Greg Timmons, a financial advisor with the financial services firm Edward Jones, and his branch administrator, Tracy Armstrong are allowing my clients to take advantage of new state-of-the-art financial assessment tools normally reserved for Edward Jones clients only. The technology is an engine to identify and prioritize your financial goals, analyze information, make and implement recommendations and stay on top of progress.  Please contact Greg/Tracy at 619.397.4338 if you would like to take advantage of this offer or email at Greg.Timmons@EdwardJones.com.

For your personal mortgage, refinancing and housing market questions, a trusted friend and mortgage advisor has allowed me to give you his contact information:  Mason Cirolia of Family Financial Lending has agreed to receive your questions and can be directly reached toll free at 888.478.9990  or email at mason@FamilyFinancialLending.com.

Robert Sullivan and Associates, a group health and life insurance brokerage service, extends an open offer to help you identify your needs and recommend appropriate solutions and insurance companies.  The continuing changes in Health Insurance and other employment issues are complicated. Should you find yourself in need or even your employer in need of direction in the area of health and life insurance, please contact Bob Sullivan at 619.656.8222 or Robert@sullivaninservices.com.

The “Cash for Clunkers” program, The Consumer Assistance to Recycle and Save Program, allowed qualifying consumers to receive a $3,500 or $4,500 voucher from the federal government when they trade in qualifying old vehicles and purchase or lease a new one. This federal law provides the value of the voucher received by the consumer is not considered as gross income of the purchaser for purposes of the federal income tax.

California law does not conform. For state income tax purposes trade-ins are treated as normal sales or exchanges, and in some cases the value of the voucher received may be subject to state tax. The person subtracts his or her basis (generally the cost of the used vehicle) of the car traded-in from the amount realized (the applicable voucher amount, plus any other salvage value the dealer offers as part of the exchange) to determine whether a gain or loss was realized on the disposition of the used vehicle. Whew!

For example, if the family car was originally purchased for $19,500 and traded in for a $4,500 discount under the “Cash for Clunkers” program, there is no taxable gain. The $15,000 difference is a personal loss under tax law and may not be deducted for tax purposes.

However, if the family car was purchased for $3,000 and it was traded in for a $3,500 discount, the $500 difference needs to be reported as income for state tax purposes.

Different tax rules apply for vehicles used in a person’s trade or business. For example, when a person trades in the old company truck for a new company truck, under the “Cash for Clunkers” program, the gain or loss could be postponed for tax purposes under the “like-kind exchange” rules.

Any scrap value received by the consumer for the trade-ins is also used in computing the gain or loss from these sales or exchange transactions.

The BOE is sending letters to businesses with at least $100,000 in business gross receipts who are not already registered with BOE and do not hold a seller’s permit. This means all businesses, regardless of business type (including service organizations), must register.

The letters state that the BOE has identified these businesses as qualified purchasers subject to a use tax return filing requirement (even if no use tax is due). Businesses that receive the letter must complete the contact info and mail it to the BOE. The BOE will then register the business and send them an account number and log-in information so that they can e-file their returns. The 2009 returns are due April 15, 2010.

Taxpayers who did not report use tax for 2007 and 2008 must file returns to report and pay that tax. We believe this is the first step in an audit process that will continue indefinitely.  We are available for help with this process.

2009 returns are due April 15, 2010.  Filing is required even if no use tax is due.

Part of unemployment benefits received in 2009 will be tax free for many unemployed workers

Under the American Recovery and Reinvestment Act, every person who receives unemployment benefits during 2009 is eligible to exclude the first $2,400 of these benefits when they file their tax return next year. For a married couple, the exclusion applies to each spouse, separately. Thus, if both spouses receive unemployment benefits during 2009, each may exclude from income the first $2,400 of benefits they receive.

Unemployed workers can choose to have income tax withheld from their unemployment benefit payments. Withholding on these payments is voluntary. However, choosing this option may help avoid a surprise year-end tax bill or a possible penalty for having paid too little tax during the year. Those who choose this option will have a flat 10 percent tax withheld from their benefits.

Unemployed workers who expect to receive more than $2,400 in benefits this year should consider having tax withheld from their benefit payments in excess of that amount.

Unemployment benefits are not taxable to California.

Taxpayers who buy new motor vehicles this year may be entitled to a special tax deduction for the sales or excise taxes on those purchases. This tax break is part of the American Recovery and Reinvestment Act of 2009.

