Knight Accounting and Technology

This myth is circulating the internet and email, and I just want to clarify the truth.  The myth is that the value of your health insurance will be added to your W-2 starting in 2011 and therefore your taxable income will increase by the same amount.  The truth is that the value of your health insurance will need to be printed for informational purposes on your W-2 starting in 2011, but will NOT be added to your taxable income and you will NOT owe taxes on the value of your health insurance as long as your company maintains a pre-tax health plan (which most do!)

It’s only February 10th, and I’ve already come across this problem dozens of times.  If you worked multiple jobs during the year or if you are a student who worked during school, but are still claimed as a dependent on your parents return, you are facing a big surprise at year-end…you owe taxes or have a smaller refund than ever before.  Why?  It’s all due to the Making Work Pay Credit.  This credit, which was established by President Obama back in April, required payroll departments to withhold $6 – $13 less per pay period from each person’s check.  At year end, each worker would have $400 less in withholdings and on the tax return, a similar $400 credit would be applied to even it out.  No harm, no foul, right?  Well, for many working individuals, it’s not that simple.

Here’s where it’s causing a fiasco.  If you worked 2 jobs, you had a total of $800 less withheld, but you still only get a $400 credit on your return, so you owe back that $400.  If you were a student and worked, your employer would have $400 less withheld, but since your parents most likely still claim you as a dependent on their return, you don’t qualify for the Making Work Pay Credit, so you owe $400.

Unfortuantely, there’s no way around this for 2009, but you can make changes for 2010.  Ask your employer for a new W-4 (or, if you are starting a new job, you will get a form when you start), and while you can keep the same Single/O or Married/2 or whatever you normally file as, but you can add an additional amount to withhold on line 6 you should enter an additional amount of $18 for a bi-weekly payroll or $40 for a monthly payroll.

I was just made aware of a few typos on my 2009 Individual Tax Organizer.  Please accept my apologies!  I have re-posted an update organizer on the Downloads page on my website.  I will not be mailing out new organizers, but the changes are easy to make.  In the Retirement Plan Contributions section of the organizer, I ask for your 2008 contributions, but this should read 2009 contributions.  Also, that section is repeated both on page 1 and page 3.  You only need to fill it out once.  Again, my apologies!

OK, so it’s still a few days from being signed into law, but there are no indications that it won’t be.  Both the Senate and House voted yesterday to make all charitable donations for Haiti relief deductible on 2009 tax returns, if made to qualified charities (visit http://www.irs.gov/app/pub-78/ to see if your favorite charity is properly registered with the IRS) by March 30, 2010.

Thank you for any and all that you are doing for the relief efforts.  I spent time in Haiti in college and it’s a wonderful place filled with extrememly generous people.  If you are looking for donation ideas, please visit my favorite charity, www.shelterbox.org.

Beginning on Jan. 1, 2010, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 50 cents per mile for business miles driven
• 16.5 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

The new rates for business, medical and moving purposes are slightly lower than last year’s. The mileage rates for 2010 reflect generally lower transportation costs compared to a year ago.

New this year, the IRS is adding yet another option for getting your tax refund.  In addition to a paper check (which I NEVER recommend), direct deposit to a checking or savings account, and making an IRA contribution, this year you will also be allowed to purchase U.S. Savings Bonds.  These Series I Savings Bond can be purchased in increments of $50, $100, $200, $500, and $1,000, but cannot be redeemed for 12 months after you receive them.  And, if redeemed within the first five years, the three most recent months’ interest will be forfeited.  While you can only have Savings Bonds issued in your own name during the 2010 filing system, you will be able to add co-owners, such as child and grandchildren in the future.

It’s Official!  The Worker, Homeownership, and Business Assistance Act of 2009 has established a tax credit of up to $6,500 for qualified move-up/repeat home buyers (existing home owners) purchasing a principal residence after November 6, 2009 and on or before April 30, 2010 (or purchased by June 30, 2010 with a binding sales contract signed by April 30, 2010). 

The Act has also extended the tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence. The tax credit now applies to sales occurring on or after January 1, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, a home purchase completed by June 30, 2010 will qualify.  For sales occurring after November 6, 2009, the Act establishes income limits of $125,000 for single taxpayers and $225,000 for married couples filing joint returns.  The income limits for sales occurring on or after January 1, 2009 and on or before November 6, 2009, are $75,000 for single taxpayers and $150,000 for married taxpayers filing joint returns.

For more on these new credits, visit my source: http://www.federalhousingtaxcredit.com/home.html.

This just in…Congress is talking about expanding the homebuyers credit beyond first time purchases, and giving a $6,500 credit to buyers who’ve owned a home for five of the last eight years.  While this hasn’t passed yet, it’s food for thought if you are in the market to purchase a house and you can hold off until November 30th when the new law is set to be enacted!

There’s a new, albeit small, benefit this year if you’re in the market for a new car.  If you purchase a new car between 2/17/09 and 12/31/09, you can take a deduction for the sales tax paid on that purchase up to the first $49,500 of the purchase price.  This is phased out for those with Adjusted Gross Income above $250,000 for MFJ and above $125,000 for all other taxpayers.  How does this help you?  If you purchase a $40,000 vehicle and your local sales tax rate is 7%, then you would get a tax deduction of $2,800.  You would then multiple $2,800 times your effective tax rate, and that’s your savings.  Let’s say your effective tax rate (your tax liability on line 56 divided by your total income on line 43) is 15%, then your savings would be $420.  So, does this make me want to run out and buy a new car?  Definitely not.  But, if you’re in the market for a new car and the deals are good, it makes sense to make the purchase before year-end rather than wait until 2010 (unless, of course, the government extends this tax deduction, but we won’t know that until late December).

Check out my latest Summit Daily Article, the Perils of Paperless Banking.