House votes to expand homebuyer tax credit By STEPHEN OHLEMACHER (AP)

WASHINGTON — Buying a home is about to get cheaper for a whole new crop of homebuyers — $6,500 cheaper.

First-time homebuyers have been getting tax credits of up to $8,000 since January as part of the economic stimulus package enacted earlier this year. But with the program scheduled to expire at the end of November, the House voted 403-12 Thursday to extend and expand the tax credit to include many buyers who already own homes. The Senate approved the measure Wednesday, and the White House said President Barack Obama would sign it Friday.

Buyers who have owned their current homes at least five years would be eligible for tax credits of up to $6,500. First-time homebuyers — or anyone who hasn’t owned a home in the last three years — would still get up to $8,000. To qualify, buyers in both groups have to sign a purchase agreement by April 30, 2010, and close by June 30.

“This is probably the last extension,” said Sen. Johnny Isakson, R-Ga., a former real estate executive who championed the credits.

The homebuyers tax credit is one of two tax breaks totaling more than $21 billion that was included in a bill extending unemployment benefits for those without a job for more than a year. The other would let companies now losing money recoup taxes they paid on profits earned in the previous five years.

“We are still in a world of economic hurt, and Congress must continue to act boldly and creatively,” said Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee. “With the right mix of tax breaks and investments we will get through this recession and get folks working again.”

The real estate industry has been pushing to extend and expand the housing tax credit. About 1.4 million first-time homebuyers have qualified for the credit through August. The National Association of Realtors estimates that 350,000 of them would not have purchased their homes without the credit.

Extending and expanding the tax credit for homebuyers is projected to cost the government about $10.8 billion in lost taxes. While the measure passed the Senate by a 98-0 vote, Sen. Kit Bond, R-Mo., questioned its efficiency in stimulating home sales.

“For the vast majority of cases, the homebuyer tax credit amounted to a free gift since it did not affect their decision to purchase a home,” Bond said. “And for the small minority of buyers whose decision was directly caused by the credit, this raises the question of whether we are subsidizing buyers who may not have been able to afford buying a home in the first place.”

The credit is available for the purchase of principal homes costing $800,000 or less, meaning vacation homes are ineligible. The credit would be phased out for individuals with annual incomes above $125,000 and for joint filers with incomes above $225,000.

The credit would be extended an additional year, until June 30, 2011, for members of the military serving outside the United States for at least 90 days.

Expanding the tax credit for money-losing companies is projected to cost $10.4 billion.

The business tax break would allow money-losing companies to use current losses to offset taxable profits earned in the previous five years, giving them refunds of taxes paid in those years. Under current law, businesses with annual gross receipts of more than $15 million can claim losses back only two years.

The tax break would help industries suffering losses in 2008 or 2009, including retailers, homebuilders and newspapers. Congress included a scaled-back version of the tax break — for companies with revenues of $15 million or less — in the economic recovery package enacted in February. The new tax break would be available to companies of any size, providing a quick source of cash.

The U.S Chamber of Commerce has been a big backer of the tax break for money-losing companies.

“It frees up capital that they can use to maintain jobs and potentially even hire new people as the economy returns,” said Caroline Harris, senior tax counsel for the U.S. Chamber of Commerce.

The tax breaks would be paid for largely by delaying a tax break for multinational companies that pay foreign taxes. It was passed in 2004 and originally was to have taken effect this year, but would now be delayed until 2018.

What an Opportunity, for First-Time Home Buyers

Overview

First-time homebuyers may be able to take advantage of a tax credit for homes purchased in 2008 or 2009. The credit:

• Applies to purchases that close after April 8, 2008, and before Dec. 1, 2009.
• Applies only to homes used as a taxpayer’s principal residence.
• Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
• Is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.

For 2008 Home Purchases

The Housing and Economic Recovery Act of 2008 established a tax credit for first-time homebuyers that can be worth up to $7,500. For homes purchased in 2008, the credit is similar to a no-interest loan and must be repaid in 15 equal, annual installments beginning with the 2010 income tax year.

For 2009 Home Purchases

The American Recovery and Reinvestment Act of 2009 expanded the first-time homebuyer credit by increasing the credit amount to $8,000 for purchases made in 2009 before Dec. 1.

