Obama's "Making Home Affordable" Programs

Two new government programs will help nine million homeowners make their home mortgages more affordable.  It is designed to prevent the destructive impact of foreclosures on families, communities and the national economy.  The Home Affordable Refinance program deals with existing mortgages owned by Fannie Mae and Freddie Mac.  The other program, the Home Affordable Modification program, is a voluntary program providing incentives to lenders in the private sector that modify home loans for at-risk homeowners to avoid foreclosure by reducing monthly mortgage payments. 

Home Affordable Refinance Program - The Home Affordable Refinance program will be available to four to five million homeowners who have a solid payment history on an existing mortgage owned by Fannie Mae or Freddie Mac.  Normally, these borrowers would be unable to refinance because their homes have lost value, pushing their current loan-to-value ratios above 80%.  Under the Home Affordable Refinance program, many of them will now be eligible to refinance their loan to take advantage of today’s lower mortgage rates or to refinance an adjustable-rate mortgage into a more stable mortgage, such as a 30-year fixed rate loan.  Lenders and loan servicers already have much of the borrower’s information on file, so documentation requirements are not likely to be burdensome.  In addition, in some cases, an appraisal will not be necessary.  This flexibility will make the refinance quicker and less costly for both borrowers and lenders.  The Home Affordable Refinance program ends in June 2010.

Home Affordable Modification Program - The Home Affordable Modification program will help up to three to four million at-risk homeowners avoid foreclosure.  Monthly mortgage payments will be lowered by reducing the interest rate to the current levels or by stretching the payments to 40 years instead of 30.  The total principal amount repaid remains the same, but the borrower pays less interest or takes longer to pay off the mortgage.  This is a voluntary program.  Working with the banking and credit union regulators, the FHA, the VA, the USDA and the Federal Housing Finance Agency, the Treasury Department today announced program guidelines that are expected to become standard industry practice in pursuing affordable and sustainable mortgage modifications.  This program will work in tandem with an expanded and improved Hope for Homeowners program.  This program applies to:

• Loans originated on or before January 1, 2009;

• First-lien loans on owner-occupied properties; and

• Unpaid principal balances up to $729,750. (Higher limits allowed for owner-occupied properties with 2-4 units).

Servicers will follow a specified sequence of steps in order to reduce the monthly payment to no more than 31% of the borrower’s gross monthly income.  You may even qualify for a new affordable loan if you are already in foreclosure.  Follow the steps below to determine if the 31% of monthly income criteria will qualify you for a new affordable loan.

Step 1 - Add up your annual income and divide by 12 to determine your monthly income.

Step 2 – Multiply the monthly income by 0.31 to determine the maximum payment you can have without exceeding the 31% criteria. 

Step 3 – Consult a loan amortization table based on the current interest rate and determine the loan principal for the monthly payment determined in step 3.  There are also numerous mortgage calculators available online that can help with this step. 

Step 4 – If your current loan is less than the amount determined in step 3, then you will probably qualify and should contact your lender to see if they are participating in this voluntary government program.    

Example:  Your annual income is $40,000, and the current mortgage interest rate is 5.25%.  The $40,000 annual income equates to a monthly income of $3,333 ($40,000/12).  The maximum mortgage payment you can have under this plan is $1,033 ($3,333 x .31).  Based on the 5.25% interest rates determined from a mortgage table or online calculator, the $1,033 monthly payment will support a $187,000, 30-year mortgage.  If your current mortgage balance is at or less than that amount, you will probably qualify for the program and should contact your lender to see if they participate in the program.

The table below illustrates the qualifying mortgage payments and resulting loan amounts based on 5.25% interest rates (the current rate at the time this article was written) and several levels of income.  Results illustrated will vary with different interest rates.

If, after cutting your rate and stretching out your payments, you still don’t have enough income to meet that 31% threshold, the plan probably won’t work for you.

Many homeowners have mortgages larger than the value of their home.  Some lenders, in lieu of foreclosure, are willing to negotiate a reduction of the principal rather than incur the costs associated with foreclosing and reselling the property.  Think about it; they will lose the drop in home value either way.  However, you will have to show that you will be a reasonable credit risk after the reduction of principal.  Contact your lender and see if they have a program like this available.

