Up A Notch

NYS Officially Delaying Tax Refunds

2010-03-20T22:25:00.005-04:00

It's official: NYS has hit the $1.25 B limit on tax refunds for the financial year ending March 31, 2009 and will NOT be issuing any more refunds until after April 1.

I've written about this possibility before so...deal with it.

The Clock is Ticking for 2006

2010-03-07T20:26:00.002-05:00

If you haven't filed your income tax return for tax year 2006 and you are expecting a refund, the clock is ticking. You have until April 15, 2009 to file that return and get your refund. If you file after 4/15/10, you will NOT get any refund that may be due to you. Period.

Better Than New Car Smell...

2010-02-21T22:09:00.003-05:00

...is the last car payment!

The '04 Elanta is now mine! Just shy of six years old, less than 45K miles, and in great shape. Let's see how much I can now save toward the next one!

Violence is NOT the Answer

2010-02-20T12:29:00.000-05:00

We send our thoughts and prayers to the employees, families, friends, and neighbors of those involved in the attack on the Internal Revenue Service’s office in Austin, Texas.

More on NYS Tax Refunds

2010-02-18T06:22:00.007-05:00

This is from the Albany Times Union:

The state currently limits the amount of tax refunds it pays in the first three
months of the year to $1.75 billion. Paterson is considering lowering that
threshold to $1.25 billion because the state must roll $1.4 billion into next
year's budget to close a current year budget gap.

So far the state has paid out $293 million in 281,000 tax refunds this year.

The state has until June to pay the refunds before they start accruing
interest.

The governor is expected to make a decision in the next few
weeks [regarding delaying refunds].

Many people know that the Federal government pays out refunds like clockwork - publishing a full schedule of refund dates for e-filers through the end of October every year. NYS, however, has consistently refused to issue a similar schedule, but officially never really said why. Here's your answer: until April 1 (the start of the state fiscal year) there is a fixed amount of money available for refunds. So, it's really "first come, first served".

All of this aside, you should still remember: don't spend it until you see it and start planning now to not have to worry about this in the future.

Potential Delay in NYS Refunds: DEAL WITH IT!

2010-02-16T21:58:00.001-05:00

New York State’s Governor has proposed delaying state taxpayers’ refunds to help fill a budget deficit; it appears that the governor has the ability to do this without legislative action. The media keep advising “file early”, with a hint of panic in the air. Here are some other thoughts:

NY is NOT alone! Several states have done this in past years (California) and are doing it this year (Hawaii). This is not a new concept.

Don’t file until you have everything you need! Rushing to file your taxes before you have all of your information from financial institutions will inevitably lead to the need for amendments later on.

Stop giving the state (or the Feds for that matter) a free loan! If you’re getting a state refund of more than about $100 per adult, you are over withholding and simply giving the state an interest free loan over the course of a year. Go to you personnel office and change your state withholding to reduce your refund next year.

Are you using your tax refunds as a way to save money? Grow up and learn to use a piggy bank or a savings account! Put aside $10 every pay period and you have $260 at the end of the year, regardless of whether or not NYS will be sending out checks or vouchers.

New York State’s government may have gotten itself into a fine pickle with its budget, past tax cuts, the recession, etc. And those of us who live here know that there’s very little that we can do about the state’s problems. But you can take control of your own financial situation. Stop depending on the federal or state government to save money for you – learn to do it yourself.

States and the Feds are Increasing Tax Scrutiny

2010-01-28T21:10:00.005-05:00

As the Federal government and various states struggle with deficits, they are calling on their tax and finance divisions to increase compliance with federal and state tax laws. That mean increased scrutiny in many areas.

A recent article in the Times Union, the newspaper serving Albany, NY, talks about New York State’s push to hire more auditors, compliance officers, and computer experts in the Department of Taxation and Finance to increase efforts to “ensure everybody is paying their fair share of taxes,” according to a Budget Division spokesman.

Along with increased efforts in sales tax collection, including internet sales, the article quotes a “source with knowledge of the situation” that:

“Taxation officials are also stepping up oversight of private party auto
sales, where individuals are the buyers and sellers of vehicles.
“Tax officials are increasingly comparing the sales tax paid when a vehicle
is registered with the ‘book value,’ or broadly published prices of cars sold
and registered.
“For example, if the $6,000 price you declared on that 2005 Jeep you bought
from your brother-in-law is significantly less than the $12,000 it's probably
worth, you might get a letter from the state.”

An Agency spokesman said that while the state has long kept an eye on such transactions, the agency is increasing surveillance and that a program that checks every private party vehicle sale would require legislation.

NYS Will NOT Send Out 1099-Gs

2010-01-25T20:31:00.004-05:00

This out from NYS today:

"Form 1099-G, Statement for Recipients of State Income Tax Refunds from the New York State Department of Taxation and Finance is now available electronically. We will no longer mail Form 1099-G statements to taxpayers beginning this filing season. By supplying this information
electronically, we will save approximately $700,000.

"Taxpayers who need to know their 2008 New York State refund amounts to complete federal returns can:

check their records
get the form online, using our 1099-G online service at http://www.tax.state.ny.us/pit/1099g.htm
call (518) 485-0799 (in-state callers without free long distance call 1 866 698-2946)"

If you itemized your deductions last year (Schedule A), claimed your NYS income taxes paid, and got a NYS refund, you will need to claim that refund as income on your federal return this year. If you're returning to your same preparer this year, he or she should have the amount of your state refund on file. If you are going to a new preparer or service, make sure to take a copy of your return from last year to your appointment.

2010 Tax Planner/Checklist

2010-01-24T09:00:00.000-05:00

The 2010 Tax Planner/Checklist has been mailed to clients and uploaded here. Click here or on the link in the sidebar.

Remember: not all these items will apply to you – simply check those that you know you’ll need. You should receive most of this information by the first week in February.

2010 Notch Consulting Tax Preparation Fees

2010-01-23T17:22:00.003-05:00

As noted in a previous post, many storefront tax preparation operations have pricing that varies based on the time within the tax season and on the complexity of the return (e.g., the base price includes, say, three W-2s; you are changed extra for each one over the first three.)

Notch Consulting has a different fee structure and the fees for the 2010 are presented below. These fees are valid for all of 2010, regardless of when you file your return (rush charges may apply if you decide to wait until April 14, need to file early for STAR rebates, etc.)

Basic Personal Tax Return (Federal and one State, including e-file) = $65
Additional State(s) = $25 each
Additional Schedules/Forms = $25 each
Federal Schedules L or M = $10 each
Initial Depreciation Set Up = $15 each
Extension to File (Federal and one State) = $10
Additional Extensions = $5 each
Amendments = starting at $75
New York State Surcharge* = $2
Other - Additional charges may apply for rush work, extensive research, etc. Free estimates are available on request.

* Starting in 2010, tax preparers must be registered and pay a yearly fee to prepare signed NYS returns. This fee covers that cost without penalizing residents of other states.

2009 Charitable Deduction for 2010 Haiti Relief Donations

2010-01-23T16:13:00.004-05:00

A new tax relief law allows people who contributed in 2010 to charities providing earthquake relief in Haiti to take a tax deduction for the contribution on their 2009 tax return instead of their 2010 return. This means you can receive an immediate tax benefit, rather than having to wait until you file next year’s return. Certain requirements apply:

Only cash contributions made to these charities after Jan. 11, 2010, and before March 1, 2010, are eligible. This includes contributions made by text message, check, credit card or debit card.
The contributions must be made specifically for the relief of victims in areas affected by the Jan. 12 earthquake in Haiti.
You may deduct these contributions on either your 2009 or 2010 returns, but not both.

In addition, the general rules about tax deductions for charitable donations apply:

You must itemize your deductions on Schedule A; those claiming the standard deduction, including all short-form filers, are not eligible.
You must keep a record of any deductible donations you make.
For donations by text message, a telephone bill will meet the requirement if it shows the name of the donee organization and the date and amount of the contribution.
For cash contributions made by other means, be sure to keep a bank record, such as a cancelled check, or a receipt from the charity showing the name of the charity and the date and amount of the contribution.
Contributions to foreign organizations generally are not deductible.

Make sure your contribution goes to a qualified charity. Most organizations eligible to receive tax-deductible donations are listed in a searchable, online database available under Search for Charities. Some organizations, such as churches or governments, may be qualified even though they’re not listed on IRS.gov.

Your Initial Appointment with a Tax Professional

2010-01-11T09:00:00.000-05:00

If you have made a decision to use a tax professional and have chosen a preparer, you should set up an initial appointment. Use the following lists to help you make the best use of your tax appointment when meeting with a tax professional.

Items to Bring to Your Individual Tax Preparation Appointment

W-2s from all jobs.
Forms 1099 from all investments and bank accounts (be sure they are all accounted for).
Property tax receipts.
HUD-1 form if you purchased a home.
Form 1098 reporting home mortgage interest.
If you started a new business, all of the information listed below (see checklist for businesses).
Form K-1s from any estate(s), partnership(s), or S corporation(s) from which you’ve received an inheritance. Call and check if missing any, as these often do not arrive until March or April.
Receipts for medical expenses (if excessive).
Records of gambling profits and losses. To offset reportable profits, you must have an accurate log of expenses and losses including amounts, dates, and locations.
Itemized record of charitable gifts. A list of “12 shirts, 3 suits, and 2 jackets” as opposed to a “bag of clothes,” will allow a true value for the items. Charitable gifts over $500 must include a signed receipt from the charity.
A copy of last year’s tax return.
A list of financial goals, if seeking counsel.

Items to Bring to Your Business Tax Preparation Appointment

Total business miles driven during the tax year (and a log to substantiate your claim).
Time-usage amounts allocated between business and personal use for items such as home computers, cellular telephones, aircraft, boats, dual-use DVD players and cameras, country club expenses, and vacation homes.
Date, cost, and description of any new equipment or autos for a business or rental property with an item cost of over $500 (depreciable items). Dates, descriptions, and amounts are a must.
Records of any sale, trade, or discard of any items that were on a depreciation schedule in prior years.
Business expenses broken down into categories, including documentation for justification. Meals and entertainment must be categorized separate of other expenses because of their special tax treatment.
List of all your assets in acquisition date order along with depreciation records.
Copy of your balance sheet and profit and loss statement for the year (from your bookkeeping staff or printed from your computerized bookkeeping program).
Records including name, address, social security number, and all amounts over $600 paid to any noncorporate independent contractors (this is for Forms 1099 that contractors must receive by January 30 unless they have already been filed).
Copy of last year’s tax returns.
Year-end payroll reports and employee W-2s.
Year-end lender statements showing interest expense on loans for vehicles, equipment, buildings, lines of credit, etc. If the lender did not calculate the interest expense for you, bring in your original loan contract.
Year-end credit card statements showing interest paid on unsecured business expenses.
Year-end product inventory balance at cost from your detailed inventory count.
Year-end aged accounts receivable and aged accounts payable reports if you are using the accrual basis of accounting.
The business owner’s health insurance premiums and other fringe benefit payments separated from disbursements for the company’s other employees.
Details on company charitable contributions including specific items donated and method used to determine value.
Details of cash or other property loans to or from the company, including repayment terms and interest rates, etc. This includes loans to or from officers and employees.
Name, address, social security number, and phone number for each of the company’s owners (new clients only).
Year-end bank reconciliation for the company’s business bank accounts (does not apply to sole proprietors).
Any IRS or state tax board correspondence you have received.
A list of questions you may have or any other projects for which you need assistance.
Any other documents you feel may be needed or that you want to discuss.
For S corporations, C corporations, limited liability companies, and limited partnerships, dates and amount of any franchise tax, and tax periods for which the payments apply.
Remember: Calendar-year corporation tax returns must be filed by March 15. Partnership, limited liability company, and sole proprietorship returns are due by April 15.

NY Strikes Again – Increase in Sales and Use Tax

2010-01-10T16:20:00.003-05:00

Doing a New York State tax return yesterday and, lo and behold, the state’s Sales and Use tax (calculated by chart) has gone up between 3.39% and 33.33%:

If your federal adjusted gross income is… % Increase
Up to $15,000 - 33.33%
$15,001 - $30,000 - 6.25%
$30,001 - $50,000 - 4.55%
$50,001 - $75,000 - 6.90%
$75,001 - $100,000 - 4.76%
$100,001 - $150,000 - 3.39%
$150,001 - $200,000 - 4.00%
$200,001 or greater - 12.50%

Turns out, this was part of the budget passed last April (2009).

The NYS Sales and Use Tax is designed to allow the state to recoup revenue lost when a resident purchases items on-line or out of state where sales tax may not be collected.

Industry Designations

2010-01-09T09:00:00.000-05:00

There are a variety of financial designations, each reflecting different areas of specialization and different continuing professional education requirements to maintain the designation. Some of the more familiar designations include:

Accredited Tax Preparer (ATP). The ATP is a leading national credential for tax practitioners who have a thorough knowledge of the existing tax code and the preparation of individual tax returns with an expertise in comprehensive 1040 issues including supporting schedules, self-employed returns, and ethics.
Certified Public Accountant (CPA). A CPA has a college degree and has passed an exam required for certification. CPAs often focus on preparing business books, financial statements, and tax returns. They can represent taxpayers in an IRS audit.
Financial Planner (FP) and Certified Financial Planner (CFP). Financial planners specialize in assessing individual needs, investments and “big-picture” planning to help individuals achieve financial goals. To be certified, a CFP must pass a comprehensive test in addition to meeting education, experience, and ethics requirements.
Enrolled Agent (EA). EAs, like CPAs and attorneys, are qualified to represent taxpayers in an audit before the IRS. EAs are required to pass an extensive tax exam administered by the IRS, undergo a stringent background check, and maintain sufficient continuing education credits in taxation to retain their certification.
Tax Attorney. In addition to an extensive education to obtain a law degree, tax attorneys must meet additional continuing education requirements. Their expertise lies in the legal issues and litigation surrounding taxes.
Register NYS Tax Preparer. Starting in 2010, tax preparers filing NYS tax returns are required to register with the NYS Department of Taxation and Finance. Register tax preparers must sign returns and supply their registration number on the return.
Unlicensed tax preparers. Many tax preparers do not have designations, yet most are trustworthy, knowledgeable, and have prepared tax returns for years. The majority of these preparers are dedicated workers who continually upgrade their education and have a genuine interest in helping people with their finances. Because of varying competencies and skill levels, check sources and references diligently.

