Congress has made the tuition credits much more generous in 2009, making the credits 100% of the tuition and fees you pay (up from 50% in prior years). It also extended the time that you can take the more generous credit from just your first two years of college, to the first four years.

More Details:

• The Credit is known as the American Opportunity Tax Credit
• It can offer as much as $2,500 in credits to qualified households
• It is available in 2009 and 2010
• The student cannot be beyond the first four years of postsecondary education (so if you already have been to college or gotten a degree and are returning for a second degree you don't qualify - take the lifetime learning credit).
• You get a dollar-for-dollar reduction in your federal tax bill equal to 100 percent of the first $2,000 in "qualified tuition and related expenses" and 25 percent of the next $2,000.
• The credit phases out for incomes between $80,000 and $90,000, and between $160,000 and $180,000 for joint filers.
  
• If a parent's income is above the phase-out range, but the dependent student's income is not, the credit can be claimed on the student's federal tax return provided the parent agrees to forego the dependency exemption.
  
• It is partially refundable - those in lower-income brackets could receive up to 40 percent of the credit as a refund.
• While the Hope and Lifetime Learning Credit only include tuition and fees, this new American Opportunity Credit also includes course materials (i.e. books).
  

Source

This is hardly incentive to go out and buy a new car, but if you were in the market for a new car anyway don't forget to take advantage of this new deduction.

"The stimulus plan allows a sales tax deduction when you nab a new auto, as long as it costs $49,500 or less and was purchased on or after February 17, 2009. Claim it even if you don't itemize, as long as your income is under $135,000 if you're single; $260,000 for couples."

How much this will save you depends on what tax bracket you are in and what the sales tax rate on new cars is in your area.

Source

When you owe the IRS more than you can pay, you often have the option of setting up a payment plan. They will want you to pay as much as you can now, and then look at your situation to see what you can afford to pay each month. Ideally they want the debt paid off within a year, or three years max. Here is an article with more advice on installment agreements.

For 2009 and 2010 the IRS is once again offering tax credits for energy efficient home improvements. You can get up to $1,500 in credits for qualifying purchases (the old limit a few year ago was $500). Note that only the equipment qualifies for the credit, and not the installation, so you may want to structure your contract accordingly. Be sure to save all documentation that certifies that the purchase meets the energy efficiency requirements. Things that may qualify are insulation, windows, doors, air conditioners, heating units, solar panels, and water heaters.

For more info...

The current deal on home buying that is offered through the US tax code is unprecedented. Not many will qualify because of prior ownership restrictions, but if you haven't owned a home (and your spouse hasn't owned a home) in the past two years, then the IRS would like to make your downpayment of $8,000. I wish I had that option a few years ago on my first home!

Read More...

If you get an email from the IRS, just delete it. I have never, I repeat never, received an email from the IRS and neither have any of my clients. Even after responding to an IRS notice, they will only work through mail and telephone calls. This is a huge scam and a dangerous phishing scheme to get your personal information. So be safe, and just delete the email.

You don't want to be caught in one of these:

1. Phishing

Phishing is when scam artists attempt to trick you into revealing financial information via Email. The Emails usually look official (see my previous post), but they're not. The IRS states that they NEVER initiate unsolicited e-mail contact with taxpayers about tax issues.

2. Hiding Income Offshore

This IRS has announced that they intend to aggressively pursue taxpayers and promoters involved in abusive offshore transactions. Don't expect to evade taxes by hiding income in offshore banks or by using offshore debit/credit cards or wire transfers.

3. Filing False or Misleading Forms

Don't use use false forms or file false or misleading information.

4. Abuse of Charitable Organizations and Deductions

Donating items to the Goodwill? Don't claim two old sweaters you donated are valued at $2,000. Basically, the IRS is keeping a close eye on non-cash donations to charitable organizations. If something looks fishy, they'll investigate.

5. Return Preparer Fraud

Be careful when choosing a Return Preparer. Some Return Preparers promote providing large refunds, but they don't tell you that they intend to take a big portion of your refund AND charge inflated fees to do it.

6. Frivolous Arguments

Quit the excuses. You have to pay your taxes, no matter what. Certain promoters encourage frivolous, unreasonable, and unfounded claims to avoid paying taxes owed. But if your file a tax return based on any of those positions, you could be subject to a $5,000 penalty.

7. False Claims for Refund and Requests for Abatement

The IRS states that many promoters are encouraging people to use Form 843, Claim for Refund and Request for Abatement, even though they have not previously filed tax returns or it does not apply to them. Participate in this scam, and you're committing Fraud. Don't request abatement of assessed tax without good reason.

8. Abusive Retirement Plans

The IRS announced that they're looking for transactions that taxpayers are using to avoid the limitations on contributions to IRAs and as transactions that are not properly reported as early distributions.

9. Disguised Corporate Ownership

Some people form corporations in certain states so they can disguise ownership of the business and/or financial activity. This allows them to underreport income, and make false. But the The IRS is cracking down on corporations this year, and they're working with state authorities to bring these businesses into compliance.

10. Zero Wages

Don't file phony wage or income related information return. People are using Form 4852 (Substitute Form W-2) or a "corrected' Form 1099 to reduce taxable income to zero.

11. Misuse of Trusts

According to the IRS, unscrupulous promoters have urged taxpayers to transfer assets into trusts. Such trusts rarely deliver the promised tax benefits and are being used primarily as a means to avoid income tax liability and hide assets from the IRS.

12. Fuel Tax Credit Scams

The IRS is receiving unreasonable claims for the fuel tax credit. People like farmers, that use fuel for off-highway business purposes, may be eligible for the credit. But you can't claim it if you simply use your car to get back and forth to work. Since fraud involving this credit is considered a frivolous tax claim, you run the risk of a $5,000 penalty if you're caught.

