September 22, 2009

To the Clients and Friends of Drotar Financial Consultants

We trust that everyone had an enjoyable summer and that you are looking forward to school starting up again (you know what I mean).  September is a big month here as Matthieu starts his freshman year at the University of Maryland and Kimberly becomes the one everyone looks up to: an eighth-grader! Yikes! I am getting old.

First on the agenda is to let you know that I have received the certification of Certified Fraud Examiner and have formed a subsidiary company: Fraud Investigations, Inc. For the business owners reading this, we believe that the designation of Certified Public Accountant and Certified Fraud Examiner will assist us in covering a broad spectrum of issues, including monetary theft, inventory theft and misappropriation of funds. We instituted some new procedures for one of our clients and discovered that the bookkeeper was stealing from them before it became a major financial burden. We strongly suggest that you take time to review your internal control structure to ensure the safeguarding of your company’s assets. For a limited time, Fraud Investigations, Inc. is offering a special flat rate of $1,000 (for 8 hours) to any business owner who wants to come in and evaluate their internal controls.

As you know, the buzz in Washington is health care reform. While we attempt to keep up on the issues, they are tedious and burdensome for most to understand, including Lisa and I. However, we found an article written by Matt Taibbi in the September 3^rd issue of “Rolling Stone” that does a pretty good job of summarizing the issues. Love it or hate it, you owe it to yourself to be properly informed. Remember, these views are the views of the author and not, necessarily, the view of Drotar Financial Consultants. For a printable PDF copy of this newsletter, which includes the referenced article, click here.

Well, it is not too early to start thinking about 2009 income taxes. Therefore, here is a summary of some of the incentives that will be expiring this year that require you to take action:

• First-Time Homebuyer Credit: Eligible taxpayers are those who have not owned a personal residence in the last three years and meet certain income limitations. This credit is equal to 10% of the purchase price, up to $8,000. You can claim this credit either on your 2009 return or amend 2008.
  
  NOTE: Take careful notice that the credit ends on December 1, 2009, not December 31, 2009 and your settlement must occur prior to that date.
   
• New Vehicle Purchases: Taxpayers may claim a deduction for state, local and excise taxes paid on the purchase of a qualifying vehicle, up to $49,500 purchase price. This deduction phases out for higher income taxpayers and is set to expire on January 1, 2010.
   
• Real Property Taxes: In prior years, if you did not itemize your deductions, you could not take a deduction for property taxes paid. However, in 2009, the government has decided to allow you a deduction of the property taxes paid prior to December 31, 2009 in addition to the standard deduction, up to $500 (single) and $1,000 (married filing jointly).
   
• Bonus Depreciation and Section 179 Deduction: Without getting too detailed, Congress has added certain bonus write-offs for assets placed in service during 2009. For example: the regular dollar cap on passenger vehicles for depreciation is $2,960; however, with the new bonus rules, the new cap is $10,960 if you elect the bonus depreciation method. In addition, the cap on Section 179 expensing of capital assets has been raised to $250,000 with certain phase-outs.
  
  NOTE: These tips were taken from the Practical Tax Bulletin, Issue 17, dated August 18, 2009 published by CCH.

The First-Time Homebuyers Credit for 2009 is $8,000 or 10% of the purchase price of the home. The home MUST be purchased as your principal residence and recapture rules apply if the house is disposed of or changed during the next three years. The credit is phased out for taxpayers with modified adjusted gross income in excess of $150,000 (MFJ) and $75,000 (all others).

The Hope Credit has been renamed the American Opportunity Tax Credit (more PC, I guess) and has been extended to a maximum of $2,500 per year for the first 4 years of post-secondary education (100% of the first $2,000 and 25% of the next $2,000). Qualified costs have been broadened to include course materials along with tuition and fees as compared to last year, when only tuition and fees were counted. The credit is phased out for taxpayers with modified adjusted gross income in excess of $160,000 (MFJ) and $80,000 (all others).

Apparently our Congress has seen fit to extend the energy credit through the end of 2010, with one major change: the lifetime limitation of $500 on taking these credits has been reset to zero in 2009 and raised to a $1,500 limitation. Qualifying upgrades pretty much remain the same.

NOTE: We incorrectly told a few of our clients last year that the energy credit was repealed. If you did not give us your energy savings write-offs because of our advice, please submit them to us as soon as possible and we will amend your 2008 return at no cost to you.

