This Center for Freedom and Prosperity Foundation video explains why a value-added tax would be a dangerous money machine for big government. The evidence from Europe also shows that VATs actually lead to higher income taxes. www.freedomandprosperity.org

How do you find a tax preparer that is right for you?

First, not all tax preparers are the same. I wrote an article about this last year titled: Tax Returns: Are They All Created Equal?

HOW DO YOU FIND A TAX PREPARER THAT IS RIGHT FOR YOU?

First, not all tax preparers are the same. I previously wrote an article about this last year titled: “Tax Returns – Are they really all created equal”, and you may be as surprised as other readers about just how much tax return preparation can vary.

In fact, I calculated the average savings I typically find from annual tax savings, reducing professional fees and audit assessments. In total, the average savings are:

- $23,750 Annual tax savings

- $5,000 Audit defense savings

- $10,000 Reduced audit assessment savings

- $50,000 Reduced legal fees

- $3,000 Reduced tax return preparation fees

This is a total average potential savings of $91,750! Your tax preparer does make a difference! How much more could you do with these savings?

Second, the right tax preparer for you depends on what is important to you. Take a minute to answer this question:

WHAT MAKES YOUR TAX RETURN SUCCESSFUL?

How you answer this question will impact what type of tax preparer you need on your team. I’ve asked this questions to clients, prospects and colleagues. I have compiled the most popular answers and what it means to you as you find the tax preparer for your team.

ANSWER #1: Paying the least amount of tax legally

Your tax preparer needs to:

- Know the tax law very well and know how to be creative legally.

- Ask you a lot of questions about your situation in order to understand your situation and goals.

- Have a review process where at least one other person reviews your return solely for the purpose of how to reduce your taxes legally.

HERE ARE SEVEN (7) QUESTIONS YOU SHOULD ASK YOUR TAX PREPARER TO DETERMINE IF IT’S A GOOD FIT:

Q1: Can you tell me about the other ___________ (your industry) you service?

A: Your tax preparer needs to know how the tax law applies to your situation. Having other clients in your industry or with similar investments indicates that the tax preparer is likely to be familiar with the tax laws that impact you.

Q2: Who will be working on my tax return?

A: It’s very common (and a good business practice) for tax preparers to have staff prepare your tax return. You want to make sure the other people working on your return have the same level of expertise.

Q3: What is your tax return review process?

A: Tax preparers who are focused on reducing your taxes will have this built into their review process. Usually it involves having another experienced tax preparer review the return solely for the purpose of finding ways to reduce your taxes.

Q4: What would you have done differently on my past tax return?

A: Show the tax preparer you are interviewing your prior year tax return. Creative tax preparers will be able to give you at least one idea of what you can do to reduce your taxes by looking at your tax return for just a few minutes. If it’s creativity you are after, this is a great question to ask! But don’t expect the tax preparer to give you all the details right then and there – that’s why you pay them!

Q5: How much can you save me in taxes?

A: While it’s difficult for any tax preparer to answer this in just a few minutes of looking at your past tax return, it is possible for them to know if they can save you taxes after spending 30 minutes with you.

Q6: What deadlines do you impose on clients?

A: This may seem like an odd question for minimizing your taxes but it has a direct impact. If your tax preparer allows you to provide your information a week before the tax return is due, it’s very unlikely that the tax preparer will have the time to focus on your return to truly minimize your taxes. Tax preparers that want to reduce your taxes want your tax return information early and will communicate that to you.

Q7: What recent tax law changes should I be aware of? A: To minimize your taxes, your tax preparer needs to know the tax law inside and out, which includes the latest changes. Your tax preparer needs to be able to answer this question without hesitation.

ANSWER #2: Minimizing tax return preparation fees Your tax preparer needs to:

- Focus on the tax work and recommend someone else for the non-tax work (such as bookkeeping).

- Request tax information in a certain format.

- Require you to input your information online.

HERE ARE TWO (2) QUESTIONS YOU SHOULD ASK YOUR TAX PREPARER REGARDING MINIMIZING RETURN PREPARATION FEES TO DETERMINE IF IT’S A GOOD FIT:

Q1: What can I do to reduce my tax return preparation fees?

