Income Tax- Highlights for 2008

Clean heating fuel credit
The credit has been reinstated and applies to bioheat purchased on or after January 1, 2008, and before January 1, 2012. For additional information, see Form IT-241, Claim for Clean Heating Fuel Credit, and instructions

New York City school tax credit
For tax years beginning on or after January 1, 2008, the credit has been eliminated for New York City residents with federal adjusted gross income (minus any IRA distributions) in excess of $250,000.

Investment tax credit for the financial services industry
The investment tax credit and the EZ investment tax credit for the financial services industry have been extended to include property placed in service before October 1, 2011. In addition, recent legislation has added a new 90 % end of the year test to determine if you are eligible to claim the credit. For additional information, see Form IT-252, Investment Tax Credit for the Financial Services Industry, and instructions; or Form IT-605, Claim for EZ Investment Tax Credit and EZ Employment Incentive Credit for the Financial Services Industry, and instructions.

 

Financial Planning for 2009

Welcome to 2009. With the New Year come new challenges and what challenges they are! The economic downturn and recession (or whatever you may want to call it) certainly makes the year ahead a scary one. Unemployment is the highest it has been in years and the stock market has fallen enough to turn even the staunchest of optimists pessimistic.

So, with all the bad news, how could anyone possibly find a silver lining in this cloud? Well, because there is one. The country is embarking on a new period with a new president and even a slow stock market presents opportunities. So what will it be – optimism or pessimism? The choice is yours.

If you’re the upbeat type, let’s talk a little about the year ahead. Probably the biggest question for many of us is what to do with those 401(k) and IRA accounts that lost so much value last year. Should you move to “safe” investments like treasuries and certificates of deposit? That would certainly seem to be a way to cut your losses, but is it the ‘right answer’ for the long haul?

Without seeming to give investment advice, the “smart” money says that now is not the time to be timid. Many financial advisers will tell you that stocks are on sale now and, for good ones, that may be true, but the roller coaster ride we call ‘the market’ is not for the feint of heart. If you are currently in the market with your retirement account - and do not need to withdraw funds - you might want to stay the course or move to stronger stock funds. Regardless of what you choose to do, don’t skimp on 401(k) contributions. Now, more than ever, saving will help both you and the economy.

Does your employer offer a flex plan? If it’s not too late, review your participation and adjust your withholdings as necessary. In connection with that, if your current health plan includes an HSA, take a moment to look at your current contributions. Withholding the maximum can provide you with a nice tax deduction and, if you never use it, a nice way to increase your retirement funds.

Now is a good time to refinance your mortgage. With interest rates at historic lows, you may be able to improve your financial position simply by reworking your existing home mortgage. Be careful, though: this option is good for those who have a strong equity position in their homes, but those with little or no equity may find it hard to refinance. Contact your lender and investigate your options.

While it’s true the year ahead appears to have many challenges, if you look hard, perhaps there are some jewels to uncover in the rough. Before making any rash decisions to throw out your old investments, and financial plans, give us a call and let’s discuss your options.

Income Tax- Highlights for 2007

New York City school tax credit increased
New York City residents with federal adjusted gross income (minus any IRA distributions) of $250,000 and less may claim a larger New York City school tax credit. The credit increased to:
• $290 if you are married filing jointly or a qualifying widow(er)
• $145 for all others.

New child and dependent care credit for New York City residents
You may be eligible to claim this refundable credit if you had federal adjusted gross income of $30,000 or less and paid child care expenses for children under the age of four. You may claim this credit in addition to the New York State child and dependent care credit. For more information, see Form IT-216, Claim for Child and Dependent Care Credit, and IT-216 Instructions.

New volunteer firefighters’ and ambulance workers’ credit
Full-year New York State residents who are active volunteer firefighters or volunteer ambulance workers for the full year may claim the new $200 refundable credit. For additional information, see Form IT-245, Claim for Volunteer Firefighters’ and Ambulance Workers’ Credit.

