Franklin J Luppe CPA, PC

Didn't get a W-2?

2011-02-10T07:14:00.000-08:00

This is a question I get quite a bit. Whether it be from an employer that went out of business, it is a common question..."what do I do if I didn't get a W-2...?" The IRS this week issued the following tax tip to address this problem.

IRS Tax Tip 2011-28 - February 09, 2011

Before you file your 2010 tax return, you should make sure you have all the needed documents including all your Forms W-2. You should receive a Form W-2, Wage and Tax Statement, from each of your employers. Employers have until January 31, 2011 to send you a 2010 Form W-2 earnings statement.

If you haven't received your W-2, follow these four steps:
1. Contact your employer. If you have not received your W-2, contact your employer to inquire if and when the W-2 was mailed. If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address. After contacting the em- ployer, allow a reasonable amount of time for them to resend or to issue the W-2.

2. Contact the IRS. If you do not receive your W-2 by February 14th, contact the IRS for assistance at 800-829-1040. When you call, you must provide your name, address, city and state, including zip code, Social Security number, phone number and have the following information:
- Employer's name, address, city and state, including zip code and phone number,
- Dates of employment,
- An estimate of the wages you earned, the federal income tax withheld, and when you worked for that employer during 2010. The estimate should be based on year- to-date information from your final pay stub or leave-and-earnings statement, if possible.

3. File your return. You still must file your tax return or request an extension to file by April 18, 2011, even if you do not receive your Form W-2. If you have not received your Form W-2 by the due date, and have completed steps 1 and 2, you may use Form 4852, Substitute for Form W0-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible. Ther may be a delay in any refund due while the information is verified.

4. File a Form 1040X On occasion, you may receive your missing W-2 after you filed your return using Form 4852, and the information may be different from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.

IRS delayed processing to being February 14

2011-01-21T06:53:00.000-08:00

From Accounting Today,

Valentine’s Day will turn into Tax Day as the Internal Revenue Service plans to begin processing tax returns delayed by last month’s tax law changes on Feb. 14.

On Thursday, the IRS reminded taxpayers affected by the delay that they can begin preparing their tax returns immediately, however, because many software providers are ready now to accept these returns.

Beginning Feb. 14, the IRS said it would start processing both paper and e-filed returns claiming itemized deductions on Schedule A, the higher education tuition and fees deduction on Form 8917 and the educator expenses deduction. Based on filings last year, about 9 million tax returns claimed any of these deductions on returns received by the IRS before Feb. 14.

The IRS said a few weeks ago that it would delay tax returns with itemized deductions as well as a number of forms after Congress’s December extension of the Bush-era tax rates (see IRS Says Tax Season Will Be Delayed for Some and IRS Delays More Forms for Filing This Season).

People using e-file for these delayed forms can get a head start because many major software providers have announced they will accept these impacted returns immediately. The software providers will hold onto the returns and then electronically submit them after the IRS systems open on Feb. 14 for the delayed forms. Taxpayers using commercial software can check with their providers for specific instructions. Those who use a paid tax preparer should check with their preparer, who also may be holding returns until the updates are complete.

Most other returns, including those claiming the Earned Income Tax Credit, education tax credits, child tax credit and other popular tax breaks, can be filed as normal, immediately.

The IRS said it needed the extra time to update its systems to accommodate the tax law changes without disrupting other operations tied to the filing season. The delay followed the Dec. 17 enactment of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, which extended a number of expiring provisions, including the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction.

IRS begins accepting e-filed returns

2011-01-18T08:47:00.000-08:00

From Accounting Today

The Internal Revenue Service opened its 21st season of electronic filing Friday with a reminder to taxpayers that e-file remains the best way to get fast refunds and ensure accurate tax returns, particularly following several tax law changes in December.

IRS e-file is approaching the milestone of 1 billion returns processed. The electronic transmission system, which has revolutionized the way the IRS processes tax returns and made speedy refunds possible, has safely and securely processed 892 million tax returns since its national debut in 1990. In 2010, nearly 100 million people - 70 percent of the taxpayers - used IRS e-file.

“IRS e-file is the best option for everyone, especially for people impacted by recent tax law changes,” said IRS Commissioner Doug Shulman in a statement. “E-file ensures people can file accurately and get refunds quickly. With a new legislative e-file mandate for tax preparers, we anticipate that more tax return preparers will be using e-file this year, and we urge people who prepare their own taxes to give it a try. IRS e-file is now the norm, not the exception.”

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act extended a number of tax deductions and credits for 2011 and 2012 such as the American Opportunity Tax Credit and the modified Child Tax Credit, which help families pay for college and other child-related expenses. The Act also provides various job creation and investment incentives including 100 percent expensing and a two-percent payroll tax reduction for 2011. Those changes have no effect on the 2011 filing season.The IRS also announced today it anticipates starting to process tax returns impacted by December’s tax law changes by mid-February. The IRS continues working to reprogram its computers to reflect new tax law changes enacted by Congress and signed by the President in December.

Generally, taxpayers who itemize their deductions by using Schedule A, who claim the higher education tuition and fees deduction or who claim the educator expense deduction must wait a few more weeks to file their returns. Based on historical filing patterns, the IRS anticipates the delay impacts about 9 million taxpayers; in 2010, the IRS received more than 141 million tax returns. While the delay impacts both paper and electronic tax returns, most taxpayers can file immediately. More details are available on IRS.gov.

Although the IRS has not announced a specific mid-February start date for accepting the delayed tax returns, many people using e-file can get a head start. Many major software providers have announced they will accept these impacted returns immediately. The software providers will hold onto the returns and then electronically submit them after the IRS systems open in mid-February for the delayed forms.

Taxpayers using commercial software can check with their providers for specific instructions. Taxpayers should check with their tax return preparers, who also may be holding prepared returns until the updates are complete.

Even with the delay, IRS e-file remains the fastest option for taxpayers, and e-file returns will be processed and refunds issued much faster than paper returns. It will take less than two weeks to process an e-filed return, but as many as four to six weeks to process a paper return.

In general, for people concerned about security, e-file has proven itself year in and year out as a safe and secure method of filing a tax return. E-file has a proven track record. Software vendors and preparers use the latest encryption technology. Plus, within 48 hours, taxpayers receive an electronic acknowledgement that their return has been received by the IRS and either accepted or rejected.

With most people receiving a refund, the fastest way to get a refund is by e-filing and using direct deposit. Taxpayers can get their money automatically in as few as 10 days. For people who owe taxes, e-file offers payment alternatives such as filing now and paying prior to the April tax deadline. Taxpayers who still want to pay by check can do so by e-filing and then mailing a payment voucher.

Taxpayers can e-file their tax returns one of three ways: through a tax return preparer, through commercial software or through IRS Free File. The IRS does not charge for e-file. Many tax return preparers and software products also offer free e-filing with their services. Free File offers free tax preparation and free electronic filing.

As people become more comfortable using computers and the Internet for financial transactions, the IRS has seen a huge growth in the number of people who are preparing their own tax returns with the help of software. Last year, more than one-third of all e-filed returns were done by people preparing and e-filing their own tax returns with software.

For people seeking free electronic options to do their own taxes, IRS Free File offers something for almost everyone through two formats: brand-name software or online fillable forms. People must access Free File through the IRS Web site at www.IRS.gov and click on Free File or Free File Home - Your Link to Free Federal Online Filing. People can read more about Free File at www.freefile.irs.gov or IR-2011-5.

People looking for a tax return preparer who files electronically and for more information on e-file can review IRS e-file for Individuals. Taxpayers also can locate an e-file authorized tax professional nearest to them by doing a zip code search.

When using e-file, you also must use an e-signature. The IRS no longer accepts the paper signature document. If you prepare your own return using software you must use the self-select PIN method. If you have a third-party prepare your return, you can use either the self-select PIN method or the practitioner PIN method. See Fact Sheet 2011-07 for more details.
A recently passed law requires certain paid tax return preparers to electronically file federal income tax returns that they prepare and file for individuals, trusts and estates. Those are Forms 1040, 1040A, 1040EZ and 1041.

2011 Tax Filing Season Gets Under Way With Many Changes

2011-01-17T06:56:00.000-08:00

From Journal of Accountancy

January 14, 2011

The IRS started accepting e-filed and Free File returns on Jan. 14, marking the official start of the 2011 tax filing season. However, many taxpayers will not be able to file until some time in February while the IRS updates forms and reprograms its systems to account for legislative changes made late in 2010.

Individual taxpayers will have until April 18 to file their returns. Although the normal deadline, April 15, falls on a Friday, that day is a legal holiday in the District of Columbia, and because D.C. holidays affect tax deadlines in the same way federal holidays do, all taxpayers are being given an extra three days to file their returns.

The IRS has announced that taxpayers who itemize deductions on Schedule A, as well as those who take certain recently extended deductions, will not be able to file their returns until mid- to late February. See “Tax Law Changes Will Delay Start of Filing Season for Some Taxpayers.”

For the 2011 filing season, the IRS is again making available its online “Where’s My Refund?” tool, which can be found on the front page of its website.

PTINs

For paid tax return preparers, perhaps the biggest procedural change this tax season is that they must obtain and use a preparer tax identification number (PTIN) when preparing returns. The IRS has launched an online PTIN registration site where preparers can obtain or renew their PTIN. PTIN registration costs $64.25. Preparers can also apply using a paper Form W-12, IRS Paid Preparer Tax Identification Number (PTIN) Application.

Generally, on any tax return or claim for refund, the preparer—whether signing or nonsigning—must provide his or her PTIN. However, the IRS recently provided a list of 28 forms or series of forms that are not subject to the PTIN requirement—for a list, see “IRS Exempts CPA-Supervised Nonsigners From New Preparer Rules.”

Many CPAs have reported problems with the PTIN registration process, both online and using the paper form. See “PTINs a Pain for Some CPAs.”

E-Filing

While the vast majority of tax practitioners already e-file, this tax season marks the first year that e-filing is mandatory for individual returns. Specifically, tax return preparers who anticipate filing 100 or more federal individual or trust returns during 2011 are required to e-file them.

2010 Tax Changes

A number of pieces of legislation enacted during 2010 will affect returns filed this season, as will changes enacted in earlier years. The four biggest tax bills enacted in 2010 were the health care reform legislation (the Patient Protection and Affordable Care Act, PL 111-148, and the Health Care and Education Reconciliation Act, PL 111-152), the Small Business Jobs Act of 2010 (PL 111-240), and the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Relief Act, PL 111-312).

Changes Affecting Individual Returns

Itemized deductions and personal exemptions: The itemized deduction limitation is repealed for 2010 (and through 2012). This means that taxpayers can deduct the full amount of their itemized deductions in 2010. The personal exemption phaseout rules also do not apply in 2010 (and through 2012).

Alternative minimum tax (AMT): The 2010 Tax Relief Act included a patch of the AMT exemption amounts for 2010 and 2011. For 2010, the AMT exemption amounts are $47,450 for unmarried individuals and $72,450 for married individuals filing jointly. The 2010 Tax Relief Act also extended (through 2011) the ability to use nonrefundable personal credits to offset AMT (under IRC § 26(a)).

First-time homebuyer credit: The IRC § 36 first-time homebuyer credit expired during 2010. It is available to eligible taxpayers who closed on their home purchase on or before Sept. 30, 2010 (under a binding contract in place before May 1, 2010). The closing date deadline was moved during the year from June 30 to Sept. 30 by the Homebuyer Assistance and Improvement Act.

Rollovers to Roth accounts: The Small Business Jobs Act allows rollovers from elective deferral plans to Roth-designated accounts. If a section 401(k) plan, 403(b) plan or governmental 457(b) plan has a qualified designated Roth contribution program, a distribution to an employee (or a surviving spouse) from an account under the plan that is not a designated Roth account is permitted to be rolled over into a designated Roth account under the plan for the individual. This provision is effective for distributions made after Sept. 27, 2010. The taxable amount of the rollover must be included in gross income (although for rollovers in 2010, the taxable amount is includible in gross income half in 2011 and half in 2012).

Extended Provisions for Individuals

A number of credits and deductions that had expired for 2010 were retroactively extended by the 2010 Tax Relief Act and are therefore available for taxpayers to claim on their 2010 returns. Those available to individuals include the $250 deduction for elementary and secondary schoolteachers for purchasing classroom supplies; the state and local sales tax deduction in lieu of a state income tax deduction; the deduction for tuition and related expenses; and allowance for tax-free distributions from individual retirement plans for charitable purposes.

For a list of extended provisions, see “Congress Resolves Many Tax Issues During Lame-Duck Session.”

Changes Affecting Business Returns

The Small Business Jobs Act introduced a number of changes that may affect 2010 business returns.

Small business stock: The act created a 100% exclusion of gain from the sale of certain small business stock under IRC § 1202. To be eligible, stock must be purchased after Sept. 27, 2010 (this provision has been extended through 2011 by the 2010 Tax Relief Act).

Section 179 expensing: The Small Business Jobs Act increased the maximum amount a taxpayer may expense under IRC § 179 to $500,000 and increased the phaseout threshold amount to $2 million for tax years beginning in 2010 and 2011.

Bonus first-year depreciation: The first-year 50% bonus depreciation available under IRC § 168(k) was extended for one year by the Small Business Jobs Act to apply to property acquired and placed in service in 2010 (or 2011 for certain long-lived and transportation property). This amount was then increased by the 2010 Tax Relief Act to 100% for business property acquired after Sept. 8, 2010, and before Jan. 1, 2012, and placed in service before Jan. 1, 2012 (or before Jan. 1, 2013, in the case of certain property).

Business credits: The carryback period for eligible small business credits under IRC § 38 was extended from one to five years. The Small Business Jobs Act also allows taxpayers to use eligible small business credits to offset both regular and alternative minimum tax liability. Both provisions are effective for credits determined in the taxpayer’s first tax year beginning after 2009.

Self-employed individuals’ health insurance: The Small Business Jobs Act allows self-employed individuals who deduct the cost of health insurance for themselves and their spouses, dependents, and children who have not attained age 27 as of the end of the tax year to take the deduction into account in calculating net earnings from self-employment for purposes of SECA taxes. This provision applies to the taxpayer’s first tax year beginning after 2009.

Startup expenses: The Small Business Jobs Act increased the IRC § 195 deduction for trade or business startup expenses from $5,000 to $10,000 for tax years beginning in 2010. The start of the limitation on the deduction is increased from $50,000 to $60,000. So for 2010 the amount of the deduction is the lesser of: (1) the amount of the startup expenses or (2) $10,000, reduced (but not below zero) by the amount by which the startup expenditures exceed $60,000.

Cell phones: The Small Business Jobs Act removed cell phones from the definition of listed property. Thus, the heightened substantiation requirements and special depreciation rules that apply to listed property under IRC § 280A will no longer apply to cell phones.

Extended Provisions for Businesses

A number of business credits and deductions that had expired for 2010 were retroactively extended by the 2010 Tax Relief Act and are therefore available for taxpayers to claim on their 2010 returns. These include the credit for research and development expenditures and various empowerment zone designations and renewal community tax incentives.

More Forms Delayed by IRS

2011-01-11T05:37:00.000-08:00

From Accounting Today

The Internal Revenue Service said a series of forms will be disabled until mid- to late February with error codes.

In e-mail alert to software developers, tax return transmitters, and authorized IRS e-file providers and electronic return originators, the IRS said Friday that the following forms would be disabled until mid- to late February with a new error reject code, 0248.

The following forms cannot be electronically filed at this time, according to the IRS:

In addition, Error Reject Code 0014 does not allow entries for educator expenses (Form 1040, line 23 and Form 1040A, line 16) or tuition and fees (Form 1040, line 34 and Form 1040A, line 19). In mid- to late February, the record layout for Form 1040 and Form 1040A will be updated to allow entries for educator expenses (SEQ 0623) and tuition and fees deduction (SEQ 0705), according to the IRS.Schedule A, Itemized Deductions
Form 3800, General Business Credit
Form 4684, Casualties and Thefts
Form 5405, First-Time Homebuyer Credit and Repayment of the Credit (Page 2)
Form 6478, Alcohol and Cellulosic Biofuel Fuels Credit
Form 8834, Qualified Plug-in Electric and Electric Vehicle Credit
Form 8859, District of Columbia First-Time Homebuyer Credit
Form 8910, Alternative Motor Vehicle Credit
Form 8917, Tuition and Fees Deduction
Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit

The IRS said last month after the late passage by Congress of an extension of the Bush-era tax cuts that some of these same forms, especially Schedule A for itemized deductions and other forms for educators and tuition expenses, would not be available until mid- to late February, but it did not list many of the other forms enumerated on Friday at the time (see IRS Says Tax Season Will Be Delayed for Some).

