified. Only donations to qualified organizations are tax-deductible. IRS Publication 78, searchable and available online (see link to online version here), lists most organizations that are qualified to receive deductible contributions. It can be found at IRS.gov under Search for Charities. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in Publication 78.
  • For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction, including anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2011 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.
  • For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
  • The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.
  • If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.
  • And, as always it’s important to keep good records and receipts.

For additional information, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Please also forward this information to others that might find it useful.

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IRS Seeks to Return $153 Million in Undelivered Checks to Taxpayers

8 December 2011 | Hertsel Shadian

In an annual reminder to taxpayers, the Internal Revenue Service announced recently that it is looking to return $153.3 million in undelivered tax refund checks. In all, 99,123 taxpayers are due refund checks this year that could not be delivered because of mailing address errors. Undelivered refund checks average $1,547 this year.

Taxpayers who believe their refund check may have been returned to the IRS as undelivered should use the Where’s My Refund? tool on www.IRS.gov. The tool will provide the status of a taxpayer’s refund and, in some cases, instructions on how to resolve delivery problems. Taxpayers checking on a refund over the phone will receive instructions on how to update their addresses. Taxpayers can access a telephone version of “Where’s My Refund?” by calling 1-800-829-1954.

While only a small percentage of checks mailed out by the IRS are returned as undelivered, the IRS does offer another option (if taxpayers choose) to help avoid lost, stolen or undelivered checks: taxpayers can opt for direct deposit when they file either paper or electronic returns. The IRS reports that last year, more than 78.4 million taxpayers chose to receive their refund through direct deposit. Taxpayers can receive refunds directly into their bank account, split a tax refund into two or three financial accounts or even buy a savings bond. As usual, the IRS also recommends that taxpayers file their tax returns electronically, because e-file reduces the risk of lost paper returns. According to the IRS, e-file also speeds up refunds. The IRS reports that nearly 8 out of 10 taxpayers chose e-file last year.

As a helpful reminder, taxpayers should be aware that the IRS does not contact taxpayers by e-mail to alert them of pending refunds and does not ask for personal or financial information through email.  Such messages are common phishing scams. (For more information about such scams, see the link to the IRS article below.) The IRS urges taxpayers receiving such messages not to release any personal information, reply, open any attachments or click on any links to avoid malicious code that can infect their computers.  The best way for an individual to verify if she or he has a pending refund is by going directly to www.IRS.gov and using the “Where’s My Refund?” tool.

For more information, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Please also share this article with others.

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Tips if you Need More Time to Pay Your Taxes

8 November 2011 | Hertsel Shadian

Taxpayers who owe taxes may be relieved to know that there are some options for those who owe and cannot afford to pay the full amount right away. Following are some things to know if you need more time to pay your taxes.