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Checking the Status of Your Federal Tax Refund is Easy

If you already filed your federal tax return and are due a refund, you can check the status of your refund online.

Where’s My Refund? is an interactive tool on the IRS web site at IRS.gov.  Whether you split your refund among several accounts, opted for direct deposit into one account, or asked the IRS to mail you a check, Where’s My Refund? will give you online access to your refund information nearly 24 hours a day, 7 days a week. 

If you e-file, you can get refund information 72 hours after the IRS acknowledges receipt of your return.  If you file a paper return, refund information will be available within three to four weeks.  When checking the status of your refund, have your federal tax return handy. To access your personalized refund information, you must enter:

• Your Social Security Number (or Individual Taxpayer Identification Number);

• Your Filing Status (Single, Married Filing Joint Return, Married Filing Separate Return, Head of Household, or Qualifying Widow(er)); and

• The exact refund amount shown on your tax return.

Once your personal information has been entered, one of several responses may come up, including the following:

• Acknowledgement that your return was received and is in processing.

• The mailing date or direct deposit date of your refund.

• Notice that the IRS could not deliver your refund due to an incorrect address.  You can update your address online using the Where’s My Refund? feature.

Where’s My Refund? also includes links to customized information based on your specific situation.  The links guide you through the steps to resolve any issues affecting your refund.  For example, if you do not get the refund within 28 days from the original IRS mailing date shown on Where’s My Refund?, you can start a refund trace online.
Where’s My Refund? is also accessible to visually impaired taxpayers who use the Job Access with Speech screen reader used with a Braille display and is compatible with different JAWS modes.

If you do not have internet access, you can check the status of your refund by calling the IRS TeleTax System at 800-829-4477 or the IRS Refund Hotline at 800-829-1954.  When calling, you must provide your Social Security Number (or your spouse’s), your filing status and the exact refund amount shown on your return.

Refunds are sent out weekly on Fridays.  If you check the status of your refund and are not given the date it will be issued, please wait until the next week before checking back. 

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Do You Qualify for the COBRA Health Insurance Subsidy?

If you were involuntarily terminated from you employment between September 1, 2008 and December 31, 2009 and your employer is covered under the COBRA rules, you may qualify for the subsidy.

The American Recovery and Reinvestment Act of 2009, signed into law on February 17, 2009, includes a federally-funded COBRA continuation subsidy of 65%, which lasts up to nine months for workers (and their families) involuntarily terminated between September 1, 2008 and December 31, 2009.

Under the new law, eligible former employees, enrolled in their employer’s health plan at the time they lost their jobs, are required to pay only 35% of the cost of COBRA coverage. Employers must make up the difference, but are entitled to a credit for the other 65% of the COBRA cost on their payroll tax return.

COBRA provides certain former employees, retirees, spouses, former spouses and dependent children the right to temporary continuation of health coverage at group rates. COBRA generally covers health plans maintained by private-sector employers with 20 or more full and part-time employees.  It also covers employee organizations or federal, state or local governments.  It does not apply to churches and certain religious organizations.  The new COBRA subsidy provisions also apply to insurers required to offer continuation coverage under state law similar to the federal COBRA.

This subsidy phases out for individuals whose modified adjusted gross income exceeds $125,000, or $250,000 for those filing joint returns.  Taxpayers with modified adjusted gross income exceeding $145,000, or $290,000 for those filing joint returns, do not qualify for the subsidy.

If you think you may qualify, you should contact your former employer.  Employers are supposed to notify former employees about this benefit no later than April 18, 2009.

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Business Tax Breaks Š Use Them or Lose Them!

A recent report issued by the Joint Committee on Taxation included a list of business tax breaks that will be expiring at the end of 2009, barring any additional extensions by Congress.  Many of the deductions have been previously extended on a year-by-year basis, including the recently enacted American Recovery and Reinvestment Act of 2009.   While some of these provisions may ultimately be extended, business clients are encouraged to review the expiring provisions.  Where it makes good business sense, take action now to prevent losing out on the tax breaks if they are not extended.

