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New Tax Law Extends NOL Carryback Period

March 17, 2009 – The Internal Revenue Service has announced that small businesses with deductions exceeding their income in 2008 can use a new net operating loss tax provision to get a refund of taxes paid in prior years.

To accommodate the change in tax law, the IRS updated the instructions for two key forms — Form 1045 and Form 1139 — that small businesses can use to make use of the special carryback provision for tax year 2008. These forms are used to accelerate the payment of refunds.

The new provision, enacted as part of the American Recovery and Reinvestment Act of 2009, enables small businesses with a net operating loss (NOL) in 2008 to elect to offset this loss against income earned in up to five prior years. Typically, an NOL can be carried back for only two years. The IRS released legal guidance in Revenue Procedure 2009-19 outlining specific details. Some taxpayers must make the election to use this special carryback by April 17, 2009.

IRS Releases Guidance on Ponzi Scheme Theft Losses

	The Internal Revenue Service earlier this week issued detailed guidance for investors who have lost money in a Ponzi scheme, such as the one Bernard Madoff recently pleaded guilty to running. In answering 7 questions about theft loss deductions, the IRS made it clear that Ponzi scheme losses are theft losses, not subject to the itemized deduction limits, and that investors can carry such losses back 5 years. The IRS also created a safe harbor to allow investors to avoid potential problems in proving how much money lost was fictitious income versus a return of capital. Read this article that explains how to get this relief on clients’ 2008 tax returns.

Tax Tips for Active Military Personnel and Veterans

The following information was provided by the American Institute of Certified Public Accounts.The U.S. government offers special tax relief to members of the U.S. armed forces and veterans in recognition of their sacrifices to protect our nation.

Active Members of the Military

For those who are currently on active duty in the military, the pay of enlisted personnel and warrant officers serving in combat zones is tax-free, as is commissioned officers’ pay up to certain limits. Those who are injured and hospitalized do not pay tax during their hospitalization, within certain guidelines.

Extended time to file and pay their taxes is allowed for military personnel who serve in designated combat zones and civilians who serve in support of them, or those who are hospitalized outside the U.S. as a result of an injury received in a combat zone. They do not have to file or pay taxes until 180 days after their last day in the combat zone or of hospitalization. The extension also generally applies to the spouses of military personnel who are serving in combat zones.

Active members of the military who die in a combat zone, or die from wounds or disease received in a combat zone or in a terrorist or military action, can have their taxes forgiven for the year in which they died and perhaps for earlier years.

While members of the military on active duty are not required to pay taxes on their income they are permitted to use the amount of earned income to determine their eligibility for an Individual Retirement Account. Additionally, they can elect to make these contributions retroactive to 2004.

More information can be found in IRS Publication 3, "Armed Forces’ Tax Guide," which is available online. Visit www.irs.gov, then click on "Individuals" and look for "Tax Information for Members of the U.S. Armed Forces," or call the IRS free at (800) 829-3676 and ask for a paper copy. Live telephone assistance is available from the IRS by calling (800) 829-1040.

Veterans Pay is Taxable, but Not Benefits

Military retirement pay that is based on age or length of service is taxable, and must be included in income. On the other hand, veterans’ disability retirement payments received from the U.S. Department of Veterans Affairs are generally tax-free. Benefits for veterans administered by the department are not considered income. Veterans’ benefits include:

1. Education, training and subsistence allowances paid to veterans or their families;
2. Disability compensation and pension payments for disabilities paid to veterans or their families;
3. Grants paid by the Department of Veterans Affairs for homes designed for wheelchair use or for vehicles for veterans who have lost their sight or the use of their limbs;
4. Veterans’ insurance proceeds and dividends paid to veterans or their beneficiaries;
5. Interest on insurance dividends left on deposit with the Department of Veterans Affairs;
6. Dependent-care assistance benefits; and
7. Death benefits paid to survivors of military personnel members who died after Sept. 10, 2001.

Keep Military Records Handy

To qualify for benefits and to verify status as a veteran, access to military records may be needed. Find information on obtaining those records at the Department of Veterans Affairs Web site at http://www.va.gov/vaforms/.

Payroll Tax Credit for Required Employer COBRA Payments

The American Recovery and Reinvestment Act of 2009 provides a subsidy for the cost of COBRA coverage for employees who are involuntary terminated between September 1, 2008, and December 31, 2009. The subsidy also applies to the employees family members who were covered under the plan immediately prior to the termination of employment. Assistance eligible individuals pay a reduced premium equal to 35% of the full COBRA premium. The employer pays the other 65% and then is reimbursed for the subsidy by the federal government by taking a credit on its quarterly payroll tax return (Form 941).

American Recovery Act of 2009

There are a number of issues in the act that may be of benefit to tax payers.  For more information on these issues you may want to contact your tax advisor.  Some of these issues are listed below.

The first-time home buyer's credit is increased to $8,000.
Sales tax on vehicle purchases is deductible towards AGI for 2009.
Alternative Minimum Tax relief is extended for 2009 and the exemptiions increased.
A number of changes regarding student expeneses.
The earned income tax credit will increase for 2009 and 2010.
The child tax credit refundability will increase in 2009 and 2010.
Cobra Premium assistance for the unemploed will change.
Executive pay restrictions will be in place for those in the TARP program.
NOL carryback period extended to five years.
The first $2,400 dollars of unemployment compensation will be excluded from income.
Changes have been made in first year depreciation.
Changes have been made in deductions for business meals away from home.

This is only a sample of what is in the act and does not cover other legislation, as a result tax planning will be very inportant in 2009.

Variable Annuitites

According to Morningstar variable annuities fell 10% in the third quarter of 2008. Fixed annuities, however, saw zooming sales in the same period. This was considered a flight to safety, and fixed annuities have  great interest rates compared to CD and Treasuries.

Home Buyers can claim 2009 tax credit on 2008 tax return

February 26, 2009 – The Internal Revenue Service  announced that taxpayers who qualify for the first-time home buyer credit and purchase a home during 2009 prior to December 1, 2009 have a special option available for claiming the tax credit either on their 2008 tax returns due April 15 or on their 2009 tax returns next year. Qualifying taxpayers who buy a home this year before December 1 can receive a tax credit of up to $8,000 or $4,000 if they are married filing separately.

The qualifying taxpayers who buy a home before December 1, 2009, can claim the credit on either their 2008 or 2009 tax returns. They do not have to repay the credit, provided the home remains their main home for 36 months after the purchase date. They can claim 10 percent of the purchase price up to $8,000 or $4,000 for married individuals filing separately.

The new law does not apply to people who purchased a home after April 8, 2008, and on or before December 31, 2008. For these taxpayers who are claiming the credit on their 2008 tax returns different rules apply.

For more information see your tax professional.

Tax free gifts to family

For 2009 you can give up to $13,000 each to an unlimirted number of recipients. The gifts may reduce your taxable estate, but you wan't have to pay estate taxes on them.  If you give more thant $13,000 per recipient, you will reduce the size of your estate tax exclusion.  For 2009 you can have an estate of $3.5 million and not have a federal estate tax payment.  For more information contact your CPA or Attorney.

Ron White, the great American Philosopher

Ron White will be on stage at the Majetic Theatre Friday, April 10 at 7:30 P.M. and Saturday, April 11 at 7:00 P.M. in Dallas, TX 214-373-8000 for tickets  www.tatersalad.com.