  1. To begin with, if you are unable to pay all your taxes that are due, it still is helpful to pay as much as you can afford. By paying as much as possible currently, the total amount of interest and penalties owed will be less. If paying by check or money order, it is important to send the payment to the correct IRS office, to properly designate the tax year and tax form for which payment is being made, as well as to properly include the primary taxpayer’s social security number or taxpayer identification number on the payment.
  2. Based on the circumstances, a taxpayer can qualify for an extension of time to pay, an Installment Agreement, temporary delay of the payment, or an Offer in Compromise.
  3. If you cannot pay the full amount, you immediately should consult with a professional tax advisor to determine your options, or at a minimum, call the number or write to the address on the IRS bill you receive. Delay in dealing with the unpaid amount can make the problem worse since the IRS might begin to take more severe collection actions that can be far less favorable than other alternatives that might be available to you.
  4. If possible, you may want to consider financing the full payment of your tax liability through a loan. The interest rate and fees charged by a bank or other lender might be lower than the amount of interest and penalties imposed by the Internal Revenue Code. Payment on a credit card also is an option, but should be done only after careful consideration of the fees and interest that will assessed on such credit card account as compared to the interest and late fees collectible from the IRS. Consideration also should take into account the possibility of the discharge of credit card debt in bankruptcy versus possible discharge of IRS income tax debts in bankruptcy.
  5. If you cannot pay the taxes in full immediately, you may qualify for a short amount of additional time—up to 120 days—to pay in full. Generally no fee is charged for this type of payment arrangement and this option may minimize the amount of penalties and interest you incur. Note that interest on any unpaid amount will continue to accrue during this period.
  6. You also might want to consider an Installment Agreement. This arrangement allows you to make monthly payments after a one-time fee of $105 is paid. If you choose to pay through a Direct Debit from your bank account, the fee is reduced to $52. Lower-income taxpayers can qualify for a reduced fee of $43. To apply for an Installment Agreement, you can use the Online Payment Agreement application available on the IRS website (see link below); file a IRS Form 9465, Installment Agreement Request (see link below); or call the IRS at the telephone number shown on your bill. A professional tax advisor or tax preparer also can assist you with the preparation of an Installment Agreement.
  7. In some cases, a taxpayer might qualify for an Offer in Compromise, an agreement between the taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. Generally, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement. Generally, the IRS will require complete and detailed financial records (including recent income and expense records) before it will agree to compromise a tax debt. Taxpayers should consult with a tax professional to learn more about the Offer in Compromise process, including the associated fees and forms to submit an application for an Offer in Compromise.
  8. Even if you set up an installment agreement, the IRS still can file a Notice of Federal Tax Lien to secure the government’s interest until you make the final payment. This generally would mean a notice is filed in your County of residence, and likely in any other jurisdiction where you own or hold a real property interest. Such notice often will prevent the sale of any property which is subject to the lien, until the lien is either satisfied, or unless and until the government agrees to release or withdraw the lien notice. The notice of lien also generally will appear on the taxpayer’s credit report.
  9. It is important to respond to an IRS notice. If you do not pay your tax liability in full or make an alternative payment arrangement, the IRS is allowed to take collection action, which action often is more severe than one of the alternate arrangements.

For more information on the IRS collection process, go to www.IRS.gov or see IRS Publication 594, The IRS Collection Process (see link below). To obtain additional information, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Please also feel free to share this article with others that might benefit from this information.

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IRS Withholding Calculator Can Help Figure Your Tax

31 October 2011 | Hertsel Shadian

If you have too little federal tax withheld from your pay, you could end up owing a lot of money when you file your taxes. Conversely, if you withhold too much, you will get a large refund next year, but that means you gave up the use of your money for several months during the year. You might want to adjust your federal tax withholding with your employer so that your withholding will not be too little or too much. You also should evaluate your withholding if you have recently married or divorced, added a dependent, purchased a home, changed jobs or retired. The withholding calculator at IRS.gov (link below) can help you figure the correct amount of federal withholding and provide information you can use to complete a new IRS Form W-4, Employee’s Withholding Allowance Certificate.

Before you begin, you will need to have these items:

  • Your most recent pay stubs.
  • Your most recent federal income tax return.

Here are some tips for using the withholding calculator:

  • Fill in all information that applies to your situation.
  • Estimate when necessary. But remember, the results are only as accurate as the information you provide.
  • Check the information links embedded in the program whenever you have a question.
  • Print out the final screen that summarizes your entries and the results. Use it to complete a new Form W-4 (if necessary) and give the completed W-4 to your employer. Keep the print out of the final screen and a copy of your new W-4 with your tax records.

For many people, the withholding calculator is a great tool that can simplify the process of determining your withholding. However, if you are subject to the alternative minimum tax or self-employment tax, or if your current job will end before the end of the year, you probably can achieve more accurate withholding by following the instructions in IRS Publication 919, How Do I Adjust My Tax Withholding (link below), which also is available at www.IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

For further information, contact your professional tax advisor or tax prepaper, or by calling Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Please also feel free to share this article with others that might find this information helpful.