• Additional first-year 50% bonus depreciation for qualified property - Qualified property is allowed a 50% depreciation (bonus depreciation) in the year that the property is placed in service (with corresponding reductions in basis and reductions of the regular depreciation deductions otherwise allowed in the placed-in-service year and in later years).  In addition, an $8,000 increase in the first-year depreciation limit for passenger automobiles that are qualified property is also extended through 2009.  (Certain aircraft and long-production-period property can continue to be placed in service through 2010.)

• Increased Sec. 179 expensing election - The increased expensing election up to $250,000 (with an $800,000 investment ceiling limit) is extended through 2009. Taxpayers can elect to deduct the cost of any section 179 property, generally equipment, placed in service during the tax year as an expense which is not chargeable to a capital account.  (For 2010, without Congressional action, expensing will be limited to $125,000 with a $500,000 investment ceiling limit (both figures indexed for inflation)).

• Faster depreciation for farm machinery - Five-year depreciation for farming business machinery and equipment. 

• Fifteen-year cost recovery for leasehold improvements - Fifteen-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements and qualified retail improvements.  

• Incremental research credit - A taxpayer is generally allowed a research credit of 20% of the amount by which the taxpayer's qualified research expenses exceed a specific base amount (unless the taxpayer elects the alternative simplified credit computation).

• Accelerate AMT and research credits - Election to accelerate AMT and research credits in lieu of additional first-year depreciation.

Please call this office if you have questions about how these tax breaks can be applied to your business. 

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Two Temporary Deductions for Business Vehicles

For vehicles purchased by an individual on or after February 17, 2009 and before January 1, 2010, the Recovery Act of 2009 modifies the definition of deductible taxes to include qualified motor vehicle taxes paid or accrued within the tax year.  Thus, the sales tax paid on the purchase of a business vehicle will not be included in the capitalized cost of the vehicle and presumably can be deducted as a tax paid.

The Recovery Act generally allows this deduction to both itemizers and those claiming the standard deduction as an addition to that deduction.  The deduction is subject to two limitations:

• Purchase Price Limitation - Under a purchase price limitation, only taxes on that part of the qualified motor vehicle's purchase price not exceeding $49,500 may be deducted.

• Income Limitation - Under an income limitation, the amount of sales or excise taxes that may be treated as qualified motor vehicle taxes is phased out ratably for a taxpayer with modified AGI (MAGI) between $125,000 and $135,000 ($250,000 and $260,000 on a joint return).

The Recovery Act also extended the 50% bonus depreciation through 2009, thus increasing the first-year deduction for vehicles by $8,000.  This provides the unincorporated small business owner with two extra tax benefits for buying a new business vehicle between now and the end of the year: a sales tax deduction and boosted first-year depreciation.

Example:  Peter, an unincorporated business owner, buys a new $40,000 auto which he uses 100% for business driving.  He paid $3,400 (8.5%) in state sales tax on the car.  If he had purchased the car before February 17, 2009, his business basis in the vehicle would be $43,400 ($40,000 cost plus $3,400 of sales tax), and, assuming the luxury auto dollar limits are the same as 2008,  his first-year depreciation deduction would be $10,960 (the regular first-year depreciation allowance of $2,960 plus the $8,000 bonus depreciation amount).  If Peter buys the car on March 1, his basis in the vehicle is only the purchase cost ($40,000).  His first-year depreciation is still $10,960, but he gains a $3,400 deduction for the sales tax.  Counting both tax benefits, Peter ends up deducting $11,400 more than normal for a purchase in 2009.

The sales tax deduction will not apply to C-Corporations, and it is unclear at this time whether it will apply to purchases made by S-Corporations.  Presumably, the deduction must be taken at the individual level either as an itemized deduction or as an add-on to the standard deduction by taxpayers not itemizing.  Watch for further information in the future. 

Please call this office with any questions related to these deductions.

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CanÕt Pay Your Tax Liability?

