10 Facts About Capital Gains and Losses!

Have you heard of capital gains and losses? If not, you may want to read up on them because they might have an impact on your tax return.

1. Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.

2. When you sell a capital asset, the difference between the amount you sell it for and your basis – which is usually what you paid for it – is a capital gain or a capital loss.

3. You must report all capital gains.

4. You may deduct capital losses only on investment property, not on property held for personal use.

5. Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.

6. If you have long-term gains in excess of your long-term losses, you have a net capital gain to the extent your net long-term capital gain is more than your net short-term capital loss, if any.

7. The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income. For 2009, the maximum capital gains rate for most people is15%. For lower-income individuals, the rate may be 0% on some or all of the net capital gain. Special types of net capital gain can be taxed at 25% or 28%.

8. If your capital losses exceed your capital gains, the excess can be deducted on your tax return and used to reduce other income, such as wages, up to an annual limit of $3,000, or $1,500 if you are married filing separately.

9. If your total net capital loss is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you incurred it in that next year.

10. Capital gains and losses are reported on Schedule D.

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Source : Business Documents Filing in 50 States

Five Facts about the Making Work Pay Tax Credit!

1. This credit – still available for 2010 – equals 6.2 percent of a taxpayer’s earned income. The maximum credit for a married couple filing a joint return is $800 and $400 for other taxpayers.

2. Eligible self-employed taxpayers can benefit from the credit by evaluating their expected income tax liability and, if they are eligible, by making the appropriate adjustments to the amounts of their estimated tax payments.

3. Taxpayers who fall into any of the following groups during 2010 should review their tax withholding to ensure enough tax is being withheld. Those who should pay particular attention to their withholding include:

* Married couples with two incomes
* Individuals with multiple jobs
* Dependents
* Pensioners
* Workers without valid Social Security numbers

Having too little tax withheld could result in potentially smaller refunds or – in limited instances –small balance due rather than an expected refund.

4. The Making Work Pay tax credit is reduced or unavailable for higher-income taxpayers. The reduction in the credit begins at $75,000 of income for single taxpayers and $150,000 for couples filing a joint return.

5. A quick withholding check using the IRS Withholding Calculator on IRS.gov may be helpful for anyone who believes their current withholding may not be right. Taxpayers can also check their withholding by using the worksheets in IRS Publication 919, How Do I Adjust My Tax Withholding?. Adjustments can be made by filing a revised Form W-4, Employee's Withholding Allowance Certificate. Pensioners can adjust their withholding by filing Form W-4P, Withholding Certificate for Pension or Annuity Payments.

To Read More : Five Facts about the Making Work Pay Tax Credit!

Source : Business Documents Filing in 50 States

Four Tips on Preparing for a Disaster Tax Return!

Planning what to do in case of a disaster is an important part of being prepared. The Internal Revenue Service encourages taxpayers to safeguard their records. Some simple steps can help taxpayers protect financial and tax records in case of disasters.

Listed below are tips for individuals on preparing for a disaster.

Record Keeping:

Take advantage of paperless record keeping for financial and tax records. Many people receive bank statements and documents by e-mail. This method is an outstanding way to secure financial records. Important tax records such as W-2s, tax returns and other paper documents can be scanned onto an electronic format. You can copy them onto a ‘key’ or ‘jump drive’ periodically and then keep the electronic records in a safe place.

2.Document Valuables:

The IRS has disaster loss workbooks for individuals that can help you compile a room-by-room list of your belongings. One option is to photograph or videotape the contents of your home, especially items of greater value. You should store the photos in a safe place away from the geographic area at risk. This will help you recall and prove the market value of items for insurance and casualty loss claims.

3.Update Emergency Plans Emergency plans:

Should be reviewed annually, Individual taxpayers should make sure they are saving documents everybody should keep including such things as W-2s, home closing statements and insurance records. Make sure you have a means of receiving severe weather information; if you have a NOAA Weather Radio, put fresh batteries in it. Make sure you know what you should do if threatening weather approaches.