What to Consider When Hiring a Tax Preparer

2010-01-07T09:00:00.000-05:00

More on choosing a professional tax preparer...

Know what you’re looking for to determine the type of preparer and level of expertise that’s right for you. This will quickly narrow your focus.
If proclamations sound too good to be true, they probably are. Research, and don’t take chances.
Seek out referrals from those you trust then, begin considering preparers your family and friends recommend. A good preparer will be forth-coming with references. Check them.
Find out how much experience the preparer has in preparing taxes.
Is the tax preparer a member of a reputable industry association such as the National Association of Tax Professionals (NATP)? Association membership indicates a mutual commitment to excellence in the profession and a dedication to stay current on tax law.
Does the preparer participate in continuing education to keep current?
Do you understand and feel comfortable with the fee structure? Find out what is and is not included in the estimate.
What happens in the event of an audit or IRS questions? Does the estimate include follow-up services or are there additional fees? Clarify expectations.
Does the preparer have an industry designation such as Enrolled Agent (EA) or Accredited Tax Preparer (ATP) and do you understand what it means?
Check with the Better Business Bureau for complaints. In any group, some group members deviate from the ethical norm.
Are you comfortable with the preparer you’re considering? He or she should answer your questions and deliver accurate, timely service, standing behind and signing their work. (Always check for a signature on the return before leaving any preparer’s office.)

Hiring a Tax Preparer . . . Is it Only a Matter of Saving Time, or Are There Other Benefits?

2010-01-05T09:00:00.000-05:00

When should you seek professional services and under what circumstances? Many American taxpayers wrestle with these questions. If you’re one of them, this evaluation will help you determine what’s right for you.

Assess Your Needs

Form type. Will you file an EZ return or an itemized return? Read through the itemized return and see how many categories apply to your financial situation.
Time and frustration. Do you want to spend your time preparing taxes? (Government statistics state that an itemized return with interest and dividends takes upwards of 28 hours to prepare.)
Complexity. How complex is your tax return? Complexity increases on returns that include investments, dividends, property acquisition or liquidation, business ownership, tuition, and an array of other items.
Understanding of tax law and credits. How confident are you of your tax knowledge? Do you stay current with tax law changes?
Financial planning. Would you gain insight on your financial future with an expert?
Familiarity. Do you want someone familiar with your tax situation to be able to represent you in the event of an IRS audit?

Federal Registration of Tax Preparers

2010-01-04T20:03:00.010-05:00

The IRS has released their recommendations for registering paid preparers.

The IRS will require all individuals who are required to sign a federal income tax return as a paid preparer to register and obtain a preparer identification number (PTIN). Competency testing will be required for all paid preparers who are not enrolled agents, CPAs, or attorneys. The IRS will offer two examinations both based on 1040 returns only: one exam will cover wage and nonbusiness returns in the 1040 series and the other will cover wage and small business returns in the 1040 series. Return preparers will be required to take one of the two exams. The IRS is recommending that return preparers be given three years from the initial implementation date to pass the required exam. There will be no grandfathering of any kind based on years of experience. In addition, the IRS will require 15 hours of annual continuing professional education consisting of three hours of federal tax updates, two hours of ethics, and ten hours of general federal taxation.

The IRS plans to implement the registration requirements in 2011. These regulations do not affect the 2010 filing season. Read all the recommendations here.

(Editorial comment: While I agree with the need for registering all paid tax preparers and putting them under Treasury Department Circular 230 rule, the thought of studying for and passing an exam covering all of this material simply exhausts me. I'm getting too old for this! And, from a pratical standpoint, again, this is going to dramatically raise preparation costs: aside from testing costs, preparers will be required to renew their federal registration every three years (at a cost) and secure 15 hours of continuing education every year (CPE's average about $20-$25 per hour). Add state registration requirements, professional association and certification fees, software and e-file fees, and day to day business costs and it becomes more and more difficult to offer reasonably priced tax preparation services. Or to put it another way, independent preparers will be raising their fees closer to those charged by storefront preparation services and CPA firms.)

Boring, But Required II

2010-01-03T16:07:00.004-05:00

Starting in 2010, New York State now requires professional tax preparers to register with the state's Department of Taxation and Finance (and pay a yearly $100 registration fee, by the way*). The 2010 NYS Tax Preparer Certification of Registration for Notch Consulting is now posted on-line and can be viewed by clicking on the link under Notch Consulting Information.

*Editorial Comment: This new state requirement will no doubtly cause the price of professional tax preparation in New York state to rise - this registration cost simply cannot be absorbed by most firms. To ensure that our customers understand where these additional costs are coming from, Notch Consulting will be itemizing this cost on invoices beginning in 2010.

It’s Over!!!

2010-01-03T14:59:00.001-05:00

It’s January, and a lot of people start thinking about their tax return. But, you have to remember something: the ball dropped on Times Square two days ago so IT’S OVER! Basically, there is only one thing that you can do now that will affect your 2009 Income Tax Return: if you are self employed you can set up and contribute to a SEP IRA or, if you qualify, you can contribute to an individual retirement account (IRA). That’s it. Period.

However, it’s never too early to start planning for your 2010 income tax return.

NYS Great Appliance Swap Out

2009-12-09T15:22:00.004-05:00

The NYS Great Appliance Swap Out is designed to use stimulus funds to boost the economy and energy efficiency. The program:

Will run from February 12 to 21, 2010.
Applies only to EnergyStar certified appliances. (No rebates for dryers, because none are EnergyStar certified.)
Offers rebates of $75 or $105 rebates on refrigerators, $75 or $100 on washing machines, and $50 or $75 on freezers, with larger rebates going to those who recycle existing appliances.
A three-appliance package with a dishwasher earns a rebate of $500 to $550.
Requires that buyers attest in writing that the purchased appliances are replacing existing appliances.

For a larger article, see this link.

More information will be available at these two sites as the program time gets closer:

http://www.getenergysmart.com/nyapplianceswapout/

http://www.nyserda.org/economicrecovery/appliance.asp

Note that, even though this program is funded with Federal Stimulus Funds, it is being administered by individual states. Each state can have it's own program with individual dates and requirements.

2010 Mileage Rates

2009-12-06T17:16:00.003-05:00

Citing lower driving costs, the Internal Revenue Service cut the standard rate taxpayers may use for deducting mileage driven for business purposes, from 55 cents a mile this year to 50 cents starting in January.

In addition, the standard mileage rate for driving for medical or moving purposes will be 16.5 cents a mile in 2010, down from 24 cents in 2009. The rate for deducting the costs of driving for a charitable organization will remain 14 cents a mile (Congress, rather than the IRS, sets that rate.)

To determine the mileage rate, the IRS hires an independent researcher to analyze driving costs, including fuel prices, car maintenance and registration. Taxpayers can opt to use the standard rate or they can keep track of their expenses.

NYS Consumer Bill of Right Regarding Tax Preparers 2010

2009-11-27T17:38:00.003-05:00

All NYS Tax Preparers are required to provide this document to their clients. If you're already a client of Notch Consulting, you will receive your copy with the January Checklist mailing. If you become a new client this year, you will receive it as part of your "new client package". Meanwhile, you can find the document in the right hand sidebar of this website and here.

Bartering: Yes, It’s Taxable

2009-11-25T19:49:00.003-05:00

One of the first things you learn in “tax school” is that all income is taxable – even if it’s ill-gotten or illegal. And, yes, when I worked in a storefront tax shop, a customer asked how she should report the sales from her pot business (creative Schedule C, no doubt).

In its simplest form, bartering is the trading of one product or service for another, usually with no exchange of cash. With the economy in its present state, the IRS has seen an increase in bartering exchanges, and, as a result, has created a web page with information on the reporting requirements and other related tax consequences of these arrangements.

From the IRS site:

If you engage in barter transactions you may have tax responsibilities. You may
be subject to liabilities for income tax, self-employment tax, employment tax,
or excise tax. Your barter activities may result in ordinary business income,
capital gains or capital losses, or you may have a nondeductible personal loss.
Barter dollars or trade dollars are identical to real dollars for tax reporting.
If you conduct any direct barter - barter for another’s products or
services - you will have to report the fair market value of the products or
services you received on your tax return.

New Penalties for Late Business Tax Filings

2009-11-18T09:00:00.001-05:00

Another item from the Worker, Homeownership, and Business Assistance Act of 2009, signed into law on November 6, 2009: new penalties for failure to file Forms 1120-S or 1065.

Partnerships that fail to file a required return will be assessed a penalty of $195 per partner for each month, or fraction of a month the failure continues, up to a maximum of 12 months.

S corporations that fail to file a required return will be assessed a penalty of $195 per shareholder for each month, or fraction of a month the failure continues, up to a maximum of 12 months; effective for returns filed for tax years beginning after December 31, 2009.

All the more reason to work with your accountant to make sure your business returns are filed on time (generally March 15).

Extending and Expanding the Homebuyer Credit

2009-11-15T17:05:00.003-05:00

On November 6, 2009, President Obama signed into law the Worker, Homeownership, and Business Assistance Act of 2009. The new law liberalizes and extends the first-time homebuyer credit. Here are the highlights:

First-Time Homebuyers

The $8,000 credit is extended for purchases made before May 1, 2010. For this purpose, a first-time homebuyer is a taxpayer (and, if married, the spouse of the taxpayer) who has not owned a principal residence at any time during the previous three years. For qualifying taxpayers, the credit also applies to purchases before July 1, 2010, provided the taxpayer has entered into a written binding contract to close on the purchase before May 1, 2010. Effectively, this provision allows taxpayers an additional two months to close.

The first-time home homebuyer credit phases out for taxpayers with a modified adjusted gross income between $125,000 and $145,000 ($225,000 and $245,000 for joint filers) for the year of purchase; effective for purchases after November 6, 2009.

Existing Homeowners

A taxpayer is eligible for a credit up to $6,500 ($3,250 if separate returns are filed) provided the taxpayer (and if married, the taxpayer’s spouse) has owned the same principal residence for any five consecutive years during the eight-year period ending on the date of purchase; effective for purchases after November 6, 2009.

New Limitations

For both credits there are new limitations that effective close some highly publicized loopholes (these are all effective for purchases after November 6, 2009):

No credit is allowed if the purchase price of the home exceeds $800,000.
No credit is allowed unless the taxpayer has attained age 18 as of the date of purchase, unless the taxpayer is married and his or her spouse is age 18 or older.
No credit is allowed if the taxpayer is claimed as a dependent on another taxpayer’s return for the tax year of purchase.
No credit is allowed unless the taxpayer attaches a properly executed copy of the settlement statement that is used to complete the purchase to his or her 2009 return.

NOTE: This means that the closing statement is required to be attached to the return for any qualifying new home purchase made during calendar year 2009, where the credit is claimed on the 2009 return. It does not appear that closing statements need to be attached to amended 2008 returns. ALL returns that claim the homebuyer credit are being scrutinized in detail by the IRS. If you plan on claiming this credit, count on a delay in processing your return.

Storefront Tax Prep Charges

2009-11-09T19:31:00.004-05:00

If you were to walk into a storefront tax preparation service and ask “how much will you charge to prepare my taxes” you will get a variety of nebulous answers that usually start with: “Well, that depends on how complicated your return is…”. If you request a complete estimate, you will be asked a series of questions (e.g., How many W-2’s do you have? How many dependents?) and then you will be given a range: “Roughly $XYZ, but we won’t know for sure until we do the entire return”.

There are a couple of reasons for this crazy pricing logic. First and foremost, tax preparation fees vary widely at storefront services depending on the time of year. You can take the exact same return in each week and have it prepared and the fees will be different each week. Generally, fees are the highest during “peak” (roughly the first 21 days in February) and the last seven days before the April 15 deadline.

Second, storefront tax preparation fees are calculated by the preparation software based on how complex your return may be, including how many items you bring in. For example, tax prep software will charge a “base fee” that includes a fixed number of W-2s – say three. But if you come in with five W-2s, you will be charged extra for those two additional W-2s (even though they are all added up to one number on the return).

After you have your return done, you are usually given an invoice with a total amount due and no breakdown of the charges. This breakdown IS available and you should make a point of asking for a copy.