If you are unable to pay your tax liability for 2008, there are some things you need to know. Most importantly, don't let your inability to pay your tax liability in full keep you from filing your tax return properly and on time.  Why?  Because there is a “failure to file” penalty that accrues at the rate of 5% per month or part of a month (to a maximum of 25%) on the amount of tax your return shows that you owe.  You can delay the “failure to file” penalty for six months by filing an extension, but that won’t keep you penalty-free.  

Although an extension provides you more time to file the actual return, it is not an extension to pay.  Not paying the balance of your 2008 tax liability will subject you to the “failure to pay” penalty.  The “failure to pay” penalty accrues at the rate of 1/2% per month or part of a month (to a maximum of 25%) on the amount actually shown as due on the return. 

If both penalties apply, the “failure to file” penalty drops to 4.5% per month or part thereof, so the total combined penalty remains at 5%.  The maximum combined penalty for the first five months is 25%.  Thereafter, the “failure to pay” penalty can continue at 1/2% per month for 45 more months (an additional 22.5%).  Thus, the combined penalties can reach a total of 47.5% over time.  Both of these penalties are in addition to the interest that you will be charged for late payment.

Bottom line…if you owe money, file your return on time even if you can’t pay the entire liability. That will minimize your penalties.  Pay as much as you can with the return to further minimizing your penalties.  By the way, the penalties and interest are not tax-deductible.

Possible Solutions – The following are possible solutions to paying your tax liability:

• Relatives and Friends – Borrow the money from family members or close friends.  Loans from relatives or friends are often the simplest method to pay the bill.  One advantage of such loans is that the interest rate will probably be low, but you must also consider that loans over $10,000 at below market interest rates may trigger tax consequences.  Any interest paid on this type of loan would be non-deductible.

• Home Equity Loan – A home equity loan is also a potential source of funds with the advantage that the interest would be deductible as long as your total equity loans on the home don’t exceed $100,000.  However, in today’s financial environment, qualifying for these loans may be too time-consuming in some situations.

• Credit Card – Using your credit card to pay your taxes is another option.  The IRS has approved two firms to provide this service.  The disadvantage is that the interest rates are relatively high, and you must pay the “merchant” fee because the IRS does not.  For information about the fees, contact the firms below:

o Official Payments Corporation, 1-800-2PAYTAX, www.officialpayments.com

o Link2Gov Corporation, 1-888-PAY-1040, www.PAY1040.com

• Pension Plans – Tapping into one’s pension plan should be the last resort, not only because it degrades your future retirement but because of the potential tax implications.  Generally, except for Roth IRAs, the funds in the retirement accounts are pre-tax and, as a result, when withdrawn become taxable.  If you are under 59½, a distribution will also be subject to the 10% early withdrawal penalty.  The federal tax, state tax (if applicable), and the penalty can chew up a hefty amount of the distribution and be too high a price to pay.  
 
• Installment Agreement – You can request an installment arrangement with the IRS to make monthly payments.  However, there are fees associated with setting up an installment agreement, and you must follow some strict payment rules or the agreement can be terminated.  The agreement requires approval and, if your liability is under $25,000, you will not be required to submit financial statements.

The fee for establishing the agreement is $105, but is reduced to $52 when the taxpayer pays by way of a direct debit from the taxpayer's bank account.  For certain low-income taxpayers, the fee is reduced to $43.  You will also be charged interest, but the late payment penalty will be half the usual rate (1/4% instead of 1/2%), if you file your return by the due date (including extensions).

The installment agreement may terminate and all your taxes become due immediately if any of the following occur: the information you provided to the IRS in applying for the agreement proves inaccurate or incomplete; you miss an installment; you fail to pay another tax liability when it is due; the IRS believes collection of the tax involved is in jeopardy; or you fail to provide an update of your financial condition where the IRS makes a reasonable request for you to do so.

The IRS is required to enter into an installment agreement at your request (a guaranteed installment agreement) if the following apply:

• The tax liability is $10,000 or less. 

• Within the prior five years, you have not failed to file returns or pay taxes and have not entered into a previous installment agreement.

