Tax Power™ U.S. Tax & Business Advisory Services and Solutions

Expatriate Foreign Earned Income Exclusion- The maximum Section 911 foreign source earned income exclusion for Americans working abroad in 2008 is increased to $87,500. For 2009 the limitation is increased to $91,400. The 2009 limitation is based on existing legislation and could change based on who is elected President. As this is considered by many uninformed politicians as a "tax loophole" Section 911 has been always been target for tax reform, especially during difficult economic times and high budget deficits.

Annual contributions to IRA -The limit to the amount you can contribute to your IRA if you are under age 50 is now $5,000. If age 50 or over the limit is increase to $6,000. Given the recent decline of the stock market, if you are young enough to enjoy the market rebound, you may with to consider dollar cost average purchase of mutual fund equity shares in your IRA. Alternatively, if you are older or don't have confidence in the stock market, you may wish to have your mutual fund move your funds to cash in a money market account. Money within an IRA can be moved between equity investments and cash accounts without any tax ramifications (but look for hidden fees by the financial institution). You may also use your bank to purchase IRA CDS investments as well. Should you withdraw the money from your IRA you will most likely be penalized 10% by the IRS. Some IRAs are also subject to an early withdrawal penalty by the financial institution. Always discuss your retirement financial decisions with your financial advisor, but use your common sense. Use your Tax Advisor to advise you of the tax impact of your decisions.

Modified AGI limit for traditional IRA contributions increased. For 2008, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified adjusted gross income (AGI) is:

More than $85,000 but less than $105,000 for a married couple filing a joint return or a qualifying widow(er),
More than $53,000 but less than $63,000 for a single individual or head of household, or
Less than $10,000 for a married individual filing a separate return.

For 2008, if you are not covered by a retirement plan at work, your deduction for contributions to a traditional IRA may be reduced (phased out) if you either live with your spouse at any time during 2008 or file a joint return for 2008. If you either live with your spouse or file a joint return, and your spouse is covered by a retirement plan at work but you are not, your deduction is phased out if your adjusted gross income (AGI) is more than $156,000 but less than $166,000. If your AGI is $166,000 or more, you cannot take a deduction for contributions to a traditional IRA. See How Much Can You Deduct, later.

Rollover by nonspouse beneficiary. Beginning in 2007, a direct transfer from a deceased employee's IRA, qualified pension, profit-sharing or stock bonus plan, annuity plan, tax-sheltered annuity (section 403(b)) plan, or governmental deferred compensation (section 457) plan to an IRA set up to receive the distribution on your behalf can be treated as an eligible rollover distribution if you are the designated beneficiary of the plan and not the employee's spouse. The IRA is treated as an inherited IRA. For more information about rollovers, see Rollovers under Can You Move Retirement Plan Assets? in this chapter.

Catch-up contributions in certain employer bankruptcies. For 2007, 2008, and 2009, you may be able to deduct catch-up contributions of up to $3,000 each year to your IRA. These contributions would be deductible only if you participated in a qualified cash or deferred arrangement (section 401(k) plan) of an employer who was a debtor in bankruptcy proceedings.

Mileage Deductions for 2008

Beginning Jan. 1, 2008, the standard mileage rates for the use of a car (including vans, pickups or panel trucks) will be:

50.5 cents per mile for business miles driven;
19 cents per mile driven for medical or moving purposes; and
14 cents per mile driven in service to a charitable organization.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS), after claiming a Section 179 deduction for that vehicle, for any vehicle used for hire or for more than four vehicles used simultaneously. Revenue Procedure 2006-49 contains additional information on these standard mileage rates.

IRS Limits Deduction for Donated Vehicles-

OF PARAMOUNT IMPORTANCE IF YOU WANT A DEDUCTION! Know your charity and get the right paperwork-Obtain a Form 1098-C. Discuss with the charity before you donate the car.

