2005 Income Tax Seminar Book - Part II

Table of Contents / Page No.

NEW TAX LAW 1-34
Energy Tax Incentives Act 2005 1-6
Tax Incentives for Consumers 1
Energy-efficient Improvements 1
What Qualifies 2
Five-year Life Span Required 2
Energy Credits 2
Residential Energy Property Expenditures Included 2
Joint Property 3
Residential Energy Efficient Property Credit 3
Alternative Vehicles and Fuels 3
New Credits on Purchase or Lease 3
Hybrids and Lean-burn Vehicles 3
Limited Time Offer 4
Alternative Fuel Vehicles 4
Fuel Cell Vehicles 4
Residential Clean-fuel Refueling Equipment 4
Tax Incentives for Businesses 5
Energy Efficient New Home Construction Credit 5
Qualifications 5
Limited Time Period 5
Energy Efficient Appliances 5
Renewable Electrical Energy 5
Energy-efficient Commercial Buildings Deduction 5
Clean Renewable Energy Bonds 5
Revenue Raisers 6
Amortization Recapture 6
Katrina Emergency Tax Relief Act of 2005 7-13
Individuals 7
Casualty Losses 7
Preserving Tax Benefits 7
Extended Tax Deadlines 7
Early Distributions from IRAs and Pensions 7
Penalty-free Withdrawals 8
Extended Rollover Periods 8
Three-year Income Averaging 8
Extended Non-recognition Replacement Period 8
Discharge of Indebtedness 9
Mortgage Revenue and Actions 9
Charitable Contributions and Actions 9
Giving Shelter to Evacuees 9
Charitable Contributions 10
Mileage reimbursement 10
Corporate Donations 11
Food and Blood inventory Donations 11
Business 12
Work Opportunity Tax Credit 12
Employee Retention Credit 12
Excise and Employment Tax Deadlines 12
Disaster Areas List 13
Disaster Relief Toll-Free Number 13
Bankruptcy Abuse Prevention and Consumer Protection Act of 200514-16
Retirement Plan Exemptions 14
Education IRAs 14
Notice of Request for Determination of Taxes 14
Discharge of Estate’s Liability for Unpaid Taxes 14
Rate of Interest on Tax Claims 14
Repeat Bankruptcy Filers 14
Chapter 13 Advantage Eliminated 15
Chapter 11 Corporate Advantage Eliminated 15
Tax Court Stay Provision Limited 15
Avoidance of Statutory Tax Lein Prohibited 16
Payment of Taxes in the Conduct of Business 16
Tardily Filed Priority Tax Claims 16
Return Must be Filed to Confirm Chapter 13 Plans 16
Tax Disclosure Standards 16
Setoff of Tax Refunds 16
Dismissal for Failure to Timely File Returns 16
Effective Date 16
Federal Developments Continued 17-34
Package X – Obsolete 17
Customer Alternatives and Planned Actions 17
Charitable Contribution Deductions – Valuations 17
Charitable Contributions – Timing 17
Mileage Rate Increase 18
Announcement 2005-66 18
Due Dates 18
New Rules for Circular 230 20
Effective Date 20
Covered Options 20
Listed Transactions 20
Requirements for Covered Options 21
Factual Matters 21
Reaching aw Conclusion 21
Exclusions from Covered Options 21
Legend Out 22
Legend Out Language 22
Cafeteria Plan “Use is to Lose it Rule” 23
Social Security, SSI Benefits to Rise 23
Taxpayers Denied Bad Debt Deductions 24
Grandmother Not Entitled to Claim Grandchildren as Dependents 24
Unreimbursed Employee Business Expense Deductions 24
10% Additional Tax on Early Retirement Plan Distributions24
Guidance Regarding Employee-owned Tools Released 25
Business Deductions – Substantiation 25
Joint Returns – Innocent Spouse Relief 25
Charitable Deductions – Valuations 26
Determination to Proceed with Levy 26
Business Expense – Deduction vs. Capitalization 27
Damages on Account of Personal Injuries or Sickness 27
2006 COLAs for Retirement Plans Released by IRS 28
Tax Reform Panel Rejects National Sales Tax 29
The Dirty Dozen 30
Top 20 Errors for Paid Preparers 32
Common Errors Made on Business Returns and Related 33
Returns Sent to an Incorrect IRS Pricessing Center 33
Standards of Practice for Tax Professionals 34
TAX PLANNING STRATEGIES AND CONSIDERATIONS 35-112
Depreciation Calculated in Error 35-40
Basic Requirements 35
Concept of Allowed or Allowable 35
Determine Adjustment Amount 36
Form 3511 37
Tax Planning and Children 41
Hiring a Spouse 42
Double Itemizing 43
Gift Tax Exclusion 44
Donating Appreciated Assets 45
Individual Retirement Accounts (IRAs) 47
Roth-IRA 48
Roth IRA v. Traditional IRA Comparison 50
Required Minimum Distribution Rules 57
Roth IRA Conversion 61
Simplified Employee Pensions (SEPs) 68
Savings Incentive Match Plan for Employees (SIMPLE) 73
Individual 401(k) 84
Traditional 401(k) Plan 90
Safe Harbor 401(k) Plan 94
Qualified Roth Contribution Programs 95
Qualified Dividends for Small Closely Held Corporations 104
Constructive Dividends vs. Payroll (C Corporations) 109
S Corporations Distributions 110
2005 FEDERAL TAX UPDATE 113-209
Form 1040, Page 1 113-119
Dependent Tests 113
Child Tax Credit 119
Income 119-121
Dividends 119
Capital Gains & Losses 121
Unemployment Compensation 121
Social Security Benefits 121
Adjustments to Income 122-135
Educator Expenses 122
Health Savings Account 124
Moving Expenses 126
Self-employed Health Insurance Deduction 127
Student Loan Interest 128
Tuition and Fees Deduction 129
Domestic Production Activities 131
Form 1040, Page 2 136-144
Standard Deduction 136
Personal Exemption 137
Alternative Minimum Tax 137
Foreign Tax Credit 137
Child Tax Credit 138
Earned Income Credit 139
Additional Child Tax Credit 139
Estimated Tax Penalty 140
Where to File 141
Form 1040, Schedule A 145-164
Medical and Dental Expenses 145
Income Taxes vs. General Sales Taxes 148
Real Estate Taxes 151
Home Mortgage Interest 151
Investment Interest Expense 155
Charitable Contributions 157
6720 Penalties 159
Casualty and Theft Loses 162
Gambling Losses 162
Form 1040, Schedule B 165-166
Excludable Savings Bond Interest 166
Ordinary Dividends 166
Form 1040, Schedule C 167-178
Accounting Methods 169
Car and Truck Expenses 171
Section 179 Expenses 172
Depreciation 172
Repairs and Maintenance 175
Travel, Meals, Entertainment 176
Home Office Rules 177
Form 1040, Schedule D 179-194
Definition of Capital Asset 181
Capital Gains Rate 182
Mutual Fund Sales 183
Wash Sale Rules 188
Sale of Principal Residence 190
Form 1040, Schedule E 195-201
Vacation Home Rules 198
Income and Expenses 199
Passive Activity Rules 200
Partnership and S. Corp., Income and Loss 201
Form 1040, Schedule EIC 202-205
Earned Income Credit – Phaseouts 203
Eligible Individual and Qualifying Child Defined 204
Hurricane Katrina Election 205
Form 6251, Alternative Minimum Tax – Individuals 206
Form 8822, Change of Address 208
Form 4868, Application for Automatic Extension 209