Separately, the IRS also announced a delay in its Modernized e-File system for accepting some types of business tax returns. The IRS said that due to the extensive amount of infrastructure work being done on the MeF system to enhance performance, and the impact of additional work in support of the recently passed extender legislation, the annual Business Master File cutover window has been extended, and BMF startup has been delayed. Instead of opening at 9:00 am, Eastern on Saturday, January 8th, the MeF system will open for BMF returns and extensions at 9:00 am, Eastern on Wednesday, January 12.

Once BMF startup begins, and until changes caused by extender legislation are implemented, the IRS said it would reject any BMF e-filed tax returns that have the following forms or schedules attached: Form 1120-PC (Tax Year 2010), Form 6478 (Tax Year 2010) and Form 8849, Schedule 3 (Tax Year 2011). The IRS said it is working as quickly as possible to implement the necessary programming changes so these forms/returns can be processed.

The IRS noted that the due date for any tax return or extension originally due on January 15th has been extended to Tuesday, January 18th due to the 15th falling on a Saturday and the Martin Luther King Day holiday on Monday

Charitable Gifts from IRA's Ideal for Making Donations

2011-01-07T05:16:00.000-08:00

As posted on AccountingWeb.Com

By Vaughn W. Henry

The clock is ticking. For tax and financial advisors of donors 70 1/2 or older, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 signed in December allows donors to tap their Individual Retirement Account to make qualified charitable distributions through January 31, 2011.

Although it’s late in 2010, and may be logistically difficult to make those charitable distributions, there is a little wrinkle in this tax bill that allows donors an extra month to elect to have those gifts treated as qualified charitable distributions (QCD) made in 2010. Consequently, your clients have until January 31 if they would like to make a tax efficient gift to a public charity this year, and all of next year to do it again.

There are a few important rules to remember about IRA gifts and QCD.

There is a minimum age restriction of 70 1/2, and a $100,000 limit per IRA donor for charitable distributions from IRAs each year. Individuals may exclude the amount distributed directly to an eligible charity from their gross income. While there’s no income tax deduction, neither is there recognition of income; the net effect is tax efficiency.

This is especially helpful for clients who have large IRA account balances, a charitable interest, who don’t usually itemize or don’t have an AGI large enough to make use of significant charitable tax deductions, or who live in a state without a concurrent state income tax deduction for charitable gifts.

The recipient charities generally need to be public charities, however, you can’t distribute the IRA to supporting organizations or donor advised funds held at public charities. However, you may use funds that target specific interests or projects at many community foundations.

No split interest trusts (CRT, CLT), charitable gift annuities, or private non-operating foundations qualify as QCD recipients. However, in normal estate planning situations, making any of these entities (except for the charitable lead trust) a beneficiary of a retirement plan account often makes good sense.

Charities must acknowledge the charitable gift as coming from the donor’s IRA and that there were noquid pro quo expectations.

If your clients haven’t gotten around to making their Required Minimum Distributions from their IRA, the Internal Revenue Service treats distributions to charity as qualifying for those annual minimum distributions from the donor’s IRA.

The gifts are restricted to either traditional or Roth IRAs. Note that 403(b), 401(k), and other retirement accounts do not qualify.

The gift must come directly from the IRA. Do not take the distribution and endorse the check or cash it and give the proceeds to the charity. However, the IRA custodian can make the charity the payee but mail it to the donor who may then deliver it to the charity.

Charitable gifts from IRAs are very tax efficient and, in most cases, are an ideal means to make significant donations to charit

IRS Extends Tax-Filing Deadline to April 18

2011-01-06T05:44:00.000-08:00

IRS Extends Tax-Filing Deadline to April 18

WASHINGTON, D.C. (JANUARY 5, 2011)

BY ACCOUNTING TODAY STAFF

The Internal Revenue Service has opened the 2011 tax season by announcing that taxpayers have until April 18 to file their tax returns as a result of a Washington, D.C., holiday.

Taxpayers will have until Monday, April 18 to file their 2010 tax returns and pay any tax due because Emancipation Day, a holiday observed in the District of Columbia, falls this year on Friday, April 15. By law, District of Columbia holidays impact tax deadlines in the same way that federal holidays do; therefore, all taxpayers will have three extra days to file this year. Taxpayers requesting an extension will have until Oct. 17 to file their 2010 tax returns.

The IRS expects to receive more than 140 million individual tax returns this year, with most of those being filed by the April 18 deadline. The IRS reminded taxpayers impacted by recent tax law changes that using e-file is the best way to ensure accurate tax returns and get faster refunds.

“The IRS has made important strides at stopping tax avoidance using offshore accounts,” said IRS Commissioner Doug Shulman in a statement. “We continue to focus on offshore tax compliance and people with offshore accounts need to pay taxes on income from those accounts.”The IRS also cautioned taxpayers with foreign accounts to properly report income from these accounts and file the appropriate forms on time to avoid stiff penalties.

In addition, the IRS reminded tax professionals preparing returns for a fee that this is the first year that they must have a Preparer Tax Identification Number. Tax return preparers should register immediately using the new PTIN sign-up system available through www.IRS.gov/taxpros.

For most taxpayers, the 2011 tax-filing season starts on schedule. However, tax law changes enacted by Congress and signed by President Obama in December mean some people need to wait until mid- to late February to file their tax returns in order to give the IRS time to reprogram its processing systems.

Some taxpayers – including those who itemize deductions on Form 1040 Schedule A – will need to wait to file. This includes taxpayers impacted by any of three tax provisions that expired at the end of 2009 and were renewed by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act Of 2010 enacted Dec. 17. Those who need to wait to file include:

• Taxpayers Claiming Itemized Deductions on Schedule A. Itemized deductions include mortgage interest, charitable deductions, medical and dental expenses as well as state and local taxes. In addition, itemized deductions include the state and local general sales tax deduction that was also extended and which primarily benefits people living in areas without state and local income taxes. Because of late congressional action to enact tax law changes, anyone who itemizes and files a Schedule A will need to wait to file until mid- to late February.

• Taxpayers Claiming the Higher Education Tuition and Fees Deduction. This deduction for parents and students – covering up to $4,000 of tuition and fees paid to a post-secondary institution – is claimed on Form 8917. However, the IRS emphasized that there will be no delays for millions of parents and students who claim other education credits, including the American Opportunity Tax Credit extended last month and the Lifetime Learning Credit.

• Taxpayers Claiming the Educator Expense Deduction. This deduction is for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250. The educator expense deduction is claimed on Form 1040, Line 23 and Form 1040A, Line 16.

In addition to extending those tax deductions for 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act also extended those deductions for 2011 and a number of other tax deductions and credits for 2011 and 2012 such as the American Opportunity Tax Credit and the modified Child Tax Credit, which help families pay for college and other child-related expenses. The Act also provides various job creation and investment incentives including 100 percent expensing and a two-percent payroll tax reduction for 2011. Those changes have no effect on the 2011 filing season.

The IRS will announce a specific date in the near future when it can start processing tax returns impacted by the recent tax law changes. In the interim, taxpayers affected by these tax law changes can start working on their tax returns, but they should not submit their returns until IRS systems are ready to process the new tax law changes. Additional information will be available at www.IRS.gov.

For taxpayers who must wait before filing, the delay affects both paper filers and electronic filers. The IRS urges taxpayers to use e-file instead of paper tax forms to minimize confusion over the recent tax law changes and ensure accurate tax returns.

Except for those facing a delay, the IRS will begin accepting e-file and Free File returns on Jan. 14. Additional details about e-file and Free File will be announced later this month.

The IRS is also continuing to focus on taxpayer service. Taxpayers with questions should check the IRS website atwww.IRS.gov, call our toll-free number or visit a taxpayer assistance center.

This is also the first filing season that tax packages will not be mailed to individuals or businesses. There are still many options for taxpayers to get paper forms and instructions if they need them. In recent years, fewer and fewer taxpayers received these mailings. Last year, only 8 percent of individuals who filed tax returns received tax packages in the mail. Taxpayers can still get any forms and instructions they need online at www.IRS.gov, or they can visit local IRS offices or participating libraries and post offices.

In addition, individuals making $49,000 or less can use the Volunteer Income Tax Assistance program for free tax preparation and, in many cases, free electronic filing. Individuals age 60 and older can take advantage of free tax counseling and basic income tax preparation through Tax Counseling for the Elderly.

IRS Free File provides options for free brand-name tax software or online fillable forms plus free electronic filing. Everyone can use Free File to prepare a federal tax return. Taxpayers who make $58,000 or less can choose from approximately 20 commercial software providers. There’s no income limit for Free File Fillable Forms, the electronic version of IRS paper forms, which also includes free e-filing.

Once taxpayers file their federal return, they can track the status of their refunds by using the “Where's My Refund?” tool, located on the front page of www.IRS.gov. Taxpayers can generally get information about their refunds 72 hours after the IRS acknowledges receipt of their e-filed returns, or three to four weeks after mailing a paper return.

Taxpayers need to provide the following information from their tax returns: (1) Social Security Number or Individual Taxpayer Identification Number, (2) filing status, and (3) the exact whole dollar amount of your anticipated refund. If the U.S. Postal Service returns the taxpayer’s refund to the IRS, the individual may be able to use “Where’s My Refund?” to change the address the IRS has on file, online.

Also, taxpayers may complete a Form 8822, Change of Address, and send it to the address shown on the form. They may download Form 8822 from www.IRS.gov or order it by calling 800-TAX-FORM. Generally, taxpayers can file an online claim for a replacement check if more than 28 days have passed since the IRS mailed their refund.

If you have any questions, please contact our office at (615) 746-4632. Frank

Online scams that Impersonate the IRS

2011-01-05T00:01:00.000-08:00

from www.irs.gov

Consumers should protect themselves against online identity theft and other scams that increase during and linger after the filing season. Such scams may appropriate the name, logo or other appurtenances of the IRS or U.S. Department of the Treasury to mislead taxpayers into believing that the scam is legitimate.

Scams involving the impersonation of the IRS usually take the form of e-mails, tweets or other online messages to consumers. Scammers may also use phones and faxes to reach intended victims. Some scammers set up phony Web sites.

The IRS and E-mail

Generally, the IRS does not send unsolicited e-mails to taxpayers. Further, the IRS does not discuss tax account information with taxpayers via e-mail or use e-mail to solicit sensitive financial and personal information from taxpayers. The IRS does not request financial account security information, such as PIN numbers, from taxpayers.

Object of Scams

Most scams impersonating the IRS are identity theft schemes. In this type of scam, the scammer poses as a legitimate institution to trick consumers into revealing personal and financial information — such as passwords and Social Security, PIN, bank account and credit card numbers — that can be used to gain access to and steal their bank, credit card or other financial accounts. Attempted identity theft scams that take place via e-mail are known as phishing. Other scams may try to persuade a victim to advance sums of money in the hope of realizing a larger gain. These are known as advance fee scams.

Who Is Targeted

Anyone with a computer, phone or fax machine could receive a scam message or unknowingly visit a phony or misleading Web site. Individuals, businesses, educators, charities and others have been targeted by e-mails that claim to come from the IRS or Treasury Department. Scam e-mails are generally sent out in bulk, based on e-mail addresses (urls), similar to spam.

How an Identity Theft Scam Works

Most of the scams that impersonate the IRS are identity theft scams. Typically, a consumer will receive an e-mail that claims to come from the IRS or Treasury Department. The message will contain an enticing or intimidating subject line, such as tax refund, inherited funds or IRS notice. Usually, the message will state that the recipient needs to provide the IRS with information to obtain the refund or avoid some penalty. The message will instruct the consumer to open an attachment or click on a link in the e-mail. This may lead to an official-looking form to be filled out online or send the taxpayer to a seemingly genuine but bogus IRS Web site. The look-alike site will then contain a phony but genuine-looking online form or interactive application that requires the personal and financial information the scammer can use to commit identity theft.

Alternatively, the clicked link may secretly download malware to the consumer’s computer. Malware is malicious code that can take over the computer’s hard drive, giving the scammer remote access to the computer, or it could look for passwords and other information and send them to the scammer.

Phony Web or Commercial Sites

In many IRS-impersonation scams, the scammer sends the consumer to a phony Web site that mimics the appearance of the genuine IRS Web site, IRS.gov. This allows the scammer to steer victims to phony interactive forms or applications that appear genuine but require the targeted victim to enter personal and financial information that will be used to commit identity theft.

The official Web site for the Internal Revenue Service is IRS.gov, and all IRS.gov Web page addresses begin with http://www.irs.gov/.

In addition to Web sites established by scammers, there are commercial Internet sites that often resemble the authentic IRS site or contain some form of the IRS name in the address but end with a .com, .net, .org or other designation instead of .gov. These sites have no connection to the IRS. Consumers may unknowingly visit these sites when searching the Internet to retrieve tax forms, publications and other information from the IRS.

Frequent or Recent Scams

There are a number of scams that impersonate the IRS. Some of them appear with great frequency, particularly during and right after filing season, and recur annually. Others are new.

Refund Scam — This is the most frequent IRS-impersonation scam seen by the IRS. In this phishing scam, a bogus e-mail claiming to come from the IRS tells the consumer that he or she is eligible to receive a tax refund for a specified amount. It may use the phrase “last annual calculations of your fiscal activity.” To claim the tax refund, the consumer must open an attachment or click on a link contained in the e-mail to access and complete a claim form. The form requires the entry of personal and financial information. Several variations on the refund scam have claimed to come from the Exempt Organizations area of the IRS or the name and signature of a genuine or made-up IRS executive. In reality, taxpayers do not complete a special form to obtain their federal tax refund — refunds are triggered by the tax return they submitted to the IRS.
Lottery winnings or cash consignment — These advance fee scam e-mails claim to come from the Treasury Department to notify recipients that they’ll receive millions of dollars in recovered funds or lottery winnings or cash consignment if they provide certain personal information, including phone numbers, via return e-mail. The e-mail may be just the first step in a multi-step scheme, in which the victim is later contacted by telephone or further e-mail and instructed to deposit taxes on the funds or winnings before they can receive any of it. Alternatively, they may be sent a phony check of the funds or winnings and told to deposit it but pay 10 percent in taxes or fees. Thinking that the check must have cleared the bank and is genuine, some people comply. However, the scammers, not the Treasury Department, will get the taxes or fees. In reality, the Treasury Department does not become involved in notification of inheritances or lottery or other winnings.
Beneficial Owner Form — This fax-based phishing scam, which generally targets foreign nationals, recurs periodically. It’s based on a genuine IRS form, the W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. The scammer, though, invents his or her own number and name for the form. The scammer modifies the form to request passport numbers, information that is often used for account security purposes (such as mother’s maiden name) and similar detailed personal and financial information, and states that the recipient may have to pay additional tax if he or she fails to immediately fax back the completed form. In reality, the real W-8BEN is completed by banks, not individuals.
Other Known Scams

The contents of other IRS-impersonation scams vary but may claim that the recipient will be paid for participating in an online survey or is under investigation or audit. Some scam e-mails have referenced Recovery-related tax provisions, such as Making Work Pay, or solicited for charitable donations to victims of natural disasters. Taxpayers should beware of an e-mail scam that references underreported income and the recipient’s “tax statement,” since clicking on a link or opening an attachment is known to download malware onto the recipient’s computer.

