August 9, 2012

First Time Home Buyer Credit Question

Question: If I received the $7,500 credit when I bought my home, and I am making the $500 payments on my tax return every year to pay the credit off, what if I plan to sell my home? Do I pay the $7,500 on the closing date or when I file my tax return for the year I sell the home?

Answer: When you file your tax return.

IRS.GOV:

Tax Credit to Aid First-Time Homebuyers; Must Be Repaid Over 15 Years

NOTES:

March 23, 2011: See Update on First Time Homebuyer Credit and Tax Refunds
The 2009 Worker, Homeownership and Business Assistance Act and the American Recovery and Reinvestment Act updated thefirst-time homebuyer tax credit.

IR-2008-106, Sept. 16, 2008
WASHINGTON — First-time homebuyers should begin planning now to take advantage of a new tax credit included in the recently enacted Housing and Economic Recovery Act of 2008.
Available for a limited time only, the credit:

Applies to home purchases after April 8, 2008, and before Jan. 1, 2009.
Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.

However, the credit operates much like an interest-free loan, because it must be repaid over a 15-year period. So, for example, an eligible taxpayer who buys a home today and properly claims the maximum available credit of $7,500 on his or her 2008 federal income tax return must begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on his or her 2010 return.
Eligible taxpayers will claim the credit on new IRS Form 5405. This form, along with further instructions on claiming the first-time homebuyer credit, will be included in 2008 tax forms and instructions and be available later this year on IRS.gov, the IRS Web site.
If you bought a home recently, or are considering buying one, the following questions and answers may help you determine whether you qualify for the credit.
Q. Which home purchases qualify for the first-time homebuyer credit?
A. Only the purchase of a main home located in the United States qualifies and only for a limited time. Vacation homes and rental property are not eligible. You must buy the home after April 8, 2008, and before Jan. 1, 2009. For a home that you construct, the purchase date is the first date you occupy the home.
Taxpayers who owned a main home at any time during the three years prior to the date of purchase are not eligible for the credit. This means that first-time homebuyers and those who have not owned a home in the three years prior to a purchase can qualify for the credit.
If you make an eligible purchase in 2008, you claim the first-time homebuyer credit on your 2008 tax return. For an eligible purchase in 2009, you can choose to claim the credit on either your 2008 (or amended 2008 return) or 2009 return.
Q. How much is the credit?
A. The credit is 10 percent of the purchase price of the home, with a maximum available credit of $7,500 for either a single taxpayer or a married couple filing jointly. The limit is $3,750 for a married person filing a separate return. In most cases, the full credit will be available for homes costing $75,000 or more. Whatever the size of the credit a taxpayer receives, the credit must be repaid over a 15-year period.
Q. Are there income limits?
A. Yes. The credit is reduced or eliminated for higher-income taxpayers.
The credit is phased out based on your modified adjusted gross income (MAGI). MAGI is your adjusted gross income plus various amounts excluded from income—for example, certain foreign income. For a married couple filing a joint return, the phase-out range is $150,000 to $170,000. For other taxpayers, the phase-out range is $75,000 to $95,000.
This means the full credit is available for married couples filing a joint return whose MAGI is $150,000 or less and for other taxpayers whose MAGI is $75,000 or less.
Q. Who cannot take the credit?
A. If any of the following describe you, you cannot take the credit, even if you buy a main home:

Your income exceeds the phase-out range. This means joint filers with MAGI of $170,000 and above and other taxpayers with MAGI of $95,000 and above.
You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.
You stop using your home as your main home.
You sell your home before the end of the year.
You are a nonresident alien.
You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year.
Your home financing comes from tax-exempt mortgage revenue bonds.
You owned another main home at any time during the three years prior to the date of purchase. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another main home at any time from July 2, 2005, through July 1, 2008.

Q. How and when is the credit repaid?
A. The first-time homebuyer credit is similar to a 15-year interest-free loan. Normally, it is repaid in 15 equal annual installments beginning with the second tax year after the year the credit is claimed. The repayment amount is included as an additional tax on the taxpayer’s income tax return for that year. For example, if you properly claim a $7,500 first-time homebuyer credit on your 2008 return, you will begin paying it back on your 2010 tax return. Normally, $500 will be due each year from 2010 to 2024.
You may need to adjust your withholding or make quarterly estimated tax payments to ensure you are not under-withheld.
However, some exceptions apply to the repayment rule. They include:

If you die, any remaining annual installments are not due. If you filed a joint return and then you die, your surviving spouse would be required to repay his or her half of the remaining repayment amount.
If you stop using the home as your main home, all remaining annual installments become due on the return for the year that happens. This includes situations where the main home becomes a vacation home or is converted to business or rental property. There are special rules for involuntary conversions. Taxpayers are urged to consult a professional to determine the tax consequences of an involuntary conversion.
If you sell your home, all remaining annual installments become due on the return for the year of sale. The repayment is limited to the amount of gain on the sale, if the home is sold to an unrelated taxpayer. If there is no gain or if there is a loss on the sale, the remaining annual installments may be reduced or even eliminated. Taxpayers are urged to consult a professional to determine the tax consequences of a sale.
If you transfer your home to your spouse, or, as part of a divorce settlement, to your former spouse, that person is responsible for making all subsequent installment payments.

