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Tax Tips/Pearls of Wisdom...

General Information and thoughts:
1. Social Security Items:
For 2009 the Social Security (FICA) wage base (the wages from which Social Security tax is
withheld) increased to $106,800.00 from $102,000.00 in 2008. Social Security withholding is
6.2% of an employee’s pay which is matched by the employer up to $106,800.00 for wages in
2009.
 
Medicare is also withheld at the rate of 1.45% for both employees and employers. Medicare has
NO wage cap.
 
The good news is that Social Security benefits increased 5.8% in 2009 if you or a loved one
happen to be collecting Social Security payments.
 
2. New Car Items:
In addition to the cash for clunkers bill recently passed by Congress any NEW car, light truck,
motor home or motorcycle buyers may be entitled to deduct state and local sales taxes and
excise taxes paid on the purchase. The deduction is taken on your 2009 income tax return and
is limited to state and local sales and excise taxes paid on up to $49,500.00 of the purchase
price. The amount of the deduction is phased out for taxpayers whose modified adjusted gross
income is between $125,000.00 and $135,000.00 for individual filers and between $250,000.00
and $260,000.00.
 
The vehicle must be purchased after February 16, 2009 and before January 1, 2010 to qualify.
 
Getting back to cash for clunkers. If your clunker is truly worth less than the cash allowance set
forth by Congress is the amount over and above the value of your clunker taxable as income to
you? Technically it may be but my guess is that Congress won’t allow that to happen. Again,
stay tuned.
 
On a related matter for vehicles the standard mileage rate allowed in 2009 for business travel is
$.55 per mile DOWN from a high of $.585 per mile in 2008.
 
3. Mortgage Items:
Although this tax benefit has been with us for a few years now, with all the attention focused on
mortgage foreclosures, workouts and modifications it bears highlighting. Normally, debt
forgiveness results in taxable income. There is an exception for mortgage forgiveness debt.
Taxpayers may exclude debt forgiven on their PRINCIPAL RESIDENCE if the balance of the
loan was $2,000,000.00 or less unless you are filing married filing separate in which case it is
$1,000,000.00 or less. The debt must have been used to buy, build or substantially improved
the taxpayer’s principal residence and must have been secured by that residence (there must be a mortgage, deed of trust, etc. against the residence). Debt used to refinance qualifying debt is
also eligible for the exclusion but only up to the amount of the old mortgage principal just
before the refinancing. This means any additional debt incurred by pulling cash out to buy that
shiny new Ferrari, when forgiven, is taxable income.
 
Debt reduced through mortgage restructuring, modifications, etc. as well as mortgage debt
forgiven in connection with a foreclosure or short sale will qualify for this relief.
 
Taxpayers who claim this exemption must file form 982 with their tax return. They will also
receive a year end statement (form 1099-C) from the lender which forgave the debt.
 
Unless shortened by Congress (which I doubt) this provision helps taxpayers through 2012.
Importantly, second homes, rental property, business property, credit cards, do not qualify.
BUT, if you are insolvent at the time the non-qualifying debt is forgiven or if you are in a
bankruptcy proceeding it is not taxable income.
 
Taxpayers who claim this exemption must file form 982 with their tax return. They will also
receive a year end statement (form 1099-C) from the lender which forgave the debt.
 
Unless shortened by Congress (which I doubt) this provision helps taxpayers through 2012.
 
4. Other Items:
Bernie Madoff - America’s swindler. Hopefully no one reading this invested with Mr. Madoff
but if you did and you lost your investment you should also consider amending prior tax returns
to delete the fictitious income that he reported to you.
 
Taxpayers should also consider taking a theft loss rather than the usual capital gains loss
relating to Madoff losses.
 
5. Penalties:
Does interest accrue on penalties owed to New York State or the Federal Government? It sure
does! Under certain circumstances penalties can be abated but you must have “reasonable
cause” for the non-filing or non-payment that caused the penalty. Interest can also be stopped
in certain circumstances but you must take advantage of the Bankruptcy Laws to do so.
 
6. Dangerous taxes that must be paid before all other bills.
The taxes I refer to here are withholding taxes (money withheld from employees pay) and sales
taxes. These taxes, both Federal and New York State withholding taxes and New York State
Sales Tax are taken very seriously by the IRS and New York State. Collection efforts are often
aggressive and even if you have a corporation, limited liability company or some other separate
entity you may still be liable for these taxes as a responsible person. No matter how tight your
cash flow is you should pay these taxes first before any other creditor. Bankruptcy does not
relieve these obligations. If you are faced with this situation, your only hope is an Offer in
Compromise.

DISCLAIMER:
This information is believed to be accurate but is NOT intended as professional or legal advice.
Before relying on this information you should consult your tax or legal advisor.”