Hello tax fans!
Sorry I've been away for a while, but I needed to rest and regroup after the April 15 deadline. There is an update to my status - I am no longer with the firm Braver PC. Right now I am on my own, but hope to find the next challenge in short order. In the meantime, I will still blog.
For those of you who have filed your 2009 tax returns, now is the time to start planning what your 2010 return will look like. For those of you waiting for the last minute...don't! It's way too stressful. Just get it done. If you need help, contact me.
Seriously, though, the best time to start planning for 2010 is now. I know the agony of this filing season is still fresh, but you can control a good deal of how your return will look next April. Stay tuned for 2010 planning tips.
Tuesday, April 27, 2010
Thursday, April 8, 2010
The Homestretch
April 15 is just one week away. The end is in sight. Or is it? For many of our clients living within the 7 Massachusetts or 4 Rhode Island counties ravaged by the flood waters, April 15 has become just another date. For many, tax season will continue another 4 weeks until May 11, the new deadline set by the Internal Revenue Service for the flood victims.
The extension until May 11 covers not only individual tax returns, but all other entities as well. It also extends the time to make any payments due, such as extension or first quarter 2010 estimated tax payments. For anyone who lives in these places and owes a lot of money, here is a good break to either save the money in your account or to have time to find the money to pay with.
To those of us tax professionals, April 15 is still THE date. It is the date we are shooting for when the gate opens after the new year. It is still the date after which we can take a deep breath and relax and reconnect with our families and friends. And it is certainly the date by which we should thank our families and friends for their patience and tolerance and our co-workers and office staff for their tireless efforts. Thank you.
I hope I have helped some of you out there with some practical, plain tax talk. I encourage all to let me know if there are other things you want me to write about. I hope to post again by April 15 and then I am going on vacation.
Remember, it's your money. Watch it carefully. Ask questions. Be healthy and safe.
The extension until May 11 covers not only individual tax returns, but all other entities as well. It also extends the time to make any payments due, such as extension or first quarter 2010 estimated tax payments. For anyone who lives in these places and owes a lot of money, here is a good break to either save the money in your account or to have time to find the money to pay with.
To those of us tax professionals, April 15 is still THE date. It is the date we are shooting for when the gate opens after the new year. It is still the date after which we can take a deep breath and relax and reconnect with our families and friends. And it is certainly the date by which we should thank our families and friends for their patience and tolerance and our co-workers and office staff for their tireless efforts. Thank you.
I hope I have helped some of you out there with some practical, plain tax talk. I encourage all to let me know if there are other things you want me to write about. I hope to post again by April 15 and then I am going on vacation.
Remember, it's your money. Watch it carefully. Ask questions. Be healthy and safe.
Friday, April 2, 2010
Charitable Contributions of Property
It has come to my attention that enough people do not know about a very important rule concerning charitable contributions. I'm not talking about the garden-variety check to the local police department. I'm talking about major contributions of furniture and household goods or other property (not including stocks) with a fair market value of greater than $5,000.
These days, it is not uncommon for new retirees to want to downsize and move somewhere warmer or more scenic. As part of that move, they give away half a house full of furniture. When it comes to tax time they want to take a charitable contribution for the value of that furniture, say $10,000.
Get An Appraisal
The rule here is simple: if a grouping of the same kind of items (say furniture) has a value of greater than $5,000, you must attach an appraisal to your tax return in order to claim that deduction. If you do not have that appraisal, your deduction is limited to $5,000 and even then, you would have a tough time proving it if you got audited. Yes, the appraisal will cost you something, but it's better than losing a big deduction and the appraisal itself may be deductible.
Take Pictures
In addition to the appraisal, which would give you an itemized list of the items and the value for each, you should take pictures of the items. This is just an additional layer of proof. When you are claiming a bigger than normal deduction, it is even more important to dot your "i"s and cross your "t"s. Not that this will necessarily cause an audit and you certainly should not take a deduction to which you are otherwise entitled for fear of an audit, but it may generate an inquiry from the IRS simply asking you ro prove the deduction.
Be ready. Take pictures and get the items appraised by a licensed appraiser.
These days, it is not uncommon for new retirees to want to downsize and move somewhere warmer or more scenic. As part of that move, they give away half a house full of furniture. When it comes to tax time they want to take a charitable contribution for the value of that furniture, say $10,000.