Despite the change in the rules, places are popping up all over asking that you donate your car to them, for Boy Scouts, "The Kids", and other causes. First, be certain that the organization that you are donating to is a qualified 501(c)(3) organization. Next, discuss the fact that they will issue you not only a statement that the vehicle was received from you, but what will be done with it. If it is to be sold (as are most cars) the organization is required (if the value exceeds $500) to issue a Form 1098-C to both the IRS and you stating either that the vehicle was sold, the amount it was sold for, or if used by them in a charitable cause, and the value of the vehicle.

If I am not shown a Form 1098-C, but rather only a letter stating that the car was donated, I cannot tale a charitable donation deduction for the car on your tax return.

The rules for determining the amount that a donor may deduct for a charitable contribution of a qualified vehicle, including an automobile, with a claimed value of more than $500 changed at the beginning of 2005 as a result of the American Jobs Creation Act of 2004. In general, that Act limits a donor’s deduction to the amount of the gross proceeds from the charity’s sale of the vehicle. Under an exception to this general rule, a donor may be eligible to claim a fair market value deduction if the vehicle is sold at a price significantly below fair market value to a needy individual, in direct furtherance of a charitable purpose of the recipient organization of relieving the poor and distressed or the underprivileged who are in need of a means of transportation. In this case, the charity provides to the donor an acknowledgment indicating that the donor may claim a fair market value deduction for the vehicle.

Under an exception to this general rule, a donor may be eligible to claim a fair market value deduction if the vehicle is sold at a price significantly below fair market value to a needy individual, in direct furtherance of a charitable purpose of the recipient organization of relieving the poor and distressed or the underprivileged who are in need of a means of transportation. In this case, the charity provides to the donor an acknowledgment indicating that the donor may claim a fair market value deduction for the vehicle.

Because this exception does not apply to sales at auction, a charity may be subject to penalties under sections 6701 and 6720 of the Internal Revenue Code if the charity sells a donated vehicle at auction and provides to the donor an acknowledgment that indicates anything other than the deduction may not exceed the gross proceeds from the sale.

IR-2005-149, Dec. 22, 2005

WASHINGTON — Internal Revenue Service officials today reminded taxpayers that they must obtain a charity’s written acknowledgment of their vehicle donation before they claim a deduction for the donation. For deductions of more than $500, the taxpayer is required to attach the acknowledgment to the taxpayer’s return for the year of the donation.

Effective for vehicles donated to charity on or after January 1, 2005, the American Jobs Creation Act of 2004 provides that, generally, a taxpayer’s deduction is limited to the gross proceeds from the sale of the vehicle by the charity. The charity must provide a written acknowledgment within 30 days after the vehicle is sold that notifies the taxpayer of the amount of the gross sales proceeds.

The IRS is aware that questions have arisen as to whether the charity must sell the vehicle in 2005 in order for the donor who donated a vehicle in 2005 to receive a deduction for 2005. The charity does not need to sell the vehicle in 2005. A taxpayer can take a charitable contribution deduction only for the year the vehicle is transferred to the charity, even if the vehicle is not sold by the charity until a later year. (Only taxpayers who itemize their deductions can take a charitable contribution deduction.)

However, a taxpayer cannot take a charitable contribution deduction of $500 or more for a vehicle donation unless the taxpayer has received a written acknowledgment of the donation from the charity and attached the acknowledgment to the return.

If the taxpayer receives the written acknowledgment after filing the tax return for the year of the donation, the taxpayer may, after receiving the acknowledgment, file an amended return for that year and claim the deduction on the amended return. The taxpayer must attach the acknowledgment to the amended return. Return to Menu