August 8, 2012

IRS strengthens ITIN application requirements

Sample article for organizations to use in reaching customers (word count 169)
Provide the following information in your communication vehicles on interim changes the for issuing Individual Taxpayer Identification Numbers ____________________________________________________________________________

The Internal Revenue Service announced on June 22, 2012, important interim changes to strengthen its procedures for issuing Individual Taxpayer Identification Numbers (ITINs) from now through the end of the year. Designed specifically for tax-administration purposes, the IRS issues ITINs only to those who are not eligible to obtain a Social Security Number.
These interim procedures apply to applicants generally seeking ITINs for the purposes of filing U.S. individual income tax returns. Because the April 17 filing deadline has passed, the IRS anticipates that a small number of taxpayers will need ITINs between now and the end of the year for these purposes.
Specifically, the procedures apply to most applicants submitting Form W-7, Application for IRS Individual Taxpayer Identification Number. The IRS generally issues ITINs for individuals in these categories during the tax filing season with the submission of a Form 1040, U.S. Individual Income Tax Return.
You can find additional information about these ITIN changes, including the interim procedures and frequently asked questions and answers, online at www.irs.gov. ____________________________________________________________________________
NOTE TO EDITOR: Below are links to ITIN information on IRS.gov:
• General ITIN information – What an ITIN is, what it’s used for, how it’s used….
• News Release – IR- 2012-62, June 22, 2012 – English and Spanish IRS Strengthens ITIN Application Requirements; Interim Changes Will Protect the Integrity of the ITIN Process

August 7, 2012

How do I assign account numbers to Customers in QuickBooks?

Go to:

1. Customer Center

2. Click on a customer you wish to assign an account number to highlight the customer's name.

3. Click "Edit Customer" in the top right hand corner in the Customer Information window.

4. Click Addition Info tab

5. Enter the customer number into the "Account No." box.

If you wish to see a report with customer account numbers....

Go to:

1. The report

2. Click "Customize Report"

3. Make sure you are under the Display tab

4. In the Columns area, Check "Name Account #"

Good Luck!

AICPA Insights

4 Simple Ways to Boost Your Online Presence

Posted: 06 Aug 2012 05:00 AM PDT

It’s important for any CPA firm to have a strong presence online. According to Local Search Usage Study: Bridging the Caps, From Search to Sales, 70% of consumers go online first for local business information. Are potential clients finding your firm? Not only do you want to be easy to find in cyberspace, but you also want to present yourself as an expert and trusted financial advisor. A simple website is a start, but is not enough to give you an edge in today’s competitive environment. In order to find new clients, and keep the ones you already have, focus your efforts on ways to boost your online presence. I have found that even small efforts go a long way toward a more prolific online presence.

Here are four steps to raise your online credibility and widen your client base in the process.

Crosslink to other sites. No website is an island- or, at least, it never should be. One of the best ways to increase traffic to your website and bump up your page rank on search engines like Google is by linking to other sites, and having those sites link to you. This can range from writing a guest blog post for another site, to including your financial services in an online directory. Be sure that the webpages where you place your link and those you choose to include on your site are relevant to your business. Adding links that are unrelated to your website can actually hurt your site’s traffic and page rank. Seek out specific cross-linking opportunities that will benefit both sites. I’ve found that sites related to accounting regulations, tax assistance and local business organizations provide excellent opportunities for crosslinking.
Apply SEO principles to your site. SEO, or search engine optimization, is the process of using specific keywords or phrases in order to drive traffic to your website. Consider spending some money and hire an SEO expert to analyze your site and make suggestions on how to improve your keyword density to bring in more unsolicited visitors. You can also do research of your own, take an SEO course or read one of the many consumer books on SEO and apply basic principles based on what you learn. Using online resources, I have taught myself the basics of SEO, increasing internet traffic flow to my website.
Inform visitors. Another great way to drive traffic to your site is by providing more than just the contact information for you or your business. Online directories are an ideal place to list “the basics” of what you offer and how you can be contacted, so use your site for more meaningful content. I have a blog component on my site that I update with new material on a weekly basis. Consider writing a blog yourself, adding a video component that you update with industry information or creating a place where you answer common financial questions from clients. People who are searching for the information you provide on your site will not only find answers, but they will also learn more about your business and services in the process.
Utilize social media. You likely already have personal social media pages on popular sites like Facebook, Twitter and LinkedIn. If you have not taken the step to create separate professional accounts, take the time to do it. You may or may not want your clients to see your personal profiles. The AICPA has producedcomprehensive social media guides to help members get started.