Though we at Notch Consulting establish our tax preparation fees for the entire year a couple of weeks before the tax season starts, we do check in with the storefronts to see what some of the going rates might be. And occasionally, a new client will bring in an invoice from a previous year. That’s where the information below comes from; a new client brought in their previous year’s return (tax year 2007) – this is the breakdown of what she was charged in early April of 2008 for her tax preparation at a major storefront:

1040 – Federal Base Form -- $106.00
“Interest and Dividends Interview and Determination” -- $14.50
Schedule A – Itemized Deductions -- $52.00
Schedule C-EZ – Profit or Loss from Business -- $43.00
Schedule D – Capital Gains -- $22.00
Schedule SE – Self Employment Tax (two charges totaling) -- $46.00
“Child Tax Credit Worksheet Preparation” -- $30.25
“Taxable Recovery of Previous Deduction” (e.g., adding back in the previous year’s state refund) -- $31.75
4797 – Sales of Business Property -- $43.50
8812 – Computation of additional child tax credit -- $20,50
8880 – Credit for Qualified Retirement Contribution -- $23.25
“Head of Household Interview/Determination of filing status -- $7.00
“Dependency Determination” -- $2.75
NYS IT-201 (Base Fee) -- $49.00
NY – Itemized Deductions -- $21.25
NY – Itemized Deductions Subtraction Adjustment -- $8.00
NY IT 213 – Empire State Child Tax Credit -- $10.00

TOTAL Bill for Tax Preparation -- $529.00

I’m not sure what’s the most ridiculous charge here; I’m torn between the “Itemized Deductions Subtraction Adjustment”, the “Determination of filing status”, and “Taxable Recovery of Previous Deduction”. Anyway you slice it, $500+ for a single year’s tax preparation is a lot of money.

(Note: Notch Consulting’s 2010 Fee Schedule will be available and published here sometime in December 2009.)

New I-Bond Rates

2009-11-05T21:23:00.003-05:00

I have to admit to being surprised when I downloaded the new I Bond rates this evening; I had to go to the government website to confirm them:

The earnings rate for Series I Savings Bonds is a combination of a fixed rate, which applies for the life of the bond, and the semiannual inflation rate. The 3.36% earnings rate for I bonds bought from November 2009 through April 2010 will apply for their first six months after issue. The earnings rate combines a 0.30% fixed rate of return with the 3.06% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). The fixed rate applies for the 30-year life of I bonds purchased during this six-month period. The CPI-U increased from 212.709 to 215.969 from March 2009 through September 2009, a six-month increase of 1.53%.

More than the bond rate...the CPI increase is a bit troublesome. Though the Federal Reserve recently affirmed their commitment to keeping the prime rate down, such a six-month increase in the CPI could be considered a warning shot. And, if the prime rate increases, credit card rates are going to absolutely soar... Forgive my caution.

Full disclosure: In my opinion, US Savings Bonds are a healthy part of a diversified investment strategy.

Winter 2009/2010 "Tax Tips" Now Available

2009-10-30T09:00:00.000-04:00

If you're on the Notch Consulting mailing list, you should shortly be receiving the Winter 2009/2010 Issue of Tax Tips. Topics in this issue include:

Electric Vehicle Credits
Making Work Pay Credit and Pensions
Earned Income Credit
Qualifying Child
Capital Gaines Rates
Section 1202 Gain Exclusion
Incentive Stock Options
Roth IRAs...
...And More...

If you haven't received your copy by the November 1 or if you'd like additional copies to share (there are a few extras), contact Notch Consulting via e-mail (notchconsulting at verizon dot net).

Energy Costs: The Shower

2009-10-28T09:00:00.001-04:00

Thirty years ago - yup, three decades ago - a mentor taught me a valuable lesson. It's going to sound small, but she taught me to shorten my shower time. Back then, I enjoyed 10+ minute showers and she cut me down to five minutes on shear will, determination, and shame.

There have been plenty of advantages to this lesson: time savings, energy savings, money savings. So I'm amazed when I listen to my neighbor - a MAN, by the way - who takes 15 minute showers every day - sometimes twice a day!

Boring, But Required

2009-10-27T19:29:00.005-04:00

Starting next month (November 1), some tax preparers may be required to comply with the Fair and Accurate Credit Transations (FACTA) Act of 2003. Since Notch Consulting bills their clients on a net 3o basis, it could be interpreted that we may be considered a “creditor” with “covered accounts” and thus be subject to the “Red Flag Rules.”

So we have adopted and published a policy and procedure to develop a "customized program for the Company that will identify, detect, and respond to business practices or specific activities referred to as 'Red Flags' that could result in identity theft."

If you're really interested in said policy, there's a link to it on the sidebar on the right of this page. (Note that I have deleted the contact phone number for publication on the web.)

Health Care Isn’t Just About Insurance: Your Health Emergency Plan

2009-10-19T09:00:00.000-04:00

The pain started last Saturday.

(The point of this story is that the current health care debate isn’t just about the availability of health care insurance. It’s also about personal responsibility, smart financial planning, and a Health Emergency Plan.)

By Wednesday, the pain in my jaw, ear, and sinuses was so intense that I could not sleep. I had a very deep, intense infection in a molar that was not responding to antibiotics. The tooth needed to be extracted by an oral surgeon.

Now, I have health insurance, but the dental rider covers exactly one cleaning and exam per year, period. No fillings, root canals, posts, caps, crowns, bridges, dentures, etc. As I sat in the exam room at the oral surgeon’s office, sipping water to ease the pain, I was told that I had to pay up-front for the needed extraction – a $500+ bill. And I had already lost one day of work and would likely loose more for my recovery.

So here’s the question: what would you do in a similar situation?

My solution? Thanks to some advanced planning over two years ago, I have an interest-free line of credit that can be used at several medical providers (in particular, things like dentists, plastic surgeons, etc.). I was able to charge the bill to that account and will be able to pay it off without interest over a period of time. In addition, I have some time ‘in the bank’ so I can still get paid, even though I had to take three unplanned days off from work.

What’s in your ‘Health Emergency Plan’?

Retirement Savings Limits for 2010

2009-10-17T14:54:00.002-04:00

This week, the major news outlets made a big deal of the fact that, for the first time since cost-of-living increases were instituted, Social Security recipients will not be getting a raise in their benefits for 2010. This is a result of the fact that the Consumer Price Index (CPI) actually dropped into the negative numbers - a direct result of falling gas prices over the last few months.

But there are other consequences of the CPI drop. For 2010, the Social Security wage base will remain $106,800, the first time the index hasn’t budged since 1971. The tax rates will not change, either: 6.2% for FICA and 1.45% for Medicare. Self-employed taxpayers will pay 15.3% on the first $106,800 of their net earnings and 2.9% on any amounts above that.

A key cap on retirement plans won’t fall for 2010, despite inflation’s decline. The maximum 401(k) payin will remain $16,500 next year. The formula called for a $500 drop, but IRS decided to keep the ceiling where it is so employers don’t have to reprogram their systems and send out revised payin notices to workers. Individuals born before 1961 can put in as much as $22,000. These payin limits apply to 403(b) and 457 plans, too. And the ceiling on SIMPLEs stays at $11,500.

For more information on these limits, see the IRS announcement.

The High Price of Being a Gay Couple

2009-10-07T09:00:00.001-04:00

Last weekend, The New York Times ran a fairly lengthy analysis of the financial impact on same sex couples resulting from the lack of marital benefits at the federal level.

“…we set out to determine what they were and to come up with a round number — a
couple’s lifetime cost of being gay.
“It was much more complicated than we initially imagined, and that’s probably why we’ve never seen similar efforts. We looked at benefits that routinely go to married heterosexual couples but not to gay couples, like certain Social Security payments. We plotted out the cost of health insurance for couples whose employers don’t offer it to domestic partners. Even tax preparation can cost more, since gay couples have to file two sets of returns. Still, many couples may come out ahead in one area: they owe less in income taxes because they’re not hit with the so-called marriage penalty.”

The authors set up best- and worst-case scenarios, ran them for three states – New York, California and Florida, and then compared the results to the same numbers for married heterosexuals. Along the way there are interesting twists and turns. It’s worth the read.

For those of you living in New York State, check out the Empire Pride Agenda’s Reports and Resources under Marriage and Family Protection for more information.

More NYS Taxes – Oops! Make that “Fees”

2009-10-05T18:56:00.002-04:00

The New York State Department of Taxation and Finance finally posted some information on an upcoming change for tax preparers who prepare NYS tax returns. Included in this past year’s budget bill was a new law that states:

Generally, you must register [with the NYS Tax Department] if you do one or both
of the following:

prepare New York State income tax returns in 2010 as a tax return preparer
help to issue or administer a refund anticipation loan or refund anticipation check

You must pay a $100 registration fee if:

you were paid to prepare 10 or more New York State tax returns in 2009, and will prepare at least one personal income tax return in 2010; or
you will be paid to prepare 10 or more tax returns for 2010.

From a business perspective, I’m guessing that this is going to add at least $1 per return onto the cost of doing business as a tax preparer in NYS.

I do wonder if preparers in states that border NY will have to register just to file the occasional multi-state return? (So far, the Department hasn’t issued any FAQs on the subject.) Also, I’m wondering how the major store-front firms are going to handle this requirement, especially for their seasonal preparers. And, it’s a testament to the lobbying power of the accounting and legal industries that “Certified Public Accountants (CPA) or Public Accountants (PA) currently licensed in New York State, Attorneys currently licensed to practice in New York State, and Employees who are preparing tax returns under the direct supervision of a CPA, PA, or attorney licensed by New York State” are exempt from this registration and free.

The economics of this is fairly simple: the smaller the firm or the fewer returns-per-preparer, the more impact this new fee has on the firm. And as more states and the Federal government contemplate similar registration programs and fees, tax preparers are going to have to consider how to deal with this growing cost. Do we absorb it? Raise our general fees? Make it a line item on our invoices?

October 1st

2009-10-01T09:00:00.000-04:00

OK, folks. If your 2008 tax return is out on extension, you officially have 15 days left to get your act together!

Your income tax return is due on October 15. Period.

We can e-file your return up until about 9 AM on that day. After that, we'll have to file a paper return (which takes longer to process). In addition, if you're due a refund, you're only holding up your own money. And, finally, if you owe money...the interest and penalties are adding up every day that you delay.

Buck up, folks! Make that call to your tax professional.

Cash or Credit - no wait - Credit or No Dinner!

2009-09-28T09:00:00.002-04:00

Here’s an interesting note about a restaurant in New York City: they no longer accept cash.

In the latest encroachment of credit and debit cards onto the greenback's turf, [a] high-end New York City restaurant said goodbye to dollars and cents this week. The message to diners: Tip in cash if you wish, but otherwise, your money is no good here.
"If you don't have a credit card, you can use a debit card," said the restaurant's co-owner… "If you don't have a debit card, you probably don't have a checking account. And if you don't have a checking account, you probably shouldn't be eating [here]."

The co-owner came up with the idea several months ago while on an American Airlines flight. "The flight attendants weren't accepting cash for any of the food," he recalls. "Suddenly, it struck me how unnecessary cash was."

Reaction’s been mixed, but here’s another angle: using plastic, whether it’s credit or debit, cost money. On a debit transaction, the customer often pays a fee to his or her financial institution, on a credit transaction, the merchant pays up to 3% above the cost of the transaction, which you can bet gets added to the cost to the customer in the long run. So, one way or another, going to a no-cash system costs more.

Plus, with an attitude like this owner (“And if you don't have a checking account, you probably shouldn't be eating [here]."), frankly, I wouldn’t want to be eating there. It’s not smart business to pre-judge your customers.

New Refund Option: Saving Bonds

2009-09-23T09:00:00.000-04:00

By now, you should know that you can have your tax refund directly deposited to your checking accounts, savings account, and even your investment accounts. And you can deposit to more than one account (using a separate IRS form). Now comes yet another option.

Next year, filers can opt to take tax refunds in the form of Series I US Savings Bonds. But right now, that might now be a great option. These bonds carry interest rates that are tied to the inflation rate and, currently, these bonds pay no interest because severe deflation wiped out the fixed interest. The interest rate will be reset Nov. 1, but with recent inflation being relatively tame, I bonds that will be issued during the filing season probably won’t carry a high interest rate.

There's also another consideration here: I bonds cannot be redeemed at all for the first 12 months after issue and include a 3 month interest penalty if redeemed within five years of issue. This means that your refund would not be accessible at all for a year and that you'd loose interest if you needed the money before 2015. Also, there currently is a $5,000 limit on the purchase of savings bonds, by type.

I often recommend US Savings Bonds as part of a balanced portfolio of savings, but this just isn't the best time to throw your refund money into I Bonds.

Your FSA for 2010 - Tread Lightly

2009-09-21T09:00:00.001-04:00

If you take advantage of a Flexible Savings Account (FSA) for your medical expenses, keep a watchful eye out on the health care debate, especially as you plan for your 2010 FSA paycheck withholdings.

According to the Kiplinger Tax Letter, the health care reform plan put forth by Finance Committee Chairman Max Baucus (D-MT) would cap the payin limit on health care flexible spending plans at $2,000 starting in 2013 and would eliminate the use of payouts for nonprescription drugs as of 2010.

Again, this is PENDING legislation and NOT LAW YET.

FSA's are a great benefit that allows taxpayers to set aside tax-free money for reinbursement against certain medical expenses. This effectively allows you to take a deduction for medical expenses without the 7.5%-of-adjusted-gross-income floor that is required on a Schedule A.

Since the enrollment period for most of these plans occurs during the fourth quarter of the preceeding year, I can't imagine that a legislative/regulartory change to these plans for 2010 would hold up in court. But, it might be wise to err on the side of caution when planning your deductions for next year and NOT count on reimbursement for over the counter expenses.

Required Use of Electronic SS Verification

2009-09-19T13:02:00.003-04:00

If you contract with the Federal government, there's a new requirement for contracts signed after September 7, 2009. If the project costs more than $100,000 or lasts longer than 120 days, contractors must use the Social Security database to verify that their employees are eligible to work in the U.S. If you've never used the electronic system, you must enroll in the verification program within 30 days after the contract is awarded and then you will have 90 days to begin the verification process or all exisiting workers.

Bear in mind that this is not an isolated case. The Federal government (and many State governments) is increasingly mandating the use of electronic reporting and submissions for many different programs. It's worth consulting with the necessary professionals to make sure you remain compliant as there are often penalities associated with non-compliance.