• IRS determines the tax liability cannot be paid in full (1).

• The installment agreement provides for full payment within 3 years.

• You agree to comply with the tax laws during the agreement period.

(1) As a matter of policy, the IRS will generally grant installment agreements even if taxpayers are able to fully pay their accounts.

If the full amount owed can be paid within 120 days, a formal installment agreement, and fees, can be avoided. To establish a request to pay in full, the taxpayer must contact the IRS by phone at 1-800-829-1040 or apply online at the IRS web site.

Final Word of Caution – Ignoring your filing obligation only makes matters worse and can become very expensive.  It can lead to the IRS collection process, which includes attachments, liens and even the seizure and sale of your property.  In many cases, these tax nightmares can be avoided by taking advantage of the solutions discussed above.  If you cannot pay your taxes, please call this office to discuss your options. 

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Facts About Taking Early Distributions from Retirement Plans

When times are tough, taxpayers will sometimes look to their retirement plans as a quick source of needed cash.  If you are contemplating or have taken an early distribution from your retirement plan, here are some things you need to know:

1.  Payments that are received from an Individual Retirement Arrangement before the taxpayer reaches age 59½ are generally considered early or premature distributions.

2.  In addition to the tax due on the distribution amount, early distributions are usually subject to an additional 10% tax.  For example, you have a financial emergency and need to withdraw from a retirement account.  You are in the 25% federal tax bracket and 6% state tax bracket.  Your combined tax on the distribution will be 41% (25% 6% 10%).  That is a hefty price to pay for a quick source of cash; so you are cautioned to tap your retirement funds only when you have no other alternatives.

3.  There are exceptions that will permit you to avoid the 10% penalty in very special circumstances.  Some exceptions apply to all types of plans, while others apply to IRAs only or qualified plans other than an IRA.  They include exceptions for buying your first home, paying medical insurance while unemployed, paying higher education expenses, disability, payment of medical expenses, etc.  Please call this office to see if there is an exception for your actual or contemplated withdrawal.  But keep in mind that even though the penalty might be waived by one of the available exceptions, the distribution will still be taxable and there are no exceptions for that. 

4.  If you only need the funds for a short period of time, you can avoid the tax and 10% penalty by rolling the distribution into another IRA or qualified retirement plan.  But to avoid the tax, you must complete the rollover within 60 days after receiving the distribution. You may roll over a distribution from one IRA to another only once in any 12-month period.

5.  In some circumstances, as specified below, part of the distribution might be tax-free. 

• If you made nondeductible contributions to an IRA and later take distributions from that same IRA, the portion of the distribution attributable to those contributions is not taxed, and for an early distribution the 10% penalty will not apply to the nontaxable portion.

• If you received an early distribution from a Roth IRA, the distribution attributable to contributions is not taxed. 

If the distribution is from any other qualified retirement plan, generally the entire distribution is taxable unless you made after-tax employee contributions to the plan.

If you are contemplating a distribution, it might be appropriate to contact this office in advance to see if there are any actions or alternatives that might be employed to minimize the taxes and penalties on the distribution.

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$1.3 Billion in Unclaimed 2005 Refunds

The IRS recently announced that it has unclaimed refunds totaling approximately $1.3 billion for over a million people who did not file a federal income tax return for 2005.  However, the three-year statute of limitations on refunds for 2005 expires this month.  So, if you did not file your 2005 return, you need to do so before midnight Tuesday, April 15; otherwise, any refund will be forfeited.

The IRS estimates that half of those who could claim refunds for tax year 2005 would receive more than $581.  Some individuals may not have filed because they had too little income to require filing a tax return even though they had taxes withheld from their wages or made quarterly estimated payments.  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.

By failing to file a return, individuals stand to lose more than refunds of taxes withheld or paid during 2005.  Many low-income workers may not have claimed the Earned Income Tax Credit (EITC).  Generally, unmarried individuals qualified for the EITC if, in 2005, they earned less than $35,263 and had more than one qualifying child living with them, earned less than $31,030 with one qualifying child, or earned less than $11,750 and had no qualifying child.  Limits are slightly higher for married individuals filing jointly.

