Do you need to Amend your Return?

You've discovered an error or determined that you are entitled to a previously unclaimed credit or deduction, after your tax return has been filed. Do you need to amend your tax return?

The IRS usually corrects math errors or requests missing forms - such as W-2s or schedules - when processing an original return. In these instances, do not amend your return.
However, you should file an amended return if any of the following were reported incorrectly:

· Your filing status
· Your dependents
· Your total income
· Your deductions or credits

You may also elect to amend your 2008 return if you are eligible to claim the new first-time homebuyer credit of up to $8,000 for a qualified 2009 home purchase. The amended tax return will allow you to claim the homebuyer credit on your 2008 return without waiting until next year to claim it on the 2009 return.

If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X. You may cash that check while waiting for any additional refund. If you owe additional tax for 2008, you should file Form 1040X and pay the tax as soon as possible to limit interest and penalty charges. Interest is charged on any tax not paid by the due date of the original return, without regard to extensions.

Generally, to claim a refund, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.

Choosing an LLC as a Form of Doing Business

A limited liability company (LLC) is a business entity separate from its owners. The major advantage is that it allows owners to participate in the management and to take advantage of the pass-through taxation while limiting their liability for debts or the business. LLC members have limited liability that is usually only common in corporations.

A single member LLC is taxed as a sole proprietorship by default; an LLC with two or more members is taxed as a partnership by default. Either LLC can elect to be taxed as a corporation.

The other attributes of the LLC usually will be determined by how the LLC is taxed. An LLC taxed as a corporation follows the corporation rules; an LLC taxed as a sole proprietorship follows the sole proprietor provisions; and an LLC taxed as a partnership follows the partnership rules. For example, an LLC taxed as a sole proprietor will not issue a Form W-2 to the single member for services provided, because a sole proprietor cannot issue a Form W-2 to himself or herself. The same is true for an LLC taxed as a partnership; members will not receive a Form W-2 from the partnership. However, an LLC taxed as a corporation will issue a Form W-2 to a member who provides services.

An LLC is formed under the state where the business is conducted. An LLC's Articles of Organization usually define who will be responsible for managing the company. Liquidation of the LLC will depend on how the entity is taxed.

Energy Credit For Solar Property

In addition to the energy credit for home improvements, you may also claim a residential energy efficient property credit for property that uses solar energy to generate electricity or heat water for your residence. You can also claim this credit for property that uses a wind turbine to generate electricity in your residence, or equipment that uses the ground or ground water to heat your residence.

The following property qualifies for the credit:
· Solar electric property;
· Solar water heating property;
· Fuel cell property;
· Small wind energy property; and
· Geothermal heat pump property.

This credit equals 30 percent of the cost of purchasing and installing such property. After 2008, there is no dollar cap on the credit, with the exception of the maximum credit for qualified fuel cell property, which is $500 for each 0.5 kilowatt of capacity.

Like the energy credit for home improvements, you may claim this credit regardless of your modified adjusted gross income, and it is nonrefundable. However, any unused credit may be carried forward and added to the credit for that year. This credit is available through 2016, so you should benefit from it eventually.

American Opportunity Tax Credit

The Hope Credit, which was a tax credit available for tuition expenses paid during the first two years of college, has been expanded and renamed the American Opportunity Tax Credit for 2009 and 2010. Now taxpayers can claim up to $2,500 per student, per year for the first four years of post-secondary education. This is much better than the Lifetime Learning Credit, which is limited to $2,000 per return, per year for all eligible students. You cannot claim both credits for the same student in the same year, so you must choose one or the other.

The credit equals 100 percent of the first $2,000 of qualified tuition and related expenses, plus 25 percent of the next $2,000 of such expenses, for a maximum credit of $2,500. However, the credit is gradually reduced if your modified adjusted gross income is between $80,000 and $90,000 ($160,000 and $180,000 if married filing jointly).

In general, education credits are nonrefundable. However, 40 percent of the allowable American Opportunity Tax Credit is refundable. Thus, if you have no tax liability, you can still claim a refund of $1,000 ($2,500 x 40%) for this credit (assuming you are entitled to a $2,500 credit after applying the phase-out rules). The balance of the credit is lost and cannot be carried over.