Caution: First Time Home Buyer Credit Is Near Its End

2009-09-19T09:52:00.008-04:00

By now you've heard about the First Time Home Buyer's Credit (how can you miss it now with that cheesy "dip tray" commerical?). And you've probably heard the warnings that it expires at the end of November: you MUST CLOSE on your new home by 11/30/09.

Here's a few more words of caution...

If you're planning on taking advantage of this credit, either you're getting ready to close on the home of your dreams or you've already moved in and are actually anxiously awaiting the 2010 tax filing season, make sure you check with your tax professional now to avoid any of the pitfalls.

Recently, my clients have run into at least two of the "details" involved with this credit:

You cannot buy your new home from a close relative (e.g., parent, child, grandparent)
Your name must be on the deed and/or mortgage

Also, you must remain in the home for three years after purchase (no flipping, folks)*. Remember that the IRS can go back (at least) three years to audit your return. And you can bet that they are going to be looking closely at any tax credit that gives people up to $8,000. Coupled with the residency requirement, that means the IRS could be looking at these credits for a total of six years. Should you fun afoul, you could be facing interest and penalties on the credit from the day you filed your tax return.

The bottom line: take this credit if you can, but don't try to bend the rules - you're apt to get in a lot of expensive trouble.

* There are many more details to this credit; again, check with your tax pro for more information.

Yet Another Rebate Program

2009-09-08T12:31:00.002-04:00

Today's papers outlines a new stimulus rebate program - this time for Energy Star Appliances.

Known Program Facts (to date):

The federal government has set aside $300 million to boost sales for the struggling appliance industry, and New York's slice of that money is $18.7 million. The program:

is expected to offer consumer rebates of $50 to $200 per appliance, although manufacturers and retailers are expected to add to those amounts with rebates of their own.
applies only to Energy Star appliances, which are more energy efficient.
will vary from state to state, with New York's program expected to begin in November.
does not require shoppers trade in old appliances for the rebate.

As more details become available, we'll try to post them here. But remember at least these two things: this program appears to have no impact on your federal or state tax return (assuming that, like Cash for Clunkers, the income for the rebate will be the responsibility for the dealer); and, you still have to pay for that appliance - make sure you have enough cash for that new washer or freezer.

IRS on YouTube and iTunes

2009-09-06T10:46:00.006-04:00

It may not be tops on your iPod, but you can't fault the IRS for trying. Quoting the press release here:

IRS Features Recovery Tax Credits on YouTube, iTunes

WASHINGTON — The Internal Revenue Service today announced the availability of video and audio products to help taxpayers take full advantage of the 2009 tax povisions in the American Recovery and Reinvestment Act.
The IRS has launched a YouTube video site and an iTunes podcast site to better serve taxpayers.

People can visit the video site at www.youtube.com/irsvideos to view information about the Recovery, tax tips and how-to videos. These videos will be in English, Spanish, American Sign Language and other languages.

The YouTube focus will be on the provisions of the American Recovery and Reinvestment Act. Videos will highlight the $8,000 first-time homebuyer’s credit for those who purchase a house this year, the sales or excise tax deduction on new car purchases and the expanded credits for education and energy conservation.

The IRS YouTube channel will debut with seven Recovery videos in English and ASL and eight in Spanish. Also, included will be a video on using the IRS Withholding calculator. Many workers received the Making Work Pay tax credit in April through their tax withholding at work. However, people who have more than one job or working spouses should especially check their withholding to ensure neither too much nor too little is being withheld. People can use the calculator to help determine if they should make adjustments.

People can visit the audio site at iTunes to listen to IRS podcasts about ARRA tax credits. People without an iTunes account can hear those same podcasts, in English and Spanish, on IRS.gov’s Multimedia Center.

MORE Tax Alphabet Soup: The New Schedule L

2009-09-02T20:17:00.002-04:00

A few weeks ago the IRS announced a new Schedule M. It's not over...prepare for more letters in the soup/forms to fill out/time to spend on your return.

Over the last two years, Congress has approved several “add-ons” to the standard deduction. For example, last year (and this), people who filed the standard deduction may take a deduction for property taxes between $500 and $1,000; last year this was added onto the standard deduction amount and a checkbox was used.

Never ones to simplify filing, the IRS has decided that, starting with returns for 2009, filers who add real estate taxes, sales tax on vehicles, or disaster losses to their standard deduction must file new Schedule L and list the extra amounts. For 2009, married nonitemizers can add up to $1,000 of property taxes paid to their standard deduction. The cap for single filers is $500. Folks who buy a vehicle after Feb. 16, 2009 and before 2010 can add sales tax paid on the first $49,500 of cost to their standard deductions. And nonitemizers who live in federal disaster areas can boost their standard deductions by any casualty losses.

Reminder: Form 1040X Takes Time

2009-08-25T21:10:00.003-04:00

Amending a tax return - filing a 1040X - takes time. It always has.

First, you cannot e-file a 1040X; you have to file a paper return, mailing it to your appropriate IRS return center (and that may not be the place you remember from several years ago - most of them have changed). This also means that they are entered manually into the IRS system and reviewed by hand.

Second, form 1040X is NOT an IRS priority during the "regular" tax season: January through April 15. Normal processing time for a 1040X is 8 - 12 weeks.

Now, word from the IRS is that they are experiencing higher than expected inventory levels of Forms 1040X - mainly due to a high volume of amendments filed for either of the first time home buyer credits. Due to these inventory levels, the IRS has temporarily extended the processing time frame to 12 - 16 weeks. Contacting the IRS regarding the status of the return is not necessary and, frankly, won't help much; the returns will be processed as soon as possible. This is one of the biggest reasons to NOT depend on any anticipated refund from a 1040X by any certain date.

Cash for Clunkers to End This Monday (8/24/09)

2009-08-21T18:30:00.005-04:00

Be aware that the Cash for Clunkers program (the Federal rebate program that offers up to $4,500 in rebates for certain new car purchases) will end this coming Monday, August 24, at 8 PM.

Also, be aware that some dealers have voluntarily ended their participation in the program before the government ends it - make sure your dealer is still working with the program before you place a deposit or sign on the bottom line.

The federal tax deduction for state sales tax paid on new car purchases is still in effect for purchase made before January 1, 2010.

NYS Parental Health Care Coverage Now to 29

2009-08-10T09:00:00.001-04:00

Families will now be able to keep their unmarried children on their group health insurance policies up to age 29, thanks to a law signed by the NYS governor last week.

More than 30 percent of 2.5 million uninsured New Yorkers are ages 19-29, according to the governor's office.

Until now, many of those people became ineligible for coverage under their parents' policy after 19 or when they graduated from college. An increasing number are also unemployed or have low-paying jobs that do not offer health coverage.

The new law, which goes into effect Sept. 1, will allow parents to keep an unmarried child who doesn't have health insurance on their policy. The child does not have to be financially dependent on the parents or live at home.

The caveat: Parents will probably may have to pay more for the coverage, because the law does not require employers to subsidize the coverage. But for recent graduates just starting out, this could bridge the gap until full employer coverage sets in, especially if there are any pre-existing medical conditions.

If you live in NYS and your child just graduated (or will shortly) ask your employer about the cost of this new option and consider it, depending on your child's post-graduate plans.

NYS COBRA Extension

2009-08-08T12:55:00.004-04:00

This past week, the NYS governor signed into law an extension of COBRA from 18 months to 36 months. COBRA gives employees who have lost their jobs the option to buy continued health coverage that had been provided by their group health plan.

How many New Yorkers could buy coverage under the new COBRA extension, retroactive to July 1, is unclear. But with an unemployement rate over 8% and a lengthening in unemployment durations, this can only be good news for those still looking for a job after 18 months.

If you're on COBRA and are a NYS resident, make sure that your previous employer, who is administering these benefits, knows that you are eligible to continue your COBRA coverage for up to three years from your departure from employment.

"Cash for Clunkers" Update

2009-07-31T20:26:00.003-04:00

At the top of the month, we wrote about the "Cash for Clunkers" rebate program.

You might have heard that, after less than a week, the program appears to be out of money. As of tonight (7/31/09), the US House of Representative has okayed another $2 billion (roughly 500,000 additional cars) for the program; the Senate has yet to act.

Our advice? If you plan on taking advantage of this program, do it soon and read all the fine print of any contract you sign. Make sure that you are NOT on the hook for the 'cash for clunkers' or CARS rebate should the dealer not get in the paperwork on time or before any additional federal money runs out.

Planning Ahead: A Good Example in the NYS ‘Quit-Your-Job Incentive’

2009-07-29T09:00:00.002-04:00

Last month, we reported that New York State was preparing to offer civil servants the opportunity to resign from their positions with the incentive of a one time payment of $20,000. Late last week, more details of this plan were released. At the same time, they presented an incredibly tight timeline for some critical decision making.

First, some details of the plan:

The goal of this program is to reduce the State’s payroll by making available to PEF, CSEA, and employees in Executive Branch agencies a severance incentive.
This is a one-time $20,000 non-pensionable incentive (severance) which will be paid in one or two installments (can be paid out over two years – 2009 and 2010) to active employees in a non-federally funded position. Employees must have a minimum of ten years of full-time annual salaried state service (UPDATE : this has now become an 'optional' requirement - 7/30/09) or be otherwise retirement eligible.
Employees who are approved for this benefit must resign or retire and be off the state payroll no later than November 11, 2009.
Participating employees will be restricted from rehire by Executive Branch agencies of the state, including public authorities as defined by the laws of New York for a period of five years from the resignation or retirement date. Should an employee be rehired by the state prior to expiration of the five year requirement, he/she will be required to repay the severance payment in full.
Once an agency’s plan has been approved by the NYS Division of the Budget, employees will be required to sign and submit an irrevocable Letter of Voluntary Resignation or Retirement.

Agency timelines may vary, but for some, employees considering this incentive must express their written consideration by this Friday, July 31. Agencies will evaluate interest and determine exactly which positions will be “targeted”. Then targeted employees must sign the irrevocable declaration of resignation and must leave service by November 11, 2009.

If you are a NYS employee and whether or not you choose to consider this “offer” is totally up to you. But the tight deadlines of the detailed process point out the need for ALL of us to know exactly where we stand with our finances and plans for the next few years. You may not be in this position right now, but, what if you were? What if you were close to retirement and someone offered you a buy out? Could you take it? Would you take it? What would you do with an early retirement? Think about it now…you never know what may happen next.

Beware: It's FREE*

2009-07-28T17:45:00.003-04:00

“Get your FREE* GPS!” So proclaims the mail offer from a major national bank. Ooooo!

More like “ouch!”

Take a look at the strings attached to this “free” offer:

Open a ‘Free’ checking account by the end of August.
Make a debit card transaction. (Note – your debit card must be registered as a “rewards” card which has a $20 annual fee – waived the first year.)
Make two direct deposits of at least $100 each by the end of October. (Note – payments must be payroll, Social Security, pension or government benefits.)
There is a $25 fee if you close this account within 6 months.
The account cannot be overdrawn or closed before the end of October.
“Other miscellaneous charges may apply.”
The value of the GPS will be reported on Form 1099-INT (in other words, as taxable income!)

So, in order to get your “free” GPS you must not only open an account, but switch or start a direct deposit to that account, not overdraw it, register and use a debit card that will cost you $20 a year, and pay anywhere from $27 to $50 in income tax on your “free” GPS.

Better yet: put $10 a week in an envelope and you’ll have your GPS before the holidays without all the strings attached.

Don't take your online passwords to the grave - MarketWatch

2009-07-24T09:00:00.000-04:00

By all means, PLEASE check with your lawyer regarding this information and make sure that you've established a Health Care Proxy, Living Will, Will and Durable Powers of Attorney. But, Coombes does bring up some valuable points in this article.

Andrea Coombes' Ways and Means: Don't take your online passwords to the grave - MarketWatch

Minimum Wage Increases Tomorrow

2009-07-23T20:50:00.004-04:00

The Federal minimum wage increases tomorrow, July 24. New Yorkers earning minimum wage will make ten cents more per hour from $7.15 to $7.25.

Approximately 123,000 workers in New York will be affected by the increase, according to a statement released this morning by the Fiscal Policy Institute (FPI), a nonpartisan, nonprofit organization. Under the new federal increase, a full-time worker who makes minimum wage will now net $15,080 per year, which is a 1.4 percent raise for New Yorkers.

If you currently make minimum wage, make sure to check your next paycheck (or the one that includes any hours worked after July 23) to make sure you employer has made the change. Also, make sure that your employer has posted new employment information in the public employee area(s).

My Bad = The Government's Good

2009-07-22T10:17:00.006-04:00

(Edited at 1 PM to include information on new cannabis tax - see below.)

A headline in today’s USA Today online caught my attention:

Cities spike parking fines to boost revenue

According to the article:

“Municipalities across the USA are turning to more aggressive parking enforcement and higher parking fines to shore up declining revenue.

"’Cities are looking for as many avenues as they can to alleviate these budget shortfalls,’ says Martin Stein, president of the National Parking Association, which represents more than 1,200 companies and municipalities.”

First, I never would have thought there’d be something called the “National Parking Association” – go figure. But, according to their website:

“The National Parking Association (NPA) is a network of companies
representing thousands of parking industry professionals — people who are
dealing with the same responsibilities and challenges as you. We represent
private operators, parking consultants, colleges and universities, airports,
municipalities, parking authorities, hospital and medical centers, developers
and others, along with industry vendors. That's what makes NPA the most valuable
professional association in the parking industry.”

And the June 2009 issue of Parking (available on-line) includes interesting information on the 2009 Parking Show of Shows…but I digress….

