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JAN_10_SEMINAR_09_TAXES

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					                        WHO MUST FILE A 2009 RETURN


I.   THOSE WHO CAN CLAIM THEMSELVES AS A DEPENDENT

     A.      SINGLE
             1.    UNDER 65                                        $ 9,350
             2.    65 OR OLDER                                     $10,750

     B.      MARRIED FILING JOINT**
             1.    BOTH SPOUSES UNDER 65                          $18,700
             2.    ONE SPOUSE 65 OR OLDER                         $19,800
             3.    BOTH SPOUSES 65 OR OLDER                       $20,900

     C.      HEAD OF HOUSEHOLD
             1.    UNDER 65                                       $12,000
             2.    65 OR OLDER                                    $13,400

     D.      QUALIFYING WIDOW/WIDOWER
             1.    UNDER 65                                       $14,400
             2.    65 OR OLDER                                    $16,150

     E.      MARRIED LIVING APART AT END OF 2009
                                                                    $3,650

     F.      NONRESIDENT ALIEN                                      $3,650

     G.      INDIVIDUAL WITH TAX YEAR OF LESS THAN 12 MONTHS
                                                    $3,650

     ** The filing floors for joint returns apply only if the spouses lived together
         At the end of 2009 and neither spouse is claimed on another return.




                                               1
        II.      CHILDREN AND OTHER DEPENDENTS FILING REQUIREMENTS

                       UNEARNED         EARNED           GROSS INCOME
                       INCOME           INCOME           GREATER THAN
 FILING STATUS         GREATER THAN     GREATER THAN     THE LARGER OF


 SINGLE UNDER AGE 65              950            5,700               950
 AND NOT BLIND                                             EARNED 5,700


 SINGLE 65 OR OLDER             2,350            7,100             2,350
 OR BLIND                                                  EARNED 7,100


 SINGLE 65 OR OLDER             3,750            8,500             3,750
 AND BLIND                                                 EARNED 8,500


 MARRIED UNDER 65                 950            5,700               950
 NOT BLIND                                                 EARNED 5,700


 MARRIED 65 OR
 OLDER                          2,050            6,800             2,050
 NOT BLIND                                                 EARNED 6,800


 MARRIED 65 OR
 OLDER                          3,150            7,900             3,150
 AND BLIND                                                 EARNED 7,900



III.    OTHER FILING REQUIREMENTS
        1.  Other taxes might be owed
            a.     Social Security and Medicare tax on tips not reported to the
                   employer
            b.     Uncollected Social Security and Medicare tax on tips
                   reported to the employer
            c.     Advance Earned Income Credit was received from
                   employers reported in Box 9 of W-2 Form
            d.     Net self employment income of at least $400
            e.     Wages of $108.28 received from an organization that is
                   exempt from employer Social Security tax
            f.     Tax penalty on qualified retirement plan – if this is the only
                   reason for filing, form 5329 can be filed by itself
            g.     Alternative minimum tax
            h.     Tax from recapture of investment tax credit, low-income
                   housing credit or recapture of tax on the sale of a home
                   financed by a federally subsidized mortgage
            I.     Household employment taxes – if this is the only reason for
                   filing, Schedule H can be filed on its own


                                                   2
              j.     Married dependents are also required to file a return if their
                     spouse files a return itemizing deductions and the
                     taxpayer’s income is more than $5.00
              k.     Additional taxes are due or Archer MSA or Coverdell ESA
              l.     First time home buyer credit and 2008 pay back

IV.    Exception for children subject to ―Kiddie Tax:

       If a child is required to file a return, the parents may elect to report the
       child’s income on their return if the child

       1.     Was 18 or under, or a full time student ages 19 to 34 on January
              1,2010 and earned income is equal to or less than half of his
              support
       2.     Had income only from interest , dividends and capital gain
              distributions
       3.     Had investment income of more than $1,900.00
       4.     Had no federal income tax withheld and did not make any
              estimated tax payments
       5.     This election is made on the parent’s return using form 8814

For 2009 returns, the Kiddie tax applies to the following children

       A. Under age 18 on January 1, 2009 or
       B. Age 18 to 23 and a full time student and
          1. His income is less than one half of the cost of his support
          2. The child has more than $1,890.00 of investment income
          3. Either parent was alive on December 31, 2009
          4. The child does not file a joint return for 2009




                                          3
        5. QUALIFYING DEPENDENTS


ALL FIVE OF THE FOLLOWING TESTS MUST BE MET
      A.    Support
      B.    Gross Income
      C.    Citizenship
      D.    Joint Return
      E.    Member of Household or Relationship
      F.    Age test

A.   SUPPORT TEST
     1.  Taxpayer provides 50% of support
         a.    Amounts received are not support unless spent for support
         b.    The exemption is claimed in the year the support is
               furnished, not in the year expenses were actually paid (gifts
               or investments)
         c.    Lump sum payments to an extended care facility must be
               prorated over the dependent's life expectancy
         d.    Earmark payments for a specific dependent if allocation
               among numerous dependents disqualifies a person as a
               dependent
         e.    Items included in support:
               (1)    Food
               (2)    Lodging
               (3)    Clothing
               (4)    Education
               (5)    Medical
               (6)    Dental
               (7)    Recreational
               (8)    Transportation
               (9)    Other necessities
               (10) Fair rental value of lodging

           f.     Items not included in support:
                  (1)    Life Insurance
                  (2)    Federal and State income taxes
                  (3)    Social Security Taxes
                  (4)    Funeral Expenses
                  (5)    Value of personal services provided for a dependent




                                     4
            g.     Student loans and grants
                   (1)      Student loans are considered amounts contributed
                            by a dependent for his/her support
                   (2)      Scholarships received by a full-time student for at
                            least five months are considered NOT included in
                            support
     2.     Multiple support - If two or more people together provide more than
            50% of the support, but neither one contributes more than 50%,
            they can file form 2120 and claim the dependent on one return.
            a.     Taxpayer claiming exemption must pay at least 10%
            b.     All contributors must sign Form 2120
            c.     Dependent must be member of household or closely
                   related to taxpayer claiming exemption

B.   GROSS INCOME TEST
     1.  Dependent must have gross income of less than $3,650
     2.  Exception to gross income
         a.     Child is under 19 years old
         b.     Child is under 24 and a full time student at least five months
     3.  Gross income does not include tax-exempt income
         a.     Certain social security benefits
         b.     Municipal bond income
         c.     Scholarship benefits
         d.     Income of a totally disabled person from a tax exempt
                workshop
     4.  GROSS RECEIPTS FROM RENTALS ARE INCLUDED. THIS
         CANNOT BE REDUCED BY RENTAL EXPENSES.
     5.  For a Schedule C filer, the income is equal to the gross profit.
         Gross profit cannot be reduced by operating expenses.

C.   CITIZENSHIP TEST
     1.    U.S. citizen, resident or national
     2.    Resident of Canada or Mexico

D.   JOINT RETURN TEST
     1.    Dependent must not file a joint return UNLESS:
.               A joint return was filed for refund purposes only - neither
                spouse was required to file and no tax was due for either
                spouse

E.   RELATIONSHIP TEST
     1.   Must meet the definition of qualifying child or qualifying relative as
          described below




                                       5
F.   CHILDREN OF DIVORCED PARENTS
     1.   Generally the exemption is allowed to the custodial parent
     2.   Between parents support is not an issue
     3.   Custodial parent can sign form 8332
          a.     Release gives non-custodial parent right to claim dependent
          B.     BE CAREFUL! Part 1 of form gives release to claim for one
                 year. Part 2 of form gives release FOREVER. This is
                 difficult to rescind
          c.      Part 3 allows a rescission of release to claim a dependent.
                 This is proactive only – must be filed for future years only.
          d.     Starting in 2009 the divorce decree cannot be used -
                 caution clients going through a divorce decree that the
                 decree needs to properly state the custodial parent will
                 comply with signing form 8332.
     4.   Up through 2008 returns. If the divorce decree gives
          UNCONDITIONAL right to non-custodial parent, non-custodial
          parent can use divorce decree. Must include with return:
          a.     Cover page with parents’ SSN
          b.     Page stating parent can claim dependent
          c.     Signature page with other parent's signature and date
          d.     IRS is not required to follow this
     5.   Non-custodial parent could claim dependent under multiple support
          agreement - Form 2120
     6.   A pre-1985 decree that gives the non-custodial parent the right to
          claim the dependent provided that parent gave at least $600
          support for the dependent
     7.   Once the child reaches the age of majority for his/her state of
          residency, the dependency goes to the parent providing more than
          50% of the support.

G.   BENEFITS OF CLAIMING A DEPENDENT
     1.   Tax savings 10% bracket =$365, 15% bracket = $548,
          25% bracket = $913
     2.   Only taxpayer claiming the dependency can claim the $1000 credit
     3.   Taxpayer claiming the dependent is eligible for the HOPE or
          LIFETIME education credit – watch phase-out rules
     4.   Taxpayers subject to AMT may partially lose a dependency
          exemption benefit
     5.   The exemption can only be claimed by the person entitled to claim
          the dependency. Refer to multiple support declaration above




                                      6
                            QUALIFYING A DEPENDENT

There have been two classifications for persons qualifying as a dependent. These
are a qualifying child and a qualifying relative.

A.    DEFINITION OF A QUALIFYING CHILD

      1.     The child must be the taxpayer’s son, daughter, stepchild, foster
             child, brother, sister, step-brother, step-sister, or a descendent of
             any of these
      2.     The child must have lived with the taxpayer for more than half of
             2009. There are exceptions to the more than half rule in the case of
             a death of a child, a kidnapped child or a child of divorced parents.
      3.     The child’s age must
             a.      Be under 19 at the end of 2009
             b.      Be under age 24 at the end of 2009 and be a full time
                     student for any part of five months during the year
             c.      Any age and totally and permanently disabled
             d.      Not have provided more than half of his own support
             e.      Not be a claimed qualifying child of another taxpayer with
                     higher priority under the tie breaker rules.

B.    DEFINITION OF A QUALIFYING RELATIVE

      1.     A relative of the taxpayer must be
             a.      A son, daughter, foster child, or a descendant of any of these
             b.      A brother, sister, or a son or daughter of either of these
             c.      A father, mother or ancestor or sibling of either of them
             d.      A step-brother, step-sister, step-father, step-mother, son-in-
                             law, daughter-in-law, father-in-law, mother-in-law,
                             brother-in-law, or sister-in-law
             e.      Any other person who lived with the taxpayer all year as a
                             member of the taxpayer’s household provided the
                             relationship does not violate local law

      2.     NOT A QUALIFYING CHILD TEST – THE RELATIVE MUST NOT
             BE A QUALIFYING CHILD OF ANY OTHER PERSON IN 2009
      3.     Gross income test – the relative must have gross income of less
             than $3,650 in 2009
      4.     The taxpayer must have provided more than half of the relative’s
             support. There are exceptions for children of divorced parents,
             multiple support agreements and the rule for kidnapped children.




                                        7
C.   EXCEPTIONS NOTED ABOVE
     1.      If a child was born or died during 2009 and the taxpayer’s home
             was the person’s home for all of the time he or she was alive, the
             taxpayer does not need to consider the full year rule.
     2.      A child kidnapped by a non-family member may still qualify fro head
             of household or qualifying widow, the dependency deduction, the
             child tax credit, and earned income credit
D.   A taxpayer cannot claim anyone else as a dependent if the taxpayer
     himself can be claimed as a dependent by another person
E.   A married person who files a joint return cannot be claimed as a dependent
     by someone else unless each spouse was not required to file and a return
     was filed only to obtain a refund of taxes paid.




                                      8
            F.       WHO QUALIFIES AS A DEPENDENT WORKSHEET

STEP 1

      Could the taxpayer, or his spouse, if filing jointly, be claimed
      As a dependent on another return?