This is an area where you want to tread carefully and really toe the line, but it can offer a good tax deduction. The key here is being reasonable in your compensation amounts. Can a 3 year old really earn $5,000 a year? Come on people. But a teenager can do valid work around the office and get paid for it. This shifts the income from your tax return to theirs. I can almost guarantee that your kids tax bracket is lower than yours. It could also qualify them for contributions to a Roth IRA (which might not be a bad college funding choice!).

As an added benefit, if you file as a Schedule C self employed business you can avoid payroll taxes on the payments to these kids. (Sorry corporate filers, you have to pay social security and unemployment taxes on your kids pay just like everyone else pay).

To read more...

Hoping to get the IRS off your back for pennies on the dollar. Good luck. I haven't seen it happen yet, but if you are in dire straits and can convince the IRS you don't have the funds, you might be able to pull it off. Here is an article with more details about Offers in Compromise with the IRS. Here is another with even more details and harsh truths.
For helpful tips on jumping through all the hoops, here is an article to consult.

As if taxing social security wasn't bad enough, the IRS also taxes unemployment benefits. So they send you the payment each month, and then ask for a portion of it back at the end of the year. Only a politician could come up with this scheme, where they get all the glory of writing the checks, and then someone else (the IRS) has to be the bad guy and collect a portion of it back.

Here is an article about a small amount of relief for unemployment recipients to try to help relieve some of their tax burden (a few hundred dollars maybe). Gee. Thanks Uncle Sam.

Most people's favorite deduction on their tax return is the business meals and entertainment deduction. The IRS knows this, and knows how frequently it is abused as well. They have put some restrictions on this deduction that you need to heed in order to avoid an audit. Here is a good article detailing how and when you can take this meal write off. However, I think she interprets the "convenience of the employer" clause more leniently that I would.

If you find yourself in the situation of owing money to the IRS and also to business creditors, credit card companies, or others, it can be difficult to know which to pay first when cash is limited. It may seem smartest to pay off the business creditors first so that you can keep your doors open, or to pay your mortgage first so that you keep your house. Here is an article that explains why paying the IRS first is usually your best move, because they will get their due one way or another, and paying it up front is the least painful method.

The IRS has the power to levy on your assets when you fall behind in your tax payments. Hopefully it will never come to that, but if you find yourself in this situation, this article offers some good pointers. The number one rule is don't ignore the letters the IRS sends, this problem is not going to just go away. The sooner your respond, the more options you have available.

From ClarkHoward.com

"Some 54 million Americans will be receiving $250 stimulus checks from the federal government over the next 7 weeks.
The Making Work Pay tax credit will apply to recipients of Social Security, Supplemental Security Income, Railroad Retirement and Veteran's benefits.
If you don't receive your check in a timely manner, the government says to wait until July before calling to find out what's going on. "

Note that you don't have to do anything to receive the check. If you qualify, the government will send it to you automatically.

Not all 529 Plans are the same. North Carolina's received good (not great) grades from Clark Howard in his recent evaluation of all the state's plans. The added benefit of the NC plan is that you get a deduction on your NC tax return for any contributions you make.

Link

The IRS is clamping down on charitable contribution deductions and has been doing so for the past few years. I guess they finally caught on the fact that people were generally rounding up their contributions and hoping no one would ever ask for documentation. Well documentation is required now, so be sure to grab that receipt from whenever you head over to Goodwill and a check is better than cash at the offering plate (at least for IRS documentation purposes). Here is an article that further elaborates on the stricter documentation requirements.

If there is one number you want to double check on your return before you submit it, it's the routing and checking account numbers on your tax return. Once the IRS sends out the money, it will be very hard to get it back if it gets into the wrong hands.

Source

Considering buying a rental property with your IRA funds? Better think twice before you create a taxation headache. Just because you own an investment in your IRA (a nontaxable account) doesn't mean you will always escape taxation. If it is a business activity then it is considered unfair for you to compete with those who have to pay taxes on their business income. To level the playing field, your business profits are subject to UBIT (Unrelated Business Income Tax), a tax originally targeted an nonprofits who were operating outside of their exempt purposes. While rental properties are specifically exempted from UBIT, you could still face UDFI if you finance part of the purchase price of the rental property with debt.

See this article about how the IRS reaches further to tax the untaxable.

Here are a few of the things to consider when reporting your self employment income. You can report the income on Schedule C rather than a corporate tax return. Yes, you will save some money with tax preparation and legal fees because it isn't as much paperwork, but you might be shooting yourself in the foot. Geater liability, increased audit risk, and higher self employment taxes are all real issues you may face if you cut this corner. For more info, don't hesitate to contact me.

This is not the law yet, but a proposed law worth checking out...
Clark Howard.com states "Washington, D.C. is set to take a cue from Europe in adopting its own version of a "cash for guzzlers" program. The central idea is to allow people to take an old, nearly worthless car and receive a cash bounty of up to $4,500 toward buying a new fuel-efficient vehicle. Under the proposed system, the full amount of the voucher would phase in based on the miles per gallon your next car purchase gets. Say you start from a baseline of 18 mpg on your current vehicle and get a new car that gets 22 mpg. Then you'd get a $3,500 voucher. You're only eligible for the full $4,500 voucher if your next purchase gives you at least 10 mpg more than your old vehicle. There will be a separate program for SUVs (you'll need a 5 mpg increase to qualify); one for light-duty trucks (2 mpg increase); and one for work trucks. The latter is a real reversal in policy; small business was previously given tax subsidies to buy the most fuel-inefficient trucks it could!"