How to Spot a Scam

Many e-mail scams are fairly sophisticated and hard to detect. However, there are signs to watch for, such as an e-mail that:

Requests detailed or an unusual amount of personal and/or financial information, such as name, SSN, bank or credit card account numbers or security-related information, such as mother’s maiden name, either in the e-mail itself or on another site to which a link in the e-mail sends the recipient.
Dangles bait to get the recipient to respond to the e-mail, such as mentioning a tax refund or offering to pay the recipient to participate in an IRS survey.
Threatens a consequence for not responding to the e-mail, such as additional taxes or blocking access to the recipient’s funds.
Gets the Internal Revenue Service or other federal agency names wrong.
Uses incorrect grammar or odd phrasing (many of the e-mail scams originate overseas and are written by non-native English speakers).
Uses a really long address in any link contained in the e-mail message or one that does not start with the actual IRS Web site address (http://www.irs.gov). The actual link’s address, or url, is revealed by moving the mouse over the link included in the text of the e-mail.
What to Do

Taxpayers who receive a suspicious e-mail claiming to come from the IRS should take the following steps:

Avoid opening any attachments to the e-mail, in case they contain malicious code that will infect your computer.
Avoid clicking on any links, for the same reason. Alternatively, the links may connect to a phony IRS Web site that appears authentic and then prompts for personal identifiers, bank or credit card account numbers or PINs.
Visit the IRS Web site, www.irs.gov, to use the “Where’s My Refund?” interactive tool to determine if they are really getting a refund, rather than responding to the e-mail message.
Forward the suspicious e-mail or url address to the IRS mailbox phishing@irs.gov, then delete the e-mail from their inbox.
Consumers who believe they are or may be victims of identity theft or other scams may visit the U.S. Federal Trade Commission’s Web site for identity theft, www.OnGuardOnline.gov, for guidance in what to do. The IRS is one of the sponsors of this site.

The facts about e-filing

2011-01-04T00:01:00.000-08:00

from www.irs.gov

Most taxpayers and tax preparers this year will use IRS e-file to file their federal tax returns or get extensions of time to file. During this process, they will not have to send a single scrap of paper to the Internal Revenue Service.

The IRS expects the total number of individual tax returns, both electronic and paper, to total about 140 million in 2010, and for e-file returns to exceed last year’s record high of 95 million.

The Many Benefits of E-file

Faster refunds. With IRS e-file, taxpayers get refunds in half the time it takes to file a paper tax return and receive a refund check. E-filers who choose Direct Deposit can receive their refund in as few as 10 days.

Paperless. A taxpayer eliminates paperwork by creating his or her own Personal Identification Number (PIN) and filing a paperless return using tax preparation software or a tax professional. There is nothing to mail to the IRS.

File now and pay later options. Taxpayers can file early and pay later by scheduling an electronic funds withdrawal any time through April 15, 2010. Taxpayers can also pay by credit or debit card when they e-file their returns. By enrolling in the Electronic Federal Tax Payment System (EFTPS), taxpayers can make all federal tax payments online or by phone.

More accurate returns. In addition to the error checks built into return preparation software, additional checks are done during the transmission of software enabled e-file returns. These checks reduce the chance a taxpayer will receive an error letter from the IRS.

Quick electronic confirmation. E-filers are notified within 48 hours that their returns have been received.

Convenient Federal/State e-filing. Taxpayers in 37 states and the District of Columbia can e-file their federal and state tax returns in one transmission to the IRS. The IRS forwards the state data to the appropriate state tax agency. In 2009, 49 million taxpayers filed federal-state electronic returns in Alabama, Arizona, Arkansas, Colorado, Connecticut, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Mississippi, Missouri, Montana, Nebraska, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Utah, Vermont, Virginia, West Virginia, Wisconsin and the District of Columbia.

How to Choose a Tax Return Preparer

2011-01-03T00:01:00.000-08:00

From www.irs.gov

Taxpayers who decide they need assistance when preparing a tax return should choose a tax preparer with care and caution. Even if a return was prepared by an outside individual or firm, taxpayers should remember that they are legally responsible for what they file with the Internal Revenue Service.

Most return preparers are professional, honest and provide excellent service to their clients, but some engage in fraud and other illegal activities. Return preparer fraud involves the preparation and filing of false income tax returns by preparers who claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions on returns prepared for their clients.

Preparers may, for example, manipulate income figures to fraudulently obtain tax credits, such as the Earned Income Tax Credit. In some situations, the client, or taxpayer, may not even know of the false expenses, deductions, exemptions and/or credits shown on his or her tax return.

However, when the IRS detects a fraudulent return, the taxpayer — not the return preparer — must pay the additional taxes and interest and may be subject to penalties.

The IRS Return Preparer Program focuses on enhancing compliance in the return-preparer community by investigating and referring criminal activity by return preparers to the Department of Justice for prosecution. The IRS can also assert appropriate civil penalties against unscrupulous return preparers.

Also to combat fraud, IRS Commissioner Doug Shulman recently made a series of recommendations with the twin goals of increasing taxpayer compliance and ensuring uniform and high ethical standards of conduct for tax preparers.

While most preparers provide honest service to their clients, the IRS urges taxpayers to be careful when choosing a preparer –– as careful as they would be choosing a doctor or lawyer. Even if someone else prepares a tax return, the taxpayer is ultimately responsible for all the information on the return. For that reason, taxpayers should never sign a blank tax form. And they should review the return before signing it and ask questions on entries they don't understand.

Helpful Hints When Choosing a Return Preparer

Be cautious of tax preparers who claim they can obtain larger refunds than other preparers.
Avoid preparers who base their fee on a percentage of the refund.Use a reputable tax professional who signs the tax return and provides a copy.
Consider whether the individual or firm will be around to answer questions about the preparation of the tax return months, or even years, after the return has been filed.
Check the person’s credentials. Only attorneys, certified public accountants (CPAs) and enrolled agents can represent taxpayers before the IRS in all matters, including audits, collection and appeals. Other return preparers may only represent taxpayers for audits of returns they actually prepared.
Find out if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.
Reputable preparers will ask to see receipts and will ask multiple questions to determine whether expenses, deductions and other items qualify. By doing so, they are trying to help their clients avoid penalties, interest or additional taxes that could result from an IRS examination.

TAX RETURNS TO BE DELAYED

2010-12-27T05:19:00.000-08:00

Readers...this information broke over the Christmas holiday weekend and will affect most tax filers. We will keep you informed as further information becomes available.

Frank Luppe

By Accounting Today Staff

Following last week’s tax law changes, the Internal Revenue Service announced Thursday the upcoming tax season will start on time for most people, but taxpayers affected by three recently reinstated deductions need to wait until mid- to late February to file their individual tax returns.

In addition, taxpayers who itemize deductions on Form 1040 Schedule A will need to wait until mid- to late February to file as well.

The start of the 2011 filing season will begin in January for the majority of taxpayers. However, last week’s changes in the law mean that the IRS will need to reprogram its processing systems for three provisions that were extended in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that became law on Dec. 17.

People claiming any of these three items — involving the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction as well as those taxpayers who itemize deductions on Form 1040 Schedule A — will need to wait to file their tax returns until tax processing systems are ready, which the IRS estimates will be in mid- to late February.

“The majority of taxpayers will be able to fill out their tax returns and file them as they normally do,” said IRS Commissioner Doug Shulman. “We will do everything we can to minimize the impact of recent tax law changes on other taxpayers. The IRS will work through the holidays and into the New Year to get our systems reprogrammed and ensure taxpayers have a smooth tax season.”

The IRS will announce a specific date in the near future when it can start processing tax returns impacted by the late tax law changes. In the interim, people in the affected categories can start working on their tax returns, but they should not submit their returns until IRS systems are ready to process the new tax law changes.

The IRS urged taxpayers to use e-file instead of paper tax forms to minimize confusion over the recent tax changes and ensure accurate tax returns.

Taxpayers will need to wait to file if they are within any of the following three categories:

• Taxpayers claiming itemized deductions on Schedule A. Itemized deductions include mortgage interest, charitable deductions, medical and dental expenses as well as state and local taxes. In addition, itemized deductions include the state and local general sales tax deduction extended in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 enacted Dec. 17, which primarily benefits people living in areas without state and local income taxes and is claimed on Schedule A, Line 5. Because of late Congressional action to enact tax law changes, anyone who itemizes and files a Schedule A will need to wait to file until mid- to late February.

• Taxpayers claiming the Higher Education Tuition and Fees Deduction. This deduction for parents and students — covering up to $4,000 of tuition and fees paid to a post-secondary institution — is claimed on Form 8917. However, the IRS emphasized that there will be no delays for millions of parents and students who claim other education credits, including the American Opportunity Tax Credit and Lifetime Learning Credit.

• Taxpayers claiming the Educator Expense Deduction. This deduction is for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250. The educator expense deduction is claimed on Form 1040, Line 23, and Form 1040A, Line 16.

For those falling into any of these three categories, the delay affects both paper filers and electronic filers.

The IRS emphasized that e-file is the fastest, best way for those affected by the delay to get their refunds. Those who use tax-preparation software can easily download updates from their software provider. The IRS Free File program also will be updated.

As part of this effort, the IRS will be working closely with the tax software industry and tax professional community to minimize delays and ensure a smooth tax season.

Updated information will be posted on IRS.gov. This will include an updated copy of Schedule A as well as updated state and local sales tax tables. Several other forms used by relatively few taxpayers are also affected by the recent changes, and more details are available on IRS.gov.

In addition, the IRS reminds employers about the new withholding tables released Friday for 2011 (see IRS Issues Withholding Details for Payroll Tax Cut). Employers should implement the 2011 withholding tables as soon as possible, but not later than Jan. 31, 2011. The IRS also reminds employers that Publication 15, (Circular E), Employer’s Tax Guide, containing the extensive wage bracket tables that some employers use, will be available on IRS.gov before year’s end.

Overview of the tax provisions in the 2010 Tax Relief Act

2010-12-21T07:27:00.000-08:00

From ThomsonReuters.com

Overview of the tax provisions in the 2010 Tax Relief Act

The newly enacted “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” signed into law on December 17, 2010 is a sweeping tax package that includes, among many other items, an extension of the Bush-era tax cuts for two years, estate tax relief, a two-year “patch” of the alternative minimum tax (AMT), a two-percentage-point cut in employee-paid payroll taxes and in self-employment tax for 2011, new incentives to invest in machinery and equipment, and a host of retroactively resuscitated and extended tax breaks for individuals and businesses. Here's a look at the key elements of the package:
· Current income tax rates will be retained for two years (2011 and 2012), with a top rate of 35% on ordinary income and 15% on qualified dividends and long-term capital gains.
· Employees and self-employed workers will receive a reduction of two percentage points in Social Security payroll tax in 2011, bringing the rate down from 6.2% to 4.2% for employees, and from 12.4% to 10.4% for the self-employed.
· A two-year AMT “patch” for 2010 and 2011 will keep the AMT exemption near current levels and allow personal credits to offset AMT. Without the patch, an estimated 21 million additional taxpayers would have owed AMT for 2010.
· Key tax credits for working families that were enacted or expanded in the American Recovery and Reinvestment Act of 2009 will be retained. Specifically, the new law extends the $1,000 child tax credit and maintains its expanded refundability for two years, extends rules expanding the earned income credit for larger families and married couples, and extends the higher education tax credit (the American Opportunity tax credit) and its partial refundability for two years.
· Businesses can write off 100% of their equipment and machinery purchases, effective for property placed in service after September 8, 2010 and through December 31, 2011. For property placed in service in 2012, the new law provides for 50% additional first-year depreciation.
· Many of the “traditional” tax extenders are extended for two years, retroactively to 2010 and through the end of 2011. Among many others, the extended provisions include the election to take an itemized deduction for state and local general sales taxes in lieu of the itemized deduction for state and local income taxes; the $250 above-the-line deduction for certain expenses of elementary and secondary school teachers; and the research credit.
· After a one-year hiatus, the estate tax will be reinstated for 2011 and 2012, with a top rate of 35%. The exemption amount will be $5 million per individual in 2011 and will be indexed to inflation in following years. Estates of people who died in 2010 can choose to follow either 2010's or 2011's rules.
· Omitted from the new law: Repeal of a controversial expansion of Form 1099 reporting requirements.
· Also not included: Extension of the Build America Bonds program, which permits state and localities to issue federally-subsidized municipal bonds.
I hope this information is helpful. If you would like more details about these provisions or any other aspect of the new law, please do not hesitate to call.

How hiring children to work in the family business can generate tax savings

2010-05-20T09:47:00.000-07:00

Source: Federal Tax Updates on Checkpoint Newsstand tab 5/20/2010

When times were better, many college students looking for summer employment and graduates looking for permanent jobs thought of working for the family business only as a last resort. In today's tough job market, however, the family business may be the only place for some kids to find work. As this points out, employing a child may generate tax-savings regardless of how the family business is organized. Although the focus is on seasonal or part-time employment, the rules in the article also apply if the child works for the family business full-time.
Income shifting. Regardless of how a business is organized, its owners may be able to turn some of their high-taxed income into tax-free or low-taxed income by employing their children. The work done by the children must be legitimate, and the amount that the enterprise pays them must be reasonable for the wages to be deductible.
Illustration: A business person in the 33% tax bracket for 2010 hires her 17-year-old son to help with office work full-time during the summer and part-time into the fall. He earns $5,700 during the year (and doesn't have earnings from other sources). If that $5,700 otherwise would be paid to the business person, she saves $1,881 (33% of $5,700) in income taxes at no tax cost to her son, who can use his $5,700 standard deduction for 2010 to completely shelter his earnings.
Family taxes are cut even if the child's earnings exceed his or her standard deduction. That's because the unsheltered earnings will be taxed to the child beginning at a rate of 10%, instead of being taxed at the parent's higher rate.
Kiddie tax implications. The kiddie tax applies to the child if he or she does not file a joint return for the tax year and (1) hasn't reached age 18 before the close of the tax year or, (2) his or her earned income doesn't exceed one-half of his support and the child is age 18 or is a full time student age 19-23. Thus, employing a child age 18 or a full-time student age 19-23 could cause his or her earned income to exceed more than half of his or her support. This, in turn, could help to avoid the kiddie tax on the child's unearned income (there is no earned income escape hatch from the kiddie tax for children under age 18).
Even if the kiddie tax applies, it only causes a child's investment income in excess of $1,900 (for 2010) to be taxed at the parent's marginal rate. It has no impact, however, on the child's wages and other earned income, which can be sheltered by the child's standard deduction.
Retirement plan savings. Additional savings are possible if the child is paid more (or works part-time past the summer), and deposits the extra earnings into a traditional IRA. For 2010, the child can make a tax-deductible contribution of up to $5,000 to his or her own IRA. The business also may be able to provide the child with retirement plan benefits, depending on the type of plan it uses and its terms, the child's age, and the number of hours worked.
Tax savings via education credits. Additional intra-family tax savings in the form of education credits may be available.
For 2010, taxpayers may claim an American opportunity tax credit (AOTC)/Hope scholarship credit equal to 100% of up to $2,000 of qualified higher-education tuition and related expenses plus 25% of the next $2,000 of expenses paid for education furnished to an eligible student in an academic period. Thus, the maximum AOTC) Hope scholarship credit is $2,500 a year for each eligible student.
The AOTC/Hope credit may be elected for a student's expenses for 4 tax years, and only for students who have not completed the first 4 years of post-secondary education as of the beginning of the tax year.
Subject to an exception, 40% of a taxpayer's otherwise allowable AOTC/Hope credit for 2010 is refundable. No portion of the credit is refundable if the taxpayer claiming the credit is a child subject to the kiddie tax.
Taxpayers may elect a Lifetime Learning credit equal to 20% of up to $10,000 of qualified tuition and related expenses paid during the tax year. The maximum credit for a tax year is $2,000, regardless of the number of students. For 2010, the credit is phased out ratably for taxpayers with modified AGI from $50,000 to $60,000 ($100,000 to $120,000 for marrieds filing jointly).
Where a parent pays the college education expenses of a child whom he claims as a dependent, only the parent may claim the education credits (if otherwise eligible). However, if a parent is eligible to but does not claim a student as a dependent, the student may claim the education credit for qualified expenses paid by him or the parent.
RIA recommendation: It may pay for a parent not to claim the student as a dependent if (1) the parent can't claim education credits because of high modified AGI, and (2) the student pays or is deemed to pay the expense and has sufficient tax liability (e.g., from summer or part-time employment) to claim the credit.
RIA illustration: Mr. and Mrs. Green have AGI of $250,000 and are in the 33% bracket. For 2010, claiming their college-freshman son as a dependent would save $1,204.50 in taxes (33% of $3,650 dependency exemption for the son). The Greens spend $24,000 on the son's AOTC/Hope-credit-eligible qualified tuition, and the son has $10,000 of taxable income from his salary working for the family business. The Greens can't claim an education credit for their child because of their high income and would be better off not claiming their son as a dependent. This way, the son may completely eliminate his $1,081.25 tax liability (10% of $8,375 taxable income, plus 15% of the $1,625 balance). He also may claim a refund for another $1,000 of the AOTC/Hope credit (40% of $2,500), so the total credit (and total savings to the child, is $2,081.25, versus the $1,204.50 the Greens would save if they claimed their son as a dependent.
Caution: If a parent is eligible to claim child as a dependent but doesn't, the child still cannot claim an exemption for himself.
Income tax withholding. Regardless of how the family business is organized, it probably will have to withhold federal income taxes on the child's wages. Usually, an employee who had no federal income tax liability for the prior year, and expects to have none for the current year, can claim exempt status. However, exemption from withholding can't be claimed if (1) the employee's income exceeds $750 and includes more than $250 of unearned income (such as dividends), and (2) the employee may be claimed as a dependent on someone else's return (whether or not he actually is claimed). (Instructions to Form W-4 for 2010) Keep in mind that the child probably will get a refund for part or all of the withheld tax when he or she files a return for the year.
FICA and FUTA. Employment for FICA tax purposes doesn't include services performed by a child under the age of 18 while employed by a parent. This can generate some savings for a parent who runs an unincorporated business. For example, let's say a sole proprietor who usually takes $120,000 of earnings from the business pays $4,750 to her 17-year-old child in 2010. The sole proprietor's self-employment income would be reduced by $4,750, saving her $137.75 (the 2.9% HI portion of the self employment tax she would have paid on the $4,750 shifted to her child). This doesn't take into account a sole proprietor's income tax deduction for one-half of his or her own social security taxes. That's on top of the $363.37 (.0765 × $4,750) in employee FICA that the child saves by working for Mom instead of someone else. A similar but more liberal exemption applies for FUTA, which exempts earnings paid to a child under age 21 while employed by his or her parent. The FICA and FUTA exemptions also apply if a child is employed by a partnership consisting solely of his parents.
However, there is no FICA or FUTA exemption for employing a child in an incorporated business or in a partnership that includes non-parent partners. The children are subject to the same rules that apply to all other employees.
RIA caution: The Hiring Incentives to Restore Employment Act (HIRE Act, P.L. 111-147) carried two valuable incentives for employers that boost payroll this year: a payroll tax holiday for employers that hire unemployed workers; and an up-to-$1,000 tax credit for keeping such new hires on the payroll for at least one year. Neither of these tax breaks is available for hiring a child.
Source: Federal Tax Updates on Checkpoint Newsstand tab 5/20/2010