Tax Benefits for Job Seekers

Many taxpayers spend time during the summer months polishing their résumé and attending career fairs. If you are searching for a job this summer, you may be able to deduct some of your expenses on your tax return.
Here are the top six things the IRS wants you to know about deducting costs related to your job search.

1. In order to deduct job search costs, the expenses must be spent on a job search in your current occupation. You may not deduct expenses incurred while looking for a job in a new occupation.
2. You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year.
3. You can deduct amounts you spend for preparing and mailing copies of a résumé to prospective employers as long as you are looking for a new job in your present occupation.
4. If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can only deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity compared to the amount of time you spend looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.
5. You cannot deduct job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one.
6. You cannot deduct job search expenses if you are looking for a job for the first time.

Tax Tips for Recently Married Taxpayers

If you have recently gotten married or plan to get married in the near future, the IRS has some tips to help you avoid stress at tax time.

1. Notify the Social Security Administration Report any name change to the Social Security Administration, so your name and SSN will match when you file your next tax return. Informing the SSA of a name change is quite simple. File a Form SS-5, Application for a Social Security card at your local SSA office. The form is available on SSA's Web site at www.socialsecurity.gov, by calling 800-772-1213 or at local offices.

2. Notify the IRS If you have a new address you should notify the IRS by sending Form 8822, Change of Address. You may download Form 8822 from the IRS website IRS.gov or order it by calling 800-TAX-FORM (800-829-3676).

3. Notify the U.S. Postal Service You should also notify the U.S. Postal Service when you move so it can forward any IRS correspondence.

4. Notify Your Employer Report any name and address changes to your employer(s) to ensure receipt of your Form W-2, Wage and Tax Statement after the end of the year.

5. Check Your Withholding If both you and your spouse work, your combined income may place you in a higher tax bracket. You can use the IRS Withholding Calculator available on IRS.gov to assist you in determining the correct amount of withholding needed for your new filing status. The IRS Withholding Calculator will even provide you with a new Form W-4, Employee's Withholding Allowance Certificate you can print out and give it to your employer so they can withhold the correct amount from your pay.

Deduction for Sales Tax on New Motor Vehicles

There is a new deduction for state or local sales tax imposed on new motor vehicles purchased after February 17, 2009, and before 2010. You can either claim a standard deduction or an itemized deduction. The standard deduction is in addition to the basic standard deduction, so you can claim a deduction even if you don't itemize. Otherwise, you can claim an itemized deduction for sales tax on new vehicles in addition to the state income tax deduction.

You may deduct the sales tax attributable to the first $49,500 of the purchase price of a qualified vehicle. Qualified vehicles include cars, light trucks, motor homes, and motorcycles. The deduction is gradually reduced when your modified adjusted gross income is between $125,000 and $135,000 ($250,000 and $260,000 if married filing jointly).

Starting Your Own Business

With the economy the way it is today, jobs are hard to find. Starting your own business might be the only way to earn a living. You have to have a good idea, map out all the details needed to put it into operation, and be firmly convinced of your ability to make it work. Having it all worked out in your head is one thing, but it's only when you take the time to create a written document that embodies your thoughts that you realize the scope and magnitude of what's involved in running a business. In your head, you've concentrated on the idea. In your business plan, you can examine the nuts and bolts of running a business to make the most of your idea.

A well developed plan can serve as one of your most important management tools. A good plan will provide a blueprint and step-by-step instructions on how to translate your idea into a marketable service or product. Once the business plan is in writing, you need to follow it so you can stay on track and avoid costly mistakes. It might also help when it comes time to find investors.

You'll also need to develop a marketing plan. You won't sell your product or service unless the public knows you exist. The Internet has become a great place to advertise your business, and the costs you incur are deductible as advertising expenses once the business is open.

There are several different forms of business entities: corporations, partnerships, sole proprietorships, and limited liability companies (LLCs). What type of entity should you choose? Getting good advice from your tax professional prior to starting any business activity will save you time and money later.

Changes in Estimated Taxes for Small Businesses

If your income is primarily generated from operating a small business in 2009, you may be eligible for reduced required estimated tax payments. A new law allows you to base the computation of the 2009 estimated payments on 90 percent of your 2008 income tax liability instead of 100 percent. In order to qualify for this reduced amount, your adjusted gross income must be less than $500,000; in addition, more than 50 percent of the gross income shown on your return for the prior year has to be income generated from operating a small business. A small business is defined as a trade or business with an average of 500 or fewer employees.