A: To minimize your tax return preparation fees, your tax preparer always needs to have your fees in mind. Ask your tax preparer what you can do to reduce your fees. If you don’t get at least 2 suggestions, your tax preparer probably isn’t thinking about how to keep your fees low.

Common suggestions include:

- Have someone other than the tax preparer do your bookkeeping. I am always skeptical when a tax preparer does the bookkeeping. First, they either charge an arm and leg or if they reduce their rates to accommodate you, it means they don’t spend their time entirely on tax issues, which could indicate their tax skills aren’t up to par.

- Organize your information. Don’t bring your tax preparer a shoebox! A tax preparer that is really focused on keeping your fees down will have forms, spreadsheets and other tools available for you to use to organize your tax return information.

- Enter your information online. Many tax preparers now require clients to input their information online. Accurately entered information can help reduce fees. Caution: Information that is entered inaccurately can increase your fees!

Q2: What is your fee structure?

A: Your tax preparer needs to be able to answer this question with confidence. Any wavering could indicate that the tax preparer knows the fees are too high for you but just doesn’t want to tell you. Unfortunately in these situations, you find out too late!

ANSWER #3: Reducing audit risk Your tax preparer needs to:

- Know the tax law very well and how to properly report your activity.

- Understand the IRS’s current “hot buttons” or “red flags.”

- Offer an audit defense plan.

HERE ARE FOUR (4) QUESTIONS YOU SHOULD ASK YOUR TAX PREPARER IN REGARDS TO REDUCING AUDIT RISK TO DETERMINE IF IT’S A GOOD FIT:

Q1: How many audits have you been through and what triggered the audit?

A: The most important part of this question is what triggered the audit. If it was triggered by how something was reported, then that may be something the tax preparer had control over (and may be a bad sign for you).

Q2: What was the outcome of the audits you have been through?

A: A return can be randomly selected for audit or selected because of a certain activity (even though it was reported correctly). So it’s important to understand the outcome of the audits. Was additional tax assessed or were there no changes? Additional tax may indicate that something was not reported properly.

Q3: Do you offer an audit defense plan?

A: Tax preparers that are confident in their work will offer an “insurance” program that covers their professional fees to handle your audit if your return is selected for audit.

Q4: What is your tax return review process?

A: Although tax returns can be selected randomly for audit, many are selected due to how items are reported on the tax return. Tax preparers who are focused on reducing audit risk will have a review process that includes another tax preparer reviewing your return solely for accuracy of reporting.

Be selective with the tax preparer you put on your team. The average savings I find for my clients is over $90,000! Your tax preparer makes a difference!

John F. Kennedy speaks on his income tax cut that he wants to present to Congress in January next year (partial newsreel).

Virtually everyone in the UK is entitled to a personal allowance if they are resident in the UK which entitles them to tax free income, the amount of that tax free income being dependent on the size of the personal allowance according to the specific circumstances. Earnings above the tax free allowance are subject to the basic rate tax. The basic tax rate personal allowance was £5435 from 6 April 2008 and increased by £600 to £6,035 which effect from the first pay date after 7 September 2008. The original personal allowance tax code 543L being increased to new tax code 603L reflecting these changes to calculate tax at the new rate from 7 September 2008..

Basic rate tax for 2008 is 20 percent. For earnings above the higher income threshold which is £34.800 the basic rate tax increases to 40 per cent.

The personal allowance of people over 65 and up to 74 is £9,030 which is reduced if income exceeds £21,800 and people over 75 receive a personal allowance of £9,180 also reduced when income exceeds the £21,800 income threshold. The rate of tax allowance reduction is £1 for every £2 above the income threshold until the basic personal allowance is reached.

The number in the UK tax code is known as the prefix while the letter following that number is known as the suffix. Each suffix letter in the tax codes explained as a different meaning.

Letter L means eligible for the basic personal allowance and is also used for the emergency tax codes. Letter P is for people aged 65 to 74 and letter V for people aged 75 and over, while letter Y is also for people over 75 but who are eligible for the full personal allowance. A tax code with a suffix letter T indicates there may be issues that HMRC still need to review regarding the tax code and letter K indicates that the value of taxable benefits exceeds the personal allowance.

Where untaxed incomes, such as benefits, are received by the employee exceed the personal allowance a K code is issued by HMRC. The number following the letter K indicates the amount of benefits multiplied by 10 that are to be taxed in addition to the gross earnings received. This is achieved by adding the K code number multiplied by 10 to the gross earnings of the employee for income tax purposes.