Get An Appraisal
The rule here is simple: if a grouping of the same kind of items (say furniture) has a value of greater than $5,000, you must attach an appraisal to your tax return in order to claim that deduction. If you do not have that appraisal, your deduction is limited to $5,000 and even then, you would have a tough time proving it if you got audited. Yes, the appraisal will cost you something, but it's better than losing a big deduction and the appraisal itself may be deductible.
Take Pictures
In addition to the appraisal, which would give you an itemized list of the items and the value for each, you should take pictures of the items. This is just an additional layer of proof. When you are claiming a bigger than normal deduction, it is even more important to dot your "i"s and cross your "t"s. Not that this will necessarily cause an audit and you certainly should not take a deduction to which you are otherwise entitled for fear of an audit, but it may generate an inquiry from the IRS simply asking you ro prove the deduction.
Be ready. Take pictures and get the items appraised by a licensed appraiser.
Wednesday, March 31, 2010
FLOOD VICTIMS GET TAX EXTENSION!
The IRS has agreed to extend the April 15 tax filing deadline for all of Rhode Island and the following Massachusetts counties: Bristol, Essex, Middlesex, Norfolk, Plymouth, Suffolk and Worcester. If you live in any of these areas, you now have until May 11 to file and pay your taxes.
Saturday, March 27, 2010
Chest-Deep and Heading for the Homestretch
When I started this blog back at the beginning of February, I told myself I was going to keep it up at least 2-3 times a week during opportunity season. I maintained that pretty well until this week. I am now working 7 days a week and my family sees me for breakfast and a quick dinner. I have a graduate exam in Statistics coming up on April 12 and I still have 168 individual tax returns to get through by April 15. Let me do the math for you - that's 9 a day, every day.
The busier I get, with my head buried in the details, the more I struggle for a tax topic to write about. I know there are some of you out there reading every post. I hope that it's because you feel there is some information you can use. I'd really like your feedback. What are some of the tax issues or questions you have? Is there something about your return you don't understand? Please don't get me started on the Alternative Minimum Tax. I'm saving that diatribe for a later date.
I had an earlier post entitled Taxes Can Be Funny. I think it is so important for all of us to keep our sense of humor. Around here we are blessed to be around some very genuine, very funny people. It helps keep us all sane. One of the ways taxes can be funny is that sometimes clients can't or won't answer a direct question. Example: Q: "Did you refinance your mortgage?" Most of us can see this requires a simple yes or no answer. A: "I sent you the bank form". Here's another. Q: "Did you send your child to day camp or overnight camp"? A: "He's only 10". If you don't see the humor in these as much as I do, I apologize. Maybe my threshhold for funny has dropped along with my sleep hours. However, when this is the last piece of information you need before you can finish a return, it can be exasperating. If your tax person asks a direct question, please provide a direct answer to that question.
For all of you out there who skipped their minimum required distributions from your retirement plan in 2009, remember you have to take it again in 2010.
Take note, it's your money. The more you save in taxes, the more that's in your pocket. Let me know how I can help.
The busier I get, with my head buried in the details, the more I struggle for a tax topic to write about. I know there are some of you out there reading every post. I hope that it's because you feel there is some information you can use. I'd really like your feedback. What are some of the tax issues or questions you have? Is there something about your return you don't understand? Please don't get me started on the Alternative Minimum Tax. I'm saving that diatribe for a later date.
I had an earlier post entitled Taxes Can Be Funny. I think it is so important for all of us to keep our sense of humor. Around here we are blessed to be around some very genuine, very funny people. It helps keep us all sane. One of the ways taxes can be funny is that sometimes clients can't or won't answer a direct question. Example: Q: "Did you refinance your mortgage?" Most of us can see this requires a simple yes or no answer. A: "I sent you the bank form". Here's another. Q: "Did you send your child to day camp or overnight camp"? A: "He's only 10". If you don't see the humor in these as much as I do, I apologize. Maybe my threshhold for funny has dropped along with my sleep hours. However, when this is the last piece of information you need before you can finish a return, it can be exasperating. If your tax person asks a direct question, please provide a direct answer to that question.
For all of you out there who skipped their minimum required distributions from your retirement plan in 2009, remember you have to take it again in 2010.
Take note, it's your money. The more you save in taxes, the more that's in your pocket. Let me know how I can help.