The point of bringing this to your attention is to remind you of how much our municipal, state, and federal governments rely on our ‘foibles’ to fill their coffers. In some cities, not only are parking fines increasing, but good Samaritans who feed parking meters have been warned to cease and desist and even arrested for throwing a quarter or two in meters monitoring strangers’ cars. Law enforcement’s rationale for these actions is that municipalities rely on parking fine revenue (not just meter revenue) for larger and larger portions of their budgets. In other words, if the majority of parkers in any given city started getting conscientious about where and when they park and the money they place in meters, the cities would face a revenue shortfall.

And it’s not just parking or traffic violations that represent a growing revenue stream. I’ve always thought there’s an irony in our state’s “stop smoking” campaigns: if even half of our state’s smokers actually quit, there would be a huge state budget shortfall (at $2.75 per pack, you can probably see why). Then there are the ever increasing taxes on beer, wine, and alcohol…
Our politicians have devoted a lot of time, attention, and hot air to the “big, bad banks” and their increasing fees and credit card interest rates. But at the same time, remember that those same politicians are increasingly reaching into your back pocket with more and more fees.

Update from MSNBC:

OAKLAND, Calif. - Oakland residents overwhelmingly voted Tuesday to approve a first-of-its kind tax on medical marijuana sold at the city's four cannabis dispensaries. Scheduled to take effect on New Year's Day, the measure created a special business tax rate for the pot clubs, which now pay the same $1.20 for every $1,000 in gross sales applied to all retail businesses. The new rate will be $18. Oakland's auditor estimates that based on annual sales of $17.5 million for the four clubs, it will generate an estimated $294,000 for city coffers in its first year.

A Piece of History

2009-07-19T10:30:00.004-04:00

I cannot help but be stirred by the death of Walter Conkrite. Let us mourn as a nation.

The Envelope System, Part 2

2009-07-13T09:00:00.002-04:00

Part 2: Storage and Records Retention

It’s July: the flowers are blooming, the sun is shining, winter is long gone. Phase One of tax season is over; 90% 0f my clients have filed their taxes, the remainder are out on extension until October 15. So what happens to all that paper? What should you so with that folder you got from your tax preparer?

Earlier, I wrote about The Envelope System for getting organized for your yearly income tax filing. The same, simple system can work for records retention. In this case, simply take a large, tyvek envelope, write “2008” on it, stash everything you feel you need to keep in it, and store it in a fire-safe box.

What’s in my personal “2008” envelope?

A copy of my 2008 tax return and the related documents such as W2s charitable receipts, etc.
A copy of my credit report
Business reports – profit and loss statements, client lists, etc.
A copy of my updated Emergency Info
On CD, a back up of all my business files, client returns, year-end Quicken file, etc.
A copy of the software used to prepare my personal return and the business returns
Year-end copies of statements from credit unions, banks, and brokerage houses

How long do I keep this envelope? Well, the IRS can go back seven years in their audits and certain items stay on your credit report for seven to 10 years. You’ll notice that I do not keep every monthly statement, etc. That’s because I keep fairly detailed Quicken files that would enable me to recreate the data from nearly any financial year I needed. My financial institutions keep scans of cancelled checks for a number of years as well. So my yearly envelopes do not take up too much space in my larger fire box. When it starts to get full, I may think about throwing out a year or two, but I’m more likely to invest in a new box.

Summer 2009 "Tax Tips" Now Available

2009-07-10T09:00:00.001-04:00

If you're on the Notch Consulting mailing list, you should shortly be receiving the Summer 2009 issue of Tax Tips. Topics in this issue include:

Making Work Pay Credit - Should you adjust your withholding?
Economic Recovery Paymet - Are you eligible?
American Opportunity Tax Credit - Have you paid any college tuition in 2009?
First-Time Homebuyer Credit - Thinking of buying your first home in 2009?
Deduction for Sales Tax on New Motor Vehicles
Energy Credit for Home Improvements...

...And More...

If you haven't received your copy by the July 15 or if you'd like additional copies to share (there are a few extras), contact Notch Consulting via e-mail (notchconsulting at verizon dot net).

What’s Important to You?

2009-07-08T20:05:00.004-04:00

Late last week, federal marshals seized disgraced financier Bernard Madoff’s $7 million penthouse apartment in New York City. A week earlier, Madoff’s wife, Ruth, agreed to give up all of her possessions in return for a promise that federal prosecutors would not pursue $2.5 million not tied to the fraud. Of all the reports on this story, this line stunned me the most:

“A federal official informed of Ruth Madoff’s departure from her apartment
Thursday tells The Associated Press that when marshals said she couldn’t take
her fur coat, she left carrying just a straw bag.”

A fur coat? A straw bag? This woman had no other memories? Photos? Scrapbooks? Favorite CDs or LPs? Souvenirs? (Yes, they all could have been moved to safekeeping earlier, but still…)

Of course, it’s not just financial problems that could put someone in this situation. Imminent disasters such as flood, fire, hurricanes, tornadoes, and other storms can lead to these types of what-to-grab decisions. So, aside from “go bags” and emergency kits and plans (which we’ll talk about at a later date), here’s my question to you:

If someone came knocking at your door and said you had to leave and
could only take six things with you – forever - what would they
be?

Three of my six are photographs hanging on the apartment walls. (My friends know that fur coats and straw bags would be no where in sight!) But this does remind me to schedule time to do some more computer back-ups.

A Roth IRA for the Kid

2009-07-04T21:07:00.001-04:00

Here’s an idea: if your child or grandchild is ambitious enough to have a summer job, consider making a contribution to a Roth IRA for him or her. The maximum contribution is the lesser of $5,000 or his/her total gross earnings and the amount counts toward your annual gift exclusion.

All withdrawals from a Roth IRA after 59-1/2 are tax free and, since contributions (but not earnings) can be pulled out tax free at any time, the child can withdraw them in the future to help with things like buying a first home.

Car Allowance Rebate System (CARS) (a.k.a. ‘Cash for Clunkers’)

2009-07-01T19:36:00.008-04:00

At the end of June, President Obama signed into law the “Cash for Clunkers” program or, as the National Highway Traffic Safety Administration is calling it, the “Car Allowance Rebate System (CARS)” (where would we be without acronyms!).

Whatever you call it, the program works like this: cars getting less than 18 miles per gallon (combined city/highway), owned, registered and insured for at least a year, and from 1984 model years and later can be traded in for new cars. The dealer pays (credits) the owner $3,500 (if the new car gets between 4 and 10 more miles per gallon) or $4,500 (if the new car gets 10 or more miles per gallon.) The dealer then is required to scrap the car so that it doesn't end up back on the streets. The dealer is then reimbursed by the federal government.

A few other interesting and important facts about this program:

Customers do NOT have to register to take advantage of the program (there are no vouchers, etc. and any such offers you might see are scams!), but dealers MUST register. The CARS Act expressly provides that the credit is not income for the consumer; however, the credit will be considered as income for the dealer. (We wonder: will this be a dis-incentive for dealers to participate?) While dealers can charge their normal types of fees, the CARS Act specifically prohibits dealers from charging a fee for purchasing or leasing a vehicle under the program.
The CARS Act requires the dealer to use the credit under the CARS program in addition to any rebates or discounts advertised by the dealer or offered by the new vehicle’s manufacturer. The dealer may not use the credit to offset these rebates and discounts.
Under the program, you may purchase a new vehicle or lease a new vehicle, provided the lease period for the new vehicle is at least five years.
The manufacturer's suggested retail price of the new vehicle cannot exceed $45,000.
The program runs from late July until November 1, 2009 or “whenever the funds are exhausted”. Exactly how this is determined is not yet outlined.

Coupled with the deduction of sales tax for new vehicle purchases, this program may make a new car purchase more enticing to some. But bear in mind that you should still consider the TOTAL costs of a new vehicle: payments, insurance, maintenance, etc., before signing on the dotted line.

More information can be found at the following websites:

Official National Highway Traffic Safety Administration site for CARS (http://www.cars.gov)
Information on the program at Edmunds.com (http://www.edmunds.com/industry-car-news/cash-for-clunkers.html)
List of every car make, model and year that both qualifies for the program and is likely to be worth less than $4,500 at Edmunds.com (http://www.edmunds.com/industry-car-news/cash-for-clunkers-eligible-vehicles.html)
The EPA's official Web site (http://fueleconomy.gov/feg/cars.shtml)

After April 15...

2009-06-20T21:30:00.004-04:00

So what happens to tax preparers after April 15?

When I first started in the business (working for a major store front vendor), I thought: Great! Sometime to "do" during the core of the Great Northeast Winter! I took the initial course, worked the first year, collected my checks. Ok, then, the following year, they expected me back in training by October. Then, I started training for them and my "year" began in July when we started preparing training curriculum.

Now that I'm out on my own...my tax preparation business is a year 'round job, even if it's still only part time on the record. Here's how it plays out:

January 1 through April 15: prime tax season. Trust me when I say y'all are predictable, but, as my practice grows, there are fewer and fewer lulls over the initial 15 weeks of the seasons.

Mid April through June: break/vacation. I won't lie.

July through September: First, catch up on required education. As an Accredited Tax Preparer (ATP), I am required to secure 72 hours of continuing education every three years. Early summer's the best time to make that happen. Also, this is the season to deal with IRS and state notices (e.g., past year's errors) and their related amendments.

August through October 15: Remember those extensions? Yup, now's the time.

June through November: Time to stock up on supplies: folders, newsletters, postcards, software, etc.

Thanksgiving thought January 1: Time to send out holiday cards, tax checklists, etc. Also, time to prepared MY income tax return!

Worth it? Yup!

Tax Alphabet Soup: The New Schedule M

2009-06-15T20:35:00.003-04:00

The IRS has created a new schedule that millions of filers will have to complete next year: Schedule M for the payroll tax credit that was enacted as part of the latest stimulus bill. Anyone with earned income must use the new schedule to compute the credit for their 2009 tax return.

If you're used to doing your tax return on paper, make sure plan on including this new schedule or it will be likely that your return processing will be delayed.

If you rely on a qualified tax preparer to complete your return, you can be sure the new schedule will be completed.

Microsoft Money to be Discontinued

2009-06-13T22:35:00.004-04:00

In the queue for this blog is a post about personal financial software, in particular, Inutit's Quicken. But late last week, Microsoft announced that it was discontinuing Quicken's closest competitor, Microsoft Money, effective at the end of this month.

According to the Microsoft website:

With banks, brokerage firms and Web sites now providing a range of options for managing personal finances, the consumer need for Microsoft Money Plus has changed. After suspending annual updates of Money Plus in 2008, Microsoft is announcing today that we will no longer offer Microsoft Money Plus for purchase after June 30, 2009.

In an FAQ on the topic, Microsoft goes on to say:

The category of personal financial-management software has changed considerably in the 17 years since Money was first established. As more users shift their attention to full-service offerings provided by banks and brokerages, demand for a comprehensive personal finance toolset has declined.

According to Microsoft, online services for Money (e.g., downloading stock prices) will stop on or around January 31, 2011 (depending on the version and contract). The software will continue to work in a stand-alone mode but, "compatibility with future operating systems and hardware configurations cannot be guaranteed."

While Microsoft maintains that there are "a number of online personal finance management and planning tools...many for free, on the Web..." and cites "full-service offerings" from banks and brokerages, I would argue that it's still useful to have software that allows you to bring information from many different sources together to give you a large, integrated picture of your financial situation.

I would suspect that two things converged to lead Microsoft to make this decision: First, Intuit's software suites have grown and have claimed more and more market share. Second, it's likely that Microsoft is feeling pressure (possibly economic?) from financial institutions who must accommodate multiple export formats in their banking systems.

If you currently use Microsoft Money, you can get more information on the expiration of the software on their website at http://www.microsoft.com/MONEY/default.mspx.

Update on I-Bonds

2009-06-12T21:00:00.004-04:00

I wrote a while back about diversifying your investments and suggested that US Savings Bonds, namely I-Bonds, might be one way to do that. At the time I noted that I-Bonds aren't necessarily in favor as the rates were dropping. Well, during the last rate setting period, it happened: the interest yield effectively dropped to zero.

I Bond rates adjust twice a year and are actually made up of two rates: a base rate and an inflation rate; the base rate never changes, but the inflation rate is indexed to inflation as measured by the Consumer Price Index. This time around, the base rate is 0.5% and the CPI is 0% - you can thank falling energy prices at the beginning of the year for that. The rates for I-Bonds will re-set in November and, if oil keeps rising, it's likely they'll go up again with the CPI.

There are a couple of key things to keep in mind about investing in I-Bonds, particularily at this juncture. First, you will only loose your principle (the money you invested) if the US Government defaults on its obligations - highly unlikely. Second, the income you do earn is state-tax free which can make the return on I-Bonds slightly higher than some other investments. Finally, again, US Savings bonds should be just one part, one branch, in your financial planning tree.

Still have more questions? Check out the Tresury Direct web site.

CAUTION: The NYS 'Quit-Your-Job Incentive'

2009-06-06T10:50:00.003-04:00

Word out late Friday afternoon was that the NYS Governor and the NYS public employee unions came to an "agreement" that "avoids" layoffs, but offers a $20,000 incentive for "targeted positions" along with reductions through attrition and "reduced work weeks".

Frankly, right now, it's all press releases and bravado. But, if you find that you are one of those in a "targeted position" and you are offered $20,000 to leave or retire....PLEASE contact your tax professional and ask about the ramifications of such an offer on your personal financial situation BEFORE you jump at the offer.