Some Inland Revenue tax coding consists of just letters allowing the tax codes explained simply. The BR tax code means basic rate where the employee entire earnings are taxed at the basic tax rate. The BR tax code is often used when an employee has a second job and should also be applied by an employer who has not received a P45 or P46 for a new employee. The NT tax codes explained is that no tax is deducted from the employee so the basic rate tax does not apply..

HMRC are responsible for issuing tax codes and determine the Inland Revenue tax code by giving everyone the personal allowance, deducting any earnings where tax remains unpaid from the previous year and dividing the result by 10. Variations to this calculation are when other factors affect the tax code.

An emergency tax code is issued to calculate tax when the new tax code is not immediately available. That can occur when the employee does not have a P45 or completes a P46. The emergency tax code 543L is replaced with the new tax code 603L from 7 September 2008 which is the basic tax allowance but is also applied on a week one or month one basis. A week one or month one basis means the employer will calculate tax to be deducted for each pay period and not on a cumulative basis which in effect prevents tax refunds until a confirmed tax code is received to replace the emergency tax code..

It is important for employers to use the correct UK tax code which is stated on the P45 an employee presents to the new employer when starting employment to deduct the correct rate of tax. If the new employee does not have a P45 for the current financial year then the employer should request the employee complete a P46. The P46 is sent to HMRC who then review the tax coding and issue an appropriate tax code for the employer to use.

The personal allowance usually changes each new tax year and the old Inland Revenue tax codes from the previous year can be used for the first few weeks of the year and replaced with the new tax code in week 7. The rate of tax deducted if the previous year personal tax allowance has been increased is common and the employee receives a tax refund when the new tax code is applied.

When the new tax code is known from the start of the new tax year the tax coding can be applied from week one and as the correct tax has been deducted no refund is due.

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The Tax Governance Institute (TGI), a forum dedicated to the analysis of corporate issues relating to day-to-day and long-term tax risk management, recently hosted a live video-cast panel discussion to review the implications of the new, heightened tax return preparer penalties.

Moderated by TGI Director Hank Gutman, the panel included: Anita Soucy, Attorney-Advisor in the Office of Tax Policy, U.S. Department of Treasury, and one of the principal authors of the recently released Treasury guidance on the new tax return preparer penalties; Chris Rizek, a former Treasury associate legislative counsel and currently a member of the Washington, D.C. office of the law firm of Caplin & Drysdale; and Mike Dolan, a former deputy commissioner of the Internal Revenue Service and a member of the Washington National Tax practice of KPMG LLP.

This executive summary highlights the discussion of the heightened standards imposed on paid tax return preparers, and its influence on company policies:

Overview of the New Legislation

In May 2007 Congress approved a provision that extended the application of the income tax return preparer penalties to all tax return preparers, altered the level of confidence that must be met to avoid imposition of penalty for preparing a tax return that reflects an understatement of liability, and increased applicable preparer penalties.

Under the provision, the return preparation standard for undisclosed positions reported on any federal tax return was changed from “realistic possibility of success on the merits” to “reasonable belief that the position would more likely than not be sustained on its merits.” Effective for any tax return positions taken on tax returns due after December 31, 2007, the provision subjects to penalties return preparers who fail to meet the higher standard.

Though the new law affects only tax return preparers, uncertainty about a number of definitions, including the important question of who is a “tax return preparer,” left its scope somewhat unclear and created uncertainty among many companies regarding the effect of the law on tax advice and tax return services provided by their tax advisers. On December 31, 2007, Treasury released interim guidance—Notices 2008-11, -12, and -13—that addresses this definition and related matters. But questions remain.

Treasury Guidance

Treasury guidance issued in June 2007 deferred the original effective date of the application of the new preparer penalties and has afforded many companies and advisers more time to contemplate the effect of the law change. However, the transitional relief also engendered a number of questions concerning the timing and scope of the relief for certain tax returns and for tax advice rendered by non-signing preparers. Notice 2008-11 clarifies previous guidance deferring the effective date of the new law. Notices 2008-12 and -13 clarify other questions arising from the new preparer penalty provisions.