Number of Audits Continues to Rise

As the federal and state budget deficits increase, so do the number of audits and tax enforcement notices. Again last year saw an increase in the number of tax returns and this year this is expected to continue to increase, with a particular emphasis on returns claiming self employment income, Subchapter S corporations and partnerships. Several years ago the IRS conducted "silent audits" whereby returns were examined and in many cases the taxpayers were never notified. The purpose of these "silent audits" was to compile data to fine tune computer audit programs in a manner that would detect tax avoidance without human involvement. The effectiveness of this program is enhanced by electronic filing where returns are checked as soon as they are electronically received. The audit program, which went into effect last year, is working as planned and tax audit revenues are increasing along with the number of tax audits. The bottom line is that before filing your return, be certain that all documents sent to you by third party sources such as employers or banks or mutual funds are included in your tax return, even if there is no tax impact to leaving it out. The absence of this information will trigger an IRS notice and possibly further scrutiny of your return. The golden rule is that if it belongs on your tax return, be sure it is, if it does not belong there, leave it out. My father in law used to say that "only poor people worked", and "only poor people paid no tax". Return to TOP

Not Reporting Income From Foreign Sources? Think again!

The IRS is closing the tax gap when it comes to foreign income. The term tax gap refers to the amount of income tax that should have been collected by the IRS on unreported income. With more and more U.S. taxpayers working overseas (especially those working as independent contractors or for smaller companies) more and more Americans are not reporting income from foreign bank accounts and investments as well as foreign earned income from non- U.S. employers. The first step to close the tax gap was to enter into information reporting agreements with foreign banks and foreign governments. Now, with the implementation of new and sophisticated tax audit software, Now, according to the IRS,

"the IRS has included a segment of this taxpayer base in its current individual National Research Program (NRP). NRP was created to measure payment, filing and reporting compliance and to deliver the data needed to support the development of strategic plans and improve workload identification. Individual international taxpayers will be included in this study for the first time in 2008 with the examination of tax year 2006 returns. This NRP study is the first of an ongoing series of annual individual studies using an innovative multi-year rolling methodology, beginning with tax year 2006. An advantage of using this method, which combines results over rolling three-year periods, is the IRS will be able to make annual updates to compliance estimates and develop more efficient workload plans on an annual basis"

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Professional Bill Collectors Hired by IRS: In a further effort to decrease costs and increase revenues, the IRS has been shifting its internal human resources around. Fewer people are hired internally to collect unpaid taxes. Instead, the IRS is outsourcing this function to professional bill collectors like those used by Citibank and Sears who hound you from 8 AM to 9 PM each and every day. Return to TOP

International Financial Reporting Standards (IFRS) are expected to adopted by many companies as early as next year, with the goal being full implementation by 2014. Although adopted by European businesses several years ago, the U.S. has been reluctant to abandon the traditional Generally Accepted Accounting Standards (GAAP) for financial reporting. IFRS requires much greater disclosure of details behind, and the timing of reporting expenses which are permitted to be grouped into general categories under GAAP, making it much more difficult to "hide or disguise" expenditures by large corporations. For tax purposes, IFRS in many ways minimizes the gap between income reported for tax purposes and that which is reported to owners, investors and lenders. Return to TOP

Copyright © 1999-2015 IRS CIRCULAR 230 NOTICE: To ensure compliance with recently enacted U.S. Treasury Department regulations, we hereby advise you that any and all tax information contained in this website should not be considered as tax advice nor intended for the use of any taxpayer for the purpose of evading or avoiding tax penalties that may be imposed pursuant to U.S. law. Furthermore, the use of any tax information contained in this communication has neither been written nor intended for the purpose of promoting, marketing, or recommending a partnership or other entity, investment plan or arrangement to any taxpayer, and such taxpayer should seek advice on the taxpayer’s particular circumstances from an independent tax advisor. The information contained throughout this web site is provided without charge, and although all efforts have been made to ensure the reliability of the information contained in this internet web site, the information contained herein should be used for general understanding only and should not be relied upon exclusively as the basis of any tax or financial decisions or for any positions taken on any tax return. Advice should only be obtained directly through the retention of a competent tax advisor. Tax Power is an established trademark of Powers & Company, Inc. and Powers Tax Services since 1999. Unauthorized use of the phrase Tax Power without expressed permission of Powers & Company, Inc. will be prosecuted to the fullest extent of the law. Last modified: January 15, 2015 The articles, guides and published information contained in this website is protected by U.S. copyright laws and cannot be reproduced in any form without the expressed permission..

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