New strategies are required to make a year-end tax plan

This time the year-end planning of taxes will require new strategies and has to be different from the lines followed previously. For a good number of people this year has meant loss of jobs or working for lesser pay. Many have lost their homes to foreclosure on top of unemployment. There have been stimulus programmes initiated by the government that have made some additions to the money tax payers took home. Some have availed of tax credit.

Jimmy Averitt of BDO Seidman LLP of Dallas said, “Things are different this year for a lot of people in situations they’ve never been into before because of the economic times.” All these points have to be taken into consideration. Averitt added, “Those need to be assessed before the end of the year and compared with what occurred in prior years to get a handle on what their tax situation is. You need to be doing that right now.”

In an ailing economy there are many types of tax implications for the ordinary man. Usually if one is owing a debt to another and the creditors cancels or forgives the debt the amount is often taken to a gain or income and tax is levied on it. However the government is doing some rethinking and offering tax breaks to assist the house owners who have lost their houses to foreclosure.

As per the law the taxpayer whose prime residence has been foreclosed upon does not have to file the unclaimed amount of debt forgiven as income. The amount of debt that is reduced because of loan modification is also exempted from taxes. The modification of the loan makes it more viable because the interest is reduced and or the length of the mortgage is increased. The amount of debt that may be forgiven in this manner amounts to $2 million. The limit for married couples who file taxes separately is $ 1 million.

There is a provision for forgiving debts from 2007 right up to 2012. Averitt said that for the unemployed the forgiven debt could “well be significantly lower when you start taking into account exclusions and dependency deductions.” This could lead to a situation wherein the tax deductions could be more than the income of the person. If this happens and the person is in need of cash then one can dip into the retirement plan if his or her age is over fifty nine years and six months.

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