If you have not filed and would like to do so before April 15, you are urged to call this office immediately.  Since this is almost the end of tax season, it is a very busy time. 

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Is Your Standard Deduction Higher Than Usual?

If you noticed that your standard deduction is higher than normal this year, it could be the result of new tax laws that allow those who don’t itemize their deductions to include two additional deductions with their otherwise allowable standard deduction; (1) a portion of their state and local real property taxes and (2) casualty losses as a result of a Presidentially-declared disaster in their standard deduction amount for the year.  

Property Tax Add-On – This standard deduction add-on is for state and local real estate taxes for which the taxpayer is liable and paid during the year, up to a maximum of $500 for single filers and $1,000 for joint filers.  This deduction is available for both the 2008 and 2009 tax years.

Example – Real property tax addition to standard deduction: A single taxpayer, age 68, paid $1,800 in real property taxes on her personal residence in 2008.  She has no other deductions that could be itemized.  Her 2008 standard deduction will be $7,300 ($5,450 1,350 $500).

Disaster Loss Deduction Add-On – Special rules apply to losses which occur in areas the President of the United States declares eligible for Federal disaster assistance.   For 2008 and 2009, individuals can elect to add their disaster loss to their standard deduction for the year.  This provision is beneficial to taxpayers with net disaster losses whose other itemized deductions are less than their standard deduction.

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Use Whole Dollar Amounts for Taxes

Many clients tend to include pennies when recording their tax data.  This is sometimes troublesome because tax organizer fields are not designed to accommodate pennies.  The reason for this is that tax forms also do not accommodate pennies.  IRS regulations allow taxpayers to round up or down to the nearest dollar.   The following example of rounding is provided in the IRS regulations:  


                                  
Rounding applies to both individual and business tax data.

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5 Ways To Audit Your Quickbooks Activity

In the past QuickBooks had an optional Audit Trail feature that you could choose whether or not to enable. However, recent versions of the program automatically enable Audit Trail, so every change made to a transaction in QuickBooks is logged automatically. Although this may seem Orwellian, you may find that you sometimes need to carry out forensic research on a particular QuickBooks transaction. In layman’s terms, this means looking into who changed or deleted a transaction, determining what date the transaction changed, and how the transaction looked before it changed. In this article we’ll discuss five different audit reports that QuickBooks provides, as well as show you some easier ways to mine the data within these reports.

Expert tip: It’s best to assign a separate user ID to each QuickBooks user. To do so, choose Company, Set up Users and Passwords, and then follow the onscreen prompts. Once you set it up, you’ll be able to have accountability for every transaction entered or modified in QuickBooks.

Audit Trail Report

As previously discussed, the Audit Trail is automatically enabled in QuickBooks, and it cannot be disabled. To view the audit trail, choose Reports, Accountant & Taxes, and then Audit Trail. As shown in Figure 1, the audit trail report will appear onscreen.



Figure 1: By default, the Audit Trail shows all activity for today.

Although the Audit Trail report defaults to today’s date, you can easily change the date range at the top of the screen. As you might expect, this report may contain a lot of data, so you may need to winnow down the data shown:

1. Click the Modify Report button.

2. Click on the Filters tab.

3. Choose Transaction Type from the Filter List, and then choose Multiple Transaction Types from the Transaction Type list. As shown in Figure 2, you can then select one or more transaction types to display.

4. Click OK twice to display the report.



Figure 2: You can limit the Audit Report to certain transaction types.

Even with changing the filters and date range, you may still have a tough time navigating the report. Unfortunately QuickBooks does not allow you to search the report onscreen, however, you can easily export the report to Excel or another program so that you can carry out your research:

• To export to Excel: Click the Export button at the top of the Audit Trail report screen, choose A New Excel Workbook, and then click Export.

• To export to another program: The Export button also allows you to export the report to a CSV file, which means a comma-separated value format. This type of report is best viewed in a spreadsheet such as Excel. If you don’t have Excel available, choose File, Save As PDF, and then save the report to a PDF file. You should then be able to copy and paste the resulting report into the program of your choice or use the search feature within your PDF viewer — the free Adobe Acrobat Reader is a common choice.