1. State and local sales and excise taxes paid on up to $49,500 of the purchase price of each qualifying vehicle are deductible.
2. Qualified motor vehicles generally include new cars, light trucks, motor homes and motorcycles.
3. To qualify for the deduction, the new cars, light trucks and motorcycles must weigh 8,500 pounds or less. Motor homes are not subject to the weight limit.
4. Purchases must occur after Feb. 16, 2009, and before Jan. 1, 2010.
5. Taxpayers who purchase qualified motor vehicles may claim the deduction when they file their 2009 tax return.
6. This deduction can be taken regardless of whether the buyers itemize their deductions or choose the standard deduction. Taxpayers who do not itemize will add this additional amount to the standard deduction on their 2009 tax return.
7. The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.

You MUST bring/send in your purchase contract with your other tax preparation documents to be included on your return.

The IRS has issued guidance for many investors caught in the Ponzi style investment frauds similar to the recent Bernard Madoff scheme.  The new rulings offer generous tax treatment for the Ponzi victims.  If you have been subject to any of these schemes, please bring this to attention for your tax preparation.

Three interconnected programs were enacted by the American Recovery and Reinvestment Act.

Making Work Pay Credit (MWPC)

Refundable credit up to $400 ($800 joint) claimed on individual form 1040 for “earned income”.  The credit is actually 6.2% of earned income or $400 ($800 joint) whichever is less.

Economic Recovery Payments (ERP)

$250 checks sent in May/June (no tax filing required) to social security recipients. 

Government Retiree Credit (GRC)

Refundable credit up to $250 ($500 joint) claimed on individual form 1040 for government retirees.

NON-FILERS

Non-filers collecting social security already received a $250 check.  But, there are non-filers that should file for either the MWPC or GRC.  Taxpayer with only a $5000 W-2 normally need not file, but might get a MWPC credit of $310 (6.2%) if the return is filed.  Many government retirees have no filing obligation, but will miss out on the GRC unless they file.

Keep in mind, income from interest, dividends, rents, royalties and civilian pensions do not qualify for any of the 3 programs therefore give none of these benefits.

WARNING:  The largest total benefit is $400 ($800 joint).  Can’t collect on all

WARNING:  Easy to collect TOO MUCH – PAY BACK at tax time.

Congress wanted these credits to go out in 2009 rather than waiting for tax time.  Social security recipients received checks in May or June.  In April, IRS revised withholding tables to reduce your withholding by $400 on “single” tables and by $600 on “married” tables.  Situations come to mind where you may see withholding reductions were greater than the allowable credit.   **Multiple jobs might return $400 for each via withholding, but only $400 calculated at tax time.   **Working spouses might each collect $600 each at work, but only $800 calculated at tax time.  **Unearned income may reduce or eliminate the credit but it was collected via withholding and will need to be paid back at tax time.  **Dependents don’t qualify for the credits, but collected $400 via reduced withholding. **Civilian pensions don’t qualify for any of the 3 programs but withholding tables returned $400/$600 anyway.  There may be a shortfall at tax time.

If your mortgage debt is partly or entirely forgiven during tax years 2007 – 2012, you may be able to claim special tax relief and exclude the debt forgiveness income.

Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence. The limit is $1 million for a married person filing a separate return.

Taxpayers may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion. However, proceeds of refinanced debt used for other purposes (for example, to pay off credit card debt) do not qualify for the exclusion. Caution: Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the new tax-relief provision. In some cases, however, other tax relief provisions, (for example, insolvency), may be available.

If your debt is reduced or eliminated, you will receive a year-end statement, Form 1099-C, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.  (You might possibly receive Forms 1099-S and 1099-A as well.) Borrowers should examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven (Box 2) and the value listed for your home (Box 7).

Mortgage Assistance Payments

The Home Affordable Modification Program (HAMP) is ramping up – it offers loan modifications and direct payments to some distressed homeowners in an effort to head off the dreaded foreclosure.  The reduction appears to be Cancellation of Debt (COD) income.  In most cases, there would be taxable COD income unless taxpayer can be shown to be insolvent or possible exclusion under the Qualified Principal Residence Indebtedness rules.  California’s program has expired.  Unless taxpayer is bankrupt or insolvent, we almost certainly will see taxable COD income on California returns.

Pay for Performance Success Payments offers up to five annual principal reductions of $1000 for borrowers who remain compliant with the new payment schedules.  It appears these would be nontaxable, much like Welfare.