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Information About the Expanded Adoption Tax Credit

21 October 2011 | Hertsel Shadian

If you are a taxpayer that is adopting or did adopt a child in 2011, you should familiarize yourself with the Federal adoption tax credit. The Affordable Care Act increased the amount of the credit and made it refundable, which means it can increase the amount of your refund. Following are six things to know about this valuable tax credit:

  1. The adoption tax credit—which can be as much as $13,170—offsets qualified adoption expenses, making adoption possible for some families who could not otherwise afford it. Taxpayers who adopted a child in 2010 or 2011 may qualify if they adopted or attempted to adopt a child and paid qualified expenses relating to the adoption.
  2. Taxpayers with modified adjusted gross income of more than $182,520 in 2010 may not qualify for the full amount; the credit phases out completely for modified adjusted gross income at $222,520. However, the IRS might make inflation adjustments for 2011 to this phase-out amount as well as to the maximum credit amount.
  3. You might be able to claim the credit even if the adoption does not become final. If you adopt a special needs child, you might qualify for the full amount of the adoption credit even if you paid few or no adoption-related expenses.
  4. Qualified adoption expenses are those reasonable and necessary expenses directly related to the legal adoption of a child who is under 18 years old, or physically or mentally incapable of caring for himself or herself. These expenses may include adoption fees, court costs, attorney fees and travel expenses.
  5. To claim the credit, a taxpayer must file a paper tax return and Form 8839, Qualified Adoption Expenses (see link below for form and instructions), and must attach documents supporting the adoption. Documents might include a final adoption decree, placement agreement from an authorized agency, court documents, and the state’s determination for special needs children. Taxpayers still can use IRS Free File to prepare their returns, but such returns must be printed and mailed to the IRS, along with all required documentation. Failure to include required documents will delay a taxpayer’s refund.
  6. The IRS states that it is “committed to processing adoption credit claims quickly, but it also must safeguard against improper claims by ensuring the standards for this important credit are met.” Accordingly, if a taxpayer’s return is selected for review, please keep in mind that the IRS will want to ensure the legal criteria are met before the credit is paid. If you are owed a refund beyond the adoption credit, the IRS states that you still will receive that part of your refund while the review is being conducted.

For more information about this valuable tax credit, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Further information also is available on the IRS’s Adoption Benefits FAQ page (see link below), which can be accessed on the official IRS website at www.IRS.gov, or in the instructions to IRS Form 8839, Qualified Adoption Expenses (link below), which also can be downloaded from the IRS website or ordered by calling 800-TAX-FORM (800-829-3676). Please also feel free to share this article or the link to this article with others that might benefit from this information.

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Adoption Credit: English | Spanish | ASL

Ten Tax Facts About Mortgage Debt Forgiveness

7 October 2011 | Hertsel Shadian

If your mortgage debt is partly or entirely forgiven during tax years 2007 through 2012, you may be able to claim special tax relief and exclude the debt forgiven from your income. Here are 10 facts you should know about Mortgage Debt Forgiveness.

  1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, a taxpayer may be able to exclude up to $2 million of debt forgiven on his or her principal residence.
  2. The limit is $1 million for a married person filing a separate return.
  3. A taxpayer may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.
  4. To qualify, the debt must have been used to buy, build or substantially improve the taxpayer’s principal residence and be secured by that residence.
  5. Refinanced debt proceeds used for the purpose of substantially improving a taxpayer’s principal residence also qualify for the exclusion.
  6. Proceeds of refinanced debt used for other purposes—for example, to pay off credit card debt—do NOT qualify for the exclusion.
  7. If a taxpayer qualifies, he or she can claim the special exclusion by filling out IRS Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (see link below), and attach it to the taxpayer’s federal income tax return for the tax year in which the qualified debt was forgiven.
  8. Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions—such as insolvency—may be applicable. IRS Form 982 provides more details about these provisions.
  9. If a taxpayer’s debt is reduced or eliminated, the taxpayer normally will receive a year-end statement, Form 1099-C, Cancellation of Debt (see link below for a sample), from the lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
  10. Taxpayers should examine the Form 1099-C carefully. Taxpayers should notify the lender immediately if any of the information shown is incorrect. A taxpayer also should pay particular attention to the amount of debt forgiven in Box 2, as well as the value listed for his or her home in Box 7.

For more information, taxpayers should consult their professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. For additional information about the Mortgage Forgiveness Debt Relief Act of 2007, visit the official IRS website at www.IRS.gov. Another good resource is IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments (see link below). Taxpayers also may obtain a copy of this publication and Form 982 by downloading them from the IRS website at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676). Please also feel free to share this article with others that might benefit from this information.

 

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