Monday, March 22, 2010
Organization Counts
Are you a shoebox? No, not you personally. Your tax stuff. Do you just put all those receipts and little scraps of paper in a shoebox? It's truly not efficient and you are most likely missing out on some deductions. Here's why: 1) when it comes to tax time, you don't remember what half the scraps of paper mean; 2) the business receipts, which are supposed to document the person and event - don't; 3) you probably put half the receipts in a different shoebox which you then forgot about and which will resurface in 10 years when you clean out your closet.
Don't Be A Shoebox
I used to know someone so compulsive about recordkeeping that he would enter every last penny into Quicken. If I went to the ATM, my quicken report would just show "cash - miscellaneous $100". His Quicken report would show exactly how that $100 was spent, down to the penny. You don't need to be quite that bad. Quicken, or any other bookkeeping software that you will actually use, is a great start. If you are diligent, at the end of the year, you can print your tax report in about two minutes. If you are not the computer type, you can still be just as organized. It just takes a little time and effort on your part. Here's how: 1) get yourself a multipocket folder; 2) label each pocket with the different types of income and deductions you have; 3) before you put any slip of paper in any pocket, label it - make sure it has the date and amount - if it relates to a business meeting, it also needs the name of the person you met with and the business purpose of the meeting.
The Longer You Wait, The More Organized You Need To Be
The closer you get to April 15 before doing your own taxes or giving your information to a professional preparer, the more organized you need to be. No one has time to spare going through the shoebox on April 14. Spend your time wisely. Even if you only organize a little at a time, make sure you have it pulled together before actual return preparation starts. It's much more efficient if you don't have to stop and go find something else.
Remember, it's your money. If you miss out on deductions, it costs you. Shoeboxes are for shoes. It's time for an upgrade.
Don't Be A Shoebox
I used to know someone so compulsive about recordkeeping that he would enter every last penny into Quicken. If I went to the ATM, my quicken report would just show "cash - miscellaneous $100". His Quicken report would show exactly how that $100 was spent, down to the penny. You don't need to be quite that bad. Quicken, or any other bookkeeping software that you will actually use, is a great start. If you are diligent, at the end of the year, you can print your tax report in about two minutes. If you are not the computer type, you can still be just as organized. It just takes a little time and effort on your part. Here's how: 1) get yourself a multipocket folder; 2) label each pocket with the different types of income and deductions you have; 3) before you put any slip of paper in any pocket, label it - make sure it has the date and amount - if it relates to a business meeting, it also needs the name of the person you met with and the business purpose of the meeting.
The Longer You Wait, The More Organized You Need To Be
The closer you get to April 15 before doing your own taxes or giving your information to a professional preparer, the more organized you need to be. No one has time to spare going through the shoebox on April 14. Spend your time wisely. Even if you only organize a little at a time, make sure you have it pulled together before actual return preparation starts. It's much more efficient if you don't have to stop and go find something else.
Remember, it's your money. If you miss out on deductions, it costs you. Shoeboxes are for shoes. It's time for an upgrade.
Wednesday, March 17, 2010
March Madness
I love the NCAA men's basketball tournament. I just wish it didn't fall right in the heart of opportunity season. The NCAA has done a much better job at promoting itself than have we CPAs. If someone says 'March Madness' you think of the tournament, the excitement and the possible "Cinderellas". If someone says "tax season" you think of your poor, overworked tax person slaving away day and night. What's wrong with that picture? How about that CPA who stayed up all night and then found that big loophole? Where was some announcer going "Waaay to go baby"!! Where were the high fives and the chest bumps? Maybe it's because our deadline is in April and not March. Come look at our office - there's plenty of March Madness. We need to sell this stuff. Corporate tax returns were due March 15. Don't tell me that doesn't generate a lot of buzz around the water cooler??
Seriously, though, now that the corporate deadline has passed, the focus is all on the individual tax filing season. Except for those invested in many partnerships (especially hedge funds), most people have all the outside reporting they need to prepare their returns. So why haven't I heard from so many clients? People hate to think about their taxes. They procrastinate and find a myriad of other things to do until one day, like the groundhog coming out to look at his shadow, they know it's time. People have this kind of biological tax clock. They send me their information the same time every year and I'll bet they don't even know it.
OKAY PEOPLE, WAKE UP!!! How can you all possibly think that I can get all the work done if you all wait until the last minute? Please don't do this to your tax preparer. Put your tax information together and get it done now! I know we come through for you every year, but it doesn't get any easier. One upside is that the NCAA hasn't yet trademarked "April Madness"! Hey, now there's a thought....
