Stock market investors experienced a roller coaster year in 2009. The market plunged in the first quarter and then surged 65% to finish out the year, one of the strongest market surges in recent history.  This market volatility may raise income tax questions for investors who made stock transactions in 2009.

If you are an investor who made stock transactions last year, especially in mutual funds or retirement plans, it makes sense to meet with your tax advisor to see if there are any income tax implications and/or a tax strategy to follow.

If you took a loss on your 2009 income tax return by selling a mutual fund in December 2009 (outside of a retirement plan), and you want to buy the same mutual fund in 2010, you must wait more than 30 days.  Failing to wait the 30 days violates the “wash sale” rule and you will not be able to use this tax benefit of the loss in 2009.  Contact your tax advisor for more details on this income tax question.

Another income tax question for your tax advisor is whether you should convert your traditional IRA into a Roth IRA.  Starting this year, anyone can convert their traditional IRA to a Roth IRA. Previously, taxpayers with adjusted gross income over $100,000 were prohibited from using this tax strategy.

Taxpayers who convert their traditional IRA to Roth IRA have to pay income tax on the amount converted to the Roth IRA.  However, any after-tax contributions that were made are excluded from the income tax.

There is some good news if you plan on converting your IRA to a Roth IRA in 2010. For conversion made in 2010 only, Congress has approved a rule to allow taxpayers to report the income from Roth IRA conversions over the next two years - half in 2011 and the half in 2012.   Potential Roth IRA converters need to be aware that future withdrawals from a Roth IRA, that includes earnings, are free from federal income tax only after you have reached 59 1/2 and the account has been opened for at least five years.

The Federal Income Tax form and IRS rules can get very complicated when it comes to stock transactions.  If you have made stock transactions or are considering converting your traditional IRA to a Roth IRA, we advise talking to a tax advisor to answer your income tax questions and recommend a tax strategy.

source: valpolife.com

The month of April brings warm weather, major league baseball and the deadline for filing your 2010 income tax return? If you haven’t prepared your income tax, you still have options for filing before the April 15 tax deadline. Here are some of the options for filing your tax return.

The quickest and most efficient way to get your tax return in on time is to sign up for one of the many online tax services. They provide the software so you can file your income tax online. Most online tax services offer the service for free or at a steep discount. Taxpayers can also find tax coupons online by using searching the web using the keyword phrase “tax coupons”.

Another option is to contact the IRS. The IRS provides a free income tax preparation program for individuals earning less than $49,000 who cannot prepare their own federal income tax returns. The IRS Volunteer Income Tax Assistance (VITA) will help taxpayers prepare their income tax and help answer tax questions about special credits, such as Earned Income Tax Credit, Child Tax Credit, and Credit for the Disabled. The program offers free electronic tax filing (e-filing) at most of it’s sites. For more information on TCE, call 1-800-829-1040 or log onto www.irs.gov

Individuals who have tax problems or complicated tax situations should contact an income tax lawyer or tax consultant immediately. Tax lawyers can answer your income tax questions and act as your tax representative to the IRS. If you have serious tax problems, the price for a consultation with a tax attorney is worth it.

If you will not meet the tax deadline, you can file for a tax extension. Taxpayers have 3 choices for filing the income tax extension form (Form 4868, Application For Automatic Extension of Time To File U.S. Individual Tax Return); electronically, by paying part of your tax due with a credit card through an outside service provider listed on the form, or by mail.

If you file your Form 4868 electronically you will receive an acknowledgment or confirmation number and you do not need to mail in Form 4868. If you need to pay additional taxes, you may do so through the outside service provider or through e-file. Be advised that each tax service provider will charge a convenience fee based on the amount of the tax payment.

These are the most common options available for filing your tax return. For more information about income tax or filing an income tax extension visit the IRS website.

source: irs.gov

Be careful of tax  preparers who claim they can get their customers “instant” federal income tax refunds.  They may not be giving their clients all the money they’re owed.

Some accountants offer “refund anticipation loans” as a “rapid” way to give customers tax refunds, but according to the New York City Department of Consumer Affairs, such loans are a fast way to lose money.