Experts Predict Housing Market after tax incentives

2010-05-18T02:00:00.001-07:00

NEW YORK (CNNMoney.com) -- Bipolar is what comes to mind when diagnosing the post-homebuyer tax credit market. There are two separate forces pulling it in opposite directions, and experts aren't yet sure which path the market will take.
On one hand, sales and prices are rising, indicating recovery. On the other hand, so are interest rates and repossessions, which most certainly do not. And then there are the millions of foreclosures that need to be sold but haven't yet been listed -- so-called shadow inventory -- that could derail a real recovery if they hit the market in floods.
The prognosis? Negative short term but turning positive by the end of 2010.
"In the short run, I see a mini-collapse," said Richard DeKaser, an independent housing market analyst and founder of Woodley Park Research who correctly predicted a downturn back in 2005 when he was chief economist for National City Corp.
How to buy a foreclosure
One of market's biggest hurdles is getting beyond the lapse of the $8,000 homebuyer tax credit. Thanks to the incentive, buyers scrambled to beat the April 30 deadline, pushing new home sales up nearly 30% in March.
But that just borrowed buyers from later months. And now we face the hangover effect.
"In the months immediately following the expiration of the tax credit, we expect measurably lower sales," said Lawrence Yun, chief economist for the National Association of Realtors (NAR).
Industry insiders believe the hangover is worthwhile, however, because the credit helped stabilize housing when it most needed help. Home prices have been steadier in recent months, recently experiencing their first year-over-year rise in more than three years.
Still, there are some strong negatives dragging on the market.
1. Interest rates have been intermittently creeping up. Although nobody expects 6% until at least 2011, the days of 4.5% mortgages are behind us.
2. Bank repossessions are on track to surpass a million homes in 2010. But at least foreclosure filings fell in April, the first time since RealtyTrac began reporting.
3. More than a quarter of borrowers are "underwater," meaning they owe more than their homes are worth.
4. "Strategic defaults" -- where underwater homeowners walkway even when they can still afford to pay -- accounted for 31% of all foreclosures in March, according to a recent study.

But there is one factor that has experts really scared: homes that are ready to be sold but haven't been put on the market. Right now, there could be more than 4.5 million homes in "shadow inventory," according to a recent report by Barclays Capital.
This so-called shadow inventory is a recent phenomenon. In the past, inventory was either tight or it wasn't. But now, with home prices so low and so many foreclosures on the market, both homeowners and banks have been waiting to put properties on the market.
"These sidelined sellers closely watch the market for signs of a possible turnaround and rush in if there's a hint of good news," said Leslie Appleton-Young, chief economist for the California Association of Realtors.
But as more sellers put their homes up for sale, supplies increase, which will depress prices again. Rinse and repeat ad infinitum.
That vicious cycle could cause prices to bounce up and down for years. "I see a saw tooth bottom," Humphries said. "Prices go up; inventory rises, which sends prices down again. That plays out for three to five years of no appreciation. ... Without price appreciation, it leaves more homeowners in negative equity. That's toxic. Any setback, like a job loss, they go into foreclosure."

Intuit Cites Weirdest Tax Deductions of the Year

2010-05-18T02:00:00.000-07:00

from WebCPA Daily

Care to write off any Botox expenses? Intuit has come out with a set of the strangest tax deductions it’s seen this past tax season, including taxpayers who tried to write off the cost of Armani suits and a hired psychic.
Other eyebrow-raising deductions for tax year 2009 included taxpayers who wanted to write off their pets for the purpose of pest control or as a "security small business." (Remember to file a separate Schedule C for Fido.)
Some taxpayers also wanted to take deductions for beauty and cosmetics of various kinds, according to the TurboTax folks. Those included deductions for false eyelashes, haircuts, spa treatments, and a blow dryer that had been purchased for a meeting.
Other taxpayers wanted to write off various recreational activities, including fishing gear, golfing expenses and even horses.
Deductions for pet-related expenses seemed to be the most common types of questionable tax deductions spotted by Intuit. Those included a customer who asked about claiming a pet as a dependent since they provide it with all the support it needs.
Dry cleaning, Botox injections and limousine service also made the list of dubious deductions. The IRS examiners will have a fun time demanding receipts from some of these folks.

Automatic Revocation of Tax-Exempt Status to Start Monday

2010-05-17T02:00:00.000-07:00

from Journal of Accountancy

Monday, May 17, is the deadline for calendar-year tax-exempt organizations to file a Form 990 for 2009. It also marks the third filing deadline under the mandatory filing requirement instituted by the Pension Protection Act of 2006 (PL 109-280).

Under the terms of that mandatory filing requirement, tax-exempt organizations that fail to file an information return in the Form 990 series for three consecutive years automatically lose their tax-exempt status (IRC § 6033(j)). Therefore, Monday marks the day when any organizations that have not filed for 2007, 2008 and 2009 will lose their exempt status. If an organization loses its exemption, it will have to reapply with the IRS to regain its tax-exempt status. Any income received between the revocation date and renewed exemption may be taxable.
Generally, tax-exempt organizations are required to file either a Form 990, Return of Organization Exempt From Income Tax, or the shorter Form 990-EZ annually. However, the Pension Protection Act introduced a new notification requirement for small tax-exempt organizations that are not required to file an annual Form 990 or Form 990-EZ. Organizations with annual gross receipts that are normally $25,000 or less must file an e-postcard (Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or 990-EZ).

Form 990 series information returns are due on the fifteenth day of the fifth month after an organization’s fiscal year-end. Organizations can request an extension of their filing date by filing Form 8868, Application for Extension of Time To File an Exempt Organization Return, by the original due date. This year, the due date for calendar-year organizations is May 17 because May 15 falls on a Saturday.

The IRS cautions organizations that it has no discretion in this matter—the revocation of exempt status is automatic. The IRS has also said that it will make available a list of revoked organizations on its website (IR-2010-59).

A Surprise Tax Hit on Foreclosures

2010-05-16T02:00:00.000-07:00

By Jeff D Opdyke of the Wall Street Journal

Maxine McDaniel has a message for Americans considering walking away from an unaffordable mortgage: Beware of taxes.
Though not every homeowner who's underwater on a mortgage need worry, many are finding that a foreclosure or other form of housing loss can lead to a big tax obligation.

Maxine McDaniel walked away from her Loveland, Colo., home in January. Now the 59-year-old nurse faces a potentially huge tax bill.

In Ms. McDaniel's case, the 59-year-old in January abandoned the 4,300-square-foot Loveland, Colo., home she and her late husband built. After her husband's death in July 2008, Ms. McDaniel, who earns about $34,000 a year as a home-health nurse, couldn't maintain the $3,000 monthly payments necessary on her nearly $500,000 interest-only mortgage. So she stopped making them and moved in with an uncle.
Now, she's bracing for the next blow: an Internal Revenue Service form detailing as much as $150,000 in debt canceled by the bank when it took control of the house. The canceled debt is a form of income, says the IRS—meaning she'll owe taxes on it.
"I had no clue this would happen," says Ms. McDaniel, who, with her husband, had refinanced at least three times, including one cash-out loan. That transaction caused her problems because, while canceled debt originally used to buy or build a house can be exempted from tax filings, debt used for other purposes cannot. "I just thought I'd get out from under the house and that would be that," she says.

As the U.S. economy continues struggling with the fallout of the debt-induced housing crisis, millions of homeowners like Ms. McDaniel are discovering that their decision to walk away from a mortgage could result in tax bills running into the thousands or tens of thousands of dollars.
The upshot: anyone weighing whether or not to seek a mortgage modification—or debating whether to abandon a house that is worth less than the mortgage—should consider the tax treatment carefully before making a move. The same holds for any form of consumer debt that a bank ultimately cancels, including credit-card balances or an auto lease.
Federal and state tax laws have long viewed canceled debt as income because consumers who borrow money to buy a house—or who pull money out of their house to buy cars and such—and then don't pay it back "wind up ahead of where they were," says an IRS spokesman.
Thus far this year, Michele Knight, a CPA with a high-end clientele in Keystone, Colo., has had five clients owe taxes tied to houses and another five tied to credit cards and auto leases. "They're calling me in tears and saying, 'What do you mean I owe taxes?'" she says. "I never would have expected it."
Dianne Corsbie, a White Plains, N.Y., financial planner, says about 5% of her 200-client practice owes taxes because of a foreclosure, most tied to investment properties. In Napa, Calif., Duane Carey, owner of a Ranch Tax Service, says every fifth person he sees "comes in angry, holding one of these 1099s."
Overall, the IRS estimates that individual taxpayers will have filed nearly 3.6 million tax returns for 2009 that include income from canceled debt. That's down a bit from 2008, but up 17% from 2007. The numbers include taxes due on primary homes, vacation and rental property, credit cards, auto leases and other canceled debts. The IRS projects the numbers to rise in coming years.
Part of that rise will likely come as the government expands its mortgage-modification program, including a call in March by the Obama administration for banks to reduce principal as a way to help people remain in their homes. That reduction could lead to tax obligations.
At first the government's mortgage-modification program focused on primary mortgages, which are tied to the purchase or construction of a primary residence, and which are eligible for exemption under a 2007 Congressional act aimed at helping homeowners avoid the tax implications of a foreclosure.
That act—the 2007 Mortgage Forgiveness Debt Relief Act—exempts taxpayers from as much as $2 million in forgiven debt. But the debt had to be acquired before Jan. 1, 2009—and had to have been used solely to buy, build or remodel/repair a primary residence.
The government's new, expanded modification programs include short sales, in which a bank agrees to accept as full payment less than the value of the mortgage balance; deed-in-lieu transactions, when a homeowner gives the house to the bank instead of repaying the mortgage; and second mortgages such as home-equity lines of credit.
In many of those instances, say Treasury officials, homeowners used mortgage money to fund everything from tuition and medical bills to vacations and cars and even the down payment on a second home or investment property. That debt, however, isn't eligible for exemption.
Sometimes the tax bills are so high that people can't afford to pay. In such a situation, the IRS will allow taxpayers to apply for an installment-payment plan.
Some homeowners can avoid the taxes completely if they can prove insolvency, in which the total value of debt exceeds total assets. But even that could leave some owing taxes.
IRS rules stipulate that a taxpayer can escape taxes up to the extent of insolvency, meaning that if one's liabilities are $500,000 and assets are $300,000, the $200,000 difference is the extent of the insolvency. But if the person has $250,000 in debt canceled, then $50,000 is taxable income.
"People think their house was underwater, so they're insolvent and can get out of owing taxes," says Arthur Auerbach, a member of the Individual Income Tax Technical Resource Panel at the American Institute of Certified Public Accountants. "But it doesn't work that way."

Home Sales Jump, Jobless Claims Fall

2010-05-15T05:00:00.000-07:00

By Alan Zibel, Associated Press

WASHINGTON) — The economy is improving, with home sales up, jobless claims down and inflation tame. Yet there are concerns the economic rebound won't get much juice from the housing market, which is being fueled by government tax breaks.
Sales of previously occupied homes grew by nearly 7 percent last month, more than expected, the National Association of Realtors said Thursday. It was a welcome sign after three months of declines, and a solid kickoff to what's expected to be a strong spring selling season.

Nevertheless, many analysts caution that the housing rebound could fade in the second half of the year. They predict a flood of low-priced foreclosures will hit the market and push down prices in a destabilizing "double dip" in prices.
Another threat to the U.S. economic recovery is fallout from the Greek debt crisis. On Thursday, Europe's statistics agency found that Greece's budget deficit last year was larger than previously thought, which may push the country to seek emergency loans. Shares on Wall Street initially fell on the news, then recovered most of those losses.
But so far, "the recovery looks like it will continue," said Jay Feldman, senior economist with Credit Suisse. "We don't see another recession."
Underscoring that view, the government reported Thursday that new claims for unemployment benefits fell by 24,000 to a seasonally adjusted 456,000, the Labor Department said.
And in a separate report, the government said wholesale prices rose 0.7 percent last month. But excluding volatile food and energy costs, prices rose only 0.1 percent, which means there is little risk of inflation.
Speaking in lower Manhattan, President Barack Obama said the economy is recovering in what he called "the fastest turnaround in growth in nearly three decades."
The Obama administration says its policies have helped stop the housing freefall. The government is offering tax credits to homebuyers and trying to stem foreclosures by paying incentives to lenders who rework loans for troubled borrowers.
The government is offering an $8,000 credit for first-time buyers and $6,500 for current homeowners who buy and move into another property. To qualify for these tax incentives, buyers must have a signed contract complete by the end of next week and must complete the sale by the end of June. Nearly 1.8 million households have used the credit at a cost of $12.6 billion, according to the Internal Revenue Service.
But critics contend the administration's policies will do little but postpone the pain. They say the government shouldn't be providing a subsidy to buyers who would have acted anyway. And so far, the government's foreclosure prevention effort hasn't made a dent.
Home prices could fall another 10 to 20 percent, warns Dean Baker, co-director of the Center for Economic and Policy Research, a liberal Washington think-tank. "These policies aren't going to have much effect," in the long run, he said, adding that, "Why would we want to keep prices up so that some sucker can come in and pay a bubble-inflated price?"

Report says IRS will collect substantial penalties from the uninsured:

2010-05-14T05:00:00.000-07:00

From MaryDeElliston@ThomsonReuters.com

IRS will collect about $4 billion in 2017 from penalty payments made by individuals for being uninsured in 2016, according to an April 22 report by the Congressional Budget Office (CBO). The payments will come from an estimated 3.9 million people. The agency is also expected to collect the same amount in 2018 and 2019. The report cited estimates that approximately 21 nonelderly residents will be uninsured in 2016, but more than half of them will not be subject to the financial penalty for being uninsured that is required by the Patient Protection and Affordable Care Act in combination with the Health Care and Education Reconciliation Act of 2010. “Among those who are subject to the penalty, many will voluntarily report on their tax returns that they are uninsured and pay the amount owed,” CBO said. “However, other individuals will try to avoid making payments,” the report said.

