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Increased FDIC Insured Amounts Extends Through 2013

With the challenges in the banking industry, many American’s have wondered if their money is safe in a bank.  Initially, there was a bill put into effect that would temporarily increase the FDIC insurance limits on most bank deposits. More recently, President Obama signed a bill that postpones the expiration of the increased FDIC insured limits.  Under the new law, $250,000 per depositor will be insured until December 13, 2013.  When the original insured amount of $100,000 was raised to $250,000, the increase was set to expire at the end of 2009.

The new law does not change or extend coverage applicable to IRAs and certain other retirement accounts.  Those accounts will continue to be covered up to $250,000 per owner, just as they were prior to the  changes in the limitations.

Substantiating Charitable Deductions

A recent Tax Court case reaffirms the need to substantiate donations. Taxpayers indisputably wrote checks to a church as contributions and provided the cancelled checks. However, they had not received the contemporaneous acknowledgment from the church, and the court held that the IRS had no latitude to allow the deduction.

Substantiation is required. No deduction is allowed for any cash contribution unless the taxpayer maintains a bank record or a written communication from the receiving organization showing its name, the date, and the amount of the contribution. There is no exception for substantiating small cash donations. Therefore, if you put cash in the Salvation Army kettles or in a church offering plate and do not receive an acknowledgment, no deduction will be allowed.

For contributions of $250 or more, no deduction is allowed unless the taxpayer receives written acknowledgment from the recipient, including the amount of cash and a description of any non-cash property contributed, and a statement on whether the recipient provided goods or services in consideration for the contribution.

Generally, for noncash contributions in excess of $5,000, the taxpayer must obtain a “qualified appraisal” and attach Section B of Form 8283 to the tax return. This requirement does not apply to publicly traded stock. In some cases the taxpayer may be required to also attach a copy of the appraisal to his/her tax return.

Don’t Make These Mistakes at Tax Time

If you are eager to get your tax return check in hand, there are some common errors to avoid that might delay processing.  If you pay attention to the details and avoid common mistakes you can avoid unnecessary delays and get your check in hand a little sooner. Here are a few tips:

  • Double check social security numbers.  Believe it or not, taxpayers commonly make mistakes in entering social security numbers or event forget to include them. Be sure your number is entered, and that it is entered correctly.
  • Make sure names are spelled correctly. It may be hard to believe it,  but misspelling a dependent’s name delays many returns.
  • Choose the correct filing status. There are five filing statuses (Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Widow(er) With Dependent Child) and you must be sure to choose the correct filing status for your situation.
  • Use a calculator and check your math.  Accuracy in math is critical for a speedy return.
  • Use correct bank account numbers for direct deposit. Make sure the routing and account numbers are correct if you are due a refund and requesting direct deposit.
  • Avoid computation errors. Take your time when figuring things like taxable income, estimated tax payments, and credits.
  • Sign the return.  Without a signature, the return will not be processed. Don’t forget to sign it and have your spouse sign as well if applicable.

Are Municipal Bonds Safe?

Bonds and especially municipal bonds have always been considered the safe haven for investments with stable but small returns.  Is it possible for municipal bonds to decline in value?

Here is a real life example, very likely in today’s world.  You purchase a $100,000 municipal bond in the City of Rockvillegeneral revenue bonds.  A few months later you discover that the city is having difficulty collecting its tax revenues.  The city makes its quarterly interest payments on the bonds but makes the payments late because of the slow down in revenue.  Now all of a sudden a ratings agency down grades the bonds from AAA to BBB.  The bonds immediately begin trading at a 10% discount or $90,000.  You have effectively lost $10,000 in current value.  At this point, you have a decision to make.  Do you hold the bonds and hope that the city recovers and re-establishes its AAA credit rating?  The city might recover and be fine.  On the other hand it could get into deeper trouble and totally default on the bonds and their value becomes even lower.  You can hold the bond until maturity and continue to collect your interest, assuming that the city can make the payments and at maturity you will collect the $100,000.

The above scenario is very real in today’s market.  An area that you considered a safe haven, all of a sudden has risks that you thought you were avoiding.  An alternative is to buy bond mutual funds or bond exchange traded funds (ETF’s).  These funds invest in many different bonds and you invest in the fund.  This way you are spreading your risk over a large number of municipalities rather than just one.

The point is very simple; if you are an individual investor, know what you are investing in or have a professional manage your investments for you.  It is very important when investing in bonds to do your homework and know the stability of the entity in which you are investing.  Otherwise stick with Mutual Funds or ETF’s.

Entertainment Tax Credits in Georgia

Georgia has recently expanded the entertainment credit that was enacted a few years ago.  Georgia now has a 30% credit for production costs incurred in Georgia.  Many of the production companies do not need the credits because they don’t have Georgia taxable income.  They can elect to make a one-time transfer of the credit.  The production company submits the budget and gets pre-approved by the state.  Once the production is complete, there is no verification by Georgia as to the amount of the credit.  Therefore, a CPA firm must perform some testing and issue a comfort letter on the credits.

You can use the credits to offset 100% of your Georgia tax liability and the source of the income does not matter.  Any credits not used carry forward 5 years.  If you wanted to buy 2009 credits to pay your Georgia liability you can do so and get a refund of the amounts already paid in.

The amount of tax satisfied is treated as a state tax payment in the year you file the return.  You do have to pick up capital gain income for the difference between the amount paid for the credits and the amount of tax paid.  For example, if a taxpayer has a $10,000 state tax liability, he could pay $9,000 for the credit (the credits typically sell for 89 – 90 cents on the dollar). The taxpayer  would deduct the $10,000 on Schedule A and record a capital gain of $1,000.

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