“Between the fees and interest rates that are charged for these refund loans, we’ve seen costs as high as a 500-percent rate when you take a look at what’s being borrowed,” says  NYC Consumer Affairs Commissioner Jonathan Mintz.

The loans are advertised as “fast” or “instant” refunds, but they’re really high-interest loans that lure people who do not want to wait the standard eight days to receive their refund from the Internal Revenue Service.

On Tuesday, DCA officials denounced such loans while announcing the results of a month-long citywide crackdown on over 800 income tax preparers.

“Three out of 10 preparers were misleading their customers about their rights and in most cases were telling them that a refund loan was somehow just a ‘rapid’ refund or a ’same day’ refund, and that kind of advertising is deceptive and illegal,” says Mintz.

The Bronx is the borough with the most offenders, with a 50-percent non-compliance rate.

“We issued over 2,000 violations to preparers across this sweep. Those violations which could total up to a million dollars in fines,” says Mintz.

However, the number of compliant tax preparers has increased from last year.

To protect yourself when purchasing tax preparation services, the DCA offers the following tips:

• Avoid “instant,” “rapid,” “same day” or “fast cash” refunds. They’re actually loans with extremely high interest rates.

• Know your rights. Tax preparers must post their qualifications, fees and charges and must give a consumer bill of rights. They must sign every tax return and provide you with a copy of your return and a receipt.

• Protect yourself. Tax preparers may not charge you fees based on the amount of taxes you owe.

• Never sign a return that is blank, incomplete or filled out in pencil.

• Do not pay cash.

Protect yourself and your federal income tax refund by choosing a reputable tax preparer.  If you’re having trouble finding a good tax preparer, ask a family member or a friend.  Advice from a trusted source should put your worries at ease.

source:  ny1.com

Individuals can take advantage of new energy tax credits provided by The American Recovery and Reinvestment Act to help pay for home improvements, alternative energy equipment and the purchase of plug-in electric vehicles.

The Residential Energy Property Credit increases the energy tax credit for homeowners who make energy efficient improvements to their existing homes. This energy tax credit raises the credit rate to 30 percent of the cost of all qualifying improvements.  The new law also raises the maximum credit limit to $1,500 for improvements completed in 2009 and 2010.

Homeowners can apply this credit to improvements such as adding insulation, energy efficient exterior windows and energy-efficient heating and air conditioning systems.

The Residential Energy Efficient Property Credit is a nonrefundable energy tax credit that can be used to help offset the cost for qualified alternative energy equipment for the home.  Equipment such as solar hot water heaters, geothermal heat pumps and wind turbines qualify for this energy tax credit. The new law allows for a credit equal to 30 percent of the cost of qualified property.

Taxpayers can get a Plug-In Electric Vehicle Credit for purchases of two types of plug-in vehicles:  certain low-speed electric vehicles and two- or three-wheeled vehicles. The amount of the credit is 10 percent of the cost of the vehicle, up to a maximum credit of $2,500 for purchases made after Feb. 17, 2009, and before Jan. 1, 2012. To qualify, a vehicle must be either a low speed vehicle propelled by an electric motor that draws electricity from a battery with a capacity of 4 kilowatt hours or more or be a two- or three-wheeled vehicle propelled by an electric motor that draws electricity from a battery with the capacity of 2.5 kilowatt hours.

Taxpayers can get a Conversion Kit tax credit for purchases of plug-in electric drive conversion kits.  The credit is equal to 10 percent of the cost of converting a vehicle to a qualified plug-in electric drive motor vehicle and placed in service after Feb. 17, 2009. The maximum amount of the credit is $4,000. The credit does not apply to conversions made after Dec. 31, 2011. A taxpayer may claim this credit even if the taxpayer claimed a hybrid vehicle credit for the same vehicle in an earlier year.

Starting in 2009, the Alternative Motor Vehicle Credit, including the tax credit for purchasing hybrid vehicles, can to be applied against the Alternative Minimum Tax. Prior to the new law, the Alternative Motor Vehicle Credit could not be used to offset the AMT.

These energy tax credits are more valuable than tax deductions of the same amount, because deductions are applied before the tax rate, while credits are applied after. For instance, with a 35% tax rate, a deduction of $100 would save only $35 of taxes, while a $100 credit would save $100 worth of taxes.

source: irs.gov