What is the current status of numerous tax bills in the House of Representatives and the Senate?

Total chaos. With the recent election of a Republican senator from the State of Massachusetts, most bills containing tax legislation have come to a standstill.

With the House of Representatives being forced to accept the proposed Senate health care bill, the Speaker of the House indicated to the President that it is unlikely that there are enough votes in the House to pass compromise legislation.

Recently, a prominent Democrat member of the House stated that it would be helpful if Congress received direction from the President in terms or priority and content of legislation.

What will happen? It is likely that we will see significant tax legislation later this year that will be retroactive to January 1, 2010.

2009 Tax Filing

Your employer, bank, stockbroker, mortgage holder and others should have now sent to you information regarding income or deductions relating to calendar 2009.

Start to look in your mailbox or e-mail "in box" for:

Form W-2

This Form will tell you the amount of taxable compensation you received in 2009, the amount of Federal, State and City income tax withheld from your compensation, the amount of contributions to retirement plans, medical accounts and child care payments.

Form 1099-INT

If you received$10 or more in interest on a bank account or other financial instrument, the taxable amount will be shown on this Form. You should receive a separate Form for each account you own. If you reinvested the interest income by "rolling over" a CD, you still need to pay income tax on this interest income.

Form-DIV

Dividends and capital gains that have been distributed from a stock broker or mutual fund appear on this Form. This Form will also identify the amount of dividends that you received that are "qualified dividends" and taxed at a 15 percent tax rate. Rather than trying to decipher this form you should include a copy of it to your tax preparer, if you use one.

Form 1099-B

Stocks, bonds and mutual funds that were sold in 2009 will appear on this form. Usually the amount of shares sold, the date the shares were sold and the net proceeds after commission will appear on this form. To properly report each transaction you will need to know the date the shares were purchased and the amount that you paid for the stock. This piece of information is the most likely to be missing when a client send us their tax information. If you have lost this information and your broker does not have it, try going to the company web site to find prior year stock prices.

Form 1099-G

If you received a 2008 State or City tax refund in 2009 the amount will be noted on this Form. Depending on whether or not you took this amount as an itemized deduction on your 2008 tax return, the refund may be taxable, partly taxable or not taxable at all. Use the worksheet in your tax booklet to ascertain the taxable amount.

Form 1099-G is also used to report unemployment benefits paid to you, which are taxable income. For 2009 the first $2,400 in unemployment benefits you receive are not taxable.

Form 1099-R

Distributions from a pension plan or IRA are reported on this form. This form is also used to report a rollover from a pension plan to an IRA or for the conversion of an IRA to a Roth IRA. Be careful of this form as it is easily misinterpreted. Compare the symbols and numbers used on the front of the form to the explanation on the back of the form as to what the letters and numbers mean.

Schedule K-1

This form will report income, deductions, withholding etc. from a partnership, Sub S corporation, trust or estate. It is likely the most confusing form that a taxpayer will receive. It is not unusual to receive this form months after the original April 15 filing date. If you have not received this form by March 15 you should request a projection of what will be on the form as any taxes associated with the income on the form needs to be paid by April 15 to avoid underpayment penalties and interest.

Form 1098

This form will verify the amount of mortgage interest you paid in 2009. If you have a mortgage in excess of $1 million, be aware that interest paid on principal in excess of the $1 million is not deductible. For example, if you have a mortgage of $1.5 million and you paid interest of $75,000, than only ? or $50,000 of the mortgage is deductible. During 2009 we noted that the IRS was sending letters to individuals who had a mortgage interest deduction in excess of $60,000 requiring that loan documents be sent to the IRS to verify the deductibility of the interest.

If the Bank is also paying your real estate taxes the amount of real estate tax paid on your behalf in 2009 is deductible. Be careful to deduct the amount actually paid by the escrow agent, versus the amount put into escrow to be paid at a later date. And if you purchased or re-financed a residence in 2009 be sure that the real estate tax paid on closing is included in the Form 1098.

Form 1098-E

If you paid student loan interest in 2009, the amount that may be deductible is recorded on this form. Pursuant to the requirements relating to practice before the Internal Revenue Service, any tax advice in this communication is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties imposed under the United States Internal Revenue Code, or (ii) promoting, marketing or recommending to another person any tax related manner.

The tax advice given by this column is, by necessity, general in nature. You should, of course, check with your own US tax consultant as to how specific transactions affect you since tax advice varies with individual circumstances.

James Paul Sabo, CPA, is the President of ETS Ltd., PO Box HM 1574, Hamilton HM GX, Bermuda. Questions should be sent to: jsabo@expatriatetaxservices.com