JULY, 2010

This issue contains the following articles: 

Click on the name of the article you want to read below:
 
 
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Greetings!
Kids 
   
Kids and Summer Jobs: Some Tax Reminders
 
Are your children working at summer jobs this year?  If so, here are some tax reminders. 
  • If a child did not owe any income tax last year and doesn't expect to owe any this year, the child can claim "exempt" when completing the federal withholding allowance form (Form W-4). This will eliminate having federal income tax withheld from his or her paychecks. 
  • For 2010, your child can earn as much as $5,700 without owing federal income tax. There will still be withholding from your child's paycheck for social security and Medicare tax. 
  • As long as you provide more than half of your child's support, you can still claim the child as an exemption on your 2010 tax return. 
  • Earnings from a summer job will qualify a child to contribute to an IRA - up to $5,000 or the child's 2010 earnings, whichever is less. If your child would rather spend his earnings than save for retirement (and most would), you could provide all the cash, or agree to match what your child saves. As long as the amount put into the IRA doesn't exceed the child's wages (or the $5,000 limit), it doesn't matter where the cash comes from. 
 
Summer 

VacationVacation Home Planning Can Cut Your Taxes

 

You can enjoy a vacation home and cut your taxes - with some careful planning and a little discipline.

 

The IRS rules can be complex and potentially restrictive, so a word of caution is in order as you plan the use of your vacation home.

 

Owners of vacation homes often rent out the property when they're not using it themselves. Renting out your vacation home may or may not make sense for you. The principal variables are the number of days you rent the property, the number of days of personal use, your individual tax situation, and your personal wishes for the use of your vacation home.

 

RENT FOR 14 DAYS OR LESS and a simple tax break is available. If you rent your vacation home for 14 days or less, all of the rental income is tax-free. This attractive tax benefit can help provide cash for your mortgage and other expenses.

 

RENT FOR MORE THAN 14 DAYS and your tax planning and personal life become more complex. If you rent your vacation home for more than 14 days, all your rental income is reportable. Whether you treat the income and expenses as a second residence or as rental property depends on the personal use of your vacation home relative to the time the home is rented out. This test is made annually and determines the nature of deductions and the tax treatment if the vacation home is sold.

 

Homebuyer 

Homebuyer Tax Credit Is Extended

 

If you signed a contract before May 1st to buy a home, but have been unable to close the deal, you still have time to apply for the homebuyer tax credit. The deadline for finalizing the paperwork on your new home has been extended through September 30, 2010.

 

Here's what you need to know:

 

The extension applies only if you already had a contract in place by April 30, 2010. The new deadline is available for first-time homebuyers and long-time residents.

 

The maximum credit remains unchanged ($8,000 for first-time homebuyers and $6,500 for long-time residents), as do other rules for qualifying.

 

You can claim the credit on your 2009 or 2010 federal income tax return. You'll have to complete Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, and attach proof that you meet the requirements.

 
Homeowners Homeowner's Insurance - Are You Really Covered?
  
As a homeowner, you probably do everything you can to protect your home, from taking care of maintenance items to locking the door when you leave.  But how often do you check the adequacy of your homeowner's insurance?  More importantly, do you really know what is included in your coverage?
 
That is what we will discuss this month:  exactly what is included in your homeowner's coverage?
 
The first thing you should know is that there are various standard policies on the market.  HO-1 is the most basic and covers very little; thus it is rarely used.  HO-2, the "broad form", covers 16 casualties.  These include damage caused by:
  • Fire or lightening
  • Windstorm or hail
  • Explosion
  • Riot or civil commotion
  • Aircraft and vehicles
  • Smoke
  • Vandalism
  • Theft
  • Volcanic eruption
  • Falling objects
  • The weight of ice, snow or sleet
  • Overflow of water or steam from plumbing, heating, air-conditioning or fire-protection systems, or household appliances (accidental)
  • Sudden tearing apart, explosion, cracking or burning of a water heater or air-conditioning system
  • Freezing of pipes, heating and air-conditioning systems or household appliances
  • Sudden and accidental damage from electrical current
 
In addition to the "broad form", there is also an HO-3 or "special form" policy.  It is more popular because it covers everything except certain specified perils.  The perils typically excluded are losses from:
 
  • An ordinance or law
  • Earthquakes, shockwaves, landslides
  • Water damage, including floods, sewer backups and water seeping through your foundation
  • Power failure
  • Neglect
  • War
  • Nuclear Hazard
  • Intentional loss (arson or any other act you do with intent to create a loss)
  • Governmental action
  • Zoning changes, bad repairs or workmanship, construction and defective maintenance
 
If you are beginning to get the idea that you may need a lawyer just to tell you what is covered, you are close.  Typically though, your insurance agent will be able to help you understand your coverage just as well, but make sure you thoroughly discuss both the actual coverage and what other coverage options may also be available to you.

Whenever you purchase homeowners insurance, you have a choice between actual cash value and replacement cost.  If you get actual cash value coverage, it will be cheaper, but if you have a loss, you will only receive the depreciated value of your property - and that probably won't get you anywhere near enough to recover from the loss.  Replacement cost, on the other hand will pay whatever is necessary to put you back in the same position you were just prior to the loss, subject to certain conditions.  Always get replacement cost.
 
An added reason to get replacement cost coverage on your house is that coverage on the contents is based on your insurance for the structure.  Generally, contents coverage starts at 40% of the insured value of the home, but, for a price, you can get a higher percentage.  So, for example, say you insure your home for $150,000.  At 40%, you would receive $60,000 to replace the contents of your home in the event of a complete loss.

Even though your policy may say it covers all the contents of your home, you will find there are still various exclusions.  For example, jewelry is typically limited in the amount of coverage.  If, you have a substantial amount of jewelry or collectibles, you will need to investigate acquiring additional coverage.  Policies often limit coverage on computers as well.  In most cases, you will need to list the items to be covered and their value.  It may also be necessary to obtain appraisals if you ever need to support a claim.
 
Are you running a business out of your home?  If so, check with your insurer to see what business property is excluded.  Additionally, the general liability portion of your homeowner's coverage may exclude damages to any customers if they are injured in your home.
 
Homeowners insurance is an important part of your personal risk management strategy.  Take a moment to review your coverage and discuss any possible gaps with your agent - after a loss, it's too late to make any changes.
 
Please contact us if you would like additional information or would like to discuss any of the enclosed information in further detail.
 
Sincerely,
 
Burkhardt & Co.