New subtraction from federal adjusted gross income for organ donors
You may claim a subtraction of up to $10,000 from federal adjusted gross income if you:
• were a full-year New York State resident and, while living, donated one or more organs to another person, and
• have unreimbursed expenses for travel, lodging, and lost wages.

Expanded solar energy system equipment credit
Tenant-shareholders in a cooperative housing corporation and condominium owners may now claim this credit. For more information, see Form IT-255, Claim for Solar Energy System Equipment Credit.

New historic homeownership rehabilitation credit
If you own and reside in a qualified historic home in New York State, you may be eligible to claim a new credit for 20% of your qualified rehabilitation expenditures. For additional information, see Form IT-237, Claim for Historic Homeownership Rehabilitation Credit and IT-237 Instructions.

New rehabilitation of historic properties credit
You may claim this new credit if you can claim a federal credit for the rehabilitation of a certified historic structure located in New York State. The credit is 30% of the federal credit allowed for the same tax year. For additional information, see Form IT-238, Claim for Rehabilitation of Historic Properties Credit and IT-238 Instructions.

New Empire State media commercial production credit
A qualified commercial production company or a sole proprietor of a qualified commercial production company may claim a new credit for qualified production costs. For additional information, see Form IT-246, Claim for Empire State Commercial Production Credit and IT-246 Instructions.

Extension of tax shelter reporting requirements
The tax shelter reporting requirements have been extended until July 1, 2009. For additional information see TSB-M-07(6)I, Extension of Tax Shelter Provisions.

Income Tax- Highlights for 2003

• Standard deduction
The standard deduction for married filing jointly and qualifying widow(er) is increased to $14,600. There is no change to the standard deduction for the other filing statuses.

• New York State earned income credit
The New York State earned income credit is increased from 27½% of the federal earned income credit to 30% of the federal credit.

• College tuition credit or itemized deduction increased
– The deduction is allowed for 75% of tuition payments made during the tax year. However, the deduction is limited to $7,500 per student.

– The credit amount is (1) 4% of the deduction amount, if the tuition expense is $5,000 or more, or (2) the lesser of $150 or 75% of the deduction amount, if the tuition expense is less than $5,000.


• Fuel cell electric generating equipment credit

A new credit is available for the purchase and installation of eligible fuel cell electric generating equipment. The credit is 20% of the qualified fuel cell electric generating equipment expenditures, up to a maximum credit amount of $1,500. The equipment must be installed and used at the taxpayer’s principal residence in New York State and must be placed in service on or after January 1, 2003. The credit is not refundable but may be carried over for a maximum of up to five years.

• You may now report your unpaid state and local sales and use taxes on your personal income tax return.
Beginning with calendar year 2003, individual taxpayers may now report the amount of New York State and local sales and use taxes that they owe, if any, on their personal income tax return.

• New addition and subtraction modifications for sport utility vehicles

If, in computing your federal adjusted gross income, you claimed an Internal Revenue Code (IRC) section 179 deduction with respect to a sport utility vehicle that weighs more than 6,000 pounds, and you are not an eligible farmer as defined for purposes of the farmers’ school tax credit, you must add back the amount of that deduction. A corresponding subtraction modification is also provided if you were required to recapture certain amounts of that deduction in computing your federal adjusted gross income.

• New addition and subtraction modifications for IRC section 168(k) property

As a result of new legislation, New York State does not follow the federal depreciation for IRC section 168(k) property (except resurgence zone property, and New York liberty zone property described in IRC section 1400L(b)(2)) placed in service inside or outside New York State beginning on or after June 1, 2003. New Form IT-398 is used to compute your New York depreciation deduction for IRC section 168(k) property placed in service beginning on or after June 1, 2003, (except for resurgence zone property, and New York liberty zone property described in IRC section 1400L(b)(2)).

• Related member expense modifications
An individual may be required to add back, or subtract, certain royalty payments made during the tax year to a related member or members, or received by a related member or members, for the use of intangible property, such as trademarks or patents, and interest payments made to a related member or members, to the extent the payments were deducted, or included, in computing federal adjusted gross income.