4.Count on the IRS:

In the event of a disaster, the IRS stands ready to help. The IRS has valuable information you can request if your records are destroyed. If you have been impacted by a federally declared disaster, you may receive copies or transcripts of previously filed tax returns.

To Read More : Four Tips on Preparing for a Disaster Tax Return!

Source : Business Documents Filing in 50 States

Who Pays Estimated Taxes?

Estimated Tax Payments

Enter any estimated federal income tax payments you made for 2008. Include any overpayment from your 2007 return that you applied to your 2008 estimated tax.

If you and your spouse paid joint estimated tax but are now filing separate in come tax returns, you can divide the amount paid in any way you choose as long as you both agree. If you cannot agree, you must divide the payments in proportion to each spouse’s individual tax as shown on your separate returns for 2008. Be sure to show both social security numbers (SSNs) in the space provided on the separate returns. If you or your spouse paid separate estimated tax but you are now filing a joint return, add the amounts you each paid.

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Source : Business Documents Filing in 50 States

How can I Claim Education Credits?

Education Credits

If you (or your dependent) paid qualified expenses in 2008 for yourself, your spouse, or your dependent to enroll in or attend an eligible educational institution, you may be able to take an education credit, subject to certain conditions.

Note. If a student is claimed as a dependent on another person’s tax return, only the person who claims the student as a dependent can claim the credits for the student’s qualified education expenses. If a student is not claimed as a dependent on another person’s tax return, only the student can claim the credits.

To Read More : How can I Claim Education Credits?

Source : Business Documents Filing in 50 States

Credit for the Elderly or the Disabled!

Credit for the Elderly or the Disabled

You may be able to take this credit if by the end of 2008 (a) you were age 65 or older, or (b) you retired on permanent and total disability and you had taxable disability income, subject to certain conditions.

Permanent and Total Disability

A person is permanently and totally disabled if both 1 and 2 below apply.

1. He or she cannot engage in any substantial gainful activity because of a physical or mental condition.
2. A physician determines that the condition has lasted or can be expected to last continuously for at least a year or can lead to death.

Example 1. Sue retired on disability as a sales clerk. She now works as a full-time babysitter at the minimum wage. Although she does different work, Sue babysits on ordinary terms for the minimum wage. She cannot take the credit because she is engaged in a substantial gainful activity.

Example 2. Mary, the president of XYZ Corporation, retired on disability because of her terminal illness. On her doctor’s advice, she works part time as a manager and is paid more than the minimum wage. Her employer sets her days and hours. Although Mary’s illness is terminal and she works part time, the work is done at her employer’s convenience. Mary is considered engaged in a substantial gainful activity and cannot take the credit.

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Source : Business Documents Filing in 50 States

Qualified Expenses For Child Support!

Qualified Expenses

These include amounts paid for household services and care of the qualifying person while you worked or looked for work. Child support payments are not qualified expenses. Also, expenses reimbursed by a state social service agency are not qualified expenses unless you included the reimbursement in your income.

Generally, if you worked or actively looked for work during only part of the period in which you incurred the expenses, you must figure your expenses for each day. However, there are special rules for temporary absences or part-time work.

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Source : Business Documents Filing in 50 States

Who is a Qualifying Person(s) can be claimed as a dependent?

Qualifying Person(s)

A qualifying person is:

• A qualifying child under age 13 whom you can claim as a dependent. If the child turned 13 during the year, the child is a qualifying person for the part of the year he or she was under age 13.
• Your disabled spouse who is not physically or mentally able to care for himself or herself.
• Any disabled person who is not physically or mentally able to care for himself or herself whom you can claim as a dependent (or could claim as a dependent subject to certain conditions)
• Any disabled person who is not physically or mentally able to care for himself or herself whom you could claim as a dependent except that you (or your spouse if filing jointly), could be claimed as a dependent on another taxpayer’s 2008 return.