Anita Soucy explained that Treasury and the IRS did not have time to rewrite the entire applicable regulatory regime. The interim guidance modifies existing regulations and must be read in conjunction with them. “Folks who are not familiar with this regime need to read both the existing regulations and the notices. We [Treasury] point out where certain positions in the existing regulations are replaced with the interim guidance.”

Notice 2008-11 states that the transitional relief applies (1) to timely amended returns or claims for refund (other than 2007 employment and excise tax returns) filed on or before December31, 2007, and (2) to timely amended employment and excise tax returns or claims for refund filed on or before January 31, 2008. Notice 2008-11 also clarifies that the transitional relief applies to non-signing preparers for advice provided on or before December 31, 2007.

The new legislation also includes an amendment that imposes a penalty on a tax return preparer of any return or claim for refund who fails to sign a return when required by regulations. Notice 2008-12 provides interim guidance concerning the scope of the penalty provisions of the preparer signature requirement. The guidance identifies the return and refund-claim forms that must be signed by a tax return preparer to avoid preparer penalties under the current and contemplated regulations. Additionally, the notice states that if more than one tax return preparer is involved in the preparation of a return or claim for refund, the preparer with primary responsibility for the overall substantive accuracy of the return is the tax return preparer for purposes of the preparer signature penalty provisions. Notice 2008-13 provides guidance on several issues:

• Relevant categories of tax returns or claims for refund for purposes of section 6694

• The definition of tax return preparer for purposes of the return preparer penalties

• Standards of conduct applicable to tax return preparers for disclosed and undisclosed positions taken on tax returns

• Interim penalty compliance obligations applicable to tax return preparers

The “More Likely Than Not” Standard

The recent legislation introduces a number of new issues and questions—chief among them is the heightened standard now imposed on tax return preparers only. Mike Dolan observed that the crucial element of the code change is the replacement of the original standard with “more likely than not.” “It’s easier to say than to know exactly what it means,” he said. “The injection of the ‘more likely than not’ standard for the preparer is at the heart of the potential disconnect between the taxpayer and the preparer.”

Chris Rizek agreed, “That’s where a real problem is…Treasury is in a quandary [because] the standards now are higher for return preparers than they are for taxpayers.” He noted that, generally, unless the position involves a tax shelter, the taxpayer needs only substantial authority to avoid penalty, whereas the return preparer is now required to disclose that same position to avoid penalty.

“A lot of these issues were there in the prior statute, [but] people didn’t really pay a lot of attention to it,” said Rizek. “The standards were in the right order: the taxpayer standards were higher than the tax return preparer standards, which I think is logical because the return preparer does not have full access to all the facts the way the taxpayer does, and it’s the tax-payer’s liability that is being reported, so [he or she] should bear the ultimate responsibility for the return.”

Rizek said many of the regulatory concepts had been lingering under the old statute: non-signing preparer, substantial portion of the return, the implications of information from third parties. “These issues have been in there for a long time, but they weren’t as critical because the standard was less stringent.”

Increased Penalty

“And then there’s the penalty,” Dolan said. The penalty under the old regime was USD250for an undisclosed tax position if an income tax preparer knew, or reasonably should have known, of an understatement of liability on a return or refund claim due to a position that did not have a realistic possibility of being sustained on its merits. Under the new law, the heightened standard for undisclosed tax positions is complemented with an increased penalty. Tax return preparers are now subject to a penalty of the greater of USD1,000 or 50 percent of the preparer’s fees for undisclosed tax positions failing to meet the “more likely than not” standard.

Rizek said, “…while we don’t like to think people make their determinations based on the amount at risk, nonetheless because the fine was small and because the IRS rarely enforced it… these kinds of issues were sort of glossed over.” Now, Rizek said, “Suddenly people really went back and refocused on these things, and that’s the source of a lot of the angst that Treasury and the IRS have heard from taxpayers.”

“You’d like to think that, as a responsible practitioner, the amount of a penalty does not influence behavior. Well, the government thought it might influence behavior,” said Dolan.

Penalty Exceptions

Soucy pointed out that Notice 2008-13 contains four exceptions to the requirement that a tax return preparer should possess a reasonable belief that a tax position would “more likely than not” be sustained on the merits.