IF YES – STOP – THE TAXPAYER CANNOT CLAIM ANY DEPENDENTS

IF NO – CONTINUE TO STEP 2


STEP 2

      Does the potential dependent meet both of the following tests?

      1. Was a U S citizen, U S national, or a resident of the U S, Canada or Mexico
      2. Unmarried, or if married, does not file a joint return

IF NO – STOP – THE TAXPAYER CANNOT CLAIM THE DEPENDENT

IF YES – CONTINUE TO STEP 3


STEP 3

      Test to see if the individual is the taxpayer’s ―qualifying child‖
      ALL OF THE FOLLOWING TESTS MUST BE MET

      1. Is the individual the taxpayer’s child, stepchild, foster child, brother, sister, step
         brother, step sister, or a descendent of any of these?
      2. At the end of 2009, was the individual either under 19, under 24 and a full time
         student or totally and permanently disabled?
      3. The individual did not provide more than half of his support.
      4. Did the individual live with the taxpayer for more than one half of the year?
         See exception for non-custodial parents

IF YES – STOP – THE INDIVIDUAL CAN BE CLAIMED AS A DEPENDENT

IF NO – CONTINUE TO STEP 4

STEP 4

      Test to see if the individual is the taxpayer’s qualifying relative
      ALL OF THE FOLLOWING TESTS MUST BE MET

      1. Did the taxpayer provide more than one half of the individual’s support?
      2. at the end of 2009, was the individual the taxpayers 1 – child, stepchild, foster
          child or a descendent of any of them, 2 – brother, sister, niece, or nephew, 3 –


                                              9
          father, mother, grandmother, grand father, aunt or uncle, 4 – step – brother, -
          sister, -father, - mother, or a son-, daughter-, father- mother-, brother-, or sister
          - in – law, 5 – or any other person who lived with taxpayer the entire year as a
          member of the taxpayer’s household
       3. The individual was not the qualifying child of another person for 2008
       4. The individual had gross income of less than $3,650.00

IF YES – THE TAXPAYER CAN CLAIM THE INDIVIDUAL AS A DEPENDENT

IF NO – THE INDIVIDUAL IS NOT THE TAXPAYER’S DEPENDENT


CHILDREN OF DIVORCED PARENTS

Generally, the dependency is controlled by the custodial parent – the one with
whom the child lives for more than one half of the year.
If the divorce decree states something different, there can be no ifs, ands or buts
tied in with the right to claim the dependency. Even in clear decrees, the IRS has
disallowed use of the divorce decree.

A release of right to claim dependency should always be used to protect your
client.

The IRS is not part of the divorce, so they are not bound by the divorce agreement
or divorce decree.

If using a divorce decree, include copies of the pages showing the dependency
issue along with the signature page bearing the ex-spouse signature.

Not following the divorce decree is not an issue with the IRS – it is a contempt of
court issue.




                                             10
                        FILING STATUS OPTIONS


ALL OPTIONS ARE DETERMINED BY THE TAXPAYER'S STATUS ON
DECEMBER 31, 2009
A.   SINGLE
     1.   Unmarried
     2.   Divorced
     3.   Separate maintenance agreement
     4.   Widow or Widower (WATCH FOR QUALIFYING WIDOWER)

B.   MARRIED FILING JOINT
     1.  Married and living together
     2.   Married and living apart, but not under a separate maintenance
         Agreement or decree of divorce
     3.  Separated under an interlocutory decree but not decree of divorce
     4.  Living in common law marriage if recognized in state of residency
     5.   If one spouse died the survivor can file jointly if they meet the
         above tests on the date of death, and if the spouse did not
         remarry prior to December 31, 2009
     6.  For federal tax purposes, a marriage means only a legal union
         between a man and a woman as husband and wife, even if state
         law allows for same sex marriages.

C.         MARRIED FILING SEPARATELY
     1.    Any spouse can file married filing separately precluding the
           other spouse from filing married filing joint.
     2.    BE CAREFUL OF WISCONSIN MARITAL PROPERTY LAWS. If
           there is no marital property agreement in place, all items must be
           allocated.
     3.    Disadvantages
           a.      Loss of standard deduction
           b.      Loss of childcare, earned income, and elderly credits
           c.      Social security benefits are taxed
           d.      Loss of special deduction and phase in limits
                   (1)    Sale of residence
                   (2)    IRA deduction
                   (3)    Capital loss
                   (4)    Passive losses
                   (5)    Higher education bond interest
     4.    Advantage - Liability of future assessments



                                    11
D.   HEAD OF HOUSEHOLD
     1.   All five following tests must be met
          a.       Taxpayer is not married at end of year
          b.       Taxpayer maintains a household for child, dependent parent,
                   or other relative (not cousin)
                   (1)    Child, stepchild, adopted child, or grandchild does not
                          have to be a dependent
                   (2)    If married, these must be qualified dependents
          c.       Household must be taxpayer’s and dependent’s home
                   except where taxpayer pays 50% of parent’s home
          d.       Taxpayer pays more than 50% of the cost of maintaining
                   household
          e.       Taxpayer is a U.S. citizen or a resident alien during all of the
                   tax year

     2.     Exception for married living apart - all five of the following must be
            met
            a.    Taxpayer does not file married filing joint
            b.    Taxpayer’s spouse did not live in household during last six
                  months of year (Hopkins-TC memo 1992-326 - one night
                  disqualifies)
            c.    Taxpayers household must be the "main" home. A foster
                  child must live in the home the entire year.
            d.    Taxpayer is entitled to claim that child as dependent
            e.    Taxpayer provides more than 50% of the cost of maintaining
                  the household

E.   QUALIFYING WIDOWER
     1.   All of the following six tests must be met
          a.       Taxpayer maintains a home for a child, stepchild, adopted
                   child or foster child for the entire year
          b.       Taxpayer provides 50% of the cost of maintaining that
                   household
          c.       The child, stepchild, adopted child, foster child qualifies as
                   the taxpayer’s dependent
          d.       In the year the spouse died, taxpayer was entitled to file a
                   joint return with the decedent
          e.       Taxpayer did not remarry during 2009
          f.       Spouse died in 2007 or 2008




                                       12
                        EARNED INCOME CREDIT

A.   WHY IT EXISTS
     In addition to raising revenue, tax laws are enacted to correct economic
     or social injustices or to create economic incentives to correct social
     injustices. The earned income credit is created to give an incentive for
     non-working individuals to return to the work force and to raise their
     income to equal a ―poverty level‖.
B.   QUALIFYING TAXPAYER
     1.      To qualify for the earned income credit the following requirements
             must be met:
             a.     The taxpayer must have earned income
             b.     Investment income cannot be more than $3,100
             c.     Filing status cannot be married filing separate
             d.     Taxpayer and all persons indicated on the return must have
                    Social Security numbers. Other ID numbers such as ITINs
                    and ATINs do not qualify. You may have to file the original
                    return, obtain social security numbers and follow up with an
                    amended return.
             e.     The taxpayer OR spouse cannot be a qualifying child of
                    another
             f.     Taxpayer cannot have filed a foreign income exclusion
                    form (2555 or 2555EZ)
             g.     A taxpayer who is a nonresident for any part of the year
                    generally cannot claim the credit
     2.      Additional Rules
             a.     Taxpayers without qualifying children
                    1.      Earned Income and Modified Adjusted Gross
                            Income must be less than
                            a.      Single $13,440
                            b.      Married Filing Joint $18,440
                    2.      Taxpayer must be at least 25 years old and less
                            than 65 years old at end of year; for married filing
                            joint, either spouse will meet the age requirement.
                    3.      Taxpayer and spouse cannot qualify as a dependent
                            of another
                    4.      The main home must be in the U.S. more than one
                            half of the year
                    5.      These taxpayers do not need to complete Schedule
                            EIC




                                      13
           b.     Taxpayers with qualifying children
                  1.   Schedule EIC must be attached to the tax return
                  2.   Earned income and modified adjusted gross income
                       must be less than:


Number of Dependents     0             1              2             3
Married filing joint     $18,440       $40,463        $45,295       $48,279
Single                   $13,440       $35,463        $40,295       $43,279
Maximum credit           $ 457         $ 3,043        $ 5,028       $ 5,657

     3.    To qualify, a child must meet all of the following requirements:
           a.    Relationship – a qualifying
                 1.       The taxpayer’s son or daughter or descendent of
                          either
                 2.       The taxpayers adopted child or descendent,
                          including a child placed with the taxpayer by an
                          authorized placement agency even if the adoption is
                          not yet final
                 3.       The taxpayer’s stepson or stepdaughter, brother,
                          sister, stepbrother, stepsister or a descendent of any
                          of these
                 4.       An eligible foster child
                          a)      A child cared for by the taxpayer as his/her
                                  own child
                          b)      A child who lives with the taxpayer for more
                                  than six months and
                          c)     The child is the taxpayer’s brother, sister,
                                 stepbrother, stepsister, or a descendent of any
                                 such child, including the child of an adopted
                                 child, or a child who is placed in the taxpayers
                                 home by an authorized agency
           b.    Age – the child must be under age 19, a full time student
                 Under age 24, or any age if totally disabled
           c.    Residency – the child must have lived in the taxpayer’s
                 home for more than six months

                  A child that is kidnapped is considered as meeting the
                  residency test during the time that the child is kidnapped




                                     14
C.     Tie-breaker – If a child is a qualifying child of more than one taxpayer,
       And more than one person uses that child to claim EIC,
       The credit will be allowed to
       1.     The child’s parent
       2.     The parent the child lives with for the longest period
       3.     The parent with the highest Adjusted Gross income
       4.     If a parent is not a qualifying taxpayer, the taxpayer with the
              highest adjusted gross income – watch qualifying taxpayer
 D.    Taxable earned income includes:
       1.    Wages, salaries, tips
       2.     Union strike benefits
       3.     Long-term disability benefits received prior to minimum retirement
              age
       4.     Net earnings from self-employment reduced by ½ of SE tax
       5.     Gross earnings of a statutory employee
 E.     Modified adjusted gross income – Beginning with the 2002 returns, the
       Adjusted Gross Income does not need to be modified.
       1.     taxpayers will generally not qualify for Earned Income Credit if
              Their investment income is over $3,100
       2.     Investment income includes
              a.      Taxable interest and dividends
              b.      Tax-exempt interest
              c.      Net income from non-business rents and royalties
              d.      Capital gain income
              e.      Net passive income

 TAX PLANNING FOR 2010
 The earned income credit rules have been simplified since 2002. One of the
 major changes is that earned income is redefined. Since 2002, earned income
 does not include elective deferrals. For those taxpayers on the upper end of
 the earning limits, elective deferrals can create a larger earned income credit by
 reducing the earned income. Advise your clients properly.

 When calculating the earned income to determine the earned income credit,
 community property allocation rules do not apply. HOWEVER, WHEN
 CALCULATING THE ADJUSTED GROSS INCOME FOR EARNED INCOME
 CREDIT ELIGIBILITY, THE COMMUNITY PROPERTY RULES DO APPLY.




                                         15
                      INTEREST/DIVIDEND INCOME

INTEREST IS INCOME FROM INVESTING FOR A PERCENTAGE RETURN, IT
DOES NOT HAVE OWNERSHIP CHARACTERISTICS

A.   REPORT ALL INTEREST AND DIVIDEND INCOME
     1.  Under $1,500 on line 8A
     2.  Over $1,500 must be itemized on schedule B
     3.  Include tax exempt interest on line 8B

B.   TAX EXEMPT INTEREST INCLUDES
     1.   Municipal bond interest
     2.   Tax-exempt interest from mutual funds and investment companies
     3.   The IRS requires reporting of tax-exempt interest because:
          a.    Tax-exempt income is a factor in calculating Social Security
                benefits to be included in gross income
          b.    It reveals if a taxpayer may be deducting investment interest
                expense incurred to purchase tax-exempt investments
          c.    Alerts the IRS that there may be unreported alternative
                minimum tax liability for tax-exempt ―private activity bonds‖
          d.    Assists the IRS in selecting returns for audit
          e.    Not all income from a ―tax-free‖ investment is truly tax-free.
                Gains from purchase and sale of a tax-free investment are
                not tax-free. The tax-free element of an investment comes
                from the underlying debt instruments of that investment.