It is likely that the $20K would be paid out this year (2009) and that it would dramatically impact on your income and, therefore, your federal and state income tax returns due on April 15, 2010. First, you will owe federal and state income tax on that $20K. Next, it's possible that $20K would boost you into a higher tax bracket. Finally, the extra income could put you out of range for things like regular and Roth IRAs, education credits, child tax credits, etc.

Again, PLEASE consult with your tax professional BEFORE you say "yes" to any such incentive: know what you're walking into!

The Hiatus...

2009-06-06T10:49:00.001-04:00

....is over. I've recovered from the first part of tax season (and a few other things).

Let's get down to business!

BREAKING NEWS - NYS Tax Department Security Breach

2009-04-22T10:39:00.004-04:00

A NY State Office of Taxation and Finance worker suspected of using information from New Yorkers' tax forms to open credit card accounts he then used to run up hundreds of thousands of dollars in bills, was arraigned on felony charges Wednesday morning.

The Troy man was arraigned in City Court on several charges including identity theft and violation of the public officers law. Attorney General Andrew Cuomo's office says he used information from tax forms to create the credit card accounts, but state officials have not yet disclosed how many people they believe were victimized.

According to the complaint, the man arrested was assigned in 2006 to a Department of Taxation and Finance (DTF) unit that scans identification documents, including social security cards and birth certificates, which taxpayers submit in connection with routine audits. He also had access to various tax documents and returns through the department’s computer system. As part of the scheme, he allegedly took taxpayer identification information from tax department files and used that information to apply for and obtain credit cards. Evidence collected shows he had at least 90 allegedly fraudulent credit cards and other lines of credit at more than 20 banks with unpaid charges on the accounts exceeding $200,000. The scheme was uncovered after another DTF employee noticed irregularities in certain DTF files to which the accused had been assigned. The case was then referred to the Attorney General’s Office.

The Attorney General’s Office is in the process of contacting victims who had a credit card account applied for or opened in their name. The office is also taking action to assist the credit bureaus to rectify situations where credit was affected.

As required by law, state tax officials are sending notification to more than 2,000 individuals across the state whose information was breached.

As information becomes available on this security breach, we will post it here. Also, information may become available on the NYS Taxation and Finance web site.

Trimming the Sails: Postage Rate Increase

2009-04-20T09:00:00.001-04:00

On Monday, May 11 the price for a 1-ounce First-Class Mail stamp will increase from $.42 to $.44. Prices for other mailing services — Standard Mail, Periodicals, Package Services (including Parcel Post), and Extra Services — will also change. Click here (pdf file) for a full list of the new rates.

Unless you're uber-excited about the prospect of putting the Simpsons on your letters and bills, you've got plenty of time to go to your local post office and get yourself some "forever stamps" at the current price of $.42. As the name implies, they're good for 1-ounce frst-class mail 'forever' - even after the rates go up in May (or any other increase for that matter).

OK, yes, it's "only" $.02, but think ahead: how many holiday cards did you send out last year? Birthday cards? Valentines? Or maybe you're a small business that sends out periodic mailings to your clients.

Trimming the Sails Tally:

Trimming Cable Service = $45/month = $540/year

Unused Subscriptions = $16.92/month = $203/year*

Infamous Gym Membership = $50/month = $600/year

Pennies, Change... = $?????

Forever Stamps = $1.00

* More to be added to this item

The 2009 Stimulus: Reminder on the First-Time Homebuyer Tax Credit

2009-04-17T09:00:00.000-04:00

(This is one of a series of posts on the new 2009 Economic Stimulus bill signed into law on 2/17/09. There are several provisions that may impact your income taxes for the next two years or more.)

While many of the provisions of the 2009 Stimulus bill are good for all of 2009 and even into 2010, the new first-time homebuyer tax credit is only good for homes purchased through November 30, 2009. Keep this deadline in mind since the IRS considers that a purchase takes place when title closes rather than when a contract of sale is executed and closings can take time to be scheduled.

The First-Time Homebuyer Credit offers up to $8,000 for purchase of a primary residence, without any required repayment to the IRS after 36 months in the home. The credit starts to phase-out for taxpayers with AGIs in excess of $75,000 ($150,000 for joint filers).

April 16

2009-04-16T00:30:00.000-04:00

Question: What do most tax preparers do on April 16?

Answer: SLEEP!

Credit Card Company Tricks

2009-04-14T09:00:00.001-04:00

Much has been written about the "evil schemes" of credit card companies. But here's one I haven't seen written about: the missing envelope.

It's happened to me more than once: I open my credit card statement, check it out, then throw out the outside envelope and the unwanted enclosures. Later, when I go to pay the bill, there is no return envelope. I scrounge around looking for it, thinking that maybe I switched it with another bills, etc., but can't seem to find it.

Now it may truly be accidental that there is no return envelope for the payment, but sometimes I indulge in conspiracy theories: I think it's purposeful. Without the envelope, I may delay paying the bill and therefore be hit with a fee and maybe even have my rate jacked up.

So, my defense mechanism for this sort of thing is simple: as soon as I notice the missing envelope, I grab a blank #10, write the address EXACTLY as it appears on the bill, and then send out the bill a couple of days earlier than I usually pay it.

Sure, it could just be an error on the part of the mailing house, but why take that chance?

Happy Tax Freedom Day!

2009-04-13T10:44:00.002-04:00

According to The Tax Foundation:

Tax Freedom Day® will arrive on April 13 this year, the 103rd day of 2009.
That means Americans will work about three and a half months of the year,
from January 1 to April 13, before they have earned enough money to pay this
year's tax obligations at the federal, state and local levels. Tax Freedom
Day falls a full two weeks earlier in 2009 than it did in 2007. In fact, not
since 1967 has Tax Freedom Day come earlier than this year's April 13
date.

For those of you in New York State, your State Tax Freedom Day is April 25.

For more interesting information, see this website.

Tax Preparer Triage

2009-04-13T09:39:00.004-04:00

As this is being written, there are less than three days remaining before the April 15th income tax return deadline. We're down to the wire folks. So here's how this firm is now triaging the work that is coming in:

FIRST: 2005 tax returns with an anticipated refund - These returns absolutely have to be filed by 4/15/09 if the client is expecting and wants a refund. After that date, the return would be "informational only" if the client is expecting a refund.

SECOND: 2008 tax returns with taxes due - The main push for these returns is to calculate the taxes due, file an extension for the client, AND make sure they get their voucher and check in the mail by 4/15/09. Otherwise, the client is going to be saddled with interest and a penalty.

THIRD: 2008 tax returns with an anticiated refund - Here we want to make sure to file an extension for the client.

LATER: 2006, 2007 returns, ammendments, 2008 returns already on extension - There is time to do these reurns AFTER 4/15/09. After a brief breather, we take care of these with two things in mind: is the return information complete? and is the taxpayer subject to penalty and interest (for 2006, 2007 reurns)? (Saving the client money becomes a slightly higher priority.)

The lessons here:

If you still haven't done anything about your taxes, look to file an extension (and pay up if you need to). It's better to wait and know that you're filing a complete and accurate return that's not rushed.

If you've taken care of your 2008 return (or already have an extension) now is NOT the time to call your friendly, but stressed tax preparer and ask her about next year's return. If you can, wait a week or so until she's getting more than four hours of sleep a night.

'About to be Unemployed? Buy a Car Anyway!'

2009-04-03T09:00:00.001-04:00

This headline on MSNBC caught my eye earlier this week: “Job Threatened? Buy a Car Anyway, Detroit Says”. According to news reports:

Ford Motor Co. and struggling rival General Motors said Tuesday they would make car payments for some customers who lose their jobs…GM's new "Total Confidence" program will make up to nine car payments of $500 each for customers who have lost their jobs through no fault of their own. Customers must qualify for state unemployment to be eligible for the program. The program starts April 1 and runs until April 30…(The) announcement came only a couple of hours after Ford said it will cover payments of up to $700 each month for up to a year on any new Ford, Lincoln or Mercury vehicle if consumers lose their jobs. The (Ford) program runs until June 1. (The article also points out that Hyundai has been running a similar program for a while now.)

Please humor me before you jump up and down and run out and buy a new car; and I’ll try to refrain from screaming.

If you have any notion that you might loose your job, even temporarily, going out and buying a new car is probably the last thing you should do. The exception to this may be if your current vehicle is about to give up the ghost and you need your own set of wheels in order to secure and maintain viable employment. Otherwise, taking on new debt should be the last thing you consider right now.

If you are laid off (and remember that “through no fault of your own” clause), there are a whole host of expenses you have to worry about covering: housing/mortgage/rent, insurances, property taxes, health care insurance costs (COBRA) and direct expenses (co-pays, etc.), food, utilities, credit card bills, etc.

And here’s another question that I haven’t been able to answer from the information available on at least one car manufacturer’s web site: will you receive a 1099-C (for forgiven debt) and, therefore, will you have to pay income taxes on any payments made by Ford or GM or Hyundai?

Before you leap on any of these offers, do your homework, create a household budget, and look at the actual costs to you should you become unemployed.

Top o' the Month: April '09

2009-04-02T09:00:00.000-04:00

One of the principles of this website and Notch Consulting is that Money Must Work. In order to do that, we must have safe options for saving and earning money. There are hundreds of on-line resources available to compare savings rates - we won't even begin to compete with them. But, once a month we post a few simple savings rates for a large, local credit union, a regional bank, a national internet bank, and the US I-bond rate. History has shown that we cannot rely on any one resource, so do your own research to decide how your Money Will Work today and tomorrow.

Treat or Fool

2009-04-01T09:00:00.002-04:00

It's April 1, 2009!

Have you filed your 2008 Federal and State Income Tax Return?

Yes? GREAT! Thank you! Treat yourself to a little something nice today: a
good cup of coffee, a muffin, maybe a piece of chocolate or an ice cream cone -
you deserve it!

No? Well, have you made an appointment to meet with your Tax Pro? Is your paperwork together?

Yes? OK - you can have a treat, too. But nothing overly indulgent! You're
not all the way there yet.

No? Ahem. Have you considered filing an extension so that you don't have to run a fire drill in the next two weeks?

Yes? 'Can't say a treat is in order yet. You still have to get things organized and file your return before October 15. And you know how summer can just fly by...

No? You are setting yourself up to be an April Fool!

The Envelope System, Part 1

2009-03-31T09:00:00.003-04:00

Part 1: Organization

Every year about this time, millions of people across the country vow that this is the year they will become more organized! After spending hours searching through drawers and piles and boxes and cabinets for all the papers they need in order to file their income taxes, only to learn that they’ve missed something (property tax bills seem to be the most frequently misplaced item), they run out to their local Wallyworld and purchase file boxes and folders and labels and such. Of course, 12 months later, those items are usually still in a corner someplace and the search for papers starts all over again.

I tell my tax clients to use a simpler approach: The Envelope System. Simply take a large, brown envelope (or folder, if you’d prefer), write “Taxes 2009” on it, and keep it near where you open your mail. When you get something – anything – that looks like it may be tax-related, just pop it in the envelope.

Now, granted, most of your tax-related paperwork for next year will be arriving after Christmas. But even before then:

You may sell non-retirement investments: pop the confirmation or statement of the sale from your broker in the envelope.
You may make a contribution to a charity: pop the receipt or acknowledgement letter in the envelope.
You may buy some insulation for the attic: pop the receipt in the envelope.

You get the idea.

I also suggest a second envelope for medical receipts. Most people are fortunate enough not to have to use the medical portion of their itemized deductions. With a 7.5% floor (the first medical expenses equal to 7.5% of your income are not deductible), it takes a rough year or some major medical issues to qualify for this deduction. But, just in case, save your co-pay receipts from the pharmacy and the doctors – throw them in a separate envelope. At the end of the year, add them all up – if the total is less than 7% of your gross salary for that year, run the receipts through the shredder and celebrate your (relative) good health.

In January Notch Consulting sends out a Tax Checklist (which also gets posted here). If you’ve used The Envelope System all year, you should have 90% of what you need to prepare you taxes in one place. A few minutes with The Envelope and the Tax Checklist and you will be prepared for your tax appointment next year.

(Part 2: Storage and Records Retention, will appear at a later date)

Checking Up and a Seafood Dinner

2009-03-30T09:00:00.000-04:00

It’s probably one of the more eye- and ear-catching commercials in recent memory: a trio of semi-dorky looking young men, dressed as pirates, lamenting their financial situation resulting from not checking their credit report. Apparently, instead of being rock stars, they’re reduced to serving as hosts and wait staff in a touristy seafood restaurant. Of course, the whole point of the commercial is to get you to pay for your credit report.

Instead, get your credit report for free up to three times a year and save the cash for the seafood dinner.

You are entitled to receive one free credit report every 12 months from each of the three nationwide consumer credit reporting companies through the Central Source at AnnualCreditReport.com. You may request your free credit report online, by phone or through the mail. Free credit reports requested online are viewable immediately upon authentication of identity.

It is entirely your choice whether you order all three credit reports at the same time or order one now and others later. The advantage of ordering all three at the same time is that you can compare them. (However, you will not be eligible for another free credit report from the Central Source for 12 months.) On the other hand, the advantage of ordering one now and others later (for example, one credit report every four months) is that you can keep track of any changes or new information that may appear on your credit report.

Note that these credit reports will not give you your credit “score” or what’s commonly referred to as a FICO Score. Most lenders use a FICO Score from one of the three credit reporting agencies to help determine creditworthiness. You can still purchase a reporting of your FICO Score from any of the three agencies for under $30 - it’s not a bad idea to do that once a year just to see where you stand should you find that you need a car loan or are considering refinancing your mortgage.

Trimming the Sails: A Penny...