Solo 401(k)

If you're the sole owner of a business, you may wish to consider the implementation of a solo 401(k) retirement plan to accumulate retirement savings on a tax-deferred basis.

Self-employed taxpayers can contribute to a solely owned 401(k) retirement plan as both employer and employee. As an employer, you can contribute up to 25 percent of your total net earnings to your retirement plan; as an employee, you may also contribute an additional $16,500 in 2009. If you are age 50 or older, you can contribute an additional $5,500 for a total of $22,000.

Your maximum contribution to a solo 401(k) plan is the lesser of $49,000 or the sum of your employer and employee maximum contributions. The solo 401(k) plan provides you with an additional opportunity to maximize your yearly retirement contribution. As an added bonus, this type of plan, unlike other retirement plan options, allows participants to take out loans from the plan

Energy Credit for Home Improvements

The nonbusiness energy property credit for energy-efficient improvements to your principal residence was not available in 2008. However, it's back again for two more years in 2009 and 2010.

If you aren't sure which property qualifies for the credit, go to www.energystar.gov and look up "Tax Credits for Energy Efficiency." You shouldn't assume that all ENERGY STAR products qualify for the credit. Make sure you receive proper certification from the manufacturer that the property qualifies for the credit.

In 2009, the credit equals 30 percent of the amount paid for:· Qualified energy efficiency improvements (i.e., insulation, windows, doors, etc.); and · Residential energy property expenditures (i.e., central air conditioners, natural gas furnaces, tankless water heaters, biomass fuel stoves, etc.).

There is a cap of $1,500 on the total nonbusiness energy property credits allowed. This cap only applies to property placed in service in 2009 and 2010. Thus, you can claim up to $1,500 even if you already claimed a $500 nonbusiness energy property credit in 2006 or 2007.

You can claim this credit regardless of your modified adjusted gross income. Unlike the first-time homebuyer credit, it is nonrefundable. To the extent it exceeds your tax liability, you lose it. Therefore, it may be wise to hold off making any improvements until 2010 if you don't expect to owe a lot of taxes this year. Another alternative is to make some improvements each year.

COBRA Premium Subsidy

A new law allows individuals who are involuntarily separated from employment between September 1, 2008, and January 1, 2010, to elect to pay 35 percent of their premium for COBRA coverage and have it treated as being paid in full.

The former employer will be required to pay the other 65 percent and will be reimbursed through the filing of Form 941.The amount will be credited against income tax withholding and payroll taxes the employer is otherwise required to remit to the federal government. The maximum period for which the subsidy can be provided is nine months.

Making Work Pay Credit

For 2009 and 2010, you can claim a refundable Making Work Pay Credit if you are employed. The amount of the credit equals the lesser of 6.2 percent of your earned income or $400 ($800 if married filing jointly). However, the credit is phased-out when your modified adjusted gross income is between $75,000 and $95,000 ($150,000 and $190,000 if married filing jointly).

If you receive a paycheck, the credit is handled through your withholding, so you may have an increase in your take-home pay. If you do not have taxes withheld, you can claim a credit when you file your tax return.

The lower withholding amount may cause unexpected results if you have more than one job or you are married and both work. Because each employer is withholding less, the total reduced withholding may exceed the allowable credit and you may end up owing more taxes. To prevent this from happening, consider increasing your withholdings by filing Form W-4, Employee's Withholding Allowance Certificate, with your employer.

Bonus Depreciation Extended

The 50 percent first-year bonus depreciation is now available through December 31, 2009. The additional bonus depreciation is taken on top of the regular depreciation allowed for property placed in service for tax year 2009. With this larger deduction in the first year, the depreciation expense in later years will be smaller. If you'll have more income in later years, and would like a larger depreciation deduction in those years, you can opt out of taking the 50 percent first-year bonus depreciation.

To qualify for the 50 percent first-year bonus depreciation, the property you purchase must have a useful life of 20 years or less, be depreciable computer software, be water utility property, or be qualified leasehold improvement property. Qualified leasehold improvement property is nonresidential real property that has improvements made to the interior of the building pursuant to a lease, and made more than three years after the property was placed in service.