Seriously, though, now that the corporate deadline has passed, the focus is all on the individual tax filing season. Except for those invested in many partnerships (especially hedge funds), most people have all the outside reporting they need to prepare their returns. So why haven't I heard from so many clients? People hate to think about their taxes. They procrastinate and find a myriad of other things to do until one day, like the groundhog coming out to look at his shadow, they know it's time. People have this kind of biological tax clock. They send me their information the same time every year and I'll bet they don't even know it.
OKAY PEOPLE, WAKE UP!!! How can you all possibly think that I can get all the work done if you all wait until the last minute? Please don't do this to your tax preparer. Put your tax information together and get it done now! I know we come through for you every year, but it doesn't get any easier. One upside is that the NCAA hasn't yet trademarked "April Madness"! Hey, now there's a thought....
Saturday, March 13, 2010
WAIST-DEEP AND PADDLING HARDER
Sorry, it's been a few days since my last blog. It is that time of year!! The incoming returns have gained a steady pace and keeping up is increasingly more challenging. The hours are longer (no kidding!), but the company is good. We are all trying to keep our sense of humor. I took time out Thursday night to attend a fundraiser for Gov. Deval Patrick. I told the organizers ahead of time that I had no funds to give, but they told me to come anyway. It was a small gathering and the Governor was nice enough to give everyone who wanted a one-on-one. Believe it or not, when I got my turn I did not talk about tax reform or how horrible Taxachusetts is. I took my shot at education reform for the gifted student - the one who is out-pacing the standard curriculum. Maybe then they won't all turn out to be tax preparers (just kidding!).
What surprises me is that there has been no major tax scandal making the headlines. It seems as if the IRS always waited until February or March to announce that some major star was under indictment for failure to pay their taxes. I just loved the scare tactic! It hasn't happened this year. Maybe we really do have a nicer, gentler IRS.
Mortgage Interest
My feeling is that people are getting this one wrong. Over the past few years, as interest rates dropped and then stayed low, many people have refinanced their mortgages. This is a good thing. We all want our monthly nut to be as low as possible. Be careful here. There is a trap for the unwary. The general rule is that you can deduct 100% of the mortgage interest on what is called acquisition indebtedness up to $1 million of debt. In its simplest form, acquisition indebtedness is the mortgage you take out when you buy your house. Once that amount is established, you cannot deduct the interest on a greater amount, unless you use the greater amount to improve your house.
Vacations are not deductible
Suppose, for example, that you purchased your modest $400,000 house and took out a $360,000 mortgage. Over the next period of years, you paid that $360,000 down to $300,000. When mortgage rates fell, you jumped at the chance to refinance. But you didn't just refinance the $300,000, you took an extra $20,000 to go on vacation. The bad news is that the interest on that extra $20,000 is not deductible. The good news is that you probably took the deduction anyway. Here's why: 1) you had no clue that some piece of mortgage interest might not be nondeductible; 2) the mortgage holder issued you a form 1098 reporting the full amount of interest you paid during theyear and you believed that was a good number to report on your taxes. I'm sure many preparers unknowingly do this wrong because we simply do not have the information to do it right. If all the mortgage holders were required (they currently are not) to report the ending balance along with the interest paid, then we would have a shot at seeing that you refinanced and for how much.
Home Equity Indebtedness
This is your second bite at the apple. There is a second rule that says you can deduct the interest on up to $100,000 of home equity indebtedness. Assuming you have sufficient equity in your home, this is a line of credit you can use for anything you want. It does not have to be used to improve your home. What makes it deductible is that it is secured by your home. If you want that vacation to be tax deductible, borrow from your home equity line. Actually, I'm not saying you should do that at all. It is just an example. You should save for your vacations, not go into debt for them. The point is that you could use that $100,000 for anything you needed, such as college tuition or catastrophic medical bills - and the interest is fully deductible.
Communication
Once again, it comes down to this. There has to be a dialogue. The preparer needs to know you refinanced and what the balances were. The preparer also needs to know if you are drawing on the home equity line. Have a conversation. Be proactive. Call me before you do something financial. Let's talk.
What surprises me is that there has been no major tax scandal making the headlines. It seems as if the IRS always waited until February or March to announce that some major star was under indictment for failure to pay their taxes. I just loved the scare tactic! It hasn't happened this year. Maybe we really do have a nicer, gentler IRS.