Until further guidance is issued, Notice 2008-13 states that a signing tax return preparer shall be deemed to meet the requirements of the heightened preparer penalty standards with respect to a position for which there is a reasonable basis but for which the signing tax return preparer does not have a reasonable belief that a tax position would “more likely than not” be sustained on the merits, if one of the following four conditions is met:

• The taxpayer discloses the position

• The preparer provides the taxpayer with a return that includes disclosure

• Where the position is supported by substantial authority, the preparer advises the taxpayer (and documents the advice) of the difference between the taxpayer penalty standards and the preparer standards

• In the case of a potential tax shelter transaction, the preparer advises the taxpayer (and documents the advice) of penalty standards for tax shelters and their difference, if any, from those of the preparer standards.

The fourth case would protect the preparer who was not in a position to know whether a transaction has a significant purpose of avoidance or evasion of federal income tax, Soucy said. “They may suspect a transaction has significant purpose, but ultimately the preparer cannot in all instances get into the taxpayer’s head.”

Soucy noted that Treasury and the IRS requested comments in Notice 2008-13. Treasury intends to overhaul the entire regime. In particular, it is working to clarify the rules for non-signing preparers. She said Treasury also would review the “more likely than not” standard, which was derived from the section 6662 regulations regarding the “more likely than not” requirement applicable to taxpayers for tax shelter positions.

Non-signing Preparers

Another significant question that has emerged from the new law and resulting increased focus on tax return preparer penalties is the definition of and the application of the new standards to a “non-signing preparer.”

Non-signing preparers are a problem, Rizek said. “[It] is sort of a creature of the regulations… Congress really didn’t know there was a concept of a non-signing preparer.” If law firms are caught by the rules, “it’s usually as a non-signing preparer.”

Gutman commented, “I’m sure you have a lot of tax directors who have taken advice from a lot of sources [and the tax directors] have not always seen that advice in the context of, ‘Well wait a minute, this is a non-signing preparer and now under this new standard he is going to have an obligation to disclose.’”

Part of the reason for this shift in focus, Rizek said, “…is that [preparers] used to be able to proceed relatively blithely if they were above the ‘realistic possibility’ standards.” Under the new standard, a taxpayer may have a variety of potential positions, each of which could have substantial authority but might fail under “more likely than not.” “That kind of opinion suddenly, at least theoretically, subjects the preparer to a section 6694 penalty if the position is not disclosed.”

That, Rizek explained, creates a conflict between the practitioner or the non-signing preparer and the taxpayer. To avoid penalty, the non-signing preparer would generally need the position to rise to a “more likely than not” standard—or be disclosed. But the taxpayer would need the position to rise only to substantial authority.

Soucy agreed that it is important to define preparers who do not sign the return. A determination of whether a person has prepared a substantial portion and is thus considered a tax return preparer will depend on the relative size of the deficiency attributable to the portion prepared by the preparer. The government specifically has requested comments to help draw a brighter line, she said.

Soucy noted that the government drew a distinction between signing preparers and non-signing preparers in the interim penalty compliance standards as an attempt to bridge the change in the tax return preparer penalties and the regime governing the taxpayer penalties. However, she stated that “[t]hese rules are interim in nature and we need to do a lot more thinking.”

Interplay with Circular 230 and FIN 48

Revisions to Circular 230, proposed in September 2007, incorporated the “more likely than not” standard. According to Soucy, “The existing rule in [Circular 230 section] 10.34 had incorporated the ‘realistic possibility’ standards that existed in section 6694, and we thought there is a policy reason for directly making these two provisions related.” But she noted that in-house practitioners not now subject to section 6694 would be subject to its standard “via the back door of Circular 230, and that’s a very interesting question that I think we need to further consider.” Treasury may review the connection in those standards, particularly because other provisions could subject practitioners to overlapping penalties.

Gutman noted that FIN 48 introduced into the financial accounting world the notion of reaching a “more likely than not” standard with respect to the financial reporting of uncertain tax positions, and he questioned the interplay between the analyses performed under FIN 48 and the work that may potentially need to be performed by tax return preparers to comply with the new preparer penalty standards.

“You can’t ignore that there are two delivery processes that are going at the same objective, which is trying to determine whether or not a tax position meets ‘more likely than not,’ and I don’t have any way of understanding how those could proceed on fundamentally different tracks,” said Dolan. “They might produce a different level of transparency—a [disclosure form] 8275 or an inclusion in a footnote—but I don’t see how the process can be any different.”