Hire Your Children for the Summer

Save your business some payroll taxes

There are benefits to hiring your children to work for you. If your children are under the age of 18, you are not required to withhold social security and Medicare taxes from their wages. You are also not required to pay federal unemployment taxes on their wages until they reach the age of 21.

Only self-employed business owners can take advantage of this benefit. Partnerships are included in this category as long as the parents are the only partners. If your business is incorporated, the children are considered employees of the corporation, and are subject to the normal payroll taxes regardless of their age.

Sell your Appreciated Capital Assets

Pay no tax on capital gains!

If you are in a lower income tax bracket in 2009 or 2010, now may be the time to sell appreciated capital assets. Long-term capital gains that fall within the 10- or 15-percent income tax brackets are taxed at 0 percent. In 2009, income must be under $33,951 (single), $67,901 (married filing jointly), or $45,501 (head of household) to fall within the 10- or 15-percent tax brackets.

First-time Homebuyer Credit

Thinking of buying your first home in 2009?

The First-Time Homebuyer Credit is still available for homes purchased through November 30, 2009. If you purchase a home in 2009, the credit equals the lesser of 10 percent of the purchase price of the home or $8,000 ($4,000 if married filing separately). However, if your income is too high, you may lose some or all of the credit because it is phased-out when your modified adjusted gross income is between $75,000 and $95,000 ($150,000 and $170,000 if married filing jointly).

This credit is refundable. This means the credit is treated like a tax payment. Therefore, even if you have no tax liability, you will get a refund equal to the amount of the credit (up to $8,000).

If you purchased a home in 2009, you can wait to claim this credit on your 2009 tax return and get a refund in 2010. Or, you can choose to claim this credit on your 2008 tax return and get a refund sooner. If you already filed your 2008 return, you can file an amended return.

There is one catch. If you purchased the home in 2009, you must use the home as your principal residence for at least 36 months from the date of purchase. If you don't, you must repay the full amount of the credit on the return for the year you stop using the home as your principal residence.

Starting a Business

Most businesses start out small. The checklist below provides the basic steps you should follow to start a business. The list should not be construed as all-inclusive. Other steps may be appropriate for your specific type of business. Refer also to the Small Business Administration's Checklist for Starting a Business.

• Apply for an Employer Identification Number (EIN) if applicable. Apply for an EIN online and receive your EIN immediately from the IRS.
  
• Select a business structure. The most common forms of business are the sole proprietorship, partnership, corporation, and S corporation. A Limited Liability Company (LLC) is a relatively new business structure allowed by state statute. Legal and tax considerations enter into selecting a business structure.
  
• Choose a tax year. A "tax year" is an annual accounting period for keeping records and reporting income and expenses. An annual accounting period does not include a short tax year. The tax years you can use are calendar year and fiscal year.
  
• Choose your accounting method. The most commonly used accounting methods are the cash method and an accrual method.
  
• If you have employees have them fill out Form I-9 and Form W-4. If your employees qualify for and want to receive advanced earned income credit payments, they must give you a completed Form W-5.
  
• Pay your business taxes. The form of business you operate determines what taxes you must pay and how you pay them. Four general types of business taxes are: income tax, self-employment tax, employment taxes, and excise tax.

Proper Employment Tax Treatment of Part-Time or Seasonal Workers

Courtesy of the Internal Revenue Service

For many businesses, summer traditionally brings an influx of part time or seasonal workers into the work force. Employers must ensure they are treating these workers properly for employment tax purposes.

Generally, workers are either employees or independent contractors, based upon the facts and circumstances of the relationship between the business and the worker.

For federal income tax withholding, Social Security, Medicare, and federal unemployment tax purposes, neither the number of hours worked nor amount earned alone determines the status of an individual as independent contractor or employee. For example, an individual can be an employee even though the individual works one hour a week or one day a year.

Furthermore, businesses must remember that part-time or seasonal workers who are employees are subject to the same tax withholding rules that apply to other employees.

Employers who only hire seasonal workers and do not have payroll in each quarter of the year may check the box on line 19 of the Form 941 - "If you are a seasonal employer and you do not have to file a return for every quarter of the year."
More information about treating these workers properly is on the Part Time or Seasonal Help Web page on IRS.gov. The page contains helpful tips for filing Form 941, Employer's Quarterly Federal Tax Return, other information about seasonal/part-time workers and links to other resources to help businesses with employees.