C.   WATCH FOR INTEREST/DIVIDEND REPORTED ON
     1.  1099-Int
      2.  K-1 forms such as partnership, Sub S Corp, estate or trust
      3.  The IRS will be putting special efforts in matching reporting of K-1
          income

D.   SPECIAL CONSIDERATIONS
     1.   Nominee interest – 1099 reports interest to one taxpayer but it
          belongs to another
          a.     Include interest on return
          b.     On a separate line below all interest reported, mark returns
                 "nominee interest" and deduct the same amount
          c.     Issue a 1099 to the correct recipient
     2.   When listing interest on the return, use the name issued on the
          1099 form - not the fund name




                                      16
     3.    OID interest. This is a very confusing issue and should be handled
           by someone knowledgeable of this issue. When a long-term debt
           instrument is issued at a price that is lower than its stated
           redemption value, the difference is called original issue discount.
           The OID instrument accrues interest into income of both cash basis
           and accrual basis taxpayers. Short-term debt obligations, those
           less than one year, do not fall under the OID rules. The issuer of the
           debt instrument reports the OID on the 1099-OID. However, when
           these obligations are purchased on the secondary market, the
           taxpayer must track his own OID in order to adjust the OID reported
           on the 1099-OID. Publication 1212 addresses this issue.
     4.    Imputed interest rules - Loans between related parties and loans
           under the applicable federal rates could have interest income
           imputed to the recipient of the interest. There are four exceptions to
           the imputed interest rules for loans up to $10,000 (section 7872)
           a.     They do not apply if the loan is for non-income producing
                  property
           b.     Loans up to $100,000 do not apply if the borrower’s net
                  investment income is less than $1,000
           c.     Loans up to $10,000 do not apply to loans that are
                  compensation related between employer and employee, and
                  between employer and independent contractor
           d.     They do not apply if the loans are between a corporation and
                  shareholder for loans up to $10,000.

 CAUTION  THE IRS MAY APPLY SECTION 7872 IF IT IS DETERMINED
THAT THE MOTIVATION FOR THE INTEREST ARRAINGMENT IS FOR THE
AVOIDANCE OF TAX

     5.    "Dividends" from credit unions and life insurance companies are
           usually INTEREST
     6.    Income from money market funds are DIVIDENDS
     7.    Patronage dividends are only taxable to the extent they apply to tax
           deductible purchases (farms and small businesses). They are to be
           reported on Schedule C or Schedule F
     8.    Bank gifts or incentives are taxable as interest
     9.    Government bonds - or H bonds are taxed at maturity

     10.   Annuities/Life insurance - interest is taxed when cashed

E.   MONEY MARKET INTEREST
     1.  Interest income from money market accounts is not taxed as it
         accrues. The concept is that this interest is taxable to a cash basis
         taxpayer at the time it becomes available to him. To determine if
         the interest accrued is taxable you need to look at two types of
         money market accounts



                                      17
           a.     If the interest is available for withdrawal without penalty, it is
                  taxable in the year it becomes available for withdrawal
           b.     If the interest becomes available only at the end of the term
                  of the money market account and there is a substantial
                  penalty for early withdrawal, it is taxable at the maturity of the
                  money market account Note: The early withdrawal
                  penalty is a deduction from total income.

DIVIDENDS ARE DISTRIBUTIONS OF MONEY, STOCK OR GOODS FROM A
CORPORATION TO ITS' SHAREHOLDERS. THERE IS SOME INCIDENCE OF
OWNERSHIP

F.   REPORT ALL DIVIDEND INCOME
     1.  Under $1,500 report on line 9a and line 9b
     2.  Over $1,500 itemize on Schedule B, Part 2
     3.  Capital gain distributions
         a.     Report full amount on Schedule B
         b.     Deduct total on line 7, Part 2
         c.     Report same amount on Schedule D
     4.  Nontaxable distributions
         a.     Report full amount on Schedule B
         b.     Deduct total on line 8, Part 2

G.   MUTUAL FUND COMPANIES
     1.  A taxpayer invests in a company that re-invests his funds in
         numerous other companies. The mutual fund investments are
         found in a wide array of investments. Because of this diversity,
         the investment risk is reduced, but the 1099s from mutual fund
         companies can be complex. Income to the mutual fund from the
         companies is transferred and taxed to the taxpayer. Mutual fund
         companies issue 1099s showing a diversity of income types. In
         addition, it is common for mutual fund companies to issue their
         1099 on a 1099 substitute that often is part of or looks very much
         like the year end statement. Watch for statements that are
         labeled 1099 substitute.
     2.  Interest income - can come from interest earned by their
         investment in interest bearing accounts
     3.  Tax exempt interest - can come from interest earned on a tax-free
         investment within their investment portfolio
     4.  Dividend income - can come from their ownership of stock in other
         corporations
     5.  Capital Gain Dividends - can come from the sale of stock in other
         corporations




                                      18
Beginning in 2003, there are special tax rates for dividend income. The special
rates apply only to dividends based on a corporation’s normal activity earnings.
The 1099-Div forms should report the class of dividend received. Opportunities
for special tax planning exist for dividends from privately held corporations.

These are called ―qualifying dividends‖ and are reported separately on the 1099
form. Make sure that you accurately classify these dividends as they are taxed at
a lower rate.




                                        19
               ITEMIZED DEDUCTIONS - MEDICAL EXPENSE

Medical mileage rates for 2009 are $.24 per mile through 12/31/2009.

A.    MEDICAL EXPENSES
      1.   Deductible medical expenses
           a.   Abortion - it must be legal
           b.   Acupuncture
           c.   Air conditioner necessary for relief from allergies or other
                respiratory ailments
           d.   Alcoholism - Inpatient treatment, meals, and lodging at
                therapeutic centers for alcoholism addiction
           e.   Alcoholism - transportation to Alcoholics Anonymous
                meetings
           f.   Artificial limbs and artificial teeth
           g.   Birth control pills prescribed by a doctor
           h.   Braille books and magazines
                (1)      For a visually impaired person
                (2)      Deduct cost in excess of regular printed edition cost
           i.   Capital expenses - see home improvements later
           j.   Contact lenses
                (1)      Acquisition cost
                (2)      Exam cost
                (3)      Saline solutions and enzyme cleaners
           k.   Cosmetic surgery if necessary to correct
                (1)      Congenital abnormality
                (2)      Accident
                (3)      Disease (not old age)
           l.   Detachable home installations used for a sick person
                (1)      Air conditioners
                (2)      Humidifier
                (3)      Air cleaner
           m.   Diaper service - if needed to relieve the effects of an
                identifiable disease
           n.   Doctor or Physician - legal medical services
                (1)      Medical doctors
                (2)      Surgeons
                (3)      Osteopathic doctors
                (4)      Dentists
                (5)      Eye doctors
                (6)      Chiropractors
                (7)      Podiatrists
                (8)      Psychiatrists
                (9)      Psychologists
                (10) Physical therapists
                (11) Psychoanalysis



                                      20
o.    Drug addiction - inpatient treatment, meals, and lodging at
      therapeutic centers for drug addiction
p.    Elastic Hosiery
q.    Exercise program if doctor recommended to treat a specific
      illness or condition
r.    Rent or utilities for a larger apartment to accommodate a
      nurse or attendant. Excess cost only
s.    Guide dog or other animal to be used by visually impaired or
      physically disabled persons including costs of their care
t.    Health club dues if recommended by a doctor to treat a
      specific illness
u.    Hospital care including meals and lodging if the primary
      reason for being there is to receive medical attention
v.    Household help (including FICA tax) for medical assistance
      only
w.    Insurance premiums for medical care
x.    Laboratory fees
y.    Legal fees paid to authorize treatment
z.    Lifetime care advance payments - Contract with home must
      specify what percent is to be allocated to medical care
aa.   Lodging expenses not provided in a hospital while away
      from home to receive medical care not to exceed $50 per
      day/per person
bb.   Mattresses and boards purchased specifically to relieve an
      arthritic condition
cc.   Medical aids
      (1)      Wheelchairs
      (2)      Hearing aids and batteries
      (3)      Eyeglasses and contact lenses
      (4)      Crutches and braces
dd.   Nursing care including meals supplied and employment
      taxes
ee.   Nursing home
      (1)      Entire cost including meals is deductible if main
               reason is for medical care
      (2)      Fee actually spent on medical care if primary reason
               is for other than medical care
ff.   Oxygen and oxygen equipment to relieve medical breathing
      problems
gg.   Prescription medicines, drugs or insulin
hh.   Legal sterilization
ii.   Stop smoking program if doctor recommended to alleviate
      a specific condition
jj.   Telephone - cost and repairs if for special hearing impaired
      equipment




                         21
     kk.   Television - cost of equipment to display audio part for
           hearing impaired or the cost of specially equipped television
           that exceeds the cost the same regular model
     ll.   Transplants - Surgical, hospital laboratory and transportation
           for a donor, even if unacceptable; if paid by the recipient
     mm. Transportation costs to incur medical treatment, personal
           auto rate is 12 cents per mile
     nn.   Weight loss program if recommended by a doctor to treat a
           specific illness
     oo.   Whirlpool baths prescribed by a doctor
     pp.   X-ray services
2.   Non-deductible expenses
     a.    Cosmetic surgery
           (1)    Face lifts
           (2)    Hair transplants
           (3)    Hair removal
           (4)    Liposuction
     b.    Dancing lessons even if recommended by a doctor
     c.    Exercise program to improve general health even if
           recommended by a doctor
     d.    Funeral expenses - may be deductible on descendant's
           federal estate tax return
     e.    Health club dues - if not for a specific condition
     f.    Household help - time spent for household and personal
           services are not deductible; employee's time must be
           reported and costs allocated between medical and
           household care
     g.    Insurance
           (1)    Medical portion of auto insurance
           (2)    Disability insurance
           (3)    Life insurance
           (4)    Health policy that pays guaranteed amounts based
                  on number of days in treatment
     h.    Legal fees for guardianship estate
     I.    Lodging expenses away from home does not include meals
     j.    Maternity clothes
     k.    Personal services provided by an attendant for a normal
           healthy baby
     l.    Stop smoking program for general health even if
           recommended by a doctor
     m.    Weight loss for general health even if recommended by a
           doctor
3    Whose medical expenses are deductible
     a.    Taxpayer must have paid the bills
     b.    Any person for whom the taxpayer paid more than half
           support in the year the bills were paid or incurred



                               22
     c.    Spouse or former spouse - if the marriage existed either
           when the bills were paid or were incurred
     d.    Child of divorced parents - if either parent can claim the child
           as a dependent each may claim the medical expenses
           he/she paid regardless of who takes the dependency
           exemption
     e.    Adopted child - if the child qualified as a dependent when
           medical expenses were incurred or paid
4.   Home improvements – may be deductible if their reason was for a
     medical benefit
     a.    The deduction is limited to the cost less the increase in fair
           market value of the home
     b.    A written statement from the doctor should be obtained
     C.    An appraisal before and after should be obtained
     d.    Medical expenses have been allowed for
           (1)     Central air conditioning when a family member
                   suffered from respiratory ailments
           (2)     New siding when the owner was allergic to the old
                   siding
           (3)     Specific bathroom and bathing facilities for
                   handicapped individuals
           (4)     Structural changes a handicapped person makes to
                   his home. Since this type of change does not change
                   the value of the home, these are fully deductible.
           (5)     Swimming pools for therapeutic reasons
5.   Long term care insurance
     a.    If paid by employer they are tax-free to taxpayer
     b.    If paid by taxpayer they are deductible as medical insurance
           with age/dollar limits and benefit limit
           (1)     Age/dollar limit
                          AGE                           DOLLAR LIMIT