2009-03-26T09:00:00.004-04:00

Spring is coming, and I went to the car wash the other day with a coupon - $9.99 for "the ultimate" WITH wheel cleaner! Whoo Hoo! (Regularily $15.00 - whatever...I don't know of many who get anything at the car wash without a coupon.) So, I pulled up with my coupon and a $10 bill. The attendant marked my windshield and said, "Do you want your penny?"

I said, clearly, "Yes, please."

He replied as if I hadn't heard him, "I said, do you want your penny..."

I said, "And I said, 'Yes, please!'"

This response, literally, threw four car wash attendants into a tailspin. They waved me forward, but there was all kinds of shouting going on. The (aparent) supervisor who was running the line and register kept shouting back to the attendant..."she wants what?" "she wants her penny...I don't have any pennies." "you don't have pennies? why the h*ll don't you have any pennies?" "nobody wants pennies..." Meanwhile, I refused to roll up my window until I got my penny, which, of course, was throwing attendants three and four who now couldn't spray 1/4 of my car.

Yes, it was 'just a penny'. And, honestly, all of my pennies get contributed to the Fellowship of the Least Coin (without receipt) so they don't even necessarily count toward my concept of "Money Must Work". But, there's a principle here: that penny is mine! You've priced your service at $X.99 (to lull me into thinking that the price is $X and not $X+1 - it's a marketing thing and I know that - oh, a car wash is $10 - the penny isn't enough to count!)

No it's not, it's $9 plus $.99 - give me my penny!

Trimming the Sails Tally:

Trimming Cable Service = $45/month = $540/year
Unused Subscriptions = $16.92/month = $203/year*
Infamous Gym Membership = $50/month = $600/year
Pennies, Change... = $?????

* More to be added to this item

'Where's My Stimulus Money?'

2009-03-25T09:00:00.002-04:00

By now, you should be seeing adjustments in your paycheck that make up the "Make Work Pay" credit. The credit adds up to as much as $400 for single filers and $800 for married couples each year for two years.

You will see that $400 spread out over the remainder of your paychecks for 2009 - so divide $400 by the number of remaining paychecks. Or, if you are paid the same amount each pay period, simply compare the federal withholding on a paycheck from January with one from April - you should see a difference.

But, please also remember that this credit is reduced for those earning more than $75,000 for single filers or $150,000 for married folk. So, while a single person earning , say, $60,000 a year may be seeing roughly $13 more every two weeks, someone earning $85,000 a year will only see about $5 more every two weeks.

New York Prescription Saver Card

2009-03-24T09:00:00.002-04:00

What is NYP$?

NYP$ is a pharmacy discount card that can lower the cost of your prescriptions by as much as 60 percent on generics and 30 percent on brand name drugs. Just show your card at a participating pharmacy to receive your discount right at the counter. NYP$ is sponsored by New York State and supported by pharmacies and pharmaceutical manufacturers who are providing these discounts.

Who Can Join?

New York State residents are eligible if they are not already receiving Medicaid and are:

Either age 50 up to 65, or persons with a disability who have been determined disabled by the Social Security Administration; AND
Have annual household income less than $35,000 (single) or $50,000 (married).

How Do I Apply?

Applications for the New York Prescription Saver card are being accepted online at http://nyprescriptionsaver.fhsc.com/, or by phone on the toll free number 1-800-788-6917. TTY users may call 1-800-290-9138. Applications will be also be available at pharmacies and community organizations. Approved participants will receive their card in the mail usually within two weeks of filing their application. A listing of the discounted drug prices, participating manufacturers and pharmacies, and a pharmacy locator can be found at the Prescription Saver Web site at http://nyprescriptionsaver.fhsc.com/

Death and Taxes

2009-03-23T09:00:00.000-04:00

The common saying goes: “The only certain things in life are death and taxes.” And that’s in the right order since there are taxes after death. The issue’s come up in my practice again, so let’s revisit the topic of death and taxes.

If You Are Single

Your Estate needs to file a personal tax return, a standard IRS 1040, for the year you died. The Administrator or Executor of your estate files and signs this return.
If you have a refund coming, it is payable to the estate; if you owe taxes, they become a creditor of the estate.
In subsequent years, your estate files a 1041 for the estate itself (if it earns money).

If You Are Married to a Person of the Opposite Gender

The year of your death, your spouse will file a return as normal: either Married Filing Jointly, or, if you have a qualifying dependent, as a Qualifying Widower (this filing status can be carried through to the second year as well). Afterwards, the surviving spouse will file as a single person. Your estate may need to file 1041 returns in subsequent years.

If You Are Married to a Person of the Same Gender

Federal tax returns: follow the guidelines for Single individuals. As of today, the federal government and, in particular, the Internal Revenue Service, does NOT acknowledge same-sex marriage and therefore considers you to be single.

State tax returns: if your state of residence acknowledges your marriage, you can follow the guidelines for those married to a person of the opposite gender. However, if your state does NOT acknowledge your legal status, again, you are considered single.

Action Steps for Today

Regardless of your marital status and its federal or state acknowledgement, make sure that you, as an individual, have the following in place:

Will
Living Will
Health Care Proxy
Durable Power of Attorney

Make sure that you have named at least two individuals – people that you trust, who understand your relationship and your wishes – for each of these documents.

It’s true: death and taxes are inevitable. And, unless you really want to cause your survivors grief, plan ahead now.

Money Must Work: I-Bonds

2009-03-20T09:00:00.002-04:00

(My initial "Money Must Work" manifesto is here, what follows is more information...)

A while back I said this about retirement and investing:

"But it’s painfully obvious to me that if you’re in the middle – somewhere
between making minimum wage and having a million in the bank – the deck is
currently NOT stacked in your favor."

And, if you've been reading this blog, you read my comments about Bernie Madoff.

The message: Diversification. One answer: US Savings Bonds, in particular, I-Bonds.

Full disclosure: I can't find one financial advisor that would recommend I-Bonds today and I am NOT a financial advisor. That being said, here's what I know from personal experience:

I have been investing in US Savings Bonds (E Bonds early on, but now I Bonds exlcusively) for the last 10 years. As a part of my investment plan, these investments have performed well and are now serving as a portion of my emergency funds.

A few facts:

I Bonds are puchased at face value - in other words, you pay $100 for a $100 bond and earn interest on that $100 principle. This is unlike the more traditional E Bonds you may remember from your childhood that are purchased at half the face value and mature to that face value and beyond.
I Bond rates adjust twice a year and are actually made up of two rates: a base rate and an inflation rate; the base rate never changes, but the inflation rate is index to inflation as measured by he Consumer Price Index.
You cannot cash in an I Bond for the first 12 months after purchase. And if you cash in the bond before it is five years old, you will forfeit 3 months worth of interest (but never principal).
You will owe federal income taxes on the interest earned by your bond, but NOT state income tax. This effectively makes the rate higher than, say, interested earned on a regular passbook savings account.

My point: DIVERSIFY!!!

Trimming the Sails: 'Infamous' Gym Membership

2009-03-19T09:00:00.000-04:00

(On any given day, more and more of us have reason to stop and evaluate our financial situation and consider “Trimming the Sails” – cutting back or changing our spending and earning patterns…)

Or, in this case, the YMCA…

Isn’t it funny the ideas we get about ourselves?

Yup, I’m going to go to the ‘Y’ three or four times a week…yup, after work….to swim…or walk in the icy cold winter….or take a t’ai chi class…or….

Yup.

Yup, never happened. Plain and simple. Period.

Trimming the Sails Tally:

Trimming Cable Service = $45/month = $540/year
Unused Subscriptions = $14.75/month = $177/year*
Infamous Gym Membership = $50/month = $600/year

* More to be added to this item

April 15: The Other Deadline

2009-03-18T09:00:00.000-04:00

This is a gentle reminder for all you folks who are self-employed, run a business, or for whatever reason, pay quarterly taxes to the federal government or your state government: your first payment for 2009 is due in less than a month (April 15, 2009).

If you don't know what I'm talking about, read on just in case....

Did you owe a lot of money to either the feds or your state this year? Did you work more than one job? Did you have income where your employer did not withhold income tax from your earnings (e.g., you received a 1099-misc)? Did you start your own business this year?

The funny thing about income taxes is that both the feds and the states expect you to pay your "fair share" in at least quaterly increments. Even if you're able to pay your taxes by April 15 of any given year, they're not happy if you wait until then - they want installments. If what you owe them by April 15 is more than 10% of what you owed them for the year, they reserve the right to charge you a penalty.

The solution to avoiding this penalty is paying "quarterlies" to the feds or your state.

Again, if you owed a lot this year, if you paid a "penalty for under withholding" (that's a separate form that should have been included with your return), and you haven't adjusted your withholding...contact your tax preparer and ask her or him for assistance in planning for the coming year. This is a service that you should expect from your Tax Preparer! Do it now, before you get behind!

The 2009 Stimulus: Social Security's Economic Recovery One-Time Payments

2009-03-17T09:00:00.001-04:00

As we've noted earlier, the latest economic stimulus bill adjusts the federal withholding tables for working folk and allows for a one time payment of $250 for those receiving Social Security, Veteran's or Railroad Retirement benefits. For those in the later category, the federal Social Security website is doing a fairly good job of posting information, including a comprehensive Question and Answer section as well as a fairly clear video. It's worth checking out if you have questions.

One Month to Go

2009-03-16T09:00:00.000-04:00

If you've already filed your Federal and State Income Tax Return, you can ignore this post.

Yup, one month left, people.

This is the weekend that I take a mini-break from the maddness. Don't get me wrong, while I've been away, I've had e-mails from clients (answered), there are returns on my desk for review, and another is awaiting me at the post office when I return. But I've learned that this break is necessary for my sanity and I plan it into my practice. (There was a time when I took a week's vacation in February....ha ha ha! Those days are long gone!).

The point? I plan my time as a tax preparer....plan yours as a tax payer. You've got just under a month to get your tax returns in the mail or e-filed. Reduce your stress: get it done now! If you owe money to the feds or your state, you can still e-file your taxes today and wait until April 15 to mail your check and voucher to those that you owe. But try to understand this: the average tax return, even when prepared by a pro using the latest software, is going to take up to an hour to prepare accurately. And there are only so many hours in the day.

Make an appointment to see your tax professional today!

Small Business On the Cheap: Postage

2009-03-13T09:00:00.000-04:00

(I run a small, local business. But how do you do that within a budget? How do you keep costs at a minimum and still build your business? An ongoing commentary...)

The bulk of my business is in annual tax preparation. I initially meet with my clients in person, one-on-one, at their homes or convenient local businesses. Afterwards, I mail their paperwork back to them at their homes - with the price of gas (even at $2 a gallon) and my time - the postal service is still a great bargain.

The greater bargain? Postal Services offered on-line.

Example 1: I return my clients' tax materials via Priorty Mail. Using Priorty Mail envelopes and an easy-to-set-up on line account, I save $.15+ per package and do not have to drive to a post office. I print out the postage/label, tape it to the Priority Envelope and leave it for my local, residential carrier for pick up. And here's the kicker: I get an e-mail confirmation when the envelope is delivered! During the "busy season" when I may mail out five or more returns, sometimes after midnight, a day, and have to be at my full time job the next morning...this is all but a miracle!

Example 2: Postage is going up sometime in May of 2009, plus I have a a major postcard mailing planned in the next couple of weeks. Again, rather than taking time at lunch time or carving out weekend errand time... For $1, yup, that's one dollar, the US Postal Service will deliver all the postage stamps I care to order at one time directly to my home.

We spend a lot of time bad-mouthing the US Postal Service, but, honestly, I still think, overall, it's one of the best bargains in the business. And it certainly works for THIS SMALL BUSINESS!

Trimming the Sails: Subscriptions

2009-03-12T09:00:00.000-04:00

(On any given day, more and more of us have reason to stop and evaluate our financial situation and consider “Trimming the Sails” – cutting back or changing our spending and earning patterns…)

When was the last time I read that?!

Oh, we all have our passions for sure, but, heaven knows, they change. And so, we have magazines and newspapers and even electronic subscriptions delivered to our door or e-mail box or available to us that we haven’t read in weeks, months, even years.

The first on my list of subscriptions that are getting cancelled ASAP: a local electronic newspaper subscription – savings - $14.75/month.

Now, part of the exercise of ‘Trimming the Sails’ is understanding how a given purchase started. This one was about a year ago when my last living uncle passed away and his obituary was published in a local paper that requires an online subscription (and doesn’t participate in Legacy.com ). There was a lot of other stuff going on in my life at the same time and the fear of not being able to read my uncle’s obituary led me to subscribe to a paper I would never otherwise read and that led to a year’s worth of useless charges.

All now cancelled!

Trimming the Sails Tally:

Cable Service = $45/month = $540/year
Unused Subscriptions = $14.75/month = $177/year*

* More to be added to this item

The Lessons of Madoff

2009-03-11T17:18:00.003-04:00

Bernie Madoff is scheduled to appear in US District Court in Manhattan tomorrow where he is expected to plead guilty to charges of engineering one of the largest investment scams in U.S. history. It is alleged that Madoff ran a gigantic Ponzi scheme, defrauding billions of dollars from retirees, charities, school trusts, and pension funds. To say that people are still very angry with Madoff is very much an understatement. We have heard much from those who "lost everything", from retirees who've had to go back to work, and from foundations and organizations that are now completely out of business.

While it's important to put a "face" on the victims of the Madoff scheme (if nothing else to reinforce the size and scope of the damage as well as the urgent need for more regulatory oversight), there are two very important lessons that need to be reinforced here. Lessons that I don't think have been talked about near enough:

Lesson 1: If It Sounds Too Good To Be True...

