Per the IRS, these are the 10 facts about Mortgage Debt Forgiveness to keep in mind:

1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.
2. The limit is $1 million for a married person filing a separate return.
3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.
4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.
5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.
6. Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.
7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
8. Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.
9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.

For more information about the Mortgage Forgiveness Debt Relief Act of 2007, you can visit the IRS website.  IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments, is also an excellent resource.

You can also use the Interactive Tax Assistant available on the IRS website to determine if your cancelled debt is taxable.

Otherwise, call or email us if you have questions…we’re here for you!!

Bartering is the trading of one product or service for another. Usually there is no exchange of cash. However, the fair market value of the goods and services exchanged must be reported as income by both parties.

Here are some facts on bartering to keep in mind:

1. Organized barter exchanges A barter exchange functions primarily as the organizer of a marketplace where members buy and sell products and services among themselves. Whether this activity operates out of a physical office or is internet-based, a barter exchange is generally required to issue Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, annually to their clients or members and to the IRS.
2. Barter income Barter dollars or trade dollars are identical to real dollars for tax reporting purposes. If you conduct any direct barter – barter for another’s products or services – you must report the fair market value of the products or services you received on your tax return.
3. Tax implications of bartering Income from bartering is taxable in the year it is performed. Bartering may result in 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.
4. How to report The rules for reporting barter transactions may vary depending on which form of bartering takes place. Generally, you report this type of business income on Form 1040, Schedule C Profit or Loss from Business, or other business returns such as Form 1065 for Partnerships, Form 1120 for Corporations or Form 1120-S for Small Business Corporations.

Call or email us if you have questions on this or any other of our topics!

Here are four reasons more than 79 million taxpayers chose direct deposit in 2011:

1. Security Thousands of paper checks are returned to the IRS by the U.S. Post Office every year as undeliverable mail. Direct deposit eliminates the possibility of your refund check being lost, stolen or returned to the IRS as undeliverable.
2. Convenience The money goes directly into your bank account. You won’t have to make a special trip to the bank to deposit the money yourself.
3. Ease When you’re preparing your return; simply follow the instructions on your return or in the tax software. Make sure you enter the correct bank account and bank routing numbers.
4. Options You can deposit your refund into multiple accounts. With the split refund option, taxpayers can divide their refunds among as many as three checking or savings accounts and up to three different U.S. financial institutions. Use IRS Form 8888, Allocation of Refund (Including Savings Bond Purchases), to divide your refund. A word of caution: Some financial institutions do not allow a joint refund to be deposited into an individual account. Check with your bank or other financial institution to make sure your direct deposit will be accepted. Additionally, Form 8888 should NOT be used to designate part of your refund to pay your tax preparer.

So, when paying large medical bills for parents or persons other than dependent minor children, be sure to make payments directly to the medical service provider.  Avoid giving the funds to the parent or other individual first, and having them pay the doctor or hospital.  This method will be translated as a gift to that person, subject to the $13,000 limit.

The additional tax is called a “credit reduction”.  It applies when the state has not repaid money that it borrowed from the federal government to pay unemployment benefits.

Credit reduction states for are Arkansas, California, Connecticut, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Minnesota, Missouri, North Carolina, New Jersey, Nevada, New York, Ohio, Pennsylvania, Rhode Island, Virginia, Wisconsin, and the Virgin Islands.

The additional “credit reduction” tax is computed on Form 940, Schedule A and then reported on line 11 of Form 940.  The amount is added to the tax deposit for the fourth quarter.

Most businesses use payroll services or software that will handle this type of adjustment automatically.  However, knowledge is power and you may want to insure that these updates are being handled by your service provider or software.

Call us if you have questions or if we can be of assistance!

It is very important to know the due dates for estimated taxes. Missing these dates can result in significant interest and penalties.  If you are self-employed, retired, or have significant investment or any other “untaxed” income, you may need to “pay as you go” by sending estimated tax payments to the government on a quarterly basis.

The federal due dates are April 15, June 15, September 15 and January 15. (If the due date falls on a Saturday or Sunday, or national holiday, the deadline moves to Monday.)

Please contact us if you have any questions about estimated tax or if you have lost the coupons we prepared for you.

The standard FUTA rate is 6% on the first $7,000 of wages. Employers in most states receive a credit of 5.4% against the rate, resulting in a net tax rate of 6%. However, some state had Federal Unemployment Trust Fund loans – taken to keep their unemployment insurance benefit programs solvent during recent periods of extended high unemployment – that were still outstanding.  As a result, these states will have their FUTA credit amount reduced for 2011 filing as a way to recover the fund still owed to pay back these loans, resulting, as noted, in higher taxes for employers in those states.

Instead of the standard 5.4% credit allowed, employers in these states will have a reduced credit of 5.1% for 2011, making their FUTA tax rate 0.9%:

• Arkansas            Minnesota                 Pennsylvania
• California           Missouri                     Rhode Island
• Connecticut       North Carolina            Virginia
• Florida               New Jersey                Virgin Islands
• Georgia             Nevada                      Wisconsin
• Illinois                New York
• Kentucky           Ohio

Please note the following:

• Employers in Indiana will have their credit reduced from 5.4% to 4.8% for 2011, making the FUTA tax rate 1.2%.

• Employers in Michigan will have their credit reduced from 5.4% to 4.5% for 2011, making the FUTA tax rate 1.5%.

NOTE: All rate calculations above are based on the current FUTA rate of 6.0%. This rate has been in effect since 7/2011, when the 0.2% FUTA surtax expired.  It is not known at this time how the IRS will handle the split year rates on its FUTA credit reduction calculations. Further guidance from the IRS is forthcoming.

The Credit Reduction only applies to employers who pay SUI wages to the states listed above. All other employers will receive the full FUTA credit of 5.4%.

• 55.5 cents for business miles
• 23 cents for medial and moving miles
• 14 cents for charitable miles

The rate for business miles is the same as the last half of 2011.  The medical and moving rate has been reduced by 0.5 cents per mile.