                   (a)    Under 40                     $ 320
                   (b)    41-50                        $ 600
                   (c)    51-60                        $ 1,190
                   (d)    61-70                        $ 3,180
                   (e)    71 and over                  $ 3,980

            (2)    Benefit limit as taxable income – benefits exceeding
                   the following limits are taxable to the extent they
                   exceed actual medical expenses
                   (a)     100% tax-free if contract pays only actual
                           expenses
                   (b)     100% tax-free if contract pays a set per diem
                           and patient is terminally ill




                               23
                          (c)    If contract pays a set per diem and patient is
                                 chronically ill - $280 per day is tax free. If per
                                 diem amounts exceed actual expenses,
                                 benefits are taxable only to the extent that they
                                 exceed actual expense
      6.    Continuing care facilities – facilities that require a substantial
            up front payment and continued monthly payments
            a.    Fees properly allocated to medical care are deductible as
                  medical expenses. The agreement must require a specified
                  fee payment as a condition for the home's agreement to
                  provide lifetime care.
            b.    Amounts that exceed regular monthly fees and for which no
                  extra benefits are received could be deductible as charitable
                  contributions
            c.    The up front payment cannot be considered the purchase of
                  a personal residence

            d.     If part of the up front fee is long term refundable, the amount
                   could be considered a loan and be subject to the imputed
                   interest rules

      7.    Prepaid medical expenses
            a.    If a one time payment is made for a contract for a lifetime of
                  medical care, the payment can be deducted even though the
                  care may be provided sometime in the future. Other prepaid
                  medical expenses for less than a lifetime of services are not
                  deductible in the year paid.
      8.    Payments after death
            a.    Payments made by a descendant’s estate within one year
                  after the date of death may be treated as being paid at the
                  time the services were provided and can be deducted on
                  the descendant’s final return or can be filed on an amended
                  final return.

– Medical expense re-imbursements covered under an employer sponsored
plan are covered under different codes than those for itemizing deductions.
Thus, over the counter drugs and medications not requiring a prescription
can be included in the tax-free re-imbursement by the employer’s plan.




                                       24
                   ITEMIZED DEDUCTIONS - TAXES

B.   TAXES
     1.   State and local income tax
          a.     Taxes are deductible in year of payment
          b.     Taxes are paid through:
                 (1)    Withholding
                 (2)    Estimated taxes
                 (3)    Prior years balance due
          c.     Penalties and interest are not deductible
          d.     An unreasonable large prepayment on a future year's tax
                 may be disallowed. Prepayments must be based on
                 reasonable estimated liability. KEEP IN MIND THAT TAX
                 REFUNDS ARE INCLUDED IN FOLLOWING YEAR'S
                 INCOME IF THE ITEMIZED DEDUCTION CREATES A TAX
                 BENEFIT IN A PRIOR YEAR - WATCH THE WISCONSIN
                 CREDIT
     2.   Sales tax on new automobile
          FOR 2009 THERE IS AN ALLOWABLE DEDUCTION FOR
                 SALES TAX PAID ON AN AUTOMOBILE WITHOUT
                 ITEMIZING DEDUCTIONS OR TAKING THE SALES TAX
                 OPTION
          a.     The automobile, motorcycle motor home must be new
          b.     Must have been purchased between 02/16/09 and
                                 12/31/09
         c.      Can only use the normal sales tax rate on the first
                 $49,500
     3.   Sales tax rather than income tax option

           a.    There is now a choice of deducting the larger of state
                 income taxes or state sales taxes
                 (1)    The IRS has issued publication 600 which has charts,
                        similar to the charts from 1986 for deducting the
                        ―Normal‖ sales tax paid based on a taxpayer’s
                        income.
                 (2)    In addition to the tax based on the chart, the taxpayer
                        may deduct additional tax paid on other large items
                       (a)      Automobiles – cars, motorcycles, motor
                                homes. Recreational vehicles, trucks, vans
                                and off road vehicles
                        (b)     Leased vehicles
                        (c)     Aircraft
                        (d)     Boats
                        (e)     Homes – including mobile and prefabricated
                                and materials in home construction




                                    25
           (3)    The income on the chart is based on the taxpayer’s
                  total available income. It shows adjusted gross
                  income plus items of non-taxable income
                  (a)     Tax exempt interest
                  (b)     Veterans benefits
                  (c)     Non-taxable combat pay
                  (d)     Workers Compensation
                  (e)     Non-taxable Social Security
                  (f)     Non-taxable part of IRA or pension (not
                          including rollovers)
                  (g)     Public assistance programs
                  (h)     Child support
           (4)    The sales tax on the chart is based on the state’s
                  general sales tax. For Wisconsin, this is 5%. If you
                  live in a county with a higher tax, the amount on the
                  chart can be increased in the same ratio that the
                  county tax is to the state’s general sales tax
           (5)    Be careful in making a choice. Remember that a
                  state refund created on the current year return is
                  taxable income in the year received.
           (6)    Or the taxpayer may deduct the actual sales tax paid,
                  if he can prove an amount larger than the chart by
                  saving all receipts

     C.    Is there an opportunity to double up? Could one prepay
            2011 state income tax in 2010, leave nothing to pay in
            2011, then take the income tax paid in 2010 and take the
            Sales tax paid in 2011?

     The charts do not give a large amount, so the taxpayer should be
     Anticipating large taxable purchases for this to ―payoff‖

3.   Real estate taxes
     a.    Real estate taxes are deducted in year paid
           (1)     Unless the taxing authority considers it a down
                   payment
           (2)     Funds paid into an escrow account are not deductible
                   until the money is delivered to the taxing authority
     b.    Real estate taxes can only be deducted by the legal owner
           of the property - a non-owner is probably paying rent
           disguised as taxes
     c.    Condo and co-op housing is deductible to the unit owner
           provided the housing corporation:
           (1)     Has only one class of stock
           (2)     Each stockholder has a right to occupy a dwelling unit
                   solely because of ownership in the corporation



                               26
     (3)   No stockholder receives a return of capital except
           upon corporate liquidation
     (4)   The corporation must receive at least 80% of its
           income from tenant stockholders
d.   Refunds or rebates
     (1)   If the refund or rebate is for 2009, deduct the amount
           of refund from the amount of taxes paid
     (2)   If the refund or rebate is from a prior year, deduct the
           full amount of taxes paid on Schedule A and report
           the refund (if taxes were itemized in the refund year)
           on Form 1040, line 21- other income
e.   Sale/purchase of a home - If a taxpayer bought or sold a
     home the real estate or financing disclosure statements will
     show a tax pro-ration up to date of closing
     (1)   The seller can deduct this as real estate taxes paid
     (2)   The purchaser must reduce the real estate taxes paid
           by this amount if he itemizes in the same year; if he
           does not itemize, he must reduce the basis of the
           home

              HINT – The purchaser of a home should delay
              payment of taxes until the year after purchase.
              He does not need to reduce the deduction of
              taxes if they are paid in the year following the
              purchase of the home.
f.   Special assessments
     (1)      Principal
              (a)    If it adds to the value of the home or makes an
                     addition to the property, it is added to the basis
                     of the home
              (b)    If it is for maintenance or repairs,
                     replacements, it is deducted as taxes
     (2)      Interest on the assessment is deductible as real
              estate taxes
g.   If real estate taxes are not itemized as a deduction, the
     amount paid could be added to the basis of the home.
h.   Deduction for non-itemizers
     1. The Housing act allows a deduction for non
          itemizers for 2009 returns for property taxes paid
     2. The maximum deduction is $500.00/ $1,000.00 MFJ)
     3. Add the amount of taxes to the standard deduction
     4. Report on line 7 of Schedule L




                         27
     HOW TO DOUBLE UP ON STATE INCOME TAXES

1.   Send a check for the following year’s estimated taxes
2.   Attach a letter requesting form W-200 – exemption certificate
3.   Provide your employer with the exemption certificate so that there
     Is no Wisconsin withholding in the following year.




                               28
Wisconsin Department of Revenue
P O Box 8903
Madison Wisconsin 53708

RE:    Social Security Number
       Social security number of spouse (MFJ)
       Estimated taxes for 2010

Sir:

Enclosed is a check in the amount of ____________ in full payment of my 2010
Wisconsin income taxes. Please issue a ―certificate of exemption from
Wisconsin Income Tax Withholding‖ on form W200 for me (each of us).

Thank you for your assistance in this matter.

Sincerely

Taxpayer name
Address




                                        29
             ITEMIZED DEDUCTIONS – INTEREST EXPENSE

C.   INTEREST EXPENSE
     1.   Categories of interest:
          a.     Mortgage interest
                 (1)     Incurred on personal residence - Schedule A
                 (2)     Incurred on rentals - Schedule E
          b.             Business interest - interest incurred on debts used for
                         a trade or business - Usually Schedule C
          c.             Passive activity interest - Interest incurred in a project
                         in which the taxpayer is not actively involved - subject
                         to limitations
          d.     Interest on tax-exempt investments - not deductible
          e.     Investment interest - deducted on Schedule A subject to
                 limitations
          f.     Capitalized interest - interest that must be added to the
                 development cost of a project - not deductible
          g.     Interest on educational loans - Deductible from adjusted
                 gross income
          h.     Personal interest - not deductible
     2.   Allocation rules - EXCEPT FOR PERSONAL RESIDENCE,
          discussed later, interest expense is allocated to the category for
          which the money is spent. You must trace the use of the money.
          a.     Interest can be allocated to expenses paid from any account
                 30 days before or after the loan proceeds were received; it
                 does not matter which cash was used
          B      Loan proceeds received in cash are considered personal
                 interest and are not deductible
          c.     If loan proceeds are held in an escrow account, the interest
                 earned on deposited funds and interest accrued on the loan
                 funds is considered investment interest. The interest
                 allocation rules begin after the funds were disbursed.
          d.     If loan proceeds are used to acquire business and personal
                 use property, the principal amount of the loan repayments
                 are treated as repaid in the following order:
                 1.      Personal expenditures
                 2.      Investment and passive activities
                 3.      Active Rental Real Estate
                 4.      Former Passive Activities
                 5.      Trade or business expenditures
     3.   Mortgage interest - non-personal residence
          a.     Mortgage is reported on Form 1098 - any interest not
                 reported on Form 1098 should not be listed anywhere on the
                 return as "Mortgage Interest"




                                       30
     b.     Interest secured by a real estate mortgage is deducted on
            the schedule based on its category EXCEPT INTEREST
            SECURED BY A PERSONAL RESIDENCE
     c.     Allocation rules are beneficial if the home is used to secure a
            business loan
4.    Mortgage interest - personal residence
     a.     These rules apply to indebtedness incurred after October 13,
            1987
      b.    Interest can be deducted on only two personal residences;
            the third and following residences are considered personal
            interest and not deductible unless allocation rules can trace it
            to a business purpose
      c.    There are two types of personal residence indebtedness
            (1)     Acquisition debt
                    (a) Debt incurred to acquire, construct or
                          substantially improve a main or second home
                    (b)    Debt must be secured by that home
                    (c)    Debt is reduced as payments are made and
                           cannot be increased by refinancing
                    (d)    Debt is limited to $1,000,000 in determining
                           deductible home interest expense
                    (e)    Refinancing debt is considered acquisition debt
                           as long as it does not exceed the principal
                           balance of the old loan immediately before
                           refinancing
                    (f)    Additional amounts borrowed to make
                           substantial improvements are considered
                           acquisition debt; the acquisition cost is
                           increased by the cost of the improvements
                    (g)    Any debt above the acquisition cost is
                           considered home equity debt
            (2)     Home equity debt is limited to the lesser of:
                    (a)    Fair market value of the home minus total
                           acquisition debt
                    (b)    $100,000 combined for first and second homes
                           $50,000 FOR Married filing separate
      d.    Separate loans are not necessary - one loan may have
            elements of both acquisition and equity debt