• New tax computation worksheets for figuring your New York State tax (worksheets 1 through 5) and, if applicable, your New York City resident tax (worksheets 6 and 7)
If your New York adjusted gross income (line 33 of Form IT-201) is more than $100,000, you may have to use one of five different tax computation worksheets for figuring your state tax. Carefully review the state tax worksheet options (based on your filing status and your taxable income) and instructions for line 38. If you are also subject to the New York City resident tax and your line 33 amount is more than $150,000, you may have to use one of two new tax computation worksheets for figuring your New York City resident tax. Carefully review the city tax computation options.

• College choice savings plan update

A rollover of your New York State college savings plan to another state’s college savings plan pursuant to the IRC rollover provisions, whether for the same beneficiary or for the benefit of another family member, is considered a nonqualified withdrawal, and you are required to add back the distribution to your federal adjusted gross income. A distribution from the New York State college savings plan that is subsequently redeposited back into the New York State college savings plan within the IRC 60-day rollover period is also a nonqualified withdrawal and must be added back to your federal adjusted gross income. However, transfers between accounts of family members that remain in the New York college savings plan or a change of beneficiary made by the account owner are not considered distributions or nonqualified withdrawals, and no add-back is required.

• Estimated tax penalty

Generally, you are not subject to the penalty for underpayment of estimated tax if your current year prepayments equal at least 100% (110% of that amount if you are not a farmer or fisherman and the New York adjusted gross income shown on that return is more than $150,000 or, if married filing separately, more than $75,000) of your prior year’s tax. However, for the 2003 tax year, in determining whether 100% (or 110% if applicable) of the tax shown on the 2002 return was paid, your 2002 tax must be recomputed using the 2003 tax rates and rules.

• Tax relief for victims of the September 11, 2001, terrorist attacks

The New York State, New York City, and Yonkers income tax liabilities of those who died as a result of the September 11, 2001, terrorist attacks against the United States are generally erased for tax years beginning in 2000 and all later years up to and including the year of death.

• Third-party designee

If you want to authorize a friend, family member, or any other person (third-party designee) you choose to discuss your 2003 tax return with the New York State Tax Department, mark an X in the Yes box in the Third-party designee area of your return and complete the entries in that area.

• Make sure you enter your social security number(s) in the boxes to the right of your peel-off label or name(s) on the front of your return.

The peel-off label no longer displays your social security number(s). You (and, if married, your spouse, whether filing a joint return or married filing separately) must enter your social security number in the boxes in the top right corner of your return.

• E-file/payment

You can file your return electronically using your personal computer or, if you prefer, you can use the services of a professional preparer. You can also e-file now and pay electronically later by authorizing the Tax Department to withdraw the payment from your bank account (electronic funds withdrawal). Also, electronic signatures are now available using a PIN (personal identification number).

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Retirees’ Choice Between Higher Pension And Health Benefits Is Considered Employer Action To End Coverage

As Retiree health coverage costs increase many employers are looking at ways to save money. An employer may offer enhanced pension benefits if an employee agrees to waive retiree health care coverage. In a recent ruling, the IRS determining that an employer’s offer to eliminate retiree health care coverage in exchange for higher pension benefits will be treated as an employers-initiated reduction in coverage, even though it is the employee who makes the final decision. That in turn can jeopardize the employer’s satisfying the minimum cost requirements for a sponsored group health plans.

Background
An employer maintains a 401 (a) defined benefit plan. The terms of the plan allow the employer to transfer excess pension benefits to fund health benefits, which are also available under the plan. On June 30, 2002, the employee transfers excess pension benefits to the health benefits account. Two years later on July 1, 2004, the employer offers participants the opportunity to receive enhanced pension benefits if they waive their retiree applicable health benefits.
Applicable health benefits are defined as health benefits or coverage provided to:

-Retired employees; and
-Spouses and dependents of retired employees.
Retired employees must be entitled to receive the health and pension benefits before the employer transfers funds from the pension account to the health benefits account

Employer-initiated reduction
The code and regs explain when an employer is deemed to have significantly reduced retiree health coverage. If a reduction, initiated by the employer, exceeds 10 percent for the tax year, it is generally treated as significantly reducing retiree coverage. A similar result may be realized if a reduction for one year, in combination with prior years, exceeds 20 percent
- Comment: The employer-initiated reduction percentage for any ta year equals the number of individuals receiving coverage for applicable health benefits as of the day before the first day of the tax year whose coverage for applicable health benefits ended during the tax year by reason of employer action, divided by the total number of such individuals receiving coverage for applicable health benefits as of the day before the first day of the tax year. Spouses and dependents of retirees are included in the calculation.