Mortgage Interest
My feeling is that people are getting this one wrong. Over the past few years, as interest rates dropped and then stayed low, many people have refinanced their mortgages. This is a good thing. We all want our monthly nut to be as low as possible. Be careful here. There is a trap for the unwary. The general rule is that you can deduct 100% of the mortgage interest on what is called acquisition indebtedness up to $1 million of debt. In its simplest form, acquisition indebtedness is the mortgage you take out when you buy your house. Once that amount is established, you cannot deduct the interest on a greater amount, unless you use the greater amount to improve your house.
Vacations are not deductible
Suppose, for example, that you purchased your modest $400,000 house and took out a $360,000 mortgage. Over the next period of years, you paid that $360,000 down to $300,000. When mortgage rates fell, you jumped at the chance to refinance. But you didn't just refinance the $300,000, you took an extra $20,000 to go on vacation. The bad news is that the interest on that extra $20,000 is not deductible. The good news is that you probably took the deduction anyway. Here's why: 1) you had no clue that some piece of mortgage interest might not be nondeductible; 2) the mortgage holder issued you a form 1098 reporting the full amount of interest you paid during theyear and you believed that was a good number to report on your taxes. I'm sure many preparers unknowingly do this wrong because we simply do not have the information to do it right. If all the mortgage holders were required (they currently are not) to report the ending balance along with the interest paid, then we would have a shot at seeing that you refinanced and for how much.
Home Equity Indebtedness
This is your second bite at the apple. There is a second rule that says you can deduct the interest on up to $100,000 of home equity indebtedness. Assuming you have sufficient equity in your home, this is a line of credit you can use for anything you want. It does not have to be used to improve your home. What makes it deductible is that it is secured by your home. If you want that vacation to be tax deductible, borrow from your home equity line. Actually, I'm not saying you should do that at all. It is just an example. You should save for your vacations, not go into debt for them. The point is that you could use that $100,000 for anything you needed, such as college tuition or catastrophic medical bills - and the interest is fully deductible.
Communication
Once again, it comes down to this. There has to be a dialogue. The preparer needs to know you refinanced and what the balances were. The preparer also needs to know if you are drawing on the home equity line. Have a conversation. Be proactive. Call me before you do something financial. Let's talk.
Monday, March 8, 2010
Can I Do It Myself? The Myth of Tax Simplification
This is a hard one. Remember the concept called "tax simplification"? It was probably inroduced about two decades ago. Don't kid yourself - it hasn't happened yet. For a lot of people, those mostly with a W-2 and a few 1099s, taxes are a simple matter. Everybody else has at least one matter in their tax lives which complicates the preparation of their tax returns. It doesn't matter whether it's a child in college, a new house, an old house that't been sold in a short sale, a new sole proprietorship or any one of a myriad things. Your taxes can't be done by hand any more.
Off-the-shelf Tax Prep Software??
I'm not going to slam these products because they are not really my competitors. For the next level of taxpayers, most of these do a credible job. If you have small complications, they can handle them...sometimes. People often ask me questions about the results they've gotten from using one of these products. As good as the programming might be, some of the results are just strange. If you don't know enough to recognize the strange result and the software doesn't know it's a strange result, you could severly overpay your taxes.
What About the Tax Prep Factories??
Sure, there are the guys that advertise on television and radio claiming 90% of their customers get refunds. Trust me here, it's not because those guys know anything special. Remember, at this time of year, they just put the numbers in the boxes. They didn't do anything to influence what those numbers were. The reason all those people get refunds is because their employers withheld too much in taxes. They could have done the returns themselves and still received refunds. Yes, these places have software that will make sure they don't miss most deductions or make math mistakes. They are not responsible for your refunds. You might ask whether these guys are better than the off-the-shelf software. If you don't have the time or the inclination to try it by yourself, then, yes, they probably are better.
How Do I Know When I Should Pay Someone??
I think what makes the most sense here is that you should start to ask a tax professional for help when there are simply things in your return you do not understand. Are you paying the alternative minimum tax? Should you be? Are you taking the proper credit for your child's education expense? Are you taking the proper deduction for items donated to charity? Are there? Is there? How do I? When can I? If you are asking yourself these questions, you should probably be asking them to a tax professional.
Remember, it's your money. Sometimes you have to spend it to make it. A good tax professional doesn't just put the numbers in the boxes. They make sure the numbers are working for you.
Off-the-shelf Tax Prep Software??