                                31
5.   Seller financed loans
             a.    Since interest is not reported on Form 1098, it cannot be
                   reported as "Mortgage Interest"

           b.     This is to be reported on Schedule A, line 11
                  (1)     You must include:
                          (a)      Name
                          (b)      Address
                          C      Federal ID or Social Security number
                  (2)     There is a $50 penalty for omitting this
     6.    Construction loans - deductible as mortgage interest in the
           first 24 months of construction; after that time it is
           considered personal interest
     7.    Points
           a.     Points are reported by most financial institutions on the Form
                  1098
           b.     Points are fully deductible if:
                  (1)     They are clearly indicated on the settlement
                          statement
                  (2)     They are computed as a percentage of the principal
                          amount
                  (3)     Amounts cannot exceed the normal rate charged in
                          the tax home area; any excess is deducted over the
                          life of the loan
                  (4)     Points must be paid on a loan to purchase or build
                          personal residence and must be secured by that
                          residence
                  (5)     Points must be paid from the taxpayers’ own funds –
                          SEE SELLER PAID POINTS
                  (6)     Taxpayer uses the cash accounting method

           c.     Points are prorated over the life of the loan if:
                  (1)    They are for a home improvement loan and the debt
                         is greater than the acquisition cost
                  (2)    They are paid from loan proceeds
                  (3)    They are paid solely on a refinance loan
                  (4)    They are paid for a home equity line of credit
           d.     Seller paid points
                  (1)    The PURCHASER deducts the points a mortgage
                         interest if
                         a)     The home purchased is the principle residence
                                of the purchaser
                         (b)    The loan is secured by that residence
                         (c)    The buyer is solely responsible for making
                                mortgage payments




                                      32
                           (d)     The closing statement indicates that the buyer
                                   is given credit for the points and the seller paid
                                   them
                            (e)    Points are computed as a percent of the
                                   mortgage and not of the selling price
                            (f)    Points must be in line with local business
                                   practices
                            (g)    Buyer must have paid from un-borrowed funds
                                   an amount for other closing costs at least
                                   equal to the points
                    (2)     PURCHASER must reduce the cost basis of the
                            home for the value of points deducted
                    (3)     SELLER reduces the reported sales price by the
                            amount of the points paid
      8.     Late payment charges are deductible if they are specified in the
             loan and they are not a "Service or Collection charge"
      9.     Timeshares
             a.     Vacation home rules allow deduction if it is used less than
                    15 days and not rented at all. For deeded timeshares in
                    which the taxpayer owns a specific interest it appears that
                    the interest expense would be deductible.
             b.     However, courts have ruled that these ownerships are joint
                    ownerships and the use by all owners must be considered.
                    Because the Association rented units on a weekly basis, the
                    interest was deemed to be personal interest

      10.     Boats, Mobile Homes and House Trailers
                  For qualified residence mortgage interest, boats, house
                  trailers and mobile homes must have a bathroom, cooking
                  facilities and sleeping facilities. In addition, they must be
                  used in an area that does not prohibit such living
                  arrangements in the facility. For example, a boat moored in
                  a marina that prohibits overnight use will not qualify for the
                  interest deduction.

      11.    High Loan-to Value Mortgages
                   Home equity debt rules disallow interest expense deductions
                   for the portion of the interest that is paid on the portion of the
                   loan that exceeds the fair market value of the home


TIP – If a taxpayer is over the 1,000,000/100,000 limitations and has “mixed”
mortgages, he can elect to treat the non-residential part of the mortgage as
a non-residential loan.




                                        33
               ITEMIZED DEDUCTIONS - CONTRIBUTIONS

D.   CHARITABLE CONTRIBUTIONS
     1.   Deductible contributions
          a.    Cash or property given to:
                (1)     Churches, synagogues, and other religious
                        organizations
                (2)     Federal, state, and local governments if contribution
                        is solely for public purposes
                (3)     Public parks and recreation facilities
                (4)     Salvation Army, Red Cross, CARE, Goodwill
                        Industries, United Way, Girl Scouts, Boy Scouts, etc.
          b.    Charitable travel for qualified organizations
                (1)     Meals & lodging if there is not a significant element of
                        personal pleasure or recreation; because these are
                        covered under charitable contribution codes, they are
                        not covered under the business expense limitations
                (2)     Travel expenses mileage rate is 14 cents per mile
          c.    Volunteer out of pocket expenses when working for a
                qualified organization and there is no personal benefit -
                scout uniforms
          d.    Church conventions - you must be a voting delegate or have
                a real necessity for your attendance - "volunteer" choir
                director at a liturgical music convention
          e.    Exchange students - up to $50 per school month for housing
                an exchange student grade 12 or lower sponsored by a
                qualified organization
          f.    Foster parents - expenses that exceed payments received
                from a qualified organization if there is no profit motive
     2.   Non-deductible contributions
          a.    Money or property given to:
                (1)     Civic, social, and sport clubs
                (2)     Labor unions and Chamber of Commerce
                (3)     Foreign organizations
                (4)     Groups run for profit
                (5)     Groups whose purpose it is to lobby for laws or
                        elections
                (6)     Homeowners associations
                (7)     Individuals
                (8)     Cost of raffle, bingo, or lottery tickets
                (9)     Dues or fees paid to fraternal organizations
                (10) Tuition
                (11) Value of time or services rendered by taxpayer
                (12) Value of blood given to a blood bank (taxable
                        income?)




                                      34
3.   Limitation on deductions
     a.      50% of adjusted gross income
             (1)     Cash or unappreciated property
             (2)     To a qualifying 50% organization
                     (a)    Churches
                     (b)    Educational
                     (c)    Hospitals
                     (d)    Publicly supported organizations
                     (e)    Certain private foundations
     b.      30% of adjusted gross income
             (1)     Donation of capital gain property
             (2)     Exception does not apply if Fair Market Value (FMV)
                     is reduced by the long-term capital gain element
             (3)     Donations of cash or unappreciated property to non
                     50% organizations
             (4)     Unused deduction can be carried forward 5 years
     c.      20% of adjusted gross income
             Donation of capital gain property to non 50% organizations
4.   Substantiation requirements - cash contributions
     a.      Less than $250 - canceled check, statement or other
             reliable written record
     B.      Contributions after August 17, 2006 must have bank
             records, cancelled check or written receipt. Cash
             contributions that are not documented by a written
             receipt will not be allowed.
     c.      Over $250 in one day - written substantiation from the
             organization is required, a cancelled check is not sufficient.
             Substantiation must be received the earlier of:
             (1)     The day the tax return is filed
             (2)     The due date for filing including extensions
5.   Substantiation requirements - non cash contributions
     a.      Less than $250 - a receipt and written record – a receipt is
             not required where it is impractical to obtain one
             (1)     The written record must include:
                     (a)    Name, date, location of donation
                     (b)    Description of property and fair market value
                     (c)    Cost, if property has appreciated in value
                     (d)    Amount claimed as a deduction if less than
                            entire interest is contributed
                     (e)    Any conditions put on the gift
     b.      Over $250 but less than $500
             (1)     The same information as in 5a1a above plus
             (2)     Written acknowledgement from the organization prior
                     to the earlier of filing or the due date of the return
     C.      $501-$5000 - ADD FORM 8283 to the return
     d.      Over $5000 - GET APPRAISALS



                                35
6.   Donating appreciated property
     a.    Ordinary income property
           1.      The deduction is generally the Fair Market Value of
                   the property on the date of contribution less the
                   amount that would be ordinary income or short-term
                   capital gain if the property were sold at the Fair
                   Market Value.
     b.    Capital Gain Property
           1.      Generally the deduction is Fair Market Value on the
                   date of contribution unless
                   a.      The property is donated to private non-
                           operating foundations
                   b.      The property is tangible personal property that
                           is put to an unrelated use by the charity
                   c.      The taxpayer wishes to use the 50% limitation
                           rather than the 30% limitation
     c.    If the charity uses tangible personal property for an
           unrelated purpose – sells the tangible property, the donor is
           limited to deducting only his basis in the property. If the
           donor has a letter from the charity stating his intention to use
           the property in a way that is related to its charitable purpose,
           the donor can deduct the Fair Market Value even though the
           charity later sells the property.

7.   NEW RULING – AFTER AUGUST 17, 2006 NON-CASH
     CONTRIBUTIONS MUST BE IN “GOOD USED OR BETTER”
     CONDITION TO BE DEDUCTIBLE. THE IRS DOES NOT
     INDICATE WHAT IS “GOOD USED OR BETTER” CONDITION
8.   Starting in 2005, there were new rules for contributions of
     automobiles, boats and airplanes. The taxpayer’s allowable
     deduction depends on how the donated vehicle is used by the
     charity.
     a.     OUTRIGHT SALE – If the charity sells the vehicle without
            using it significantly, the deduction is equal to the sale
            price, not the fair market value.
     b.     TRANSFER TO NEEDY INDIVIDUAL – If the charity gives
            or sells the vehicle to a needy individual at a reduced price,
            the donor can deduct the fair market value
     c.     SIGNIFICANT USE OR MATERIAL IMPROVEMENTS –
            When the charity uses or materially improves the vehicle
            prior to sale, the donor can use the fair market value.
     d.     FORM 1098-C – the donor cannot deduct more than
            $500.00 without receipt of form 1098-C from the charity.
            Form 1098-C must b e provided by the charity within 30
            days of the sale or within 30 days if one of the exceptions




                               36
              applies. The taxpayer must attach copy B of Form 1098-C
              to the tax return.

KEEP IN MIND THAT THIS IS A HIGH AUDIT TARGET FOR THE IRS.

 9.    CREDIT CARD REBATES – The IRS ruled that credit card holders
       can get a charitable contribution for credit card rebates they elect to
       have transferred to a charitable organization




                                  37
                              Start here
                          EDUCATION CREDITS

A.   THERE ARE THREE OPTIONS FOR EDUCATION CREDITS
     1.  American opportunity credit – the former Hope Credit
         a.    Available for 2009 and 2010
         b.    100% first $2,000 of qualified expenses and 25% of next
               $2,000
         c.    40% of the credit is refundable unless
               1.    the child is under 18 or under 24 and a full time
                     student
               2.    whose earned income is equal to less than one half
                     of his support
               3.    Has at least one living parent
               4.    Does not file a joint return

     2.    Lifetime – 20% of first $10,000 of qualified expenses up
                  To a $2,000 maximum in 2009
                      a. Midwestern disaster credit is doubled 40% of the first
                          $10,000 of qualified education expenses
     3     HOPE CREDIT – Midwestern disaster relief
           Those qualifying for the American Opportunity Credit can waive
           that credit by completing part II of form 8863

           The credit is equal to a maximum of $3600.00 – 100% of the first
           $2,400 and 50% of the next $2,400

     4.  Cannot use a combination of the credits – it is all of one or all of
                the other
     5.  The credit type election is per student, not per return
     6.  The credit is not irrevocable and the option for claiming a credit
                can be changed on an amended return
     7.  Tax-free distributions from an educational IRA may not be used if
                either of the credits is taken for the year
B.   REQUIREMENTS FOR BOTH CREDITS
     1.  Taxpayer/dependent
         a.     Taxpayer
         b.     Taxpayer’s spouse
         c.     Dependent of the taxpayer and claimed on the taxpayers
                return
                (1)    If a parent claims a child as a dependent, the credit
                       can only be taken on the parent’s return
                (2)    In this case, any expenses paid by the student are
                       deemed to have been paid by the parent claiming
                       the credit




                                     38
            (3)    There are phase out rules for modified adjusted
                   gross income
                   (a)    American Opportunity
                          1.     Single - $80,000 to $90,000
                          2.     Joint - $160,000 to $180,000
                   (b)    Lifetime and Hope
                          1.     Single - $50,000 to $60,000
                          2.     Joint $100,000 to $120,000