Employer Action
Code Sec. 420 (c)(3)(E) prevents an employer that significantly reduces retiree health coverage during the Code Sec. 420 (3)(D) cost maintenance period from being treated as satisfying the minimum cost requirements under Code Sec. 420(c)(3). Minimum cost requirements must be satisfied for a transfer of excess pension assets of a defined benefit plan to a health benefit savings accounts to meet the standards for a qualified transfer set by Code Sec. 420 (b). The IRS determined that an employer’s offer to waive retiree health benefit coverage was an employer action to reduce coverage. When participants are given the choice to waive retiree health benefit coverage in exchange for an incentive, the offer is an employer action. An enhanced pension benefit, the IRS explained, is as an incentive offered in exchange for waive of health benefit coverage. Termination of retiree health benefits would be treated as an employer-initiated reduction in coverage.

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New IRS Pubs Warn Charities and Donors About Vehicle Donation Program Abuses; Congress Considers Stricter Rules

The IRS continues to take steps to prevent vehicle donation programs from becoming a runaway train for tax abuse. Its latest efforts includes the release of two publications aimed at “educating” donors and charities about the rules and the consequences for breaking them:
· Publication 4302, A Charity’s Guide to Car Donations, and
· Publication 4303, A Donor’s Guide to Car Donations
“We want people and charities to make sure they are taking the proper steps involving vehicle donations,” Commissioner Mark Everson advised in an accompanying statement.
· Comment: Overvaluation of vehicles appears to be at the heart of the problem

Congress at forefront

Not mentions by the IRS but very much in the forefront of efforts to check abuses in vehicle donation programs are provisions in FSC/ETIC bills in the House and Senate. They may be part of a final FSC/ETI this year:
· The House bill would require a qualified appraisal for deductions of more than $250 (only appraisals for deductions exceeding $5,000 are required under existing lax)
· The Senate bill goes even further and limits the amount of any vehicle deduction over $500 to the eventual gross proceeds received by the charity selling to vehicle.
The House provisions would apply to donations made after June 3, 2004, while the Senate bill would apply to post-June 30, 2004 donations. The changes would save about $3.5 billion in revenues over the next 10 years, highlighting how significant a revenue drain vehicle donation abuse has become.

Publication 403
In the new publication directed toward donors, the IRS reminds individuals that their donations must be qualified organizations to be tax deductible. To verify that organization is qualified to receive tax-deductible contributions, taxpayers are urged t: review IRS Publication 78, Cumulative List of Organizations.
Publication 4303 also puts donors or notice that fair market value and not blue book value will determine the size of the deduction. “A used car guide may be a good starting point… but you should exercise caution. The IRS will only allow a deduction for the fair market value of the car, which may be substantially less than the blue book value.”
· Comment: A donor should document all of the factors used in calculating FMV, such as condition, mileage, marketability and comparable sales. If audited, the IRS is not going to accept without question the full blue book value of the vehicle. Maintenance records. Verifiable photographs, vehicle inspection receipts and the like can help in the inevitable negotiations. The IRS has emphasized recently that the burden of proving value is entirely on the donor.

Publication 4302
The new publication directed toward charities describes four common ways in which a charity may participate in a vehicle donation program: (1) Use of donated cars in its charitable programs; (2) Selling of donated cars and use of the proceeds in its charitable programs; (3) Hiring of a private or for-profit entity as an agent to operate the car donation program; and (4) Authorizing a for-profit entity to use the charity’s name for the purpose of soliciting donations
· Comment: In the fourth type of program, because there is no agency relationship between the charity and for-profit entity, contributions are considered made to their for-profit entity and will not treated as having been made to the charity.