What to do if you haven't filed your income tax returns for the past few years

Why should I file my past due returns now?

There are three good reasons why you should file any unfiled returns as soon as possible:

1. If you owe money, expect to owe even more as the time passes.

According to the IRS, the penalty for failing to file a tax return is 5 percent a month on the balance, up to 25 percent.

And if you file a return but don't make a payment on time, the penalty is 0.5 percent a month on the balance, up to 25 percent.

In addition to the penalties, there is also a possibility that the IRS can prosecute you criminally. If the prosecutors can show that you intentionally didn't file your taxes, you could be charged with a misdemeanor violation punishable with up to a year in prison and a fine of $25,000.


2. There is no statue of limitations on an unfiled return

Even if you don't owe any taxes for the unfiled years, it is a good idea to file anyway. The statue of limitations does not expire on unfiled returns, therefore filing the return would ensure that the IRS closes that year's file for you.


3. You only have three years to claim your refund

While the IRS has the right to come after their money any time on unfiled returns, you only have three years to claim your refund. And why would you want to give the IRS your money anyway?


Can I E-File my past due returns?

Past year's returns cannot be e-filed and the software for preparing the returns yourself may be hard to come by. You'll either have to print the forms from the IRS website and fill them out yourself if you are comfortable doing so, or you'll need to hire a tax preparer to complete them for you. If you are having trouble locating information about your income for the years you are trying to file, you can contact IRS at 1-866-681-4271.

What if I can't afford to pay my past due tax bill?

If you end up owing more than you can afford to pay at the time, you can request an instalment agreement from the IRS. If owe $25,000 or less, you should be able to get an instalment agreement for 60 months. If you owe more than $25,000, you may have to negotiate with the IRS to get an instalment plan. The instalment agreement may sound appealing, however, the interest and penalties continue to accrue while you still owe.

If you have no cash left after paying for living expenses each month, you may want to submit an offer in compromise to the IRS. The IRS may decide to accept a lower amount than what you owe to settle your tax debt. However, this process is not as easy as it sounds and the approval is not guaranteed. You will be asked to submit all kinds of financial information in order for the IRS to make their decision. The downside to submitting an OIC is that if your offer is rejected, the information you gave the IRS about your assets gives the IRS all the information it needs to accelerate its collection efforts against you. Therefore, it you should only submit an OIC if it is likely to be accepted.

Internal Revenue Service (IRS) Email Scam

One of my clients came in the other day with a printed copy of an email he had received from the IRS telling him that he is entitled to a tax refund of $869. The email appears to had come from service@irs.gov. It states the following:

Subject: Get Tax Refund ($869)
From: Internal Revenue Service (service@irs.gov)

The official IRS logo appeared at the top of the email.

After the last annual calculations of your fiscal activity we have determined that you are eligible to receive a tax refund of $869. Please submit the tax refund request and allow us 3-9 days in order to process it.
A refund can be delayed for a variety of reasons.
For example submitting invalid records or applying after the deadline.

To access your tax refund, please click here.

Best Regards,
Tax Refund Department
Internal Revenue Service

Copyright 2009, Internal Revenue Service U.S.A. All rights reserved.

It took me a while to convince him not to click on the link and provide his information. He found it hard to believe that someone could use an email address @irs.gov and not actually be legitimate. I even called the IRS while he was in my office to confirm that they do not send out emails like these to taxpayers.

This email is a scam, and its sole purpose is to get you to click on the link and provide your personal information to thieves who will then either sell it to other thieves or try to steal your identity.

How the New 2009 Stimulus Package will impact you – the individual taxpayer:

Making Work Pay Credit:

Making Work Pay Credit allows a credit against income tax in an amount equal to the lesser of 6.2 percent of the individual’s earned income or $400 ($800 for married couples filing jointly). The credit applies retroactively to the start of 2009 and will be repeated again in 2010.

The credit applies in full for individuals whose modified adjusted gross income (MAGI) does not exceed $75,000 or $150,000 in the case of married couples filing jointly. The credit is phased out a two percent rate above that limit.