FAMILY RELIEF DAY IN PLEASANT VIEW

2010-05-13T09:11:00.001-07:00

The Pleasant View Civitan Club asked me to publish the following information:

Pleasant View Civitan is hosting a FAMILY RELIEF DAY this coming Saturday at Balthrop Park. This is a FREE EVENT for everyone in the area. Our idea is to offer an afternoon of family fun, with food and entertainment at no cost to attendees. We will be accepting donated items for Flood Victims as well as monetary donations. Event starts at 11 a.m. and ends with our Movie In the Park, which begins a dusk. We are in need of organizations to donate a few hour of their time to help manage the concessions we will be serving. We are asking area businesses to set up "booths" and offer free products or services to those attending the event. This is an excellent opportunity for area businesses to showcase their services and to come together to help out those in need by offering a fun-filled afternoon.

What Facebook Changes mean to Small Businesses

2010-05-13T05:00:00.000-07:00

By: Josh Catone
Features Editor Mashable

Each year, Facebook holds a developer conference called F8, at which they announce changes and improvements to their development platform for the over a million developers that use it. Most years the fast-innovating social network has something big and exciting to reveal and this year was no exception.
Facebook announced a number of major changes to their platform that will affect the way developers create applications and the way users interact with them. The most important change for small business owners to be aware of, however, is the launch of the Facebook for Web Sites platform and specifically, the new social plugins.
Social Plugins
The most immediately significant part of the new Facebook platform for small business owners are the social plugins. These are a set of new, easy-to-install plugins that allow Web site owners to hook their content up to Facebook using just a single line of HTML code.
These new plugins mean two things for small business owners. First, that you can easily make your Web site more engaging for the over 400 million Facebook users worldwide (read: very likely a good portion of your customers), and second, that you can get more detailed information about how your content is being shared around the web and within the Facebook ecosystem.
Facebook currently offers eight social plugins, but the most relevant for small business owners are the Like Button, the Like Box, and the Comments.
Like Button - Perhaps the biggest announcement that Facebook made at the F8 Conference this year was that they plan to spread their concept of "liking" content around the entire web. The Like Button plugin lets Web site owners easily insert Facebook like buttons on their content, which allow visitors to share that content back to their Facebook social graph with one click.
Like Box - In order to help proliferate their new sharing vocabulary, Facebook changed the interaction model for users and businesses from "fans" to "likes," though in practice the idea isn't much different for end users. The new Facebook Like Box is really a revamp of the old Fan Box widget that allows visitors to remotely like a Facebook Fan Page and view its activity stream.
Comments - The Comments Box makes it easy for Web site owners to encourage engagement around any content on their site in the form of users comments. Users will also be given the option to syndicate those comments back to their Facebook Wall and to their friend's news streams, which offers small business owners an opportunity for added exposure.
What Else to Watch
Along with the social plugins, a couple of other announcements made at F8 might have significance for small business owners in the coming months.
One of the areas in which Facebook has a huge competitive advantage is demographic information. Their newly revamped Insights analytics application will provide Web site owners with detailed demographic information about the people that are interacting with their content. Previously, Insights was only available for application and Fan Pages, but the new version will provide "rich data about users sharing content from your site within Facebook no matter where those shares originated." In other words, you'll be able to track social engagement with your content across the entire Facebook ecosystem and glean valuable insight into how your social media marketing efforts are performing.
Another area that small business owners should pay attention to is Facebook Credits. Though currently Facebook's virtual currency platform is designed for game developers to sell virtual goods, the social network announced expansions and their plans may eventually include a payment platform for the sale of real goods. If the speculation about an eventual social commerce system turns out to be true, Facebook could represent a major platform for the sale of physical goods, with the ability to target sales to a local audience, which is something small business owners should play close attention to.

Prospects looking up for Accounting Grads

2010-05-12T05:00:00.000-07:00

From AccountingWeb.Com

For the first time since October 2008, employers plan to increase hiring of new college graduates, showing the job market has turned a corner, a new report states.
Employers this year plan to hire 5.3 percent more new college graduates than they did in 2009. “This report comes as good news for the Class of 2010, and bodes well for next year’s class,” according to “Job Outlook 2010 Spring Update” by the National Association of Colleges and Employers (NACE), which surveyed 177 employer members.

Following the stock market crisis, employers drastically cut back on hiring recent college graduates. Hiring of this group in 2009 dropped by nearly 22 percent from 2008 levels, even though employers had previously predicted a small increase in hiring for the Class of 2009.

Earlier projections for the Class of 2010 showed hiring would be down 7 percent compared to last year but that, too, never transpired. “We’re seeing hiring increases in nearly all the reporting industries,” NACE Executive Director Marilyn Mackes said in a statement. The best hiring outlook is in the Northeast.

More good news for accounting majors: Not only is hiring up, but accounting firms made more offers to new bachelor’s degree graduates than any other employer, NACE said in a separate salary survey, which is issued quarterly. Engineering firms were No. 2 on the list with retailers/wholesalers at No. 3.

“Although data are limited at this time of year, the results are consistent with what we have seen in the past,” Mackes said. “Accounting and engineering organizations historically have been among the most active in terms of recruiting and hiring new college graduates.”

Starting salaries also increased in 2010 for finance and accounting majors. The average offer to finance majors rose by 1.6 percent to $50,546, and the average offer to accounting majors increased by 0.4 percent to $48,575. For most other majors, starting salaries are down, according to the survey. The overall average salary offer to a bachelor’s degree candidate is $47,673, which is 1.7 percent lower than the average offer of $48,515 to the same group in 2009.

NACE also reported that the outlook for recruitment on college campuses in the fall is positive. “Nearly 60 percent of respondents have plans to hire more or the same number of new college graduates in fall 2010 as they did in fall 2009. Last year at this time, just over one-third of respondents had those same plans.”

Additional Tax Relief Information for Flood Victims

2010-05-11T10:37:00.000-07:00

WASHINGTON — Victims of severe storms, tornadoes, straight-line winds and flooding beginning April 24 in Alabama may qualify for tax relief from the Internal Revenue Service.

The President has declared DeKalb, Marshall and Walker counties federal disaster areas qualifying for individual assistance.

As a result, the IRS is postponing until June 23 certain deadlines for taxpayers who reside or have a business in the disaster area.

In addition, the IRS will waive the failure to deposit penalties for employment and excise deposits due on or after April 24 and on or before May 10, as long as the deposits are made by May 10.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the Postponement Period.

IRS computer systems automatically identify taxpayers located in the covered disaster area and apply automatic filing and payment relief. Affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request tax relief.

Covered Disaster Area

The counties listed above constitutes a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until June 23, 2010, to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after April 24, 2010, and on or before June 23, 2010.

The IRS also gives affected taxpayers until June 23 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (August 20, 2007), that are due to be performed on or after April 24 and on or before June 23.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise deposits due on or after April 24, 2010, and on or before May 10, 2010, provided the taxpayer made these deposits by May 10.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.

Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “Alabama/Severe Storms, Tornadoes, Straight-Line Winds and Flooding” at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

IRS Offers Guidance on Health Coverage for Children

2010-05-11T05:00:00.000-07:00

From WebCPA

The Internal Revenue Service has provided guidance on how tax-free health insurance coverage should now be provided for employees’ children who are under 27 years of age under the recently passed health care reform law.

The IRS said that changes under the act will immediately allow employers with cafeteria plans –– plans that allow employees to choose from a menu of tax-free benefit options and cash or taxable benefits –– to permit employees to begin making pre-tax contributions to pay for this expanded benefit.
Notice 2010-38 explains these changes and provides further guidance to employers, employees, health insurers and other interested taxpayers.

“These changes give employers a unique opportunity to offer a worthwhile benefit to their employees,” said IRS Commissioner Doug Shulman in a statement. “We want to make it as easy as possible for employers to quickly implement this change and extend health coverage on a tax-favored basis to older children of their employees.”
This expanded health care tax benefit applies to various workplace and retiree health plans. It also applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return.
Employees who have children who will not have reached age 27 by the end of the year are eligible for the new tax benefit from March 30, 2010, if the children are already covered under the employer’s plan or are added to the employer’s plan at any time. For this purpose, a child includes a son, daughter, stepchild, adopted child or eligible foster child. This new age 27 standard replaces the lower age limits that applied under prior tax law, as well as the requirement that a child generally qualify as a dependent for tax purposes.
The notice says that employers with cafeteria plans may permit employees to immediately make pre-tax salary reduction contributions to provide coverage for children under age 27, even if the cafeteria plan has not yet been amended to cover these individuals. Plan sponsors then have until the end of 2010 to amend their cafeteria plan language to incorporate this change.
In addition to changing the tax rules as described above, the Affordable Care Act also requires plans that provide dependent coverage of children to continue to make the coverage available for an adult child until the child turns age 26. The extended coverage must be provided not later than plan years beginning on or after Sept. 23, 2010. The favorable tax treatment described in the notice applies to that extended coverage.

Important Information related to TN federal disaster area

2010-05-10T06:22:00.000-07:00

From IRS.gov

WASHINGTON — Victims of severe storms, flooding, straight-line winds and tornadoes beginning April 30 in Tennessee may qualify for tax relief from the Internal Revenue Service.
The President has declared Benton, Carroll, Cheatham, Crockett, Davidson, Decatur, Dickson, Dyer, Fayette, Gibson, Hardeman, Haywood, Henderson, Hickman, Houston, Humphreys, Madison, Maury, Montgomery, Obion, Rutherford, Sumner, and Williamson Counties disaster areas qualifying for individual assistance.
As a result, the IRS is postponing until June 29 certain deadlines for taxpayers who reside or have a business in the disaster area.
In addition, the IRS will waive the failure to deposit penalties for employment and excise deposits due on or after April 30 and on or before May 17, as long as the deposits are made by May 17.
If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the Postponement Period.
IRS computer systems automatically identify taxpayers located in the covered disaster area and apply automatic filing and payment relief. Affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request tax relief.
Covered Disaster Area
The counties listed above constitutes a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.
Affected Taxpayers
Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.
Grant of Relief
Under section 7508A, the IRS gives affected taxpayers until June 29, 2010, to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after April 30, 2010, and on or before June 29, 2010.
The IRS also gives affected taxpayers until June 29 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (August 20, 2007), that are due to be performed on or after April 30 and on or before June 29.
This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.
The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise deposits due on or after April 30, 2010, and on or before May 17, 2010, provided the taxpayer makes these deposits by May 17.
Casualty Losses
Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.
Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.
Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “Tennessee/Severe Storms, Flooding, Straight-Line Winds and Tornadoes” at the top of the form so that the IRS can expedite the processing of the refund.
Other Relief
The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.
Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Early Payoff? Hmmmmm...

2010-05-10T05:00:00.000-07:00

Found this "different take" on GM's early payoff of its bail-out. This came straight from the New York Times

Truth seekers the nation over, therefore, are indebted to Senator Charles E. Grassley, Republican of Iowa, who in recent days uncovered what he called a government-enabled “TARP money shuffle.” It relates to General Motors, which on April 21 paid the balance of its $6.7 billion loan under the Troubled Asset Relief Program.

G.M. trumpeted its escape from the program as evidence that it had turned the corner in its operations. “G.M. is able to repay the taxpayers in full, with interest, ahead of schedule, because more customers are buying vehicles like the Chevrolet Malibu and Buick LaCrosse,” boasted Edward E. Whitacre Jr., its chief executive.

G.M. also crowed about its loan repayment in a national television ad and the United States Treasury also marked the moment with a press release: “We are encouraged that G.M. has repaid its debt well ahead of schedule and confident that the company is on a strong path to viability,” said Timothy F. Geithner, the Treasury secretary.

Taxpayers are naturally eager for news about bailout repayments. But what neither G.M. nor the Treasury disclosed was that the company simply used other funds held by the Treasury to pay off its original loan.

Neil M. Barofsky, the inspector general overseeing the troubled asset program, revealed this detail when he spoke before the Senate Finance Committee on April 20.

“So it’s good news in that they’re reducing their debt,” Mr. Barofsky said of G.M. But he went on to note that G.M. was using other taxpayer money to make the loan repayment, according to the transcript of his testimony.

Armed with this information, Mr. Grassley fired off a letter to Mr. Geithner on April 22, asking for details of the transaction. “I am concerned ... that this announcement is not what it seems,” he wrote. “In fact, it appears to be nothing more than an elaborate TARP money shuffle.”
Mr. Grassley heard back from the Treasury last Tuesday. Herbert M. Allison Jr., assistant secretary for financial stability, confirmed that the money G.M. used to repay its bailout loan had come from a taxpayer-financed escrow account held for the automaker at the Treasury.
Emphasizing that the cash in the account was “the property of G.M.,” Mr. Allison said that the department had approved the company’s use of the money to retire the original debt because it was “consistent with Treasury’s goal of recovering funds for the taxpayer and exiting TARP investments as soon as practicable.”

It’s certainly understandable that G.M. would want to spin its repayment as proof of improving operations. But Mr. Grassley said he was troubled that the Treasury went along with the public relations campaign and didn’t spell out how the loan was retired.

“The public would know nothing about the TARP escrow money being the source of the supposed repayment from simply watching G.M.’s TV commercials or reading Treasury’s press release,” Mr. Grassley said in a speech on the Senate floor last Wednesday, saying that “many billions” of federal dollars remained invested in G.M.

“Much of it will never be repaid,” Mr. Grassley added. “The Congressional Budget Office estimates that taxpayers will lose around $30 billion on G.M.”
(Taxpayers still own $2.1 billion in preferred stock of G.M. and almost 61 percent of its common equity.)

Greg Martin, a G.M. spokesman, said the company had made no misrepresentations about its repayment. “The bottom line is, our strong business performance has put us in the position that we don’t need these funds,” he said, referring to the cash in the escrow account. “G.M. is performing much better than anyone expected and that does represent a significant milestone for the company.”

And Ron Bloom, senior adviser to Mr. Geithner, bristled at Mr. Grassley’s criticism. “The Treasury Department has tried to be as straight as humanly possible,” he said in an interview. “We have never not been clear about exactly what we paid, exactly the terms of the investment. I’m finding it hard to find anyone obfuscating about this.”

Of course, there is much joy in Mudville when a recipient of government aid repays its obligations. And it is also natural that the administration is keenly interested in reassuring taxpayers that losses on their bailout billions will be smaller than expected. Still, employing spin and selective disclosure is no way to raise taxpayers’ trust in our nation’s leadership.
In an interview, Mr. Grassley said the Treasury had stopped “denying” that G.M. used federal funds to repay its TARP loan, but the fact that Treasury hadn’t been upfront about it still troubled him.

“It emphasizes how misleading Treasury was and how misleading G.M. is as well,” said Mr. Grassley. “I hope Treasury learns its lesson, and that is: Tell it like it is, and if you tell it like it is you don’t get egg on your face.”