For home purchased in 2009, the credit does not have to be paid back unless the home ceases to be the taxpayer’s main residence within a three-year period following the purchase.

First-time homebuyers who purchase a home in 2009 can claim the credit on either a 2008 tax return, due April 15, 2009, or a 2009 tax return, due April 15, 2010. The credit may not be claimed before the closing date. But, if the closing occurs after April 15, 2009, a taxpayer can still claim it on a 2008 tax return by requesting an extension of time to file or by filing an amended return.

For more information please email us ca&t@embarqmail.com.   NC residents contact me at dorethacaldwell@yahoo.com, or call us at 910-848-1040 we will be glad to answer your questions, assist you with more details, or take you through the entire process to help you claim this credit.

Surviving The Slow Economy- Tax Tips

Taxes are the last thing on most people’s minds when they get laid off from a job. A good understanding of the tax impacts of being laid off and the importance of filing on time, regardless of your ability to pay, can save you potentially thousands of dollars on your state income taxes.

If you have been laid off or have lost your job any other way, remember these tax tips:

File on time, regardless of your ability to pay: sometimes people who have lost their jobs and may owe income tax decide not to file by the April 15 deadline. That is a bad idea because failing to file your taxes by April 15 results in an automatic failure to file penalty of 5 percent per month, up to a maximum of 25 percent of what you owe in state taxes.

You are better off filing your taxes by April 15. If you owe any additional tax, contact the department at 1-877-252-3052 about the possibility of arranging a payment plan.

Remember: there is also a 10 percent penalty on any state income tax you owe but don’t pay by April 15, as well as interest that builds up until you pay off what you owe. Because of that, you may want to pay as much as you can by April 15.

If you can’t file your taxes by April 15, you can file for a 6-month extension. However, an extension of time to file does not extend the time for paying the tax. You must pay your state income taxes by April 15, no matter when you file.

Some severance pay is tax exempt: if you receive severance pay after being involuntarily laid off, the first $35,000 of severance pay is exempt from state taxes.

Please note: to qualify for this deduction, you must have experienced “permanent, involuntary termination from employment through no fault of (your own),” according to state tax law. That means that if you accept a voluntary offer to leave your job and receive severance pay, that severance pay is not eligible for this deduction. “Stay on pay,” or extra pay you receive to stay in a job for a certain length of time, is not eligible for the deduction.

Unemployment benefits are taxable: you may qualify to receive unemployment benefits while you look for a new job. Those payments are taxable as regular income.

Tip: it is a good idea to elect to have money withheld from your benefits to cover both state and federal taxes. While it will reduce the amount of money you receive in the short term, you won’t have to pay a larger amount when you file your income taxes.

AP-Financial Bailout

Paulson said Sunday that because financial markets remain under severe stress there is an urgent need for Congress to act quickly without adding other measures that could slow down passage.

“We need this to be clean and to be quick,” Paulson said in an interview on ABC’s “This Week.”

Paulson resisted suggestions being made by Democrats that the program be changed to include further relief for homeowners facing mortgage foreclosures and to include an additional $50 billion stimulus effort. Some Democrats have also suggested capping compensation of executives at firms who get the bailout help.

Paulson said he was concerned that debate over adding all of those proposals would slow the economy down, delaying the rescue effort that is so urgently needed to get financial markets moving again.

“The biggest help we can give the American people right now is to stabilize the financial system,” Paulson said.

However, Sen. Charles Schumer, D-N.Y., said that he believed there would be changes to the three-page Paulson plan and that agreement could be reached quickly.

Schumer said that he was pushing to get a provision where the government would receive stock warrants in return for the bailout relief and for creation of a government oversight board to supervise the huge operation, which under Paulson’s plan would be run out of the Treasury Department. He said Paulson seemed receptive to changes when he had discussed his ideas with him.

“I have told him … we need changes related to housing, we need to put the taxpayer first ahead of bondholders, shareholders,” Schumer said on “Fox News Sunday.”

Paulson said in the interviews that he had been talking to other governments about the need for them to offer similar relief because the current financial crisis is global.

“The credit markets are still very fragile right now and frozen,” Paulson said in an interview on NBC’s Meet the Press.