                    (c)     The parent may elect not to take a
                            dependency exemption so as to allow the
                            student to claim the credit if they meet the
                            phase out rules
2.   Qualifying expenses
     a.     Must be paid to a qualified educational institution
     b.     The fees must be required for enrollment and attendance
     c.     Fees must be paid in the year of credit – if a prepayment is
            made for a term beginning in the first three months of the
            following year that term is considered for the credit in the
            year in which the payment was made
     d.     DO NOT PREPAY FEES FOR A TERM STARTING IN
            APRIL OF THE FOLLOWING YEAR
     e.     Expenses that qualify for some other deduction do not
            qualify except for in the case of the lifetime learning credit,
            courses taken to improve job skills
     f.     Qualified expenses do not include
            (1)     Hobby courses that involve sports, games, or
                    hobbies
            (2)     Any noncredit courses unless they are part of a
                    student’s degree program
            (3)     Personal expenses such as room and board,
                    insurance, medical expenses, and transportation
                    costs
            (4)     Nonacademic fees unless as a requirement for
                    enrollment
            (5)     Books, supplies and equipment, unless they are
                    required to be purchased from the educational
                    institution
3.   Qualified institution
     a.     Accredited college, university, vocational school, or other
            accredited post-secondary educational institution
     b.     If they offer Federal student loans and Federal Pell grants,
            they are accredited; be careful if they do not offer these
            programs




                                39
C.   AMERICAN OPPORTUNITIES CREDIT
     1.    Credit
           a.      100% of the first $2,000 plus 25% of the next $2,000
           b.      Maximum credit is $2,500 per student – one family may be
                   able to claim a credit for more than one student
     2.    Degree – the student must be enrolled in a program that leads to
           a degree, certificate or other recognized educational credential
     3.    Workload – the student must take at least one half of the normal
           full time workload for at least one period during the year
     4.    The student cannot have any felony drug convictions
     5.    As of the beginning of the year, the student has not completed the
           first two years of post secondary education. This two-year period
           does not need to be immediately after completion of secondary
           education
D.   LIFETIME LEARNING CREDIT
     1.    Credit
           a.       The credit is 20% of the first $10,000
           b.      The maximum credit is $2,000
     2.    Degree and non-degree courses
           a.      Undergraduate, graduate and professional degree courses
           b.      Courses for acquiring or improving job skills
     3.    There is no limit for the number of years that the credit can be
           used
     4.    Per taxpayer per year - The credit limit is per return, not per
           student
     5.    The credit cannot be claimed for expenses that have tax-free
           reimbursements

E.   EDUCATION SAVINGS ACCOUNTS
     1.  CONTRIBUTIONS
         a.   Contributions to a Coverdell Education Savings Account
              are not deductible.
         b.   Contributions are limited to a total of $2000.00 per student
              per year.
         c.   Any individual may make the contribution
         d.   Contribution limits are phased out for persons having
              adjusted gross income of
              1)     Married Filing Joint - $190,000.00 to $220,000.00
              2)     All others - $95,000.00 – $110.000.00
         e.   Contributions are not allowed for a person age 18 or over
              unless that person is a special needs child
         f.   A 6% excise penalty is imposed on excess contributions if
              not withdrawn by June 1st of the year following contribution.
         g.   Contributions must be made by the return due date, not
              including extensions



                                    40
           h.   Corporations and tax exempt organizations may make
                Contributions
     2.   WITHDRAWALS
          a.    Withdrawals are tax free if used for the beneficiary’s qualified
                higher education expenses
          b.    Nonqualified withdrawals are subject to income tax on the
                beneficiary’s tax return as other income. These are also
                subject to a 10% penalty.
          c.    The balance not used for education must be withdrawn within
                30 days of the beneficiary reaching 30 years old. The
                proceeds go to the beneficiary and the beneficiary is taxed
                on the income
          d.    The age 30 year old rule does not apply to a special needs
                child
          e.    Benefits may be rolled over to other family members – this
                includes first cousins
     3.   QUALIFIED EXPENSES
          a.    Post Secondary expenses
                1)      Tuition, fees, books, supplies, equipment
                2)      Expenses for special needs services
                3)      Contributions to a Qualified Tuition Program
                4)      Room and board for those who are at least half time
                        students, limited to the school’s posted rates or
                        $2,500.00 for students living off campus and not at
                        home
          B.    Elementary and Secondary expenses
                1)      Tuition, fees, special tutoring, special needs services
                2)      Books supplies and other equipment needed for
                        enrollment at a public, private or religious school
                3)      Room, board, transportation and other supplies that
                        are required or provided by the school
                4)      Computer equipment or internet access and related
                        services while the beneficiary is in school.
     4.   COORDINATION OF BENEFITS
          a.    Contributions may be made to the Coverdell Savings
                Account and a Qualified Tuition Program for the same
                beneficiary in the same year
          b.    A student may claim both a Coverdell Distribution and a
                Hope or Lifetime Learning credit in the same year provided
                they are not claimed for the same expense
F.   QUALIFIED TUITION PROGRAMS (SECTION 529)
     1.   CONTRIBUTIONS
          a.    The contributor is not subject to adjusted gross income
                limitations
          b.    The contribution is ―limited‖ to the amount necessary to
                provide education for the beneficiary



                                      41
            c.       The contribution is considered a completed gift, so the
                     amount is excluded from estate tax
           d.        Contributions greater than the annual gift exclusion my be
                     prorated over 5 years ($65,000.00)
     2.    DISTRIBUTIONS
           a.        Distributions are excluded from income if used for qualified
                     higher education expenses
           b.        Distributions greater than qualified expenses are included
                     in the beneficiary’s return – an allocation must be made for
                     return of principal and taxable growth
           c.        Distributions are allowed for all sponsored plans. Prior to
                     2005, the exclusion was allowed for state sponsored plans
                     only.
           d.        Excess distributions are subject to a 10% penalty.
     3.    WISCONSIN ADJUSTMENT
           Contributions to the Wisconsin sponsored plan will have a
           Wisconsin deduction adjustment for up to $6,000 per student
           START HERE
G.   TUITION AND FEES DEDUCTION
     1.     If tuition and fees are not used to claim another credit or tax
           benefit, the taxpayer may claim an adjustment to income for
           tuition and fees paid.
     2.    The adjustment to income is based on filing status and income
            a.        Single head of household, qualifying widow
                      $4,000 for income 0 - 65,000
                     $2,000 for income 65,001 – 80,000
            b.        Married filing joint
                      $4,000 for income 0 – 130,000
                       $2,000 for income 130,001 – 160,000
                                    b. Married filing separate - no deduction
     3.    Midwest Disaster Relief
                       a. Certain taxpayers may double the qualifying
                           tuition amounts
                       b. School attended must be located in a county
                           declared a disaster county
                       c. In addition to qualified education deduction
                           expenses the disaster relief taxpayers can include
                           books, activity fees and on site housing




                                      42
                 INDIVIDUAL RETIREMENT ACCOUNTS

A.   CONTRIBUTIONS CANNOT EXCEED THE LESSOR OF:
     1.  $5,000
     2.  The total amount of compensation
     3.  For taxpayers 50 or older, the contribution is increased to $6,000,
     4.  Contributions must be made in cash. However the Trustee can
         invest the cash in investment property. Rollovers do not need to be
         done in cash.

B.   COMPENSATION INCLUDES:
     1.  Wages, salary, bonuses - not reduced by self-employment losses
     2.  Self-employment income - if more than one source, net all income
         and losses
     3.  Non-passive partnership income
     4.  Taxable alimony or maintenance payments

C.   COMNPENSATION DOES NOT INCLUDE:
     1.  Investment income - interest, dividends
     2.  Pensions or annuities
     3.  Social security benefits
     4.  Deferred compensation
     5.  Self-employment earnings contributed to a Koegh
     6.  Passive partnership income
     7.  Anything excluded from income (foreign earned income)

           CONTRIBUTIONS MUST BE MADE BY THE DUE DATE OF THE
           RETURN EXCLUDING EXTENSIONS

D.   SPOUSAL IRA
     1.  An IRA can be set up for a non-working spouse
     2.  The same limitations on the working spouse apply
     3.  Starting in 2002, the spouse is not treated as an active participant
         in the working spouse’s retirement plan.

E.   LIMITATION ON DEDUCTION FOR ACTIVE PARTICIPANTS - IF THE
     SPOUSE IS AN ACTIVE PARTICIPANT IN AN EMPLOYER
     SPONSERED PENSION PLAN, THE $5,000 CONTRIBUTION LIMIT IS
     REDUCED WHEN ADJUSTED GROSS INCOME REACHES:
     1.    Single , Head of Household- $55,000 to $65,000
     2.    Married - $89,000 to $109,000
     3.    Married Filing Separate – 0 to $10,000




                                     43
F.   NON-DEDUCTIBLE CONTRIBUTIONS
     1.   All or part of the $5,000 contribution limit may be considered to be
          non- deductible
     2.   In the year of contribution or any withdrawal, Form 8606 must be
          filed
     3.   This is one way to use non-deductible portion, but see Roth IRA
          below

G.   EXCESS CONTRIBUTIONS
     1.  A 6% excise tax is imposed for excess contributions
     2.  The excise tax can be eliminated by
         a.    Withdrawing excess contribution plus interest by due date of
               return including extensions
         b.    Applying excess contribution to following year

H.   RULES FOR AGE 70½
     1.   Contributions cannot be made for the year and years after the
          taxpayer reaches age 70½
     2.   In the year the taxpayer reaches 70½, withdrawals must begin
          based on taxpayer’s life expectancy
     3.   Not following these rules result in the imposition of the 6% excise
          tax

I.   PROHIBITED TRANSACTIONS
     1.   Borrowing money from it
     2.   Selling property to it
     3.   Receiving unreasonable compensation for managing it
     4.   Using it as a security for a loan

J.   EARLY WITHDRAWALS
     1.   Withdrawals prior to age 59½ are subject to a 10% penalty in
          addition to being included in taxable income. Wisconsin also
          imposes a penalty equal to 1/3 of the Federal penalty (Form 5329)

           Withdrawals include
           A.    borrowing money from it
           B.    selling property to it
           C.    receiving unreasonable compensation for managing it
           D.    using it as a security for a loan
           E.    using funds to buy property for personal use
     2.    Exceptions to penalty:
           a.    Death
           b.    Disability
           c.    Equal periodic payments over lifetime
           d.    Medical expenses in excess of 7.5% of Adjusted Gross
                 Income



                                      44
           e.     Health insurance for unemployed individuals
           f.     Higher education expenses
           g.     First time home purchase up to $10,000
           h.     Qualified Domestic Relations Order (QUDRO)
           I.     Forced by IRS Levy
           j.     Dividends on Sec 404(k) stock

K.   ROTH IRAs - CONTRIBUTIONS CANNOT EXCEED THE LESSOR OF:
     1.   $5,000
     2.   The total amount of compensation
     3.   Taxpayers age 50 or older can contribute $6,000
     4.   This limitation is cumulative for all IRAs. You cannot put $5,000
          into a regular IRA plus $5,000 into a Roth IRA

L.   COMPARISON TO REGULAR IRA
     1.   The regular IRA is deductible in year of contribution; the
          Roth IRA is non- deductible. The regular IRA is more
          attractive in a year of a high tax bracket. Roth IRA is more
          attractive in a year of a low tax bracket.
     2.  Withdrawals from a regular IRA are taxable income; withdrawals
         from the Roth IRA are tax-free. The Roth IRA is more attractive
         over a longer period of time.
     3.  Roth IRAs are more flexible. There are no age requirements when
         distributions must begin or when contributions must stop. Original
         investments can be withdrawn tax-free and penalty-free. There are
         higher earning limitations with a Roth IRA.
     4.  Roth IRAs are more attractive in estate planning. The
         accumulation of earnings can be transferred to heirs tax-free.