Congress looks for new ways to tax financial services

2010-05-09T05:00:00.000-07:00

Taken from MaryDe.Elliston@ThomsonReuters.com
Summary: During a congressional hearing, lawmakers searched for ways to use the tax code to dampen short-term speculation in the financial markets and close the budget deficit. To fix the problem, they suggested changes in tax structures, including discounted capital gains tax for long-term investors, transaction tax, bank tax, and financial speculation tax.
Congress is nearing the final stages of its work on a bill to reregulate Wall Street, but that doesn't mean it's finished with the financial sector. Sen. Sherrod Brown (D-OH) said he wants to find ways to use taxes to erase the short-term, speculative mindset so common to big traders, which he blamed for contributing to the financial crisis. “We can see the effects of short-termism,” said Brown during an April 29, 2001, hearing of the Senate Banking Subcommittee on Economic Policy. “Just look at the oversupply of toxic assets that clogged our credit markets.” Short-termism entails decision making to meet some benchmark today without regard for the needs of, or the costs imposed on, the future, Brown said.
“Most often, the metrics employed are the narrowest of financial measures, like short-term changes in return on equity and share price, which fail to capture the more complex impacts of business and investment as they play out over a longer term,” said Judith Samuelson, executive director of Aspen Institute business and society program.
One cause of short-termism is the “federal securities laws, which encourage Wall Street’s earnings fixation,” said J.W. Verret, assistant professor of law at George Mason University. “This is an example of the unintended consequences of regulation, as the quarterly reporting requirements of the securities laws actually make the problem worse. Analysts predict quarterly earnings, and companies feel pressure to meet those predictions.”
Indeed, according to a McKinsey study, the number of firms offering the market short-term or quarterly forecasts grew from a handful, 92 in 1994 to over 1,200 by the time of the Enron implosion in 2001. From 2004 to 2007, a George Washington Law School study found that 270 of the 500 in the Standard & Poor’s large cap index spent more money on stock buybacks than on productive investments. The immediate effect was a boost in the share price, but many academics criticize buybacks for diverting funds from long-term capital investments.
Damon Silvers, director of policy and special counsel of the AFL-CIO, said that the 10-year rate of return on U.S. equity markets is negative in nominal terms as a result of short-termism. “For our economy—we have seen a period of jobless growth during the real estate bubble be replaced by a period of disastrous job loss,” Silvers said. “In the last 10 years, we have lost over 5 million manufacturing jobs. Workers’ incomes were stagnant in real terms before the bubble burst, and now they have declined much further. Our capital markets have simply failed to invest in the key long term needs of our society—as evidenced by our $2 trillion infrastructure deficit.”
In the 1980s, manufacturing made up 25% of U.S. gross domestic product GDP and financial services made up 11-12%, according to some of the data presented during the hearing. By 2004, manufacturing accounted for only 12% of U.S. economy while financial services were 21%.
To fix the problem, the Aspen Institute recommended several structural changes to give incentives to long-term investors, including imposing an excise tax on trading; capital gains discounts for great holding periods of stock; removing deduction limitations on long-term capital losses; and enhancing shareholder rights for shareholders who meet certain minimum holding period requirements.
Silvers said that the AFL-CIO supports President Obama’s bank tax, which would lessen the effects of short-termism. The organization also wants Congress to consider either changes in capital gains taxes or an excise tax to discourage short-term speculation—a financial speculation tax. “A financial speculation tax is the very simple idea of assessing a very small tax on all financial market transactions—stocks, bonds, commodities, derivatives, futures, and options,” Silvers said.
Sen. Tom Harkin (D-IA) and Rep. Peter DeFazio (D-OR) have sponsored bills proposing a 0.25% tax on securities trading with an exemption for retirement plans.
The Congressional Budget Office estimates the Harkin-DeFazio proposal would generate more than $100 billion a year in revenue.

7 Essential Social Media Instincts Small Businesses Should Learn

2010-05-08T05:00:00.000-07:00

By: Rohit Bhargava
Author, Influential Marketing

In life we expect outgoing people to be better at tasks like networking or sales. We use terms like "extrovert" and "Type-A personality" to describe what many of us believe to be true about many of the people we work with... that seemingly natural parts of their personality make them ideal candidates to do certain types of jobs. Chances are as you have built your own small business, a part of any success you have had has come from your own natural abilities and skills.

The problem with how we think about our natural abilities (and those of others) is that it also forces us to consider that the exact opposite must be true as well. After all, if you can be naturally good at some things, surely you could be naturally bad at other things, right? And being naturally bad at something is a great excuse to just avoid doing something. If you're "not good with numbers" then you get someone else to handle that. Or if you're not a technology guy (or girl) then you can justify not investing in better systems to optimize your business.

This is just silly. Having an inherent ability certainly helps, but it is not a prerequisite - particularly when you consider social media. Many small business owners falsely believe that the more technical you are, the more readily you should be able to use social media. Actually, being good at using social media has very little to do with your technical ability. It does, however, require learning some basic principles and to some degree developing the right instincts. These are guiding principles that anyone who effectively uses social media already knows - but will dramatically help you to use social media like an expert, even if you still think
Java is a kind of coffee...

Be conversational. The first and most important instinct to develop when it comes to social media can be surprisingly difficult for some, and that is to speak, write, and share content in your own real voice. This means using conversational language and writing as you would speak. Social media is rarely a place for marketing or legal type of language - so leave those for your important documents and get as real as you can whenever you post anything.
Listen and respond consistently. It is often said that the basis of social media comes from listening. You insert any cliché here that you like about having twice as many ears as mouths... but the point is that through listening to what people are saying you will know what you need to respond to - particularly if someone posts a message about your business or industry and is seeking a response. The more often you respond, the more social credibility you can build for your organization as one that is listening and cares about the sentiment of the group.
Proactively comment and share. Responding to questions that involve you or your business is the relatively easy part. More difficult is to consistently find reasons to proactively share a comment on a blog post or share content that you find relevant or interesting (particularly when it has nothing to do with your business).
Use questions instead of statements. Open ended questions are a boon in social media, because they invite interaction. So instead of just posting statements of your thoughts or beliefs, how about turning them into questions and seeing who might have an interesting point of view to share. You'll find this one shift makes a big difference in your level of engagement in the long term.
Participate with those who share your passion. There are hundreds of thousands of niche groups on sites like Facebook and also independently created through blogs and sites like Ning.com. There are bound to be groups of people who are in your industry or perhaps even just share the same passions as you. Now there are ways to find them, and doing so can give you an instant community to belong to.
Support online relationships with offline interactions. It would be a sad life if we could get everything we needed just from the web. Despite our advances in technology, there remains no substitute for knowing people in person, so whenever you can support anything you do with social media by going to a local event or meeting people, that would go a long way towards that.
Invest in karma. The last piece of advice is around karma - or the idea that "what goes around comes around." It has been talked about often when it comes to social media, but what most power users of social tools online know is that doing things to help people, sharing knowledge and generally being open to those who connect with you are all good things that pay off in an uncertain way at some point in the future.

There are likely other tips from social media power users on how to build your ability to succeed, but these 7 essentials should help you to get a good start.

Best Practices for Managing Your Independent Contractors

2010-05-07T05:00:00.000-07:00

By Ann Field, Business Insider

If you’re like many small business owners, you hire at least a few independent contractors, instead of regular employees. And, why not? With independent contractors, you don’t have to take care of payroll taxes, unemployment insurance, and a host of other taxes and benefits. So, you not only save a bundle, but you also have a lot more flexibility than you do with a full-fledged staffer.

It’s no wonder that the use of contingent workers is growing at record levels, according to SurePayroll, a Glenview, Ill., payroll processing company that serves small businesses.

There is a hitch, however. When it comes to legal requirements and management considerations, an independent contractor is completely different from a regular employee.

By definition, they’re not a full-time part of your organization. Plus, they probably work for some – perhaps many – other companies, so their loyalties aren’t the same. What’s more, legal definitions of independent contractor status restrict how you can supervise them.

As a result, independent contractors require a different management approach. Here’s what you need to know:

Learn the rules—and how they affect your supervisory tactics.

Your first step is understanding the rules for who qualifies as an independent contractor and the implications for management. Unfortunately, that’s easier said than done, because there’s no uniform definition.

“Determining whether someone is an independent contractor is one of the most complex areas of law facing any business owner,” says Walt Branam, director of compliance services for Collabrus, a San Francisco firm that helps companies manage independent contractors. Worse, a host of federal and state agencies, as well as Congress, are cracking down on what they see as rampant misclassification of independent contractors.

Still, there generally is one underlying theme when determining whether or not someone is an independent contractor: how much control you have over their work. Meaning, for example, if you give directions that are too explicit, or dictate the specific hours the individual has to work, you’re not really treating them like they're an independent contractor. As a result, you need to be more hands-off.

“You should manage for output and results, not specific activities,” says Michael Alter, SurePayroll’s president.

Be smart about how you pay.

For one thing, Alter suggests compensating independent contractors based on reaching certain goals or on a fixed fee, rather than by the hour. That’s because you’re generally paying them for completing a project, not for doing ongoing work. You also don’t want to pay them for time spent, say, fixing a computer problem; that’s something they need to take care of without a meter running.

At the same time, you should not under-pay just because they’re independent contractors. Your goal is to create a partnership. You’ll undermine the relationship – and create resentment – if your compensation level is Scrooge-like. For that reason, you need to do your research beforehand to get an idea of acceptable pay levels.

Use a similar hiring process to the one you use for employees.

You still need to interview candidates, check references, test their capabilities, if appropriate. “If I’m hiring a programmer to do C++ programming, I need to know they know how to do C++ programming,” says Alter.

But your interview questions should focus on the ability and skills needed to work on a defined assignment, rather than a broader set of competencies.

Look for individuals with staying power.

That means selecting candidates who seem likely to continue working as independent contractors for a while, rather than people simply biding their time until they get a regular job. And, while they should have a track record, it's also not a good idea to hire someone who has so much on their plate that they’ll give your company short shrift.

You should ask such questions as how long they’ve been doing this type of work, their future plans, and other clients they work for.

Start with small, non-critical projects.

To make sure they’re a good fit, give them small tasks to begin with. When you see they’re reliable, then start assigning bigger or more complex projects.

Stay in touch after the project is over.

You never know when you’ll have a sudden need for an independent contractor with the same skills. So, make sure you know how to get in touch with people after a project is completed, and maintain contact.
Says Alter: “I can’t tell you how many times we’ve used someone, thinking we’d never use him again, only to find eight months later, we need him right away.”

Health care law's massive, hidden tax change

2010-05-06T08:00:00.000-07:00

I ran across this article during my morning readings...this is going to have a huge impact on all businesses, both large and small

NEW YORK (CNNMoney.com) -- An all-but-overlooked provision of the health reform law is threatening to swamp U.S. businesses with a flood of new tax paperwork.
Section 9006 of the health care bill -- just a few lines buried in the 2,409-page document -- mandates that beginning in 2012 all companies will have to issue 1099 tax forms not just to contract workers but to any individual or corporation from which they buy more than $600 in goods or services in a tax year.
The stealth change radically alters the nature of 1099s and means businesses will have to issue millions of new tax documents each year.
Right now, the IRS Form 1099 is used to document income for individual workers other than wages and salaries. Freelancers receive them each year from their clients, and businesses issue them to the independent contractors they hire.
But under the new rules, if a freelance designer buys a new iMac from the Apple Store, they'll have to send Apple a 1099. A laundromat that buys soap each week from a local distributor will have to send the supplier a 1099 at the end of the year tallying up their purchases.
The bill makes two key changes to how 1099s are used. First, it expands their scope by using them to track payments not only for services but also for tangible goods. Plus, it requires that 1099s be issued not just to individuals, but also to corporations.
Taken together, the two seemingly small changes will require millions of additional forms to be sent out.
"It's a pretty heavy administrative burden," particularly for small businesses without large in-house accounting staffs, says Bill Rys, tax counsel for the National Federation of Independent Businesses.
Eliminating the goods exemption could launch an avalanche of paperwork, he says: "If you cater a lunch for other businesses every Wednesday, say, that's a lot of information to keep track of throughout the year."
The paper trail
Why did these tax code revisions get included in a health-care reform bill? Welcome to Washington. The idea seems to be that using 1099 forms to capture unreported income will generate more government revenue and help offset the cost of the health bill.
A Democratic aide for the Senate Finance Committee, which authored the changes, defended the move.
"Information reporting improves tax compliance without raising taxes on small businesses," the aide said. "Health care reform includes more than $35 billion in tax cuts for small businesses ... indicating that during these tough economic times, Congress is delivering the tax breaks small businesses need to thrive."
The new rules could drastically alter the tax-reporting landscape by spotlighting payments that previously went unreported. Freelancers and other independent operators typically write off stacks of business expenses; having to issue tax paperwork documenting each of them could cut down on fraudulent deductions.
More significantly, the 1099 trail would expose payments to small operators that might now be going unreported. If you buy a computer for your business from a major chain retailer, the seller almost certainly documents the revenue. But if you buy it from Tim's Computer Shack down the street, Tim might not report and pay taxes on his income from the sale.
The IRS estimates that the federal government loses more than $300 billion each year in tax revenue on income that goes unreported. Using 1099s to document millions of transactions that now go untracked is one way to begin to close the gap.
While all but unnoticed at the time -- a Pennsylvania business group issued the first warning last October as the idea emerged in draft Senate legislation -- the 1099 rule changes began sparking attention in the blogosphere in the last week. The libertarian Cato Institute called it a "costly, anti-business nightmare"; Rep. Dan Lungren, R-Calif., introduced legislation last week that would repeal the new 1099 requirements.
The notion of mailing a tax form to Costco or Staples each year to document purchases may seem absurd to small business owners, but that's not the worst of it, tax experts say.
Marianne Couch, a principal with the Cokala Tax Group in Michigan and former chair of a citizen advisory group to the IRS on small business and self-employed tax issues, thinks the bigger headache will be data collection: gathering names and taxpayer identification numbers for every payee and vendor that you do business with.
But she also sees a silver lining in the new law.
Her firm already recommends collecting tax data on all vendors, since the IRS requires that you have it on hand at the time of the transaction, not just at tax-filing time. And eliminating the corporate and goods exemptions at least means that businesses will no longer have to pour over every transaction to determine if it needs a 1099. The new rule is simpler: If it crosses the $600 threshold, it's in.
"There are probably going to be some hiccups along the way, because systems will need to be redesigned," says Couch. "But overall I believe it will make compliance on the payor end a lot more streamlined and easier."
In any case, the final impact of the law won't be known until the IRS issues its regulations on the new law, which aren't expected to arrive until sometime next year. The IRS has not yet commented on when it will release regulations or schedule public hearings, and an agency spokesman was unsure when it will do so. The new requirements kick in January 1, 2012.

Tax changes affecting small business in the 2010 health reform legislation

2010-03-26T12:20:00.000-07:00

From MaryDe.Elliston@thomsonreuters.com

Tax changes affecting small business in the 2010 health reform legislation

For owners of small businesses and their workers, the recently enacted health reform legislation has some key provisions to pay attention to. The major ones include: tax credits; excise taxes; and penalties. But whether a business will be affected by them depends on a variety of factors, such as the number of employees the business has. I'm writing to give you an overview of the provisions in the new law with the biggest impact on small business. Please call our offices for details of how the new changes may affect your specific business.
Tax credits to certain small employers that provide insurance. The new law provides small employers with a tax credit (i.e., a dollar-for-dollar reduction in tax) for nonelective contributions to purchase health insurance for their employees. The credit can offset an employer's regular tax or its alternative minimum tax (AMT) liability.
Small business employers eligible for the credit. To qualify, a business must offer health insurance to its employees as part of their compensation and contribute at least half the total premium cost. The business must have no more than 25 full-time equivalent employees (“FTEs”), and the employees must have annual full-time equivalent wages that average no more than $50,000. However, the full amount of the credit is available only to an employer with 10 or fewer FTEs and whose employees have average annual full-time equivalent wages from the employer of less than $25,000.
Years the credit is available. The credit is initially available for any tax year beginning in 2010, 2011, 2012, or 2013. Qualifying health insurance for claiming the credit for this first phase of the credit is health insurance coverage purchased from an insurance company licensed under state law. For tax years beginning after 2013, the credit is only available to an eligible small employer that purchases health insurance coverage for its employees through a state exchange and is only available for two years. The maximum two-year coverage period does not take into account any tax years beginning in years before 2014. Thus, an eligible small employer could potentially qualify for this credit for six tax years, four years under the first phase and two years under the second phase.
Calculating the amount of the credit. For tax years beginning in 2010, 2011, 2012, or 2013, the credit is generally 35% (50% for tax years beginning after 2013) of the employer's nonelective contributions toward the employees' health insurance premiums. The credit phases out as firm-size and average wages increase. Tax-exempt small businesses meeting these requirements are eligible for payroll tax credits of up to 25% for tax years beginning in 2010, 2011, 2012, or 2013 (35% in tax years beginning after 2013) of the employer's nonelective contributions toward the employees' health insurance premiums.
Special rules. The employer is entitled to an ordinary and necessary business expense deduction equal to the amount of the employer contribution minus the dollar amount of the credit. For example, if an eligible small employer pays 100% of the cost of its employees' health insurance coverage and the amount of the tax credit is 50% of that cost (i.e., in tax years beginning after 2013), the employer can claim a deduction for the other 50% of the premium cost.
Self-employed individuals, including partners and sole proprietors, two percent shareholders of an S corporation, and five percent owners of the employer are not treated as employees for purposes of this credit. Any employee with respect to a self-employed individual is not an employee of the employer for purposes of this credit if the employee is not performing services in the trade or business of the employer. Thus, the credit is not available for a domestic employee of a sole proprietor of a business. There is also a special rule to prevent sole proprietorships from receiving the credit for the owner and their family members. Thus, no credit is available for any contribution to the purchase of health insurance for these individuals and the individual is not taken into account in determining the number of full-time equivalent employees or average full-time equivalent wages.
Most small businesses exempted from penalties for not offering coverage to their employees. Although the new law imposes penalties on certain businesses for not providing coverage to their employees (so-called “pay or play”), most small businesses won't have to worry about this provision because employers with fewer than 50 employees aren't subject to the “pay or play” penalty. For businesses with at least 50 employees, the possible penalties vary depending on whether or not the employer offers health insurance to its employees. If it does not offer coverage and it has at least one full-time employee who receives a premium tax credit, the business will be assessed a fee of $2,000 per full-time employee, excluding the first 30 employees from the assessment. So, for example, an employer with 51 employees who doesn't offer health insurance to his employees will be subject to a penalty of $42,000 ($2,000 multiplied by 21). Employers with at least 50 employees that offer coverage but have at least one full-time employee receiving a premium tax credit will pay $3,000 for each employee receiving a premium credit (capped at the amount of the penalty that the employer would have been assessed for a failure to provide coverage, or $2,000 multiplied by the number of its full-time employees in excess of 30). These provisions take effect Jan. 1, 2014.
The “Cadillac tax” on high-cost health plans. The new law places an excise tax on high-cost employer-sponsored health coverage (often referred to as “Cadillac” health plans). This is a 40% excise tax on insurance companies, based on premiums that exceed certain amounts. The tax is not on employers themselves unless they are self-funded (this typically occurs at larger firms). However, it is expected that employers and workers will ultimately bear this tax in the form of higher premiums passed on by insurers.
Here are the specifics: The new tax, which applies for tax years beginning after Dec. 31, 2017, places a 40% nondeductible excise tax on insurance companies and plan administrators for any health coverage plan to the extent that the annual premium exceeds $10,200 for single coverage and $27,500 for family coverage. An additional threshold amount of $1,650 for single coverage and $3,450 for family coverage will apply for retired individuals age 55 and older and for plans that cover employees engaged in high risk professions. The tax will apply to self-insured plans and plans sold in the group market, but not to plans sold in the individual market (except for coverage eligible for the deduction for self-employed individuals). Stand-alone dental and vision plans will be disregarded in applying the tax. The dollar amount thresholds will be automatically increased if the inflation rate for group medical premiums between 2010 and 2018 is higher than the Congressional Budget Office (CBO) estimates in 2010. Employers with age and gender demographics that result in higher premiums could value the coverage provided to employees using the rates that would apply using a national risk pool. The excise tax will be levied at the insurer level. Employers will be required to aggregate the coverage subject to the limit and issue information returns for insurers indicating the amount subject to the excise tax.
I hope this information is helpful. If you would like more details about these provisions or any other aspect of the new law, please do not hesitate to call.