Speaking of energy, our friend and client, Nick Ferraioli, has launched a new company named Suncoast Solar Power. They specialize in the implementation of energy saving products into your home or office that may be subject to special tax treatment. If you are interested, you can visit his website at http://www.suncoastsolarpower.com or call him at 610-316-1197. GO GREEN!!!

Finally, what all of you have been waiting for: the ability to change your conventional IRA to a ROTH IRA is back in 2010. There are a few differences: First, they removed the $100,000 income limitation on who can convert, so now all can convert. Second, they are allowing you to claim the income over two years (2011 and 2012) OR you can claim it all in 2010. This allows some taxpayers who have a greatly reduced income due to layoffs or economic downturns to claim all of the income in the down year and not be penalized for making more income in 2011 and 2012.  A letter with more details is contained in the same PDF file containing this newsletter and aforementioned article. Click here to view.

I will be attending a seminar in December, 2009 relating to income taxes for both individuals and corporations. Take note of the website for any updates, changes or additions that I may be adding.

Keep your eyes and ears open for a Fraud Investigations blogging site. We hope to launch the blog by January 1, 2010 to keep you all appraised of highly and not-so-highly visible entities in the news concerning fraud and fraud-based concerns. Should make for some prime reading material.

Let’s hope for prosperous times over the remaining months of 2009 and see you in the early months of 2010.

From the staff and Management at
Drotar Financial Consultants

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December 28, 2009

As a follow-up to our September 22, 2009 newsletter, we have uncovered a few more details concerning the upcoming tax season:

1. Unemployment benefits:  Congress has passed an addition to the tax code making the first $2,400 of unemployment benefits tax free for 2009 and 2010.  Small potatoes but better than nothing;
    
2. The First Time Homebuyer Credit has been extended to homes purchased by April 30, 2010.  There is a special provision added to the law that allows a home purchase to qualify if under a binding contract by April 30 and closing before July 1, 2010.  Another addition is if a homeowner has owned and used his home as a principal residence for five consecutive years over the last eight year period, the taxpayer may be eligible for a credit up to $ 6,500.  Please call for details;
    
3. In an effort to help abate some tax issues concerning forgiveness of debt, Congress and the IRS have clarified the rules concerning income derived via 1099-C.  Please call if you have some concerns and we can discuss;
    
4. The Gifting laws have been extended, with the annual amount going to $ 13,000 per person, per recipient.  The recipient rules stay the same but, in an effort to assist taxpayers with college costs, you are now permitted to give $ 65,000 per person, per recipient in one year but cannot give another gift for five consecutive years;
    
5. There are some rumblings on Capitol Hill that losses incurred on 529 Plans (Savings for College) may be deductible to the donor…Stay tuned;
    
6. Not surprisingly, the IRS is cracking down on charitable contributions (I know, they tried this before).  They have issued a detailed chart on required documentation for back up on the deduction and some must be attached to the return;

CASE STUDY: Thomas and Vernester Johnson had what appeared to the IRS to be fraudulent documentation for charitable contribution to the local Boys and Girls Club.  The IRS invited the President of The Boys and Girls Club to testify in Tax Court.  He testified that the Club did not send the letter of acknowledgment and the Court ruled against them.  Can you say: FRAUD!!!

• In what may be somewhat appropriate to discuss for many of you in today’s market environment, the IRS has laid out the rules for deducting job search expenses.  In a nutshell, all expenses, including agency fees, travel and resume creation, are deductible as long as you are looking for a job in the same area that you left;
   
• The Alternative Minimum Tax (AMT) is back in the headlines.  My compatriots at Western CPE have made a comment about the AMT that I feel is appropriate to pass on to you:

“Ever since EGTRRA 2001 when Congress reduced regular tax brackets, a growing time bomb has been waiting to go off in the alternative minimum tax.  To lengthen the fuse and delay detonation, the legislature has instituted what has come to commonly referred to as the “patch.”  The patch has not disarmed the bomb, merely delayed the inevitable.  By enacting annual, temporary increased in the minimum tax exemption amounts, Congress prevents tens of millions of taxpayers from falling prey to the AMT without ever addressing the real problems in the system.”

 Congress has assisted in dealing with the AMT by allowing non-refundable credits to reduce both regular and AMT taxes.  Non-refundable credits include dependent care credit, child credit, energy credits and college tuition credits, among others.