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Source : Business Documents Filing in 50 States

How can I claim Child and Dependent Care Expenses?

Child and Dependent Care Expenses

Dependent Care Benefits

Dependent care benefits include:

• Amounts your employer paid directly to either you or your care provider for the care of your qualifying person(s) while you worked,
• The fair market value of care in a daycare facility provided or sponsored by your employer, and
• Pre-tax contributions you made under a dependent care flexible spending arrangement (FSA).

Your salary may have been reduced to pay for these benefits.

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Source : Business Documents Filing in 50 States

How can I claim Foreign Tax Credit?

Foreign Tax Credit

Generally if you paid income tax to a foreign country, you may be able to take this credit.

Foreign Taxes Eligible for a Credit

You can take a credit for income, war profits, and excess profits taxes paid or accrued during your tax year to any foreign country or U.S. possession, or any political subdivision (for example, city, state, or province), agency, or instrumentality of the country or possession. This includes taxes paid or accrued in lieu of a foreign or possession income, war profits, or excess profits tax that is otherwise generally imposed. For purposes of the credit, U.S. possessions include Puerto Rico and American Samoa.

U.S. citizens living in certain treaty countries may be able to take an additional foreign tax credit for foreign tax imposed on certain items of income from the United States.

To Read More : How can I claim Foreign Tax Credit?

Source : Business Documents Filing in 50 States

How can I claim Tuition and Fees Deduction?

You may be able to take the deduction if you, your spouse, or a dependent you claim on your tax return was a student enrolled at or attending an eligible educational institution. The deduction is based on the amount of qualified education expenses you paid for the student for a certain academic period.

Qualified education expenses must be reduced by any expenses paid directly or indirectly using tax-free educational assistance. Generally, in order to claim the deduction for qualified education expenses for a dependent, you must meet certain conditions.

You cannot claim the tuition and fees deduction if any of the following apply.

• Your filing status is married filing separately.
• Another person can claim an exemption for you as a dependent on his or her tax return. You cannot take the reduction even if the other person does not actually claim that exemption.
• Your modified adjusted gross income (MAGI), is not with certain limits, as set by the law in force at the time
• You were a nonresident alien for any part of the year and did not elect to be treated as a resident alien for tax purposes. To Read More : How can I claim Tuition and Fees Deduction?
  Source : Business Documents Filing in 50 States

How can I claim Student Loan Interest Deduction?

Student Loan Interest Deduction

You can take this deduction only if all of the following apply.

You paid interest in 2008 on a qualified student loan (see below).

• Your filing status is any status except married filing separately.
• Your modified adjusted gross income (AGI) is within the limits as set by the law, depending on your filing status
• You, or your spouse if filing jointly, are not claimed as a dependent on someone’s (such as your parent’s) 2008 tax return.

To Read More : How can I claim Student Loan Interest Deduction?

Source : Business Documents Filing in 50 States

How can I claim IRA deductions?

IRA deductions

If you made contributions to a traditional IRA for 2008, you may be able to take an IRA deduction, subject to certain conditions and up to a limit. But you or your spouse if filing a joint return, must have had earned income to do so. For IRA purposes, earned income includes alimony and separate maintenance payments. If you were a member of the U.S. Armed Forces, earned income includes any nontaxable combat pay you received. If you were self-employed, earned income is generally your net earnings from self-employment if your personal services were a material income-producing factor.

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Source : Business Documents Filing in 50 States

Can I deduct Alimony paid on my return?

Alimony Paid

If you made payments to or for your spouse or former spouse under a divorce or separation instrument, you may be able to take this deduction.

To Read More: Can I deduct Alimony paid on my return?

Source: Business Documents Filing In All 50 States

Can I deduct Penalty on Early withdrawal?