Tax Changes Affecting Individuals in the 2010 Health Reform Legislation

2010-03-26T09:19:00.000-07:00

From MaryDe.Ellison@thomsonreuters.com

Tax changes affecting individuals in the 2010 health reform legislation

I'm writing to give you a brief overview of the key tax changes affecting individuals in the recently enacted health reform legislation. Please call our offices for details of how the new changes may affect your specific situation.
Individual mandate. The new law contains an “individual mandate”—a requirement that U.S. citizens and legal residents have qualifying health coverage or be subject to a tax penalty. Under the new law, those without qualifying health coverage will pay a tax penalty of the greater of: (a) $695 per year, up to a maximum of three times that amount ($2,085) per family, or (b) 2.5% of household income over the threshold amount of income required for income tax return filing. The penalty will be phased in according to the following schedule: $95 in 2014, $325 in 2015, and $695 in 2016 for the flat fee or 1.0% of taxable income in 2014, 2.0% of taxable income in 2015, and 2.5% of taxable income in 2016. Beginning after 2016, the penalty will be increased annually by a cost-of-living adjustment. Exemptions will be granted for financial hardship, religious objections, American Indians, those without coverage for less than three months, aliens not lawfully present in the U.S., incarcerated individuals, those for whom the lowest cost plan option exceeds 8% of household income, those with incomes below the tax filing threshold (in 2010 the threshold for taxpayers under age 65 is $9,350 for singles and $18,700 for couples), and those residing outside of the U.S.
Premium assistance tax credits for purchasing health insurance. The centerpiece of the health care legislation is its provision of tax credits to low and middle income individuals and families for the purchase of health insurance. For tax years ending after 2013, the new law creates a refundable tax credit (the “premium assistance credit”) for eligible individuals and families who purchase health insurance through an exchange. The premium assistance credit, which is refundable and payable in advance directly to the insurer, subsidizes the purchase of certain health insurance plans through an exchange. Under the provision, an eligible individual enrolls in a plan offered through an exchange and reports his or her income to the exchange. Based on the information provided to the exchange, the individual receives a premium assistance credit based on income and IRS pays the premium assistance credit amount directly to the insurance plan in which the individual is enrolled. The individual then pays to the plan in which he or she is enrolled the dollar difference between the premium assistance credit amount and the total premium charged for the plan. For employed individuals who purchase health insurance through an exchange, the premium payments are made through payroll deductions.
The premium assistance credit will be available for individuals and families with incomes up to 400% of the federal poverty level ($43,320 for an individual or $88,200 for a family of four, using 2009 poverty level figures) that are not eligible for Medicaid, employer sponsored insurance, or other acceptable coverage. The credits will be available on a sliding scale basis. The amount of the credit will be based on the percentage of income the cost of premiums represents, rising from 2% of income for those at 100% of the federal poverty level for the family size involved to 9.5% of income for those at 400% of the federal poverty level for the family size involved.
Higher Medicare taxes on high-income taxpayers. High-income taxpayers will be hit with a double whammy: a tax increase on wages and a new levy on investments.
Higher Medicare payroll tax on wages. The Medicare payroll tax is the primary source of financing for Medicare's hospital insurance trust fund, which pays hospital bills for beneficiaries, who are 65 and older or disabled. Under current law, wages are subject to a 2.9% Medicare payroll tax. Workers and employers pay 1.45% each. Self-employed people pay both halves of the tax (but are allowed to deduct half of this amount for income tax purposes). Unlike the payroll tax for Social Security, which applies to earnings up to an annual ceiling ($106,800 for 2010), the Medicare tax is levied on all of a worker's wages without limit.
Under the provisions of the new law, which take in 2013, most taxpayers will continue to pay the 1.45% Medicare hospital insurance tax, but single people earning more than $200,0000 and married couples earning more than $250,000 will be taxed at an additional 0.9% (2.35% in total) on the excess over those base amounts. Employers will collect the extra 0.9% on wages exceeding $200,000 just as they would withhold Medicare taxes and remit them to the IRS. Companies wouldn't be responsible for determining whether a worker's combined income with his or her spouse made them subject to the tax. Instead, some employees will have to remit additional Medicare taxes when they file income tax returns, and some will get a tax credit for amounts overpaid. Self-employed persons will pay 3.8% on earnings over the threshold. Married couples with combined incomes approaching $250,000 will have to keep tabs on their spouses' pay to avoid an unexpected tax bill. It should also be noted that the $200,000/$250,000 thresholds are not indexed for inflation, so it is likely that more and more people will be subject to the higher taxes in coming years.
Medicare payroll tax extended to investments. Under current law, the Medicare payroll tax only applies to wages. Beginning in 2013, a Medicare tax will, for the first time, be applied to investment income. A new 3.8% tax will be imposed on net investment income of single taxpayers with AGI above $200,000 and joint filers over $250,000 (unindexed). Net investment income is interest, dividends, royalties, rents, gross income from a trade or business involving passive activities, and net gain from disposition of property (other than property held in a trade or business). Net investment income is reduced by properly allocable deductions to such income. However, the new tax won't apply to income in tax-deferred retirement accounts such as 401(k) plans. Also, the new tax will apply only to income in excess of the $200,000/$250,000 thresholds. So if a couple earns $200,000 in wages and $100,000 in capital gains, $50,000 will be subject to the new tax. Because the new tax on investment income won't take effect for three years, that leaves more time for Congress and the IRS to tinker with it. So we can expect lots of refinements and “clarifications” between now and when the tax is actually rolled out in 2013.
Floor on medical expenses deduction raised from 7.5% of adjusted gross income (AGI) to 10%. Under current law, taxpayers can take an itemized deduction for unreimbursed medical expenses for regular income tax purposes only to the extent that those expenses exceed 7.5% of the taxpayer's AGI. The new law raises the floor beneath itemized medical expense deductions from 7.5% of AGI to 10%, effective for tax years beginning after Dec. 31, 2012. The AGI floor for individuals age 65 and older (and their spouses) will remain unchanged at 7.5% through 2016.
Limit reimbursement of over-the-counter medications from HSAs, FSAs, and MSAs. The new law excludes the costs for over-the-counter drugs not prescribed by a doctor from being reimbursed through a health reimbursement account (HRA) or health flexible savings accounts (FSAs) and from being reimbursed on a tax-free basis through a health savings account (HSA) or Archer Medical Savings Account (MSA), effective for tax years beginning after Dec. 31, 2010.
Increased penalties on nonqualified distributions from HSAs and Archer MSAs. The new law increases the tax on distributions from a health savings account or an Archer MSA that are not used for qualified medical expenses to 20% (from 10% for HSAs and from 15% for Archer MSAs) of the disbursed amount, effective for distributions made after Dec. 31, 2010.
Limit health flexible spending arrangements (FSAs) to $2,500. An FSA is one of a number of tax-advantaged financial accounts that can be set up through a cafeteria plan of an employer. An FSA allows an employee to set aside a portion of his or her earnings to pay for qualified expenses as established in the cafeteria plan, most commonly for medical expenses but often for dependent care or other expenses. Under current law, there is no limit on the amount of contributions to an FSA. Under the new law, however, allowable contributions to health FSAs will capped at $2,500 per year, effective for tax years beginning after Dec. 31, 2012. The dollar amount will be indexed for inflation after 2013.
Dependent coverage in employer health plans. Effective on the enactment date, the new law extends the general exclusion for reimbursements for medical care expenses under an employer-provided accident or health plan to any child of an employee who has not attained age 27 as of the end of the tax year. This change is also intended to apply to the exclusion for employer-provided coverage under an accident or health plan for injuries or sickness for such a child. A parallel change is made for VEBAs and 401(h) accounts. Also, self-employed individuals are permitted to take a deduction for the health insurance costs of any child of the taxpayer who has not attained age 27 as of the end of the tax year.
Excise tax on indoor tanning services. The new law imposes a 10% excise tax on indoor tanning services. The tax, which will be paid by the individual on whom the tanning services are performed but collected and remitted by the person receiving payment for the tanning services, will take effect July 1, 2010.
Liberalized adoption credit and adoption assistance rules. For tax years beginning after Dec. 31, 2009, the adoption tax credit is increased by $1,000, made refundable, and extended through 2011 The adoption assistance exclusion is also increased by $1,000.
I hope this information is helpful. If you would like more details about these provisions or any other aspect of the new law, please do not hesitate to call.

Key Provisions of 2010 Hire Act

2010-03-24T02:00:00.000-07:00

The President is expected to soon sign into law the “Hiring Incentives to Restore Employment Act of 2010” (the 2010 HIRE Act), the centerpiece of which is a payroll tax holiday and up-to-$1,000 tax credit for businesses that hire unemployed workers. Here's an overview of these new hiring incentives.
To help stimulate the hiring of workers by the private sector, the new law exempts any private-sector employer that hires a worker who had been unemployed for at least 60 days from having to pay the employer's 6.2% share of the Social Security payroll tax on that employee for the remainder of 2010. A company could save a maximum of $6,621 if it hired an unemployed worker and paid that worker at least $106,800—the maximum amount of wages subject to Social Security taxes—by the end of the year. As an additional incentive, for any qualifying worker hired under this initiative that the employer keeps on payroll for a continuous 52 weeks, the employer is eligible for an additional non-refundable tax credit of up to $1,000 after the 52-week threshold is reached, to be taken on their 2011 tax return. In order to be eligible, the employee's pay in the second 26-week period must be at least 80% of the pay in the first 26-week period.
Workers hired after the date of introduction of the legislation (Feb. 3, 2010) are eligible for the payroll tax forgiveness and the retention bonus, but only wages paid after the date of the new law's enactment receive the exemption for payroll taxes.
Here are some additional features of the new hiring incentive:
· The tax benefit of the new incentive is immediate. It puts money into a business' cash flow immediately, since the tax is simply not collected in the first place.
· The tax benefit generally applies only to private-sector employment, including nonprofit organizations—public sector jobs are generally not eligible for either benefit. However, employment by a public higher education institution would qualify.
· There is no minimum weekly number of hours that the new employee must work for the employer to be eligible, and there is no maximum on the dollar amount of payroll taxes per employer that may be forgiven.
· For workers that would otherwise be eligible for the “Work Opportunity Tax Credit,” the employer must select one benefit or the other for 2010—no double dipping.
· An employer can't claim the new tax breaks for hiring family members.
· A worker who replaces another employee who performed the same job for the employer is not eligible for the benefit, unless the prior employee left the job voluntarily or for cause.
· For the hiring to qualify, the new hire must sign an affidavit, under penalties of perjury, stating that he or she has not been employed for more than 40 hours during the 60-day period ending on the date the employment begins.
· The incentive is not biased towards either low-wage or high-wage workers. Under the measure, a business saves 6.2% on both a $40,000 worker and a $90,000 worker.
· The payroll tax holiday does not apply with respect to wages paid during the first calendar quarter of 2010, but the amount by which the Social Security payroll tax would have been reduced under the payroll tax holiday provision during the fist calendar quarter is applied against the tax imposed on the employer for the second calendar quarter of 2010.
· The Act creates a similar new set of rules permitting a payroll tax holiday for railroad retirement tax purposes.
· The credit for retaining qualifying new hires is the lesser of $1,000 or 6.2% of the wages paid by the taxpayer to the retained worker during the 52-consecutive-week period. Thus, the credit for a retained worker will be $1,000 if, disregarding rounding, the retained worker's wages during the 52-consecutive-week period exceed $16,129.03. However, the credit is not available for pay not treated as wages under the Code (e.g., remuneration paid to domestic workers).

IRS WORKS TO IMPROVE ITS TOLL-FREE TELEPHONE SERVICE

2010-03-23T02:00:00.000-07:00

IRS is aiming to improve the level of service—its primary measure of providing taxpayers with access to an assistor—of its toll-free telephone program for the 2010 filing season, according to a Treasury Inspector General for Tax Administration (TIGTA) audit released on March 16. The agency's goal is to provide a 71.2% level of service which would be a marked improvement when compared to the last filing season. The level of service over the past four years was as follows: 82% for the 2006 filing season; 82.5% for the 2007 filing season; 77.4% for the 2008 filing season; and 64% for the 2009 filing season. The audit discussed several measures IRS is taking for this filing season. First, the agency plans to increase the number of assistors available during the fiscal year. Second; IRS has established six applications to handle American Recovery and Reinvestment Act of 2009 call volume. The toll-free lines are subdivided into categories called applications, each of which is staffed by assistors who have received specialized training on specific tax issues. Third, the agency has been developing a Web-based application for taxpayers who do not have their prior year adjusted gross income (AGI) or Personal Identification Number.

IRS Updates Allowable Living Expense Standards

2010-03-22T02:00:00.000-07:00

The Internal Revenue Service has released the 2010 update to its Allowable Living Expense Standards, which it applies to taxpayers who need to delay full payment of delinquent taxes.
The ALE standards are used to reduce subjectivity in determining what a taxpayer may claim as basic living expenses necessary to avoid undue hardship when the taxpayer must delay full payment of a delinquent tax. The standard allowances are intended to provide consistency and fairness in collection determinations by incorporating average expenditures for basic necessities for citizens in similar geographic areas.
The IRS provides national standards for food, clothing and other items, and out-of-pocket health care expenses. Local standards are provided for housing and utilities for different states. For transportation costs, there are national standards for public transportation expenses and car ownership costs, but local standards for automobile operating costs in different parts of the country.

House passes Chile Contribution bill - Awaits action by Senate

2010-03-21T02:00:00.000-07:00

From CPA Letter Daily

The House unanimously approved bipartisan legislation on Wednesday to allow individuals who make charitable contributions to victims of the earthquake in Chile (prior to April 15, 2010) to claim an itemized charitable deduction on their 2009 tax return instead of having to wait until next year to claim these deductions on their 2010 tax return.