Rizek said that the fact that a preparer may rely in good faith on information from a third party to believe that the position meets the “more likely than not” standard, may also allow the “tax side” to rely on analyses by the auditors, without incurring section 6694 exposure. But whether the auditors can rely on the tax practitioners is a different subject.

The question is whether the standards of the tax return preparer penalties and FIN 48 “are truly the same” and are completely objective, Soucy said. “I think in section 6694 [tax return preparer penalties] there is certainly a subjective element. So I think it certainly is questionable if people will interpret them exactly the same.”

“There may well be legitimate reasons to differentiate,” Dolan said, “but…you kind of have to go down some parallel level of analysis, because you’re getting to roughly the same kind of result.”

On one hand, Rizek concluded, if the taxpayer standard is raised to “more likely than not,” then it will be simpler for the preparer and for the external auditors. “On the other hand, simplicity is going to come along with its own risks to all parties.”

About the Tax Governance Institute (TGI)

Established by the U.S. audit, tax and advisory firm KPMG LLP, the Tax Governance Institute is an open forum for corporate management, stakeholders and government representatives to share knowledge regarding issues relating to management of corporate tax risk, including transfer pricing risk, tax considerations when converting from U.S. GAAP to IFRS and accounting for tax uncertainties in current tax law.

Tax Credit To Help Atlanta HomeBuyers In the midst of one of this countries deepest recessions comes one of it’s greatest opportunities, for new homebuyers. With mortgage rates and housing prices at an all time low, there has never been a better time to buy a new home. And The American Recovery and Reinvestment Act of 2009 has provided yet another tool to help Atlanta families on the road to homeownership. Along with securing a home loan and a good real estate agent, Atlanta Homebuyers should begin planning now to take advantage of a new tax credit that will supplement, or even provide, the downpayment for that new home.
The following section will provide questions and answers to help new homebuyers understand how the tax credit can, and will, work for them.