If you choose to export the report to Excel, you’ll have some advanced filtering capabilities at your disposal:

• Excel 2007: Click on cell A1, and then press Shift-End-Home. This will select the entire workbook. You can then choose Sort & Filter from the Filtering section of the Home ribbon, and then choose Filter. As shown in Figure 3, you can then click the arrow in cell J1 and choose to which transactions to display:

o Latest means the latest version of the transaction.

o Prior means the transaction has been edited. The Audit Trail shows both the latest and previous versions of the transaction.

o Deleted means that the transaction has been deleted and must be manually reentered in QuickBooks if necessary.

• Earlier versions of Excel: Click on cell A1, press Shift-End-Home, and then choose Data, Filter, and then AutoFilter. You can then click any of the arrows in row 1 to filter the list to meet specific criteria.



Figure 3: Sending the report to Excel enables you to filter for deleted or modified transactions.

Alternatively you can press Ctrl-F and search for the words Prior or Deleted. Click the Find Next button to move to the next transaction as you carry out your review, as shown in Figure 4.



Figure 4: Excel’s Find feature is another way to sift through a lengthy Audit Trail report.

Fraud alert: Perpetrators often generate checks or invoices under one vendor or customer ID, and then modify the accounting records to obfuscate their deed. Always review transactions with a Prior label carefully.

Voided/Deleted Transactions Summary and Detail Reports

Deleted transactions often appear as a discrepancy when you attempt to reconcile a bank or credit card account. Typically the starting balance that QuickBooks displays will differ from the ending balance on your bank statement. In such instances, it’s a good practice to first check the Voided/Deleted Transaction Reports:

• Choose Reports, and then Accountant & Taxes.

• Select either the Voided/Deleted

Transactions Summary or Detail reports. Both provide basically the same information, but the Detail report includes the entire transaction, rather than just the top level information shown in Figure 5.



Figure 5: Double-click a transaction on the summary report to view its details.

Closing Date Exception Report

You can use this report to determine if anyone has made changes to transactions subsequent to you specifying a closing date in the QuickBooks preferences. To do so, choose Edit, and then Preferences. Next, choose Accounting, and then Company Preferences. Finally, click the Set Date/Password button, and then follow the onscreen prompts. Going forward you can choose Reports, Accountant & Taxes, and then Closing Date Exception Report to monitor any chances to closed periods in QuickBooks.

Customer Credit Card Audit Log

QuickBooks offers additional protection if you store customer credit card data in QuickBooks. The Customer Credit Card Audit Log report, shown in Figure 6, records all activity related to customer credit cards:

• When credit card numbers are entered

• Whenever credit card numbers are displayed onscreen

• When credit card numbers are edited or deleted



Figure 6: The Customer Credit Card Audit Log tracks all activity related to customer credit cards.

To enable logging of customer credit card activity in QuickBooks, choose Company and then Customer Credit Card Protection. Follow the onscreen prompts once you click the Enable button.

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Options to Maximize New First-Time Homebuyer Tax Credit

Under the American Recovery and Reinvestment Act of 2009, qualifying taxpayers who purchase a home in 2009 before December 1 receive a tax credit of 10% of the purchase price to $8,000, or $4,000 for married individuals filing separately.  People can claim the credit either on their 2008 tax returns due on April 15 or on their 2009 tax returns next year.

The credit is phased out for higher-income taxpayers.  Therefore, it is very important to consider which year the credit is claimed.  Even though the credit is for a home purchased in 2009, the AGI phase-out is based on the income for the year in which the credit is claimed, either 2008 or 2009.  While claiming the credit in 2008 will get the money into the homebuyers’ hands faster, if the phase-out is affecting the amount of the credit, it is important to consider which year will produce the largest credit.

The phase-out range begins for individual taxpayers with a modified AGI of $75,000 and is fully phased-out out at $95,000.  For married taxpayers filing jointly, the phase-out range is $150,000 - $170,000.