M.   LIMITATION ON CONTRIBUTIONS
     1.    Single     $ 105,000 - $120,000
     2.    Joint      $166,000 - $176,000
     3.    Conversion $100.000

N.   DISTRIBUTIONS - NO TAX AND NO PENALTY
     1.   If after age 59½
     2.   Death and disability of participant
     3.   Original investment drawn out
     4.   Transfers have a five year waiting period. The five year waiting
          period begins with the first contribution and all following
          contributions follow that date.




                                     45
O.   DISTRIBUTIONS – GROWTH TAXED BUT NO PENALTY
     1.   Equal payments over life of participant
     2.   Qualified college expenses
     3.   Qualified medical expenses that exceed 7.5% of Adjusted Gross
          Income
     5.   Health insurance premiums for unemployed
     6.   Qualified Domestic Relations Order (QUDRO)

P.   DISTRIBUTIONS - GROWTH TAXED AND PENALTY IMPOSED
     1.   If made within first five years of plan
     2.   Any distributions that do not meet above exceptions
     3.   For penalty purposes, the non-deductible portion is considered
          drawn prior to account earnings

Q.   DISTRIBUTIONS - NOT REQUIRED
     1.   Distributions are not required at age 70½
     2.   After death of owner they follow regular IRA rules

R.   REGULAR IRA TO ROTH TRANSFERS - Regular IRAs can be rolled into
     a Roth
     1.     No early withdrawal penalty
     2.     Prior tax-free income is taxed in year of transfer



           In 2010, the $100,000 income limitation on conversions from a
           Regular IRA to a Roth IRA are to be removed. For high income
           taxpayers who cannot make a current Roth contribution, it
           would make sense to make a nondeductible contribution to a
           regular IRA. This would “fund” the regular IRA making the
           funding available to transfer into a Roth IRA in 2010. At that
           time, the original basis of the regular IRA would be tax free but
           the growth would be taxable. From that point on, the growth
           would be tax free.

           Wisconsin has not yet adopted this income level removal.
           There is a movement to change the law, but it has not yet
           happened. If it does not change, the excess conversion would
           be taxable, subject to early withdrawal penalty and subject to
           an excess contribution penalty each year.




                                     46
              BE CREATIVE WITH A ROTH IRA

1.   Regular IRAs can be transferred into Roth IRAs. Income tax is due
     on the transferred amount, but there are no penalties. Definitely
     use this when there is no taxable income or a very low tax bracket.

     A single taxpayer, age 30, has only unemployment income of
     $10,400 and has $10,000 in a 401K plan. If he does nothing with
     his 401K, his tax would be $155.

     If he rolls the 401K into a regular IRA and then rolls the IRA into a
     Roth IRA, his tax would be $1,416 – a net tax on the rollover of
     $1,261. At age 65, earning 8%, the Roth IRA would be worth
     $129,206 tax free.

     At age 65, earning 8%, the 401K would be worth $147,800,
     potentially subject to tax. At a 15% tax bracket, the tax would be
     $22,170, or a net after tax value of $125,630.

     At age 65, the Roth IRA, if taxes were first paid from the rollover
     funds, would be worth $129,440 all tax free.

2.   Use a Roth for college funding/retirement combination. If a 30-
     year-old parent invests $4,000 per year for 18 years. At 6%return,
     the fund grows to $131,040. Draw $72,000 for college funding and
     leave the balance in the account for retirement. Add nothing more.
     At age 65 the fund balance, at 6% return, would be $239,784 tax-
     free.

3.   Use a Roth for first time home purchase/retirement combination. If
     an 18 year old invests $4,000 per year for 10 years with a 6%
     growth, the fund would grow to $55,880. At the end of 10 years he
     draws $40,000 out for a home purchase and leaves the balance for
     retirement. He adds nothing more. At age 65 the balance at 6%
     would be $137,257 tax-free.


4.   If a client wishes to make a new Roth contribution but has limited
     funds, consider transferring a regular IRA and using the funds to
     pay the tax on the transfer. A taxpayer could transfer $16,000 in a
     25% tax bracket or $26,000 in a 15% tax bracket in place of a
     $4,000 contribution.




                                47
                 ENERGY CONSERVATION CREDITS

A. The Personal Property Energy Credit is available for 2009 and 2010.
    1.   The credit is equal to 30% of the cost of qualified energy efficient
             property improvements
    2. The total amount of credit that can be claimed for 2009 and 2010
             is 1500.00
    3. Having claimed a credit in 2006 or 2007 does not affect the ability
             to claim the full $1500 credit for 2009 and 2010
    4. An allocation for mixed use property must be made if the business
             portion of use is more than 20%
    5. No credit is allowed for equipment used to heat swimming pools
             or hot tubs




                                    48
              QUALIFYING PROPERTY FOR PERSONAL ENERGY PROPERTY CREDIT

                                                WINDOWS AND DOORS
EXTERIOR DOORS                           BEFORE 06/01/09 MUST MEET ENERGY STAR CRITERIA
AND SKYLIGHTS                            AFTER 06/01/09 u Factor -< 0.30; SHGC =< 0.30
STORM WINDOWS                            In combination with the exterior window over which it is installed;
                                         has a U factor and SHGC =<0.30 or below, meets IECC
Exterior Doors                           BEFORE 06/01/09 MUST MEET ENERGY STAR CRITERIA
                                         AFTER 06/01/09 u Factor -< 0.30; SHGC =< 0.30
Storm Doors                              In combination with a wood door over which it is installed;
                                         has a U factor and SHGC =<0.30 or below, meets IECC


                                    HEATING, VENTILATION AND QIR CONDITIONING


Central Air conditioning                 Split systems EER=>13; SEER =>16
                                         Package systems EER=>8;EER=>12; SEER =>14
Air Source Heat Pumps                    Split systems HSPF =>8.5;EER=>12.5;SEER=>15
                                         Package Systems HSPF=>8; EER=>12; SEER=>14
Natural gas pr Propane Furnace           AFUE => 95
Oil Furnace                              AFUE =>90
Gas, Propane or Oil hot water boiler     AFUE =>90
Advanced main air circulating fan        No more than furnace total energy useage


                                                   WATER HEATERS
Gas, Oil, Propane water heater           Energy Factor =>0.82 for a thermal effeciency of at least 90%
Electric Heat Pump water heater          Same criteria as energy star; Energy factor =>2.0


                                                   OTHER PROPERTY
Insulation                               Meets 2009 IECC and amendments. For insulation to qualify, its primary
                                         purpose must be for insulating. For instance, insulated siding
                                         does not qualify
Metal Roofs                              All energy star qualified metal and reflective
Asphalt Roofs                            asphalt shingles
Biomass Stove                            Stove which burns biomass fuel to heat home or heat
                                         water. Thermal effeciency rating of at least 75% as
                                         measured using a lower heating value




                                                              49
                 HOME BUYERS CREDIT
I. 2008 CREDIT
     A    This was not really a credit, it was an interest free loan
     B.   The Credit is equal the lesser of 10% of the purchase price
          or $7,500.00
     C.   For homes purchased between 04/09/2008 and 12/31/2008
          the credit is taken on the 2008 return.
             1. For homes purchased between 01/01/2009 and
                 06/30/09 the credit is taken on either the 2008 or
                 2009 return. An amendment for 2008 can be filed
                 for 2008
             2. The credit is phased out for incomes above $75,000
                 ($150,000 MFJ)
             3. This is a refundable credit and can be used to offset
                 AMT
     A.   The credit must be paid back, addition to tax in future
          years, ratably over 15 years. A $7,500.00 credit would add
          $500.00 in taxes in all future years
     B.   A first time home buyer is a taxpayer who
            1.   Has had no ownership in a personal residence for
                 three years prior to the date of closing on the
                 residence to which the credit applies
            2.   For married filing joint, both spouses must qualify as
                 first time home buyers
     C.   The credit must be recaptured on disposition of the
          property
            1.   The un-recaptured credit must be paid back in the
                  year of transfer



                             50
            2.   The credit must be paid back on a transfer to related
                 party
           3.    If the property is sold at a loss
                 (a)     Reduce the basis of the home by the un-
                         recaptured credit
                 (b)     Calculate the gain or loss using the adjusted
                         basis
                 (c)     The credit to be recaptured is the lesser of the
                         un-recaptured gain or the gain on the
                         property using the basis as adjusted above.

      D. The credit does not need to be recaptured
          1. A transfer between spouses
          2. Compulsatory or involuntary conversions
          3. Recapture ends at death, so none is due in the year
               of death
          4.   Transfers incident to divorce - The recapture
               responsibility goes with the property – the spouse
               receiving the property is responsible for the
               recapture in all years following the year of divorce

II   HOME BUYERS CREDIT PHASE 2

      A. Lets change the rules – this was too easy
      B. Applies to homes purchased between January 1, 2009 and
           April 30, 2010
      C. All of the above rules apply except
         1. The credit does not have to be paid back
         2. Related parties now include in-laws
         3. The amount of the credit is $8,000 instead of $7,500




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III   HOME BUYERS CREDIT PHASE 3

          A. By now you know the rules, so lets change them again
          B. For homes purchased between November 7, 2009 and
             April 30, 2010
             1.      A binding sale contract must be signed on or before
                     April 30, 2010 and the sale closed by June 30, 2010
          C. All of the rules from Item II apply except
             1.      The adjusted gross income limits change to
                     $150,000 to $170,000 for single returns and
                     $225,000 to $245,000 for married filing joint
             2.      There is a maximum credit available of $6,500 for
                     Long time home owners.
                     A long time home owner is one that has maintained
                     the same principle residence for any five
                     consecutive years out of the last eight years ending
                     on the date of the purchase of the new home

IV.   CLAIMING THE CREDIT, CALCULATING THE PAYBACK

      A      Both the credit and payback are calculated on form 5405
      B      Attach a copy of the closing statement to the return being
             filed
      C      This attachment cannot be electronically filed
      D      The IRS is developing a new form 5405 which must be
             used for any homes purchased after November 7, 2009.
             Any claims using the old form will be rejected. They hope
             to have the new form out by January 9, 2010




                                52
                   WISCONSIN CONSIDERATIONS

A.   HOMESTEAD CREDIT

     1.   What is it?
          a.     Homestead credit is a property tax rebate for low-income
                 households. It is difficult to determine who qualifies
                 because it is based on both the household income and the
                 rent/property taxes paid.
                 (1) The maximum credit is $1,160.00
                 (2) The maximum household income is $24,500.00
                 (3) The maximum property tax allowed is $1,450.00
     2.   Qualifications
          a.     The taxpayer must be at least 18 years old or over 62 if
                 claimed as a dependent on another return
          b.     He/she must be a Wisconsin resident all of 2009
          c.     Household income must be less than $24,500.00
     3.   Qualifying Taxes
          a.     The property must be the primary residence
          b.     The property cannot be exempt from real estate taxes
          c.     The business portion of the home must be deducted from
                 the total tax bill
          d.     If the calculation is based on rent
                 (1) 20% of rent is used if heat is included
                 (2) 25% of rent is used if heat is not included
          e.     If there is no legal ownership, the tax paid is considered to
                 be rent
          f.     Net taxes (not assessments) after all credits are used
          g.     If the property is on more than one acre of land
                 (1) Non-farm property can only use one acre of land
                 (2) If the property was used for farming you can use
                          (a)    120 acres
                          (b)    All of the improvements on the 120 acres
          h.     Workforce/public assistance recipients – Schedule 5
                 (1) Calculate on Schedule 5
                 (2) Gross rent or tax paid are excluded for any month
                          (a)    There is receipt of any amount of
                                 (i)     AFDC
                                 (ii)    Wisconsin Works (W2) payments
                                 (iii)   Community service jobs
                                 (iv)    Transitional placements
                          (b)    There is receipt of more than $400 for
                                 (i)     Non-legally responsible relative AFDC
                                 (ii)    Kinship care


                                    53
                         (iii)    Caretaker of a newborn child
                         (iv)     County relief

4.   Household income includes
     a.     All taxable income LESS $250 PER DEPENDENT
     b.     Depreciation/amortization – 21 cents per mile
     c.     Non-taxable portion of annuities
     d.     Capital gain deduction
     e.     Tax-free gain on personal residence
     f.     Child support
     g.     Deferred compensation
     h.     Non-taxable disability payments
     i.     Exempt interest
     j.     Fellowships/grants
     k.     IRA contributions deducted
     l.     Mileage deduction
     m.     Non-taxable unemployment comp
     n.     SEP or simple contributions
     o.     Veterans benefits
     p.     Non-taxable social security
     q.     Welfare relief – Report on Schedule 4
     r.     Workers compensation
1.   Household income does not include
     a.     Cafeteria plan – section 125
     b.     Deferred gain from involuntary conversions
     c.     Depreciation not claimed
     d.     Earned income credit
     e.     Food stamps – relief in kind
     f.     Gifts/inheritance
     g.     Insurance – life or loss of limb
     h.     Loans
     i.     Non-taxable dividends
     j.     Foster care
     k.     Non-deductible IRA
     l.     Pension or IRA rollover
     m.     Social security payments to children in household
2.   The household consists of
     a.     Taxpayer, spouse and children under 18
     b.     If anyone else is part of the home, the rent/taxes must be
            prorated based on the amount of total support contributed,
            not just rent payments.
3.   Marital property
     a.     Marital property agreements cannot be used to figure
            household income.