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IRS Considers Debit Cards In Transportation Fringe Benefit Plans

Transportation fringe benefits, such as vouchers for bus and subway tokens and fare cards, are more common today in workplaces than ever before. After the federal government began offering transportation benefits to its employees in 2003, many employers added them to their rosters of benefits.

Recently, the IRS asked employers to help it clarify this evolving benefit. The agency requested comments about the role of debit cards in transportation benefits.
· Comment: This action comes about one year after the IRS liberalized the rules for using debit and credit cards to reimburse employees for medical expenses paid out of flexible spending arrangements (health FSAs) and health reimbursements (HRAs).

Transit passes and parking
Some employers provide their employees with vouchers for transit passes, tokens and fare cards. Others provide a parking benefit.

For 2004, the benefit is $195 monthly for parking and $100 monthly for riding public transportation or vanpooling. These benefits are generally excludable from the recipient’s income and wages.
· Comment: Virginia Miller, a spokeswoman for the American Public Transit Association (APTA) in Washington, D.C. told CCHINCORPORATED that the APTA is supportive of laws that provide tax incentives to use public transportation. The APTA wants transit benefits to be equal to parking benefits. “We’re asking our members to look at this issue to see if we can develop a consensus on industry comments,” Miller said.

Help from employers
The IRS reported that employers have asked for more guidance about using debit cards in transportation benefit arrangements. Specifically, the IRS is seeking feedback about treating debit cards the same as vouchers. Should debit cards be treated as the equivalent of vouchers?

The IRS is also looking at debit cards being used to purchase several transportation benefits. When an employee uses a debit card to purchase different types of transportation benefits, does the employer provide an advance or reimbursement? Can expenses be segregated for different transportation benefits to guarantee that payments do not exceed the monthly statutory thresholds?

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Federal Tax Deposit Rules

In November 2004, the Internal Revenue Service sent notices to all employers notifying them of their deposit frequency for 2005. However, it is the employer's responsibility to deposit federal taxes at the correct frequency even if a notice was not sent by the IRS, of if the notice sent was incorrect

1. An employer is a monthly depositor for 2004 if the aggregate amount of employment taxes reported for the period July 1, 2003 to June 30, 2004 is $50,00 or less, unless a daily deposit is required as explained in Rule 3 below. Deposits are due on the 15th of the following month. If the 15th falls on a holiday or weekend, the due date is extended to the next banking day

Note: New businesses deposit using the monthly deposit rule, unless a daily deposit is required under Rule. 3

2. An employer is a semi-weekly depositor for 2005 if the aggregate amount of employment taxes reported for the period July 1. 2003 to June 30, 2004 exceeds $50,000. Deposits for payments made on Wednesday, Thursday, and/or Friday are due on or before the following Wednesday. Deposits for payments made on Saturday, Sunday, Monday and/or Tuesday are due on or before the following Friday. In the event of a holiday, employers have three banking days from the end of the semi-weekly period to deposit.

Note: Semi-weekly employers with an accumulated unpaid liability of $100,000 or more during the deposit period day must deposit within one banking day of the payroll check date as stated in Rule 3.

If the semi-weekly period includes the end of the first month of the quarter and the beginning of the second month, or the end of the second month and the beginning of the third month, only one deposit is required. If an employer has payroll for two different reporting quarters within the same semi-weekly period, two deposits must be made.

3. Employers within accumulated unpaid liability of $100,000 or more during the deposit period must deposit within one banking day of the payroll check date. When a monthly depositor is subject to this rule, the employer immediately becomes a semi-weekly depositor for the rest of 2005 and for 2006. Also, a monthly depositor who had a deposit of $100,000 or more between January 1, 2004 and December 31, 2004, is considered a semi-weekly depositor for the rest of 2004 and for 2005

4. Employers with accumulated liability of less than $2,500 for the entire quarter may deposit or remit the amount with a timely filed Form 941, Employer's Quarterly Federal Tax Return

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