I'm not going to slam these products because they are not really my competitors. For the next level of taxpayers, most of these do a credible job. If you have small complications, they can handle them...sometimes. People often ask me questions about the results they've gotten from using one of these products. As good as the programming might be, some of the results are just strange. If you don't know enough to recognize the strange result and the software doesn't know it's a strange result, you could severly overpay your taxes.
What About the Tax Prep Factories??
Sure, there are the guys that advertise on television and radio claiming 90% of their customers get refunds. Trust me here, it's not because those guys know anything special. Remember, at this time of year, they just put the numbers in the boxes. They didn't do anything to influence what those numbers were. The reason all those people get refunds is because their employers withheld too much in taxes. They could have done the returns themselves and still received refunds. Yes, these places have software that will make sure they don't miss most deductions or make math mistakes. They are not responsible for your refunds. You might ask whether these guys are better than the off-the-shelf software. If you don't have the time or the inclination to try it by yourself, then, yes, they probably are better.
How Do I Know When I Should Pay Someone??
I think what makes the most sense here is that you should start to ask a tax professional for help when there are simply things in your return you do not understand. Are you paying the alternative minimum tax? Should you be? Are you taking the proper credit for your child's education expense? Are you taking the proper deduction for items donated to charity? Are there? Is there? How do I? When can I? If you are asking yourself these questions, you should probably be asking them to a tax professional.
Remember, it's your money. Sometimes you have to spend it to make it. A good tax professional doesn't just put the numbers in the boxes. They make sure the numbers are working for you.
Friday, March 5, 2010
Knee-deep and the Not-so-kiddie tax
We're progressing through opportunity season about the same as every other opportunity season. The tax information coming in the door has a regular flow to it. There are about three square inches where you can actually see the top of my desk.
Kiddie tax
If you haven't been keeping up with this one, you're in for a surprise this year. Not too long ago, the kiddie tax applied to children. No, really. It applied to your offspring who were under age 14. Let me back up a second. The "kiddie tax" as it is commonly called, is a misnomer. Actually, it's another tax on you. Here's the scheme: the parent transfers income producing assets to the child so the income earned gets taxed at the child's lower tax rate. Congress said, "wait a minute", we're missing out on all those tax dollars that could be taxed at the parents rate. They started with children under age 14 and said that for those children, the investment income (as opposed to any earned income) would get taxed at the parents higher rate.
That didn't go over too well with the general public, but we adjusted. Then they got greedy. The age was raised to those children under 18. Then under 19. Now, get this, they upped it again. The current rule is the kiddie tax applies to children (and we have to use that term very loosely) under age 24. Twenty four! That means they are out of college and (hopefully) have a job. But if they have investment income over $1900 for 2009, that piece gets taxed at mom and dad's tax rate. Not only that, but mom and dad now have to complete their return first, so we know the rate at which to tax junior's investment income.
Be careful. This one is easy to miss. If you are the child age 19-23 or you have a child is between age 19 and 23, this didn't impact you last year, but it does now.
There's also a tie-in here betwen the kiddie tax and the new education credit. Stay tuned.
Kiddie tax
If you haven't been keeping up with this one, you're in for a surprise this year. Not too long ago, the kiddie tax applied to children. No, really. It applied to your offspring who were under age 14. Let me back up a second. The "kiddie tax" as it is commonly called, is a misnomer. Actually, it's another tax on you. Here's the scheme: the parent transfers income producing assets to the child so the income earned gets taxed at the child's lower tax rate. Congress said, "wait a minute", we're missing out on all those tax dollars that could be taxed at the parents rate. They started with children under age 14 and said that for those children, the investment income (as opposed to any earned income) would get taxed at the parents higher rate.
That didn't go over too well with the general public, but we adjusted. Then they got greedy. The age was raised to those children under 18. Then under 19. Now, get this, they upped it again. The current rule is the kiddie tax applies to children (and we have to use that term very loosely) under age 24. Twenty four! That means they are out of college and (hopefully) have a job. But if they have investment income over $1900 for 2009, that piece gets taxed at mom and dad's tax rate. Not only that, but mom and dad now have to complete their return first, so we know the rate at which to tax junior's investment income.
Be careful. This one is easy to miss. If you are the child age 19-23 or you have a child is between age 19 and 23, this didn't impact you last year, but it does now.
There's also a tie-in here betwen the kiddie tax and the new education credit. Stay tuned.
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