Penalty on Early withdrawal

Enter interest or principal forfeited because of an early withdrawal of time deposits, such as an early withdrawal from a certificate of deposit (CD) that is deductible from gross income by the recipient. Do not reduce the amount reported in box 1 by the amount of the forfeiture.

The Form 1099-INT or Form 1099-OID you received will show the amount of any penalty you were

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Source: Business Documents Filing In All 50 States

How can I claim Moving Expense?

Moving Expense

If you moved in connection with your job or business or started a new job, you may be able to take this deduction. But your new workplace must be at least 50 miles farther from your old home than your old home was from your old workplace. If you had no former workplace, your new workplace must be at least 50 miles from your old home.

To Read More: How can I claim Moving Expense?

Source: Business Documents Filing In All 50 States

How can I claim Health Savings Account (HSA) Deduction?

Health Savings Account (HSA) Deduction

Generally, an HSA is a health savings account set up exclusively for paying the qualified medical expenses of the account beneficiary or the account beneficiary’s spouse or dependents. You may be able to take this deduction if contributions (other than employer contributions, rollovers, and qualified HSA funding distributions from an IRA) were made to your HSA for 2008.

To Read More: How can I claim Health Savings Account (HSA) Deduction?

Source: Business Documents Filing In All 50 States

What Education Expenses can be claimed?

Education Expense

Qualified education expenses include ordinary and necessary expenses paid in connection with books, supplies, equipment (including computer equipment, software, and services), and other materials used in the class-room. An ordinary expense is one that is common and accepted in your educational field. A necessary expense is one that is helpful and appropriate for your profession as an educator. An expense does not have to be required to be considered necessary.

Qualified expenses do not include expenses for home schooling or for non athletic supplies for courses in health or physical education.

To Read More: What Education Expenses can be claimed?

Source: Business Documents Filing In All 50 States

How should I report other income?

Incomes which cannot be classified in any of the other heads of income may be classified here.

The following are examples of income to report:

* Gambling winnings (lotteries, raffles), etc. Report the full amount received.

* Prizes and awards received other than in connection with your trade or business.

* Fees for jury duty.

* Fees for being an executor, administrator or personal representative of an estate.

* Canceled debts. If a debt you owe is canceled or forgiven, other than as a gift or bequest, you may have to include it in income.

* Income from an activity not engaged in for profit, such as a hobby. Deductions relating to the activity cannot exceed the income from the activity and may be claimed only as itemized deductions on Schedule A.

* Damages received for personal nonphysical injuries or sickness; backpay/lost profits (in most cases); and punitive damages relating to any injury or illness.

* Reimbursements or other amounts received for items deducted in an earlier year, such as medical expenses, real estate taxes, or home mortgage interest.

To Read More: How should I report other income?

Source: Business Documents Filing In All 50 States

How should I received Income from Un-employment Compensation?

Un-employment Compensation:

Unemployment compensation generally includes any amounts received under the unemployment compensation laws of the United States or of a state. It includes state unemployment insurance benefits and benefits paid to you by a state or the District of Columbia from the Federal Unemployment Trust Fund. It also includes railroad unemployment compensation benefits and disability benefits paid as a substitute for unemployment compensation, but not worker's compensation.

Supplemental unemployment benefits received from a company financed fund are not considered unemployment compensation for this purpose. These benefits are taxable as wages, and are subject to income tax withholding. They may be subject to social security and medicare. Supplemental unemployment benefits are reported on Form W-2.

Unemployment benefits from a private fund to which you voluntarily contribute are taxable only if the amounts you receive are more than your total payments into the fund. This taxable amount is not unemployment compensation; it is reported as other income on Form 1040.

If you received unemployment compensation during the year, you should receive Form 1099-G showing the amount you were paid. Any unemployment compensation received during the year must be included in your income.

If you received unemployment compensation, you may be required to make quarterly estimated tax payments. However, you can choose to have federal income tax withheld.

To Read More: How should I received Income from Un-employment Compensation?

Source: Business Documents Filing In All 50 States