Newsletter Volume 8, Number 1. January 2008

Is Your Refund Check Home?

The Internal Revenue Service is looking for taxpayers who are due refund checks. According to the IRS, some $110 million checks were returned as undeliverable. We are urging our clients who may have moved or not received their refunds from last year to look on the Refund Check link on our website or by call 1-800-829-1954 to find out if your check was lost. If you plan to check on a refund over the phone, you will be given instructions on how to update your address.

At the time of filing your taxes later this year, we will be updating the IRS of your address. However, you may ensure that the IRS has your correct address by filing Form 8822, Change of Address, as soon as possible. Click here to download the form or please go to the Forms section on our website to avail of it. You may also request it by calling 1-800-TAX-FORM (1-800-829-3676). Those who do not have access to the Internet and think they may be missing a refund should first check their records or contact us, before calling the IRS at 1-800-829-1040.

Signing up for Direct Deposit can put an end to undelivered refunds, as well lost or stolen refund checks. You will be able to receive refunds directly into your personal checking or savings accounts. Direct Deposit is available for filers of both paper and electronic returns. We will be advising about this option at the time of your filing this year.

Will Your Truck Qualify for a Credit?

If you purchased certain large trucks, buses or other heavy vehicles running on alternative fuel, you may be able to claim a credit of up $32,000; purchasers of certain large hybrid trucks and other heavy hybrid vehicles may be able to claim a credit of up to $12,000 if you qualify for the Alternative Motor Vehicle Credit. Please make sure that you notify us of any vehicles you purchased in 2007 to determine if you qualify for one of these credits.

For your information, Qualified Alternative Fuel Motor Vehicles (QAFMV) are powered solely by alternative fuels, such as compressed natural gas, liquefied natural gas, liquefied petroleum gas, hydrogen and any liquid at least 85 percent of the volume of which consists of methanol. Vehicles powered by a combination of an alternative fuel and a petroleum-based fuel may qualify for a reduced credit. Purchases of new vehicles with special equipment, as well as ones converted for alternative power, may qualify.

A credit also is available for certain new qualified heavy hybrid vehicles with a gross vehicle weight rating in excess of 8,500 pounds. A qualifying heavy hybrid motor vehicle draws propulsion energy from onboard sources of stored energy which are both an internal combustion or heat engine using consumable fuel, and a rechargeable energy storage system. This credit should be not confused with the alternative motor vehicle credit for qualified hybrid passenger automobiles and light trucks.

Please call us to check if your vehicle qualifies for a credit.

Preparing for Capital Gains

According to the IRS, incorrect reporting of capital gains accounts for part of an estimated $345 billion per year in unpaid taxes. Almost everything you own and use for personal purposes, pleasure, business or investment is a capital asset, including:

• Your home
• Household furnishings
• Stocks or bonds
• Coin or stamp collections
• Gems and jewelry
• Gold, silver or any other metal, and
• Business property

Understanding the Basis

The difference between the amount for which you sell the capital asset and what you paid for it, is a capital gain or a capital loss. You have a capital gain if you sell the asset for more than your basis or your purchase price. You have a capital loss if you sell the asset for less than your basis.

Your basis is generally your cost plus improvements. You must keep accurate records that show your basis. Your records should show the purchase price, including commissions; increases to basis, such as the cost of improvements; and decreases to basis, such as depreciation, non-dividend distributions on stock, and stock splits.

While all capital gains are taxable and must be reported on your tax return, only capital losses on investment or business property are deductible. Losses on sales of personal property are not deductible. Please call us for more information about increases and decreases to basis

Schedule D

Capital gains and deductible capital losses are reported on Form 1040, Schedule D. Capital gains and losses are classified as long-term or short term. If you hold the asset for more than one year, your capital gain or loss is long-term. If you hold the asset one year or less, your capital gain or loss is short-term. To figure the holding period, begin counting on the day after you received the property and include the day you disposed of the property.

You may have to make estimated tax payments if you have a taxable capital gain.

Other Rules

Home –– If you sell your residence, you may be able to exclude from income any gain up to a limit of $250,000 ($500,000 on a joint return in most cases). To exclude the gain, you must have owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale. Generally, you cannot exclude gain on the sale of your home if, during the 2-year period ending on the date of the sale, you sold another home at a gain and excluded all or part of that gain. If you cannot exclude gain, you must include it in income. Please call us to determine the maximum dollar limit you can exclude and for additional information. You cannot deduct a loss on the sale of your home.

Property outside U.S. –– U.S. citizens who sell property located outside the United States must also report gains from these sales, unless the property is exempt by U.S. law. Reporting is required whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the payer.

Installment sales –– If you sold property (other than publicly traded stocks or securities) at a gain and will receive any payments in a year after the year of sale, you generally must report the sale on the installment method. You can elect out of the installment method by reporting the entire gain in the year of sale. Please consult us for additional details.

Investment Transactions –– Gains from sales and trades of stocks, bonds, or certain commodities are usually reported to you on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or an equivalent statement.  Your basis, the sales price, and the resulting capital gain or loss is entered on Form 1040, Schedule D, Capital Gains and Losses.

Capital gain distributions from mutual funds are reported to you on Form 1099-DIV, Dividends and Distributions.  Capital gain distributions are taxed as long-term capital gains regardless of how long you have owned the shares in the mutual funds.  If capital gain distributions are automatically reinvested, the reinvested amount is the basis of the additional shares purchased.

Tax-planning strategies for capital gains can be complex. Our professional help is readily avialable if you are planning on selling or buying assets.