Am I eligible for the tax credit? First-time home buyers purchasing any type of home—new, resale or foreclosure—are eligible for the tax credit. A home purchase must occur on or after January 1, 2009 and before December 1, 2009, to qualify for the tax credit. The qualifying purchase date is the date when closing occurs and the title to the property transfers to the new home owner. Do I qualify as a first-time home buyer? A “first-time home buyer” is defined as a buyer who has not owned a principal residence during the three-year period prior to the purchase. The definition applies to the homeownership history of both the home buyer and his/her spouse, for married homebuyers. For example, if you have not owned a home in the past three years but your spouse has owned a home in that time, neither you nor your spouse may qualify for the first-time home buyer tax credit. However, unmarried joint purchasers may assign the tax credit to whichever one qualifies as a first-time homebuyer (i.e. a parent purchases a home with a son or daughter). Also, a homebuyer may still qualify as a ‘first-time’ homebuyer if the property they own is a vacation home or rental property, and not used as a principal residence. How will my tax credit be calculated? The tax credit is calculated as 10 percent of the home’s purchase price up to a maximum of $8,000. Is there an income limit for the tax credit? Yes. Single taxpayers have an income limit of $75,000; the limit for married taxpayers filing a joint return is $150,000. For homebuyers with a modified adjusted gross income (MAGI) of more than $75,000, and filing a single tax return, and $150,000, for married homebuyers filing a joint tax return, the tax credit amount is reduced. As a final adjusted limit, the tax credit amount is reduced to zero for taxpayers with a MAGI of more than $95,000 (single) or $170,000 (married) and is proportionally reduced for taxpayers with MAGIs that fall between these amounts. How do I know my “modified adjusted gross income”? As defined by the IRS, to find the Modified adjusted gross income, or MAGI, a taxpayer must first determine their “adjusted gross income” or AGI. The AGI is the total income for a year minus certain deductions, not including itemized deductions from Schedule A or personal exemptions. On Forms 1040 and 1040A, the AGI is the last number on page 1 and first number on page 2 of these forms. For Form 1040-EZ, the AGI appears on line 4 (as of the 2007 form). Please note that the AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains. The modified adjusted gross income (MAGI) is determined by adding certain amounts of foreign-earned income to the AGI . Please see IRS Form 5405 for more details. If my modified adjusted gross income (MAGI) is above the limit, can I still qualify for the tax credit? Possibly. Depending on your income, you may qualify for a partial credit of less than $8,000, even though your MAGI exceeds the qualifying limits. What is an example of how the partial tax credit is determined? Assume that a married couple has an MAGI of $160,000. The qualifying income limit for the tax credit is $150,000, therefore the couple is $10,000 over the limit. They would Divide $10,000 by $20,000 (the final adjusted limit range) which yields 0.5. They would then subtract 0.5 from 1.0, the result is 0.5. To determine the final first-time home buyer tax credit amount that is available to them, they would multiply $8,000 by 0.5. The result is $4,000. Or, assume that a single home buyer has a modified adjusted gross income of $88,000. The home buyer’s income exceeds $75,000 by $13,000. They would Divide $13,000 by the adjusted limit range of $20,000 which yields 0.65. When they subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the home buyer is eligible for a partial tax credit of $2,800. Please remember that you should always consult your tax advisor for information relating to your specific scenario, as these examples are intended to provide a general idea of how the tax credit might be applied in different instances. How is this home buyer tax credit different from the tax credit that was enacted in July of 2008? The most significant difference is that this tax credit does not have to be repaid. Because it had to be repaid, the previous “credit” was essentially an interest-free loan. This tax incentive is a true tax credit. However, home buyers must use the residence as a principal residence for at least three years or face recapture of the tax credit amount. Certain exceptions apply. How do I claim the tax credit? Is there a form or application to fill out? Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. Specifically, home buyers should complet IRS Form 5405 to determine their tax credit amount, and then claim this amount on Line 69 of their 1040 income tax return. No other applications or forms are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first-time home buyer tests. Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date; it must be a completed purchase. Is the tax credit only for certain types of homes? Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences. What does it mean that the tax credit is “refundable”? The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit. For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed). If I have already filed to receive the $7,500 tax credit on my 2008 tax returns, for a home I purchased in early 2009, can I submit a claim for the new $8,000 tax credit instead? Home buyers in this situation may file an amended 2008 tax return with a 1040X form. You should consult with a tax advisor to ensure you file this return properly. Do I still qualify for the tax credit if I hired a contractor to construct a home on a lot that I already own? Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been “purchased” on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after January 1, 2009 and before December 1, 2009. In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date. If I finance the purchase of my home under a mortgage revenue bond (MRB) program, can I still claim the tax credit ? Yes. The tax credit can be combined with the MRB home buyer program. Note that first-time home buyers who purchased a home in 2008 may not claim the tax credit if they are participating in an MRB program. Can I claim the tax credit even if I am not a U.S. citizen? Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of “nonresident alien” in IRS Publication 519. Is a tax credit the same as a tax deduction? No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS. A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, the taxpayer’s tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800. Can I claim this tax credit for a home I purchased in 2008? No, but if you purchased your first home between April 9, 2008 and January 1, 2009, you may qualify for a different tax credit. Please consult with your tax advisor for more information. If I am in the home buying process, can I access the tax credit money before I file my 2009 tax return? Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment. Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties. Further, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. Some state housing finance agencies, such as the Missouri Housing Development Commission, have introduced programs that provide short-term credit acceleration loans that may be used to fund a downpayment. Prospective home buyers should inquire with their state housing finance agency to determine the availability of such a program in their community. The National Council of State Housing Agencies (NCSHA) has compiled a list of such programs, which can be found here. If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return? Yes. The law allows taxpayers to choose (“elect”) to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount. Taxpayers buying a home who wish to claim it on their 2008 tax return, but who have already submitted their 2008 return to the IRS, may file an amended 2008 return claiming the tax credit. You should consult with a tax professional to determine how to arrange this. If I purchase a home in early 2009, can I choose whether to use the 2008 or 2009 tax credit, depending on which amount is the largest? Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.

For more information, or help in using the tax credit for your new home purchase, please contact Atlanta Loan Pro at 678-925-8001, or visit our website for more information.

Statist politicians and international bureaucracies such as the OECD and UN routinely attack tax havens, claiming that they lead to “harmful tax competition.” Yet at no point do critics bother to provide any evidence for this claim. This mini-documentary from the Center for Freedom and Prosperity looks at the empirical data and scholarly research and reports that tax havens actually have a very positive impact on the global economy.

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