                                 54
          b.      If the spouses are not living together at the end of the year,
                  each may file his/her own claim – this is true even if they
                  file a joint return.
     4.   Filing a claim
          a.      The claim is filed on Schedule H or H-EZ
                  (1)      Schedule H can be filed on its own
                  (2)      Schedule H can be included with the income tax
                           return
          b.      You must attach to Schedule H
                  (1)      A copy of the tax bill – use the bill due in 2009
                  (2)      Rent certificate
                           (a)     The rent certificate must be the ORIGINAL –
                                   no duplicates are accepted
                           (b)     The rent certificate cannot have any
                                   alterations
          c.      The homestead claim is checked most closely and is most
                  likely to be returned – make sure the rent certificate is
                  correct.
          d.      Make sure that rent certificates account for no more than
                  12 months

B.   ARMED FORCES CREDIT

          Members of the armed forces can obtain a credit of up to $300.00
          for military pay received while serving outside the United States.
          You cannot claim this credit based on excludable combat pay.
          The credit is 100% of the pay received up to $300.00. Married
          filing joint returns may receive a credit for each spouse qualifying
          for the credit.

C.   SCHOOL PROPERTY TAX CREDIT

     1.   Is based on the taxes of the PRIMARY RESIDENCE ONLY
     2.   Includes the tax on the residence after the lottery credit – it does
          not include charges for
                   1.   special assessments
                   2.   interest on back taxes
                   3.   charges for any services
                   4.   any business use portion of the home
     3.   Can only claim taxes actually paid in 2008
     4.   For a mobile home, the tax includes
          a.     Personal property tax on the mobile home as tax paid
          c.     Plus parking fees paid as rent
     5.   To calculate the 12% credit
                   d. the owners use the ―owners table‖
                   e. renters use the ―renters table‖



                                     55
D.   MARRIED COUPLE CREDIT WHEN BOTH WORK

     1.   When both spouses work, Wisconsin allows a credit based on
          wages
     2.   Wages are those earned by each spouse individually marital
          property laws are not considered
     3.   The credit is calculated on Schedule 2, page 4
     4.   The credit is equal to 3% of the spouses lowest wages up to a
          maximum wage of $16,000.00
     5.   The maximum credit is $480.00

E.   WORKING FAMILIES TAX CREDIT

     1.   CHECK OUT THE NAME. Qualifications not needed
          a.     You do not need to be working
          b.     You do not need to have a family
     2.   This is a credit to insure that low-income people do not pay tax
          a.     Single persons
                 (1) No tax for income less than $9,000
                 (2) Phase out between $9,000 and $10,000
          b.     Married filing joint
                 (1) No tax for income less than $18,000
                 (2) Phase out between $18,000 and $19,000
          c.     This credit is not-refundable – tax can only be reduced to
                 —0— There is no age limit
          d.     It cannot be claimed by someone claimed as a dependent
                 on another return.
          e.     Using this credit to bring the tax to -0- does not eliminate
                 the filing requirements
          f.     This credit cannot be used to reduce or eliminate
                     (1)         Sales/use tax
                     (2)         Alternative minimum tax
                     (3)         Penalties on retirement accounts or medical
                                 savings account.

F.   ITEMIZED DEDUCITONS CREDIT

     1.   Wisconsin allows a 5% credit for certain itemized deductions
          a.   Medical and dental subject to 7½% floor
          b.   Interest expense not including
               (1)     A home outside Wisconsin
               (2)     A boat used as a residence
               (3)     Investment interest used to purchase exempt
                       income bonds




                                    56
               c.     Gifts to charity – extra fees for special license plates are
                      deductible
               d.     Calculation is done on Schedule 1 on Page 4

               Some taxpayers may not be able to itemize on the Federal, but
               can itemize on the state. Be careful. In this case you should
               include a Federal Schedule A with the state return even though it
               is not needed with the Federal.

G.   EARNED INCOME CREDIT

     4.        If a taxpayer with a qualifying child is eligible for the Federal EIC,
               that taxpayer is also eligible for a Wisconsin EIC based on the
               number of qualifying children.

          5.   The credit is calculated as follows
                     One child – 4% of the Federal Credit
                     Two children – 14% of the Federal Credit
                     Three or more children – 43% of the Federal credit

G.   DISABLED VETERANS PROPERTY TAX CREDIT

     1.        A refundable credit of 100% of the property taxes paid is available
               to
     2.        Veterans age 65 or older
     3.        Must have a 100% service related disability status
     4.        Eligibility must be certified by the Department of Veteran Affairs

H.    FARMLAND TAX RELIEF CREDIT

     1.        This is a refund of taxes paid on farmland used for farming
               purposes. The credit is 18% of farm taxes paid to a maximum of
               $1,500.00
               a.      The individual claiming the credit must be the owner of the
                       land
               b.      The farm must consist of at least 35 acres
               c.      The acreage must have produced gross income of
                       (1)     At least $6,000 in the current year
                       (2)     Or at least $18,000 during the tax year plus the two
                               previous tax years
                       (3)     Or at least 35 acres must be enrolled in the
                               conservation program all or part of the year
               d.      The prior year’s taxes must be paid before claiming the
                       credit. The 2008 taxes must be paid before claiming the
                       credit on the 2009 tax return
               e.      Gross farm profits mean



                                           57
                 (1)    Gross receipts from the agricultural use
                 (2)    Plus sales of livestock purchased in the current year
                        less the cost of such livestock
                 (3)    Plus FMV of PIK programs payments
                 (4)    And payments received from the federal dairy
                        program
          f.     Rented farmland
                 (1)    Remember the credit is available to the owner of the
                        land only
                 (2)    The renter does not get a credit
                 (3)    The landlord claims the credit based on the renter’s
                        gross income
          g.     Since the farm taxes were deducted in a prior year, the credit
                 is taxable income in the following year
          h.     This credit plus the farmland preservation credit cannot
                 exceed 95% of the farm taxes

I.   FARMLAND PRESERVATION CREDIT

     1.   Taxpayers who restrict their land to agricultural use are eligible to
          receive this credit
          a.     Similar to Homestead credit, the credit is based on both
                 household income and the amount of farm taxes paid
          b.     To qualify the following must be met
                 (1)     The taxpayer or member of the household must be
                         the owner of the land
                 (2)     He/she must be a full year resident of Wisconsin
                 (3)     Taxpayer or spouse cannot claim homestead credit
                 (4)     There must be at least 35 acres of farmland
                 (5)     The farmland must have produced at least $6000 of
                         gross income that year or $18,000 in three years or be
                         in a conservation program
                 (6)     Taxpayer not notified that he is in violation of a soil or
                         water conservation plan or standard for the farmland
                 (7)     Prior years taxes must have been paid
                 (8)     By December 31st. the farmland must
                         (a)    Be subject to a certified zoning ordinance
                         (b)    A farmland preservation must have been
                                executed and filed before July 1 of that year
                         (c)    If the agreement expired during the year, it
                                must have expired after July 1 of that year
          c.     Gross farm profits mean
                 (1)     Gross receipts from the agricultural use
                 (2)     Plus sales of livestock purchased in the current year
                         less the cost of such livestock
                 (3)     Plus FMV of PIK programs payments



                                     58
     (4)    And payments received from the Federal Dairy
            Program
d.   Household income includes all taxable and non-taxable
     income except
     (1)    Community spouse income allowance
     (2)    Deferred gain from involuntary conversions
     (3)    Depreciation claimed on Schedule A
     (4)    Depreciation not currently deductible
     (5)    Earned income credit
     (6)    Energy assistance paid directly to the provider
     (7)    The first $25,000 of farm depreciation per person
     (8)    Flex spending plan – Section 125
     (9)    Food stamps
     (10) Gifts
     (11) Homestead credit from prior year
     (12) Inheritance
     (13) Insurance – life, disability, loss of limb
     (14) Loans
     (15) Long term options (cop) payments
     (16) Net operating loss carry forwards
     (17) Non-taxable dividends
     (18) Non-taxable foster care
     (19) Non-taxable personal injury
     (20) Tax refunds
     (21) Repayment of non-taxable income previously included
     (22) IRA and pension rollovers
     (23) Sec 1035 exchange (annuity contracts)
     (24) Sec 179 expense
     (25) S E tax adjustment to income
     (26) Social security payments to children
     (27) Voluntary support payments
e.   Attach copies of the tax bill to the claim
f.   Attach the zoning certificate to the return
g.   There are four types of credit
     (1)    100% credit
            (a)     Maximum tax of $6000
            (b)     Maximum credit of $4200
            (c)     The farmland must be subject to
                    (i)    In a county that has a certified
                           agricultural plan
                    (ii)   And in an area that zoned exclusively
                           for agricultural purposes by a county,
                           city, village or township
     (2)    80% credit
            (a)     80% of the taxes qualify
            (b)     The farmland



                       59
                               (i)    Is subject to a farmland agreement or
                                      transition agreement
                              (ii)    Is not subject to a county, city, village or
                                      township zoning certification
                 (3)  70% agreement
                      (a)     70% of the taxes qualify
                      (b)     The farmland
                              (i)     Is located in an area zoned exclusively
                                      for agricultural purposes by a county,
                                      city, village or township
                              (ii)    Is not covered by a farmland agreement
                 (4)  10% credit
                      (a)     A special 10% minimum credit for those whose
                              Income is too high to qualify for any of the
                              other eligible credits
         h.      Payback of prior credits
                 (1)  If the contract is broken the taxpayer must payback all
                      previous credits claimed

J.   WISCONSIN DAIRY INVESTMENT CREDIT

         1.      The credit is based on investment for livestock and dairy
                 production modernization or expansion programs
         2.      The credit is equal to 10% of the investment
         3.      The credit is available for investments January 2004
                 through January 1, 2011
         4.      The maximum credit is $50,000 over this 7 year period
         5.      The credit is non refundable
         6.      Unused credits can be carried forward for 15 years


k.   SALES TAX
         Wisconsin Sales Tax is actually a use tax - a tax imposed on the
         end user.

         Any taxable purchases made without paying Wisconsin ―Sales Tax‖
         must be reported on the Wisconsin return and the Sales Tax
         calculated and paid with that person.




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