SueEllen Brantley, CPA, Audit Senior Associate, Grant Thornton. SueEllen is a Florida licensed CPA and is a member of the Florida Young CPAs and AICPA. She is a graduate of the University of Central Florida and its Masters in Taxation program. SueEllen has more than five years of public accounting experience including audit and taxation for both public and privately held companies.

Businessman pressing modern buttons image via Shutterstock.

CPAs: The Startup Community Needs You (aicpa.org)
343,020 Reasons CPAs Should Talk Up Their Tax Expertise Now (aicpa.org)

August 6, 2012

Eleven Tips for Taxpayers Who Owe Money to the IRS

Most taxpayers get a refund from the Internal Revenue Service when they file their tax returns. For those who don’t get a refund, the IRS offers several options to pay their tax bill.

Here are eleven tips for taxpayers who owe money to the IRS.

1. Tax bill payments If you get a bill from the IRS this summer that shows you owe late taxes, you are expected to promptly pay the tax owed including any penalties and interest. If you are unable to pay the amount due, it may be better for you to get a loan to pay the bill in full rather than to make installment payments to the IRS. That's because the interest rate and penalties the IRS must charge by law are often higher than what lending institutions may be offering.

2. Electronic Funds Transfer You can pay your tax bill by electronic funds transfer, check, money order, cashier’s check or cash. To pay using electronic funds transfer, use the Electronic Federal Tax Payment System by either calling 800-555-4477 or using the online access at www.eftps.gov.

3. Credit card payments You can pay your bill with a credit card. Again, the interest rate on a credit card may be lower than the combination of interest and penalties the IRS must charge. To pay by credit card contact one of the following processing companies:

– WorldPay US, Inc. at 888-9PAY-TAX (orwww.payUSAtax.com),

– Official Payments Corporation at 888-UPAY-TAX (orwww.officialpayments.com/fed), or

– Link2Gov Corporation at 888-PAY-1040 (orwww.pay1040.com).

4. Additional time to pay Based on your circumstances, you may be granted a short additional time to pay your tax in full. A brief additional amount of time to pay can be requested through the Online Payment Agreement application at IRS.gov or by calling 800-829-1040. There generally is no set up fee for a short-term agreement.

5. Installment Agreement You may request an installment agreement if you cannot pay the total tax you owe in full. This is an agreement between you and the IRS to pay the amount due in monthly installment payments. You must first file all required returns and be current with estimated tax payments.

6. Apply Using Form 9465 You can complete and mail an IRS Form 9465, Installment Agreement Request, along with your bill using the envelope you received from the IRS. The IRS will inform you (usually within 30 days) whether your request is approved, denied, or if additional information is needed.

7. Apply Using Online Payment Agreement If you owe $50,000 or less in combined tax, penalties and interest, you can request an installment agreement using the Online Payment Agreement application at IRS.gov. You may still qualify for an installment agreement if you owe more than $50,000, but you are required to complete a Form 433F, Collection Information Statement, before the IRS will consider an installment agreement.

8. User fees If an installment agreement is approved, a one-time user fee will be charged. The user fee for a new agreement is $105 or $52 for agreements where payments are deducted directly from your bank account. For eligible individuals with lower incomes, the fee can be reduced to $43.

9. Offer in Compromise IRS is now offering more flexible terms with its Offer-in-Compromise (OIC) Program. An OIC is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax debt for less than the full amount owed. An OIC is generally accepted only if the IRS believes, after assessing the taxpayer's financial situation, that the tax debt can't be paid in full as a lump sum or through a payment agreement.

10. Check withholding Taxpayers who have a balance due may want to consider changing their Form W-4, Employee’s Withholding Allowance Certificate, with their employer.

11. Fresh Start The IRS has a program to help struggling taxpayers get a fresh start. Through the Fresh Start program, individuals and small businesses may be able to pay the taxes they owe without facing additional or unnecessary burden.

For more information about payment options or IRS's Fresh Start program, visit IRS.gov. IRS Publications 594, The IRS Collection Process, and 966, Electronic Choices to Pay All Your Federal Taxes, also provide additional information regarding your payment options. These publications and Forms 9465 and W-4 can be obtained from IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Links: