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Tax Tips Newsletter
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February 2010 - Vol 5, Issue 2
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Tax season is underway. If we are preparing your business returns, send us your information as soon as possible. Although the cut-off date has passed, we can still handle the volume at this writing.

If you are sending us any information, PLEASE make sure you are not sending us personal information by e- mail unless it is password protected! That includes Social Security Numbers, bank account numbers or any detail that would give identity theives ammunition. This includes information you are sending us for preparation of 1099s. Any of that information should be mailed or faxed.

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A law signed by President Obama on January 22 lets you take an early tax deduction for contributions you make for earthquake relief to Haiti. And if you use your cell phone to donate via a text message, the new law gives you an easier method for substantiating your contribution.

If you itemize deductions on your tax return, you may elect to take a charitable deduction on your 2009 return for Haiti contributions made after January 11, 2010, and before March 1, 2010. Claiming a 2010 contribution on your 2009 return will give you an earlier tax benefit, though you may also wait until you file your 2010 return to take the deduction.

Here are other important details.

* The contributions must be made specifically for relief related to the January 12, 2010, earthquake in Haiti.

* The contributions must be made to qualified charities, rather than to specific individuals.

* Only cash contributions qualify for the earlier 2009 deduction option; contributions of property or goods do not qualify.

* Contributions made to foreign charities generally don't qualify.

* You'll need records to substantiate any deductible donations you make. But a special easing of the rules will allow you to use your telephone bill as substantiation for donations made by text message. The phone bill must show the name of the organization receiving your donation, the date of the contribution, and the amount you gave. For other donation methods, you'll need a bank record or written communication from the charity.

If you claim a Haiti relief deduction on your 2009 return, you may not also claim the same donation on your 2010 return (which you'll be filing in 2011). To decide whether to take the deduction on your 2009 or 2010 return, run the numbers to see which year will give you the bigger tax savings. For 2009, higher-income taxpayers have a limit on their total itemized deductions. This limit is eliminated for 2010, so the deduction could actually provide a bigger tax break if taken on your 2010 tax return.

For additional information or filing assistance, please contact my office.
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If you're receiving a tax refund this year, you can use it to buy U.S. savings bonds from the IRS. Here are the details.

* You may purchase up to $5,000 in U.S. Series I savings bonds.

* The total amount of bonds you purchase must be a multiple of $50. Any refund over the specified bond purchase amount must be deposited into another financial account, such as a checking or savings account.

* Bonds will be issued in your name. If you're married and file a joint return, the bonds will be issued in the names of both spouses.

* The bonds will be sent to you by mail.

* You select this option when filing your 2009 return by using Form 8888, "Direct Deposit of Refund to More Than One Account."

* Form 8888 gives instructions on selecting this option and specifying the amount of refund you want to use to buy savings bonds.

For additional information about Series I savings bonds, go to www.treasurydirect.gov.
1040 with pen and calculator
IRS Form W-9 is used to obtain a recipient's name, address and Federal ID number or Social Security Number. It is used by the payor to prepare an information return (Form 1099) to the recipient. It is used only for United States persons or taxpayers. There are different forms and rules for foreign recipients.

Form W-9 is also a certification that the recipient is not subject to backup withholding.That means that if you do not get a completed W-9 from a recipient, you MUST withhold tax on any payments to them. The Federal withholding rate is 28%.

For California the rules are different. First of all, California requires a payor to file Form DE542 to report independent contractors. The withholding rate on "foreign" recipients is 9.55%. A "foreign" recipient for the California purposes is someone who does not live in California.

I have had clients pay a recipient and then try to get their Federal ID number after the fact. The recipient refuses. Therefore, my recommendation is that you get a completed W-9 form from all recipients BEFORE you issue them a check and file the California DE 542 at the beginning of the business relationship.

The IRS instructions for form W- 9 indicate that if the recipient provides you with a form that is substantially similar to a Form W-9 and contains all of the pertinent information, you are required to accept that form.

There are additional rules that apply to withholding. If you need more information, please contact me.
Golden Egg
The Tax Tip this week is about the new law allowing the deduction on your 2009 tax return for your donation to the Haiti earthquake fund.

The Business Tip of the Month deals with generating new business at a trade show.

The Financial Tip of the Month gives the homeowner with an inflated home value some tips to possibly reduce their property tax.

The Fraud Alert gives the homeowner some advice on how to avoid fraudulent home improvement "contractors."

Photos © Bigstockphotos.com, istockphoto.com, Felix Orona

Sincerely,
Linda Heineman
Linda L. Heineman, CPA, CITP

phone: 626-577-0979
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