A taxpayer is considered a first-time homebuyer if he (or spouse, if married) had no present ownership interest in a principal residence in the U.S. during the three-year period before the purchase of the home to which the credit applies.

Once the taxpayer has determined which year he or she wants to claim the credit, the following are the various options available:

• File an extension - Taxpayers who haven’t yet filed their 2008 returns and are purchasing a home soon can request a six-month extension to October 15.  This would be faster than waiting until next year to claim it on the 2009 tax return.  Even with an extension, taxpayers could still file electronically, receiving their refund in as little as 10 days with direct deposit.

• File now, amend later - Taxpayers who are due a sizable refund for their 2008 tax return and are considering buying a house in the next few months can file their return now and claim the credit later.  Taxpayers would file their 2008 tax forms as usual, and then follow up with an amended return later this year to claim the homebuyer credit.

• Amend the 2008 tax return - Taxpayers buying a home in the near future who have already filed their 2008 tax return can consider filing an amended tax return. The amended tax return will allow them to claim the homebuyer credit on the 2008 return without waiting until next year to claim it on the 2009 return.

• Claim the credit in 2009 rather than 2008 - For some taxpayers, it may make more financial sense to wait and claim the homebuyer credit next year when filing the 2009 tax return rather than claiming it now on the 2008 tax return.  This could benefit taxpayers who might qualify for a higher credit on the 2009 tax return, possibly including people who have less income in 2009 than 2008 because of factors such as a job loss or drop in investment income.

If you have or are planning to purchase a home in 2009 and would like some additional information on how this credit may apply to you, please call this office for additional information.

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Tax Treatment of "Ponzi" Scheme Losses

"Ponzi" schemes are fraudulent investment arrangements in which the party perpetrating the fraud receives cash or property from investors, purports to earn income for the investors, and reports to the investors income amounts that are wholly or partially fictitious. Payments, if any, of purported income or principal to investors are made from cash or property that other investors invested in the fraudulent arrangement.  The party perpetrating the fraud criminally appropriates some or all of the investors' cash or property.

The IRS has issued guidance addressing the tax treatment of losses due to criminally fraudulent investment arrangements in the form of "Ponzi" schemes.  The guidance provides that investors in such schemes will be entitled to claim a theft loss under the casualty loss rules, rather than a capital loss, because the perpetrators of such fraudulent schemes actually deprive investors of money by criminal acts.  In addition, since the loss is from a transaction entered into for profit, it is neither subject to the $100 ($500 for 2008) nor the 10% of gross income (AGI) personal loss limitations. 

The theft loss is deductible in the year it is discovered, provided that it is not covered by a claim for reimbursement, or other recovery as to which the investor has a reasonable prospect of recovery.  The amount of the theft loss deduction includes the amount invested in the scheme, less any amounts withdrawn, reimbursements, and claims as to which there is a reasonable prospect of recovery.  The deductible amount also includes any fictitious income that was reported to the investor in years prior to the discovery of the theft that was included in the investor's gross income, and reinvested in the scheme.

To the extent an investor's theft loss deduction exceeds the investor’s income for the year, a net operating loss (NOL) is created which allows the investor to carry that loss back up to three years and forward up to twenty years until used up.  Under a special rule for 2008, an eligible small business with a 2008 NOL can elect a 3-, 4-, or 5-year NOL carryback.

The IRS has provided a safe harbor for taxpayers to enable them to deduct losses from fraudulent investment schemes as theft losses.  The new procedure also provides guidance for taxpayers choosing not to use the safe harbor, but who plan to deduct investment fraud losses under the theft loss provisions of Code Sec. 165.  The procedure applies to investment fraud losses discovered in tax years after 2007.
 
The IRS procedure and rules related to claiming losses from fraudulent investments is somewhat complicated and includes certain qualifications and disclosure requirements.  Keep in mind that fraud must be involved, not just losses from investments.  If you or someone close to you has been a victim of a “Ponzi” scheme or, for that matter, any other type of investment fraud, please call this office for additional information about the available tax options.

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