Over the last few years, when financial markets were turbulant at best and loosing money at worst, Madoff's "funds" seem to always earn money and earn more than any others. In general, we always tend to question our methods and procedures when we "loose". What we should ask just as many times is: "Why did we win?" When 90% of the financial markets were loosing money, 90% of Madoff's investors, as well as regulatory agencies, should have been asking, "Why are we making money; exactly how are we doing it?"

Lesson 2: Never Put All Your Eggs In One Basket

A few weeks ago, I watched an angry couple on CNBC screaming about Madoff and the SEC (for not "protecting" them as investors). As young retirees they had put everything, every last little dime, into Madoff's funds. And in one fell swoop they were completely broke. Part of managing risk is diversification - not just in the types of investments or savings that you may have, but also where you have them. And, as retirees of some larger companies now on the ropes are learning, there are no guarantees anymore. Working folks are not the only ones who should have an emergency fund. Retirees need them as well: six to nine months of living expenses in VERY liquid and secure funds.

According to news reports, there is no "deal" in Madoff's expected guilty plea and it is likely, even at 70, that he will be incarcerated. Many of the victims of his scheme want more - they want all of their (non-existant) gains and they want blood. They will likely get neither. Let's hope they have learned at least two lessons...

IRS Changes: Private Collectors Fired

2009-03-10T09:00:00.001-04:00

The IRS is ending its three-year old program of using private debt collection firms to recoup back taxes owed by individuals. The controversial program was under fire from not only Congressional members but also the Taxpayer Advocate - all of whom argued that it wasn't cost effective and that it potentially put private data at risk. Instead, the IRS plans on hiring 1,000 new tax collectors in 2009.

The message: either way, be honest on your tax returns.

Bulletin: NYS Requesting Verification of Withholdings

2009-03-09T13:26:00.005-04:00

The New York State Chapter of the National Association of Tax Professionals (a membership organization for tax preparers that I find incredibly helpful) just issued a bulletin regarding NYS refunds being held up:

We are sending you this Special Bulletin to alert you that NYS is requesting verification of the withholdings when a refund is higher than the average refund. While we are aware that this is not convenient, we have been told it is part of the State’s attempts to curtail fraud. [According to our Chapter President,] "In my own practice, I have seen over 20 of these letters since Thursday. Funny, most of the impacted taxpayers have been State or City employees!" While we can speculate to the State’s reasons, no real purpose can be served. We have been assured that as soon as the State receives the hard copy of the W2 (which you can fax to the number on the notice) the refund will be processed...It is our hope that this issue at the State is addressed as the proposed budget assesses a “fee” on paper returns.

If you get one of these notices from NYS, as noted above, simply FAX a hard copy of your W2(s) to the number on the notice, or contact your preparer for assistance.

Trimming the Sails: Cable TV

2009-03-05T09:00:00.001-05:00

(On any given day, more and more of us have reason to stop and evaluate our financial situation and consider “Trimming the Sails” – cutting back or changing our spending and earning patterns…)

I finally did it! I (partially) cut the cable!

Back in early 2002 I bite the bullet and subscribed to cable television (the constant war coverage had become was both depressing and annoying). Back then, for about $34 a month, I finally got all of my local broadcast stations clearly (often that is not easy here in hilly, upstate NY) and everything from the Weather Channel to the Food Channel to Bravo and Lifetime, ESPN, CNN, CNBC, etc. (what’s better known as “Basic plus Standard”). All was well.

But then, the cable company started getting greedy.

Last month, my bill rose to just shy of $60! That a 74% increase over seven years! I’m sorry, but that’s simply too much.

A couple of months ago, I hooked up an old TV to a digital converter and souped up antenna just to see if I could get good enough reception to drop cable altogether, but that simply didn’t work well enough (again, the hill thing). So, instead, I called and dropped the “Standard” portion of my cable service. Net savings…nearly $45 per month! That’s $540 a year!

So, do I miss the expanded channels? Occasionally, but not $45/month worth. An unintended side effect has also been exploring exactly what is available on my “local” channels and really paying attention to things like Public Broadcasting.

Trimming the Sails Tally:

Trimming Cable Service = $45/month = $540/year

Reminder: 2005 Tax Return Window Closes on April 15, 2009

2009-03-04T09:00:00.000-05:00

A reminder from the IRS…

Unclaimed refunds totaling approximately $1.3 billion are awaiting over a million people who did not file a federal income tax return for 2005, the Internal Revenue Service recently announced. However, to collect the money, a return for 2005 must be filed with the IRS no later than Wednesday, April 15, 2009.

In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If no return is filed to claim the refund within three years, the money becomes property of the U.S. Treasury. For 2005 returns, the window closes on April 15, 2009. The law requires that the return be properly addressed, postmarked and mailed by that date. There is no penalty assessed by the IRS for filing a late return qualifying for a refund.

The IRS reminds taxpayers seeking a 2005 refund that their checks will be held if they have not filed tax returns for 2006 or 2007. In addition, the refund will be applied to any amounts still owed to the IRS and may be used to satisfy unpaid child support or past due federal debts such as student loans.

The 2009 Stimulus: Unemployment Compensation

2009-03-03T09:00:00.001-05:00

(This is one of a series of posts on the new 2009 Economic Stimulus bill signed into law on 2/17/09. There are several provisions that may impact your income taxes for the next two years or more.)

The American Recovery and Reinvestment Act of 2009 contains several provisions relating to unemployment. First, it allows recipients of unemployment compensation to exclude from income up to $2,400 of unemployment compensation benefits received in 2009. However, remember that unemployment compensation is taxed by most states and, at least in New York, there is no option for state withholding from unemployement checks. If you anticipate receiving unemployment compensation in 2009, remember to plan ahead for your income tax filing in 2010.

Next, the bill calls for an additional 20 weeks of normal unemployment benefits, plus up to 13 additional weeks on top of the 20 extra weeks for unemployment filers who live in a “high unemployment state.” There are currently 30 states that qualify under the “high unemployment” label. Be sure to check with your state’s employment bureau for more information about your state.

Finally, the 2009 stimulus bill temporarily increases payments by $25 across the board. In New York state, the maximum weekly benefit will rise to $430 from $405.

Still More on the "Make Work Pay" Credit

2009-03-02T09:00:00.002-05:00

As we've noted before, the "Make Work Pay" credit is the new version of last year's stimulus check. Only this time you'll start seeing adjustments in your paycheck by the middle of April (see our post about the new withholding tables made available last weekend). The credit adds up to as much as $400 for single filers and $800 for married couples each year for two years. But for some, the new credit could result in an unexpected bill come filing time, because employers will be adjusting paycheck withholding amounts without knowing each worker's complete tax situation.

If you file a joint return with your spouse, and you both work, or you have more than one job, you should carefully review your withholding, because it's highly likely your multiple employers, without knowledge of what each other is doing, will adjust withholding such that both spouses or you as an individual receive more credit than the law designed.

Confused or in doubt? Contact your tax professional today and ask how the new withholding tables may effect your tax return next year. Now is the time to plan!

Top o' the Month: March '09

2009-03-02T00:15:00.016-05:00

Here's a new recurring feature for this website:

One of the principles of this website and Notch Consulting is that Money Must Work. In order to do that, we must have safe options for saving and earning money. There are hundreds of on-line resources available to compare savings rates - we won't even begin to compete with them. But, once a month we'll post a few simple savings rates for a large, local credit union, a regional bank, a national internet bank, and the US I-bond rate. History has shown that we cannot rely on any one resource, so do your own research to decide how your Money Will Work today and tomorrow.

Mortgage Relief: Part 2

2009-02-27T09:00:00.002-05:00

Last week, President Obama committed $75 billion to tackle the foreclosure crisis in an effort to prevent up to 9 million Americans from losing their homes. The plan aims to aid borrowers who owe more on their mortgages than their homes are currently worth, and borrowers who are on the verge of foreclosure. Here’s Part 2 of a brief summary of the provisions of the plan:

If You're at Risk of Foreclosure

The government’s program offers help to borrowers who are already behind on their mortgage payments or who are struggling to keep their loans current. By providing mortgage lenders with financial incentives to modify existing first mortgages, the Treasury hopes to help as many as 3 to 4 million homeowners avoid foreclosure regardless of who owns or services the mortgage.
In general, you may qualify for a mortgage modification if (a) you occupy your house as your primary residence; (b) your monthly mortgage payment is greater than 31% of your monthly gross income; and (c) your loan is not large enough to exceed current Fannie Mae and Freddie Mac loan limits. Final eligibility will be determined by your mortgage lender based on your financial situation and detailed guidelines that will be available on March 4, 2009.

Only the mortgage on your primary residence is eligible. The mortgage lender will check to see if the dwelling is your primary residence. Only the first mortgage is eligible for a modification. The primary objective of the plan is to help borrowers avoid foreclosure by modifying troubled loans to achieve a payment the borrower can afford. Lenders are likely to lower payments mainly by reducing loan interest rates. However, the program offers incentives for principal reductions and at your lender’s discretion modifications may include upfront reductions of loan principal.
There is no cost to borrowers for a modification under the Homeowner Affordability and Stability Plan. If you wish to get assistance from a HUD-approved housing counseling agency or are referred to a counselor as a condition of the modification, you will not be charged a fee. Borrowers should beware of any organization that attempts to charge a fee for housing counseling or modification of a delinquent loan, especially if they require a fee in advance.
Mortgage lenders participate in the program on a voluntary basis and loans are evaluated for modification on a case-by-case basis. But the government is offering substantial incentives and it is expected that most major lenders will participate.

Ask your lender or counselor to be considered under the Homeowner Affordability and Stability Plan. Most mortgage lenders will evaluate loans in their portfolio to identify borrowers who may meet the eligibility criteria. After March 4 they will send letters to potentially eligible homeowners, a process that may take several weeks. If you think you qualify for a modification and do not receive a letter within several weeks, contact your mortgage servicer or a HUD-approved housing counselor. You should gather the information that you will need to provide to your lender on or after March 4, when the modification program becomes available. This includes: information about the monthly gross income of your household including recent pay stubs if you receive them or documentation of income you receive from other sources, your most recent income tax return, information about any second mortgage on the house, payments on each of your credit cards if you are carrying balances from month to month, and payments on other loans such as student loans and car loans.

Mortgage Relief, Part 1

2009-02-26T09:00:00.002-05:00

Last week, President Obama committed $75 billion to tackle the foreclosure crisis in an effort to prevent up to 9 million Americans from losing their homes. The plan aims to aid borrowers who owe more on their mortgages than their homes are currently worth, and borrowers who are on the verge of foreclosure. Here’s a brief summary of the provisions of the plan:

If You're Current on Your Mortgage

Eligible borrowers who stay current on their mortgages, but have been unable to refinance to lower their interest rates because their homes have decreased in value may now have the opportunity to refinance into a 30 or 15 year, fixed rate loan. The program only applies to loans held by Fannie Mae and Freddie Mac or loans they placed in mortgage backed securities. Complete eligibility details will be announced on March 4 when the program starts. The criteria will include having sufficient income to make the new payment and an acceptable mortgage payment history. Eligible loans will now include those where the new first mortgage (including any refinancing costs) will not exceed 105% of the current market value of the property. For example, if your property is worth $200,000 but you owe $210,000 or less you may qualify. The current value of your property will be determined after you apply to refinance. Your eligibility will depend, in part, on agreement by the lender that has your second mortgage to remain in a second position, and on your ability to meet the new payment terms on the first mortgage.

The program will help borrowers refinance into safer, more affordable fixed rate loans. Refinancing will not reduce the amount you owe to the first mortgage holder or any other debt you owe. However, by reducing the interest rate, refinancing should save you money by reducing the amount of interest that you repay over the life of the loan.

To determine if your loan is owned or has been securitized by Fannie Mae or Freddie Mac and is eligible to be refinanced, you should contact your mortgage lender after March 4, 2009. Gather the information you’ll need to provide to your lender when the refinance program becomes available. This includes: information about the gross monthly income of all borrowers, including your most recent pay stubs (if you receive them) or documentation of income you receive from other sources; your most recent income tax return; information about any second mortgage on your house; payments on each of your credit cards (if you are carrying balances from month to month), and payments on other loans such as student loans and car loans.

Tomorrow: “If You're at Risk of Foreclosure”

E-mail from the IRS?

2009-02-25T09:00:00.000-05:00

It’s very easy to determine if that e-mail really is from the Internal Revenue Service – and chances are it’s not. Here’s all you need to remember: The IRS never initiates contact with taxpayers via e-mail if it has to do with your account or private information.

“We’re not going to send you a notice out of the blue that asks for very sensitive information,” says IRS spokesman Eric Smith. “We don’t ask for your PIN and we don’t ask for passwords. That’s just not the way we do business.”

And remember, the IRS already has your Social Security number – you used it to file your return. If you made a mistake on your tax return or if you have an unexpected refund coming, the IRS will notify you with a letter sent through the U.S. mail. “We don’t send out refunds by e-mail, we don’t audit people by e-mail and we don’t collect taxes by e-mail,” Smith says.

Your 2008/2009 Tax Return: 2009 Required Minimum Distributions from Retirement Accounts

2009-02-24T09:00:00.001-05:00

Congress has suspended the requirements for mandatory retirement account withdrawals during 2009 for most retirement accounts. For individuals who deferred their 2008 withdrawals to 2009, you must still make your withdrawal by April 1, 2009. Those individuals who will first turn 70 ½ during 2009, the general rules have not changed. You will either take a distribution in 2009 or defer it to no later than April 1, 2010. No exemption or deferral is allowed for beneficiaries who are receiving 5-year payouts from a retirement account. Those withdrawals must continue as in prior years.