“We need to deal with this and deal with it quickly.”

Paulson said that the nation’s outdated regulatory system for financial markets must be overhauled but the first job is to get the most sweeping rescue package since the Great Depression passed by Congress in coming days.

Paulson made the rounds of the television talk shows on Sunday to stress the need for speed in getting the bailout package approved. The administration was negotiating the details of the proposal with members of Congress with the expectation that it can be passed in the next week.

Paulson said that “it pains me tremendously to have the American taxpayer put in this position but it is better than the alternative.”

Both Paulson and President Bush have argued that the alternative would be credit markets that remain frozen, meaning that businesses will fail because they can’t get the loans they need to operate and the economy will grind to a halt because consumers won’t be able to get loans to make the purchases that keep the economy moving forward.

On Saturday, Bush said the White House is ready to work with Congress to quickly enact legislation to allow the government to purchase hundreds of billions of dollars worth of bad debt linked to the collapse of the housing market.

Congressional aides and administration officials were working through the weekend to fill in the details of the proposal.

The Bush proposal that would dole out huge sums of money to Wall Street firms and bankers is a mere three pages in length and is vague in terms of determining which institutions would qualify or say what – if anything – taxpayers would get in return.

“It’s a rather brief bill with a lot of money,” said Sen.

Chris Dodd, D-Conn., the Banking Committee chairman. “We understand the importance of the anticipation in the markets, but we also know that what we’re doing is going to have consequences for decades to come. There’s not a second act to this – we’ve got to get this right.”

Democrats, who say they will work with the administration to pass a plan, are demanding it include relief for homeowners struggling with mounting debt, not just for Wall Street.

The proposal would raise the statutory limit on the national debt from $10.6 trillion to $11.3 trillion to make room for the massive rescue.

Greed +No Regulation of Financial Services= Private Profits+Socialized Losses

We  all need to hold our politicians to task in protecting our interest as American taxpayers.  Our future and our children’s futures are at stake.  We all need to ask questions and gain a understanding of what is being proposed in this $700 billion dollar bailout.  Let’s not allow fear and panic to cause us to take an action to something with ramifications that will cripple us.  As American taxpayers it is true that we should not be in the business of subsidizing big business losses or risks.  In good times their wealth and profits are private.  Therefore, this sector really need to be held accountable for their own losses based on greed due to very little regulation. However, the reality is that we need to learn from this and we will probably be lending a hand.  Let’s be smart about how we proceed.  Let us have future oversight and regulations, this plan should include some assistance  for the taxpayer affected by this crisis of home foreclosures, some sort of payback option or return on this handout need to be considered.  People let your voices be heard, don’t let them get away with this.  They really do think we are stupid and like a thief in the night they will rush this thing through before we fully under stand all the ramifications.  Let’s send a message loud and clear that our interest will be protected.  We will not simply shove over $700 billion and not expect a return .

N.C. tax-free weekend Begins on Friday ,Aug. 1st.

Residents of North Carolina will be able to avoid the tax man starting at midnight Friday.

The statewide tax-free weekend begins at 12:01 a.m. Friday and runs through 11:59 p.m. Sunday.

The weekend gives shoppers, especially those looking for back-to-school items, a chance to buy items tax-free. Items eligible include clothing, sports and recreation equipment, and computers.

For a full list of what items are eligible and price limits, visit the N.C. Department of Revenue’s at http://www.dor.state.nc.us/taxes/sales/salestax_holiday.html

Consider the Installment Method When Selling a Small Business

Reporting the sale of your small business using the installment method can save significant amounts of federal income tax, and can provide flexibility to both seller and buyer.

An installment sale can save tax dollars. Each year, over 250,000 businesses are sold using an installment sale of assets, where the buyer pays all or part of the purchase price in installments over several years.

Congress has been “off and on” with rules allowing gain from a sale of the assets of an entire business to be reported on the installment basis. Right now they are “on” and you can spread at least part of the tax otherwise due on the sale of your business assets over the same period you receive payments.

Any tax due on depreciation recapture or sale of ordinary income-producing assets must be paid currently, and you should be sure to get enough “cash up front” to at least pay that tax liability. The installment method is attractive because it allows your income tax liability on gain from the sale of assets that produce capital gain, such as Goodwill and Land, to be paid as you receive the sales proceeds.

