The IRS is publishing a list of tax tips three times a week during the summer.  They’re pretty good so I thought I’d fill up the blogosphere with more bits and bytes.  They’re a bit hard to find on the IRS.gov website plus I’ll editorialize as I condense/paraphrase them.

The first $2,400 of unemployment benefits received in 2009 are tax free for most taxpayers.  If you figure that most folks are in the 10 or 15% bracket, this represents a savings of up to $360.

The cash for clunkers program will officially start in late July after the government issues its regulations.  If you trade in a car with an EPA rating of 18 miles per gallon or less, you will receive a $3,500 credit from the dealer to buy or lease a car rated at 22 mpg or more.  The credit is in lieu of any trade-in.  You will get $4,500 if the replacement gets at least 10 mpg more than your old vehicle.  For light trucks and sport utility vehicles, the fuel efficiency rules are significantly more lenient (whatever that means).  Here’s where it gets interesting - to qualify your trade-in must be a 1984 or newer model that’s in drivable condition (define that?) AND you must haved owned and insured it for at least one year prior to trading it in.  If I read between the lines correctly, Uncle Sam is leaning on car dealers to verify the necessary information to qualify a buyer.  Good luck with that one, particularly if it’s a 1983 car or one that they owned for 11 months, OR heaven forbid - it’s been sitting in the back forty and hasn’t been insured for the last 5 years. Dealers are desperate to make a sale, I absolutely would not hold it against them to manipulate the numbers if things are close.  Good intention - lousy follow-thru.

Okay - I’ll admit it, this has nothing to do with taxes, but it is worrying me.  By way of a disclaimer, I have a number of friends who work in the newspaper industry, so I may be a bit biased.  Here’s the problem as I see it.  One of the hallmarks of democracy in my opinion is a free press.  The problem is that free press now means free as in no pay, not free as in freedom of expression.  If the trend continues we won’t have any newspapers or magazines around because the advertising will have shifted to the lower cost internet.   From a free market standpoint that doesn’t bother me too much, but it also means there’ll be no more journalists doing original reporting, and that bothers me.  People are used to free content on the interent, it’s going to be very hard to break that habit.  Free content means no money for journalists, just techy types.  If there’s nobody keeping the politicians and business owners honest, democracy will suffer.  We’ll lose an important piece of the system of checks and balances.  Journalists are already not the highest paid folks, pushing everything to the internet where we’ve come to expect it for free is going to make that worse.  Journalists have mortgage payments, childcare, etc., just like the rest of us.  I always though Dan Rather was a boob, but he represents something important - reporting.  Blogging is nice (talk about self-serving!), but it’s generally just opinion, not original research.  I wish I had the answer, but I don’t.  If enough of us begin to sound the alarm, folks might start to wake up.

I recently returned from a retreat with a number of businesses  similar to myself (www.wiseowlstax.com).  One of the main points of interest was the on-going attempts by the IRS to drive taxpayers to the IRS website.  Aside from the self-serving interest of feeding my family by charging folks to have their taxes prepared, I’m a bit distressed by the whole Free File process.  The IRS is encouraging you to use their website to file your taxes, but who’s looking out for your best interests?  Probably not the IRS.  Joel in my office just prepared an amendment (1040X) for the folks who did not know about the modified standard deduction or the Lifetime Learning Credit.  I didn’t prepare the amend, so I don’t know how they happened upon the fact that they had left over $700 on the table, but I guarantee you that the IRS wouldn’t have gone out of their way to get that additional money to the taxpayer.  Generally speaking, if you miss a deduction or fail to claim a credit, the IRS is not going to say anything.  With the IRS you really do get what you pay for!

This one’s a bit complicated to explain.  The easiest way to think about it is that it’s a better deal than it was before.  It’s only good for 2009 and 2010, so if you’re thinking about upgrading your home, now is the time to do so.  Stimulate that economy!

The old Credit for Nonbusiness Energy Property (CNEP) was set to come back in 2009 after disappearing in 2008.  The CNEP could be taken for insulating your home, upgrading your furnace and/or air conditioner or putting in better windows and doors plus other lesser used energy improvements.  The credit has been enhanced by eliminating the lifetime limit of $500, increasing the credit from 10% to 30% of qualified expenses and the amount of the credit available has been increased up to $1,500 per year.

The 2009 Recovery Act has replaced the Hope and Lifetime Learning Credit and Tuition Deduction with the “American Opportunity” tax credit.  This credit will only be available in 2009 and 2010.  The credit is up to $2,500 for eligible taxpayers.  The credit takes 100% of the first $2,000 of qualified expenses and 25% of the next $2,000 of tuition and related expenses.  I love this credit for a number of reasons.  It’s much easier to max the credit - you really only need $4,000 of expenses.  Even at a state school you’ll hit that with tuition alone.  Up to 40% of the credit is refundable.  Currently none of the education credit is refundable.  Refundable simply means that you can get the credit even if you have no tax.  Taxpayers in the lower income levels will be able to benefit from this feature of the credit.  A final point is that the credit is good for all years of college.  The income phaseouts are also very generous.  The credit begins to phase out at $80,000 of income ($160,000 Joint).

I have a non-profit customer that received their 501(c)(3) status in 2004.  At that time you were given something called an Advance Ruling Ending date.  This meant that at the Advance Ruling Ending date you needed to submit additional documentation via Form 8734 to substantiate that you were in fact operating as a non-profit.  The IRS changed that ruling sometime in the past 4 years and voided the need to file the Form 8734.  So far, so good.  My customer received a letter in November explaining that they do not need to file the Form 8734 BUT for good measure, the Form 8734 is included with the letter.  Their letter even says “If you have received Form 8734 from the IRS, please do not file it”.

Point of clarification.  If you are a first time homebuyer and think you’re eligible for the $7,500 First Time Homebuyers tax credit - make sure you don’t have a South Dakota Housing loan.  This is very specifically excluded from the credit.  The idea is that you’re already getting a deal through the loan so you shouldn’t get a double bonus.  It’s my understanding that SD Housing loan rates are actually higher right now than conventional loan - go figure.

Congress in it’s infinite wisdom saw fit to allow the energy credit to lapse for the 2008 tax year, but will bring it back for 2009.  Gee, I don’t know - maybe it was a good year for energy and we don’t need the credit.  Maybe they know something I don’t about 2009.  Anyway, it’s gone but look for it to come back next year.