Qualified taxpayers would take this credit through a reduction in wage withholding or in a lump sum when filing their returns for the tax years. Earnings from self-employment also qualify to the extent that they are taken into account in computing table income.

Only individuals with the earned income would qualify for Making Work Pay credit, which would effectively offset an individual’s share of FICA of payroll taxes for the first $6,452 in earnings ($12,904 for couples).

$250 Economic Recovery Payment:

The new law provides a one- time payment of $250 –for 2009 only –two individuals and fixed incomes (primarily Social Security recipients, railroad retirees, and disabled veterans). Retired government workers, who generally are ineligible for Social Security, also will receive one time payment of $250. These payments will reduce any Making Work Pay credit to which the individual would otherwise be entitled.

AMT Patch

The new law includes an alternative minimum tax (AMT) PATCH FOR 2009. The AMT patch for 2009 raises exemption amounts slightly above the 2008 patch levels. The 2009 AMT exemption amounts are : $70,950 for joint filers and surviving spouses (up from $69,950 in 2008); and $45,700 for singles and head of households (up from $46,200).

First-Time Homebuyer Tax Credit

The new law raises the current maximum $7,500 first-time homebuyer tax credit to $8,000, and extends it at that level through November 30, 2009. It also eliminates any required repayment to the IRS after 36 months in the home. These enhancements apply to purchases of a principal residence by a first-time homebuyer after December 31, 2008. Purchases on or after April 9, 2008, and before January 1, 2009, continue to be governed by the original first-time homebuyer credit enacted last years. The credit phase-outs that start for taxpayers with AGI in excess of $75,000 ($150,000 for joint files) continue to apply to both years.

New Car Deduction

The new law allows the purchasers of new vehicles for the rest of 2009 an above-the-line deduction for state and local sales taxes or excise taxes paid on the purchase. There are two limits on this new deduction:1) Deductible sales or excise taxes cannot exceed the portion of the tax attributable to the first $49,500 of the purchase price of any one vehicle; and 2) Any deduction will be phased out to the extent the purchaser has adjusted gross income exceeding $125K ($250K for joint returns).

Education Credit

The new law temporarily enhances the existing HOPE education credit – for 2009 and 2010 only – in amount (from a maximum $1,800 to $2,500 per year), in scope (extending it to all four years of college and adding course materials to qualifying expenses), and in phase-out level (to $80K/$160K joint filers). The new law renames the credit the “American Opportunity Tax Credit” and makes 40 percent of the credit refundable. Under the new credit, the maximum $2,500 per year would be allowed on $4,000 in qualifying payments (100 percent of the first $2,000 and 25 percent of the next $2,000).

Child Tax Credit

The new law increases the refundable portion of the child tax credit for 2009 and 2010. The agreement does so by setting the income threshold at $3,000.

Earned Income Tax Credit

The new law provides a temporary increase in Earned Income Tax Credit (EITC) for 2009 and 2010. Prior to this change, the credit percentage for the EITC for a taxpayer with two or more qualifying children was 40 percent of the first $12,570 of earned income. The new law increases the percentage to 45 percent of the first $12,570 of earned income for taxpayers with three or more qualifying children. The EITC phase-out range has also been adjusted upward by $1,880 for joint filers to eliminate any marriage penalty. Eligible individuals may elect to receive advance payment of the EITC from their employers. This is handled through the withholding system.

Unemployment Compensation

Currently, unemployment benefits are included in a recipient’s gross income for federal income tax purposes. The new law temporarily excludes up to $2,400 of unemployment compensation from a recipient’s gross income for 2009.

Transit Benefits Parity

Qualified transportation fringe benefits, such as transit passes, van pooling and qualified parking, are not included in an employee’s income up to specified dollar amounts. The new law increases the current $120 per month income exclusion amount for transit passes and van pooling to $230 per month for 2009 (starting in March 2009), and continues it through 2010 with an inflation adjustment.

Qualified Tuition Programs

Qualified tuition program (aka “529 plan”) distributions used to pay a beneficiary’s qualified education expenses are tax-free. Other distributions are included in the beneficiary’s income and are subject to a penalty. For 2009 and 2010 the new law allows beneficiaries of qualified tuition programs to use tax-free distributions to pay for computers and computer technology, including internet access.