Ideal prospects for an installment sale are owner-managed businesses with less than $10 million in annual revenues. Buyers of such businesses typically can’t get full financing from the capital markets, and they want to acquire assets, not stock. Larger businesses rarely use the installment method, because they can get financing, and they more often acquire stock instead of assets.

Stock acquisitions require extensive due diligence. If you buy stock, you inherit the seller’s tax liabilities for prior years, environmental liabilities, and a number of other possibly devastating non-financial exposures. Asset acquisitions are usually less complex.

An asset acquisition also may have significant tax benefits for the buyer. A purchaser of assets records the price paid for them as their tax basis for purposes of claiming depreciation and amortization. The installment method allows the buyer to begin realizing the benefits of increased depreciation and amortization deductions before the entire purchase price is paid — using money not paid in taxes to pay part of the installment payments.

We have experience helping both buyers and sellers secure maximum tax advantage when transferring ownership of closely held businesses. Give us a call and arrange a time to discuss your plans. We will be happy to share any money-saving ideas we may have with you. For additional information visit www.CaldwellAccountingonline.net

Economic Stimulus Rebate Checks

Bush on Tax Rebate Checks

Recent News

Recent tax legislation has changed many conventional tax planning ideas. Here are seven professional tax planning strategies you should consider today.

1. The tax benefits of a mortgage interest deduction may not be what they once were. This has been the single largest deduction for many individuals, but elimination of the marriage penalty and reduced marginal tax rates may reduce its tax benefit. On the other hand, reduction of tax rates on capital gains and dividends might make an even stronger case than ever for some high-income individuals to borrow against their home equity to invest in a diversified portfolio of dividend-paying stocks.

2. Variable annuities, once touted as offering the best of tax-deferred investment income and insurance in one investment, may stocks.no longer be a good idea for most individuals. High fees, exposure to surrender charges, and conversion of capital gain and dividend income taxed at 15% to ordinary income taxed at rates as high as 35% require a close second look at the use of variable annuities.

3. Advantages of “529 Plans” may be lost in higher costs, complicated restrictions, and risky “tax traps.” The 15% tax rate on dividends and capital gains really reduces the “tax-free” advantage of costly and restrictive 529 plans. In certain circumstances, you still might benefit from such plans (some states offer a state tax deduction for contributions to 529 plans) but many individuals may be better off with a conservatively managed portfolio of dividend-paying stocks held in a simple trust or custodial account.

4. The value of deferred income in a qualified retirement plan may not entirely be what you expected. Investing in dividend-paying stocks in an IRA or 401(k) may turn income that could have been taxed currently at 15% into ordinary income taxable at rates up to 35%, depending on your annual retirement income from all sources. Funding your IRA or 401(k) with interest-producing securities such as bonds or inflation-adjusted US Treasuries may make a great deal of sense since income from these securities would have been taxed at ordinary rates anyway. Calculating the value of retirement plan contributions requires considerable expertise, along with complex financial modeling using computer software that considers your current tax rate, the tax benefit of the contribution, the assumed rate of return in the tax deferred account, and your expected tax rate at retirement.

5. From a tax standpoint, investing in actively managed investment vehicles may not be such a good idea, since short-term trading will produce ordinary income to be taxed at rates as high as 35%. “Buy and hold” is wiser advice than ever for most individuals. It’s tax-smart to consider passively managed index products. Low costs and income taxed at the lowest possible rate make these “tax-sensitive” investments the right choice for many investors.

6. It may be to your advantage to consider gifts of appreciated investments and dividend-paying stocks to children and other family members in low tax brackets. The lower rates on dividends and capital gains are even less for taxpayers otherwise in the 10% bracket, so that dividends and capital gains received by a child at least 19 or by an older relative might be taxed at 5% or less.

7. Highly appreciated, concentrated stock positions are now less tax-costly to liquidate. The maximum tax on capital gains on stocks is 15 percent. It’s tempting but risky to hold onto highly appreciated stocks. Now it’s tax-smart to sell and lock in your profits.

We can help you evaluate how tax law impacts your tax and investment planning strategies in 2008 and beyond. We may even have a few more money