Capital Gains and Losses

Do you have questions about reporting gains and losses on your tax return? Here are some facts from the IRS.

1.
Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.
2.
When you sell a capital asset, the difference between the amount you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss.
3.
You must report all capital gains.
4.
You may deduct capital losses only on investment property, not on property held for personal use.
5.
Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.
6.
Net capital gain is the amount by which your net long-term capital gain is more than your net short-term capital loss.
7.
The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income and are called the maximum capital gains rates. For 2009, the maximum capital gains rates are 0%, 15%, 25% or 28%.
8.
If your capital losses exceed your capital gains, the excess can be deducted on your tax return, up to an annual limit of $3,000 ($1,500 if you are married filing separately).
9.
If your total net capital loss is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you incurred it in that next year.
10.
Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13 of Form 1040.

Source: irs.gov

How to Correctly Claim the Recovery Rebate Credit on your 2009 Return

The IRS sent taxpayers nearly 119 million economic stimulus payments last year. When filing a 2009 federal tax return, taxpayers will need to know the amount of their stimulus payment to properly determine if they are eligible for a recovery rebate credit.

Here are six tips for finding how much you received and correctly claiming the credit on your return.

1.
Get your notice. Check the amount listed on Notice 1378, which the IRS mailed last year to individuals who received the economic stimulus payment.

2.
Visit IRS.gov to find the amount. If you don't have your Notice 1378, go to the "How Much Was My 2009 Stimulus Payment?" tool that is available on the IRS Web site, IRS.gov. This tool can provide the correct amount in a matter of a few seconds.

3.
Call the IRS at 1-866-234-2942. If you don't have Internet access, call the IRS. After a brief recorded announcement, select option one to find out the amount of your economic stimulus payment. You will need to provide your 2007 filing status, Social Security Number and the number of exemptions claimed on the tax return.

4.
Keep the amount handy. With the amount of last year's economic stimulus payment in hand, you will be able to enter the figure on the recovery rebate credit worksheet or in the appropriate location when your tax preparation software requests it. This number will not appear on your actual tax return but is vital to ensure the accurate determination of the recovery rebate credit amount.

5.
Trust the software or the worksheet to get it right. Tax preparation software will automatically and correctly calculate the amount of the rebate recovery credit for you. The software will also properly report the credit on your tax return. If you are filing a paper return, the worksheet will guide you in calculating the proper amount of the credit. The recovery rebate credit should be reported on Line 70 of Form 1040, Line 42 of Form 1040A or Line 9 of Form 1040EZ. In order to avoid an error, use extra care when responding to the software questions or when completing the worksheet. Do not enter the stimulus payment directly on your return.

6.
Most taxpayers won't qualify for more. For most taxpayers, the correct entry for the recovery rebate credit line on the return will either be blank or zero because they have already received the money as a stimulus payment. If you would like the IRS to determine the correct amount of your recovery rebate credit you should enter "RRC" on the recovery rebate credit line of your return. The IRS will determine whether you qualify for a recovery rebate credit and, if so, how much.

Which Income is Taxable?

While most income you receive is generally considered taxable, there are some situations when certain types of income are partially taxed or not taxed at all.

Some common examples of items that are not included in your income are:

• Adoption Expense Reimbursements for qualifying expenses
• Child support payments
• Gifts, bequests and inheritances
• Workers' compensation benefits
• Meals and Lodging for the convenience of your employer
• Compensatory Damages awarded for physical injury or physical sickness
• Welfare Benefits
• Cash Rebates from a dealer or manufacturer
• Economic Stimulus Payment received in 2009

Some income may be taxable under certain circumstance, but not taxable in other situations. Examples of items that may or may not be included in your income are:

• Life Insurance. If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price.
  
  
• Scholarship or Fellowship Grant. If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify.
  
  All other items - including income such as wages, salaries and tips-must be included in your income, unless it is specifically excluded by law.
  Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.

Source: www.irs.gov

Important Changes for Taxpayers

Here are a few tax law changes you may want to note before filing your 2009 federal tax return:

1. Expiring Tax Breaks Renewed
The following popular tax breaks were renewed for tax-years 2009 and 2010:

• Deduction for state and local sales taxes on Form 1040 Schedule A, Line 5
• Educator expense deduction on Form 1040, Line 23 or Form 1040A, Line 16
• Tuition and fees deduction on Form 8917

In addition, the residential energy-efficient property credit is extended through 2016. In general, solar electric, solar water heating and fuel cell property qualify for this credit. Starting in 2009, small wind energy and geothermal heat pump property also qualify.

2. Standard Deduction Increased for Most Taxpayers
The 2009 basic standard deductions all increased. They are:

• $10,900 for married couples filing a joint return and qualifying widows and widowers
• $5,450 for singles and married individuals filing separate returns
• $8,000 for heads of household

Beginning this year, taxpayers can claim an additional standard deduction based on the state or local real-estate taxes paid in 2009. Also new for 2009, a taxpayer can increase his standard deduction by the net disaster losses suffered from a federally declared disaster.

3. Contribution Limits Rise for IRAs and Other Retirement Plans
This filing season, more people can make tax-deductible contributions to a traditional IRA. The deduction is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes between $53,000 and $63,000. For married couples filing jointly, the income phase-out range is $85,000 to $105,000.

4. Standard Mileage Rates Adjusted for 2009
The standard mileage rates for business use of a vehicle:

• 50.5 cents per mile from Jan. 1 to June 30, 2009
• 58.5 cents per mile driven during the rest of 2009

The standard mileage rates for the cost of operating a vehicle for medical reasons or a deductible move:

• 19 cents per mile Jan. 1 to June 30, 2009
• 27 cents from July 1 to Dec. 31, 2009

The standard mileage rate for using a car to provide services to charitable organizations remains at 14 cents a mile. Special rates apply to the Midwest disaster area.

5. Kiddie Tax Revised
The tax on a child's investment income previously only applied to children younger than age 18. It now applies if the child has investment income greater than $1,800 and is:

• Younger than 18
• 18 years of age and had earned income that was equal to or less than half of his or her total support in 2009
• Older than 18 and younger than 24, a student and during 2009 had earned income that was equal to or less than half of his or her total support.
  
  

Source: www.irs.gov

Earned Income Tax Credit (EITC) For Individuals

If you are like millions of Americans, you work hard but you dont earn a high income, and want to keep more of what you earn. The Earned Income Tax Credit (EITC) is a credit for people who earn low-to-moderate incomes. EITC can reduce your taxes, and can mean a refund. In simple terms, working families and individuals may keep more of what they work for.

Will you qualify for EITC this year?

You must meet the following EITC requirements:

* Must have a valid Social Security Number
* You must have earned income from employment or from self-employment.
* Your filing status cannot be married, filing separately.
* You must be a U.S. citizen or resident alien all year, or a nonresident alien married to a U.S. citizen or resident alien and filing a joint return.
* You cannot be a qualifying child of another person.
* If you do not have a qualifying child, you must:
o be age 25 but under 65 at the end of the year,
o live in the United States for more than half the year, and
o not qualify as a dependent of another person
* Cannot file Form 2555 or 2555-EZ (related to foreign earn income)