The bill, H.R. 4783, also includes a provision that would extend the ability to claim the charitable deduction for contributions made to assist victims of the earthquake in Haiti to the same date on 2009 tax returns. The bipartisan measure was introduced Tuesday by Ways and Means Committee Chairman Sander M. Levin, D-Mich., and ranking member Dave Camp, R-Mich.
“After seeing the immense devastation caused by the earthquakes in Chile and Haiti, we all want to ensure that the American people can join together to express our support and our alliance with the people of these two countries,” said Levin in a statement.

“I am pleased that this important legislation passed the House unanimously, showing the desire of the Congress to find ways to help the victims of the earthquakes in Chile and Haiti,” said Camp in a statement. “I hope it will be promptly passed by the Senate and get the President’s signature.”

On Jan. 20, 2010, the House unanimously passed H.R. 4462, legislation that allows individuals who make charitable contributions to assist victims of the earthquake in Haiti to claim an itemized charitable deduction on their 2009 tax return. President Obama signed the bill into law on Jan. 22, 2010.

In January 2005, Congress enacted similar relief for individuals who made charitable contributions to assist victims of the Indian Ocean tsunami that occurred in late December of 2004. That bill (H.R. 241 in the 109th Congress) passed the House without objection and subsequently passed the

IRS boosts criminal investigations in 2009

2010-03-20T02:00:00.000-07:00

The Internal Revenue Service said it started a total of 4,121 criminal investigations in 2009, compared with 3,749 a year earlier.
The rise comes amid a busy time for U.S. tax prosecutors. Last year, Swiss bank UBS AG agreed to pay $780 million and hand over information for about 4,500 accounts to settle civil and criminal charges against it.
The agency reported a 13 percent rise in the number of probes the government calls "legal source" crimes. This is income from a legal business in which the income was masked or otherwise hidden. Convictions were up slightly for these crimes.
There was also a 13 percent jump among what the government calls illegal-source financial crimes, those funds from sources such as gambling or gun-running, excluding narcotics.
There was a slight drop in initiation of narcotics-related crimes.
The IRS ran a voluntary amnesty program that ended last year that yielded about 15,000 new taxpayers coming clean with the government.
Authorities say they are culling this information to potentially go after other individuals and other financial institutions that may have been helping Americans evade taxes.

IRS announces help for unemployed taxpayers

2010-03-19T02:00:00.000-07:00

From IRS.gov

The Internal Revenue Service has announced several additional steps it is taking this tax season to help people having difficulties meeting their tax obligations because of unemployment or other financial problems.
The steps –– an expansion of efforts that began more than a year ago –– include additional flexibility on offers in compromise for struggling taxpayers, a series of Saturday “open houses” offering taxpayers extra opportunities to work out tax problems face to face with the IRS, special outreach with partner groups to unemployed taxpayers and the availability of more information on a special section of the IRS Web site.

Chances of Being Audited

2010-03-18T02:00:00.000-07:00

From IRS Data Book

Of the 138,788,744 total individual income tax returns with a filing requirement (this excludes returns filed only to receive an economic stimulus payment), 1,425,888 were audited. This works out to roughly 1%, the same percentage as for the previous year. Of the total number of individual income tax returns audited in FY 2009, 508,180 (35.64%) were for returns with an earned income tax credit (EITC) claim, roughly the same as for FY 2008.

Only 22.8% of the individual audits were conducted by revenue agents, tax compliance officers, and tax examiners; the bulk of the audits (about 77.1%) were correspondence audits. These percentages are comparable to those for FY 2008.

Following are the selected audit rates for individuals not claiming the EITC:
· For business returns other than farm returns showing total gross receipts of $100,000 to $200,000, 4.2% of returns were audited in FY 2009, versus 3.8% in FY 2008.
· For business returns other than farm returns showing total gross receipts of $200,000 or more, 3.2% of returns were audited in FY 2009, versus 3.1% in FY 2008.
· Of the returns showing farm (Schedule F) income, .3% were audited in FY 2009 versus .6% in FY 2008.
· For returns showing total positive income of $200,000 to $1 million, 2.3% of returns not showing business activity were audited, and 3.1% of returns showing business activity were audited; for FY 2008, these percentages were 2.6% and 2.8% respectively.
· For FY 2009, the audit rate for returns with total positive income of $1 million or more was 6.4%, versus 5.6% in FY 2008.
Not surprisingly, examination coverage increases for higher income earners, but coverage was less than it was for the prior year. For example, the percentage was .67% for those returns with adjusted gross income (AGI) between $100,000 and $200,000 (down from .98% for FY 2008), 1.86% for those with $200,000 to $500,000 of AGI (down slightly from 1.92% for FY 2008), and 5.35% for those with $1 to $2 million of AGI (down from 6.47% for FY 2008).

IRS reveals annual "Dirty Dozen" scam list

2010-03-17T16:18:00.000-07:00

From IRS.gov

IRS has identified the following tax scams as this year's “Dirty Dozen:”
Return preparer fraud. Dishonest tax return preparers can cause many problems for taxpayers who fall victim to their ploys. IRS is implementing a number of steps for future filing seasons. These include a requirement that all paid tax return preparers register with IRS and obtain a preparer tax identification number (PTIN), as well as both competency tests and ongoing continuing professional education for all paid tax return preparers except attorneys, certified public accountants (CPAs) and enrolled agents (see related article in Federal Taxes Weekly Alert 01/07/2010).

Hiding income offshore. IRS aggressively pursues taxpayers and promoters involved in abusive offshore transactions. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through other entities. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or life insurance plans. IRS agents continue to develop their investigations of these offshore tax avoidance transactions using information gained from over 14,700 voluntary disclosures received last year. By making a voluntary disclosure, taxpayers may mitigate their risk of criminal prosecution. For IRS's recent settlement offer for those that voluntarily disclose unreported offshore income, see Federal Taxes Weekly Alert 04/02/2009.

Phishing. This is a tactic used by Internet-based scam artists to trick unsuspecting victims into revealing personal or financial information. The criminals use the information to steal the victim's identity, access bank accounts, run up credit card charges or apply for loans in the victim's name. Phishing scams often take the form of an e-mail that appears to come from a legitimate source. IRS never initiates unsolicited e-mail contact with taxpayers about their tax issues.

Filing false or misleading forms. IRS is seeing scam artists file false or misleading returns to claim refunds that they are not entitled to. Frivolous information returns, such as Form 1099-Original Issue Discount (OID), claiming false withholding credits are used to legitimize erroneous refund claims.

Nontaxable Social Security benefits with exaggerated withholding. IRS has identified returns where taxpayers report nontaxable Social Security benefits with excessive withholding. This tactic results in no income reported to IRS on the tax return. Often both the withholding amount and the reported income are incorrect. Taxpayers should avoid making these mistakes. Filings of this type of return may result in a $5,000 penalty.

Abuse of charitable organizations and deductions. IRS continues to observe the misuses of tax-exempt organizations. These include arrangements to improperly shield income or assets from taxation, as well as attempts by donors to maintain control over donated assets or income from donated property. IRS also continues to investigate various schemes involving the donation of non-cash assets, including easements on property, closely-held corporate stock and real property.

Frivolous arguments. Promoters of frivolous schemes encourage people to make unreasonable and unfounded claims to avoid paying the taxes they owe. IRS has a list of frivolous legal positions that taxpayers should stay away from. Taxpayers who file a tax return or make a submission based on one of the positions on the list are subject to a $5,000 penalty.

Abusive retirement plans. IRS continues to uncover abuses in retirement plan arrangements, including Roth IRAs. IRS is looking for transactions that taxpayers are using to avoid the limitations on contributions to IRAs as well as transactions that are not properly reported as early distributions. Taxpayers should be wary of advisers who encourage them to shift appreciated assets at less than fair market value into IRAs to circumvent annual contribution limits. Other variations have included the use of limited liability companies (LLC) to engage in activity that is considered prohibited.

Disguised corporate ownership. Some taxpayers form corporations and other entities in certain states for the primary purpose of disguising the ownership of a business or financial activity. Such entities can be used to facilitate underreporting of income, fictitious deductions, non-filing of tax returns, participating in listed transactions, money laundering, financial crimes, and even terrorist financing. IRS is working with state authorities to identify these entities and to bring the owners of these entities into compliance.

Zero wages. Filing a phony wage- or income-related information return to replace a legitimate information return has been used as an illegal method to lower the amount of taxes owed.
Misuse of trusts. For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. They promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the promised tax benefits and are being used primarily as a means to avoid income tax liability and hide assets from creditors, including IRS.

Fuel tax credit scams. IRS is receiving claims for the fuel tax credit that are unreasonable. Some taxpayers, such as farmers who use fuel for off-highway business purposes, may be eligible for the fuel tax credit. But some individuals are claiming the tax credit for nontaxable uses of fuel when their occupation or income level makes the claim unreasonable. Fraud involving the fuel tax credit is considered a frivolous tax claim, potentially subjecting those who improperly claim the credit to a $5,000 penalty.

Americans Eager to Spend Tax Refunds

2010-03-12T02:00:00.000-08:00

From WebCPA Daily

After two years of paying down debt and skipping family vacations, many Americans cautiously intend to start spending their tax refunds once again.

According to a new survey by the National Retail Federation, conducted by BIGresearch, 12.5 percent of people expecting a refund plan to treat themselves or their families to a major purchase such as a new television, furniture or car, up from 11 percent last year. Others say they will stash their refund away in savings (40.3 percent), put it toward everyday expenses (28.8 percent) or go on vacation (10 percent).
The survey also found that 43.9 percent of Americans expecting a refund plan to pay down debt, compared to 48 percent in 2009. However, only 65.5 percent of taxpayers are expecting a refund, down from 68.4 percent last year.

“A little bit of ‘free money’ will go a long way for Americans this year,” said NRF president and CEO Tracy Mullin in a statement. “Retailers planning special promotions over the next few months may find that shoppers are a bit more receptive to opening up their wallets than they have been for the past year.”
As the Internet becomes more of a mainstay in homes across the country, the number of people who file their taxes online continues to increase. This year, 54.4 percent of U.S. taxpayers will file their taxes online, up from 50.1 percent in 2007. In addition, one-third (33.6 percent) of consumers will prepare their taxes using computer software, 23.5 percent will use an accountant, 17.6 percent will use a tax preparation service, and 11.8 percent will have a friend, spouse or other relative prepare their taxes for them and will prepare their taxes by hand.
According to the survey, 60.6 percent of Americans filed their taxes by the end of February, meaning that many tax returns have already been received or are on the way. An additional 24.4 percent will file in March, and 15 percent will wait until the last minute and file in April.

IRS imposter racks up $55K hotel bill

2010-03-11T02:00:00.000-08:00

From WEBCPA Daily

A woman who claimed to be an IRS agent working on an extended investigation amassed an unpaid bill of over $55,000 while staying at a California hotel for about two years, and is now facing up to three years in prison.
Sherry Lynn Vertoch, 64, pleaded guilty in late February to impersonating a federal officer and is now being sued by the hotel for breach of contract. In addition to her prison sentence, Vertoch also could be fined $250,000.
Vertoch frequently stayed at the Inn Marin Hotel going back to 2002, according to the San Jose Mercury News, and usually paid in cash, before beginning a two-year-long stay in 2008. She repeatedly told hotel staff that she was a contract employee at the IRS, even though she never worked there, and that they should invoice her for the $79 per night room.

She said she would forward the invoices to her superiors at the IRS, but they would not be able to pay her until the completion of her investigation. She claimed to be a member of an elite team that specialized in investigating large corporations, including Enron, according to the Marin Independent Journal.
One of the hotel’s co-owners, Robert Marshall, told her that he “could not afford to finance the Internal Revenue Service,” and she suggested that he send an invoice to “Accounting Department Federal Investigation IRS.” After he contacted the Treasury Department and learned she was not an IRS employee, she was arrested, according to the San Francisco Chronicle.
The hotel is suing her for $55,175.25 in guest fees, expenses and charges for pet care. She is currently in federal custody and is scheduled to be sentenced on April 20 in U.S. District Court in San Francisco.

Earned Income Tax Credit Changes

2010-03-10T02:00:00.000-08:00

More workers and working families are eligible for the Earned Income Tax Credit. In particular, expanded benefits are now available for those with three or more qualifying children and married couples. The EITC helps taxpayers whose incomes are below certain income thresholds, which in 2009 rise to:
$48,279 for families with three or more qualifying children
$45,295 for those with two or more children
$40,463 for people with one child
$18,440 for those with no children
One in six taxpayers can claim the EITC, which, unlike most tax breaks, is refundable, meaning that individuals can get it even if they owe no tax and even if no tax is withheld from their paychecks.
In addition, the earned income formula for the additional child tax credit is revised for tax years 2009 and 2010. As a result, more low and moderate income families qualify for the full $1,000 child tax credit. See Form 8812 for more information.

IRS To Honor Medical Resident FICA Refund Claims

2010-03-09T02:00:00.000-08:00

WASHINGTON — The Internal Revenue Service has made an administrative determination to accept the position that medical residents are excepted from FICA taxes based on the student exception for tax periods ending before April 1, 2005, when new IRS regulations went into effect.
The IRS will, within 90 days, begin contacting hospitals, universities and medical residents who filed FICA (Social Security and Medicare tax) refund claims for these periods with more information and procedures. Employers and individuals with pending claims do not need to take any action at this time.
For more information, call 1-800-919-1703 or visit www.irs.gov/charities and click on Medical Resident FICA Refund Claims. Taxpayers with currently pending suits should contact the Department of Justice attorney assigned to the case.

New Car Buyer Incentives

2010-03-08T02:00:00.000-08:00

New car buyers can deduct the state or local sales or excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles. There is no limit on the number of vehicles that may be purchased, and eligible taxpayers may claim the deduction for taxes paid on multiple purchases. However, the deduction is limited to the tax on up to $49,500 of the purchase price of each qualifying new vehicle. Qualifying new vehicles must be purchased, not leased, after Feb. 16, 2009, and before Jan. 1, 2010.
Taxpayers who buy a new vehicle may deduct state or local fees or taxes that are similar to a sales tax whether or not their state imposes a sales tax. To qualify, the fees or taxes must be assessed on the purchase of the vehicle and must be based on the vehicle’s sales price or as a per-unit fee.
The amount of the deduction is reduced for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers. This deduction is available regardless of whether a taxpayer itemizes deductions on Schedule A. Itemizers claim the deduction on either Line 5 or Line 7 of Schedule A. See the Schedule A instructions for details. Non-itemizers claim the deduction on new Schedule L, Standard Deduction for Certain Filers.

Deadlines Quickly Approach

2010-03-07T07:01:00.000-08:00

Deadlines for filing certain business tax returns are quickly approaching. The following summarizes those deadlines that are occurring soon:

March 15...corporate, s corporation and LLC entities treated as corporations or s-corporations tax returns;
April 15...individual or personal income tax returns, partnership returns and LLC entities treated as single member or partnerships.

Please contact our office at 615 746-4632 to schedule your appointment with our friendly, professional team.

Residential Energy Efficient Property Credit

2010-03-07T02:00:00.000-08:00

Residential Energy Efficient Property Credit: Homeowners going green should also check out a second tax credit designed to spur investment in alternative energy equipment. The residential energy efficient property credit, equals 30 percent of what a homeowner spends on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property. Qualifying property purchased for new construction or an existing home is eligible for the credit. Generally, labor costs are included when calculating this credit. Also, no cap exists on the amount of credit available except in the case of fuel cell property.
Not all energy-efficient improvements qualify for these tax credits. For that reason, homeowners should check the manufacturer’s tax credit certification statement before purchasing or installing any of these improvements. The certification statement can usually be found on the manufacturer’s Web site or the product packaging. Normally, a homeowner can rely on this certification. The IRS cautions that the manufacturer’s certification is different from the Department of Energy’s Energy Star label, and not all Energy Star labeled products qualify for the tax credits. Use Form 5695, Residential Energy Credits, to figure and claim these credits.

Coverdell Education Savings Plans

2010-03-06T02:00:00.000-08:00

This account was created as an incentive to help parents and students save for education expenses. Unlike a 529 plan, a Coverdell ESA can be used to pay a student’s eligible k-12 expenses, as well as post-secondary expenses. On the other hand, income limits apply to contributors, and the total contributions for the beneficiary of this account cannot be more than $2,000 in any year, no matter how many accounts have been established. A beneficiary is someone who is under age 18 or is a special needs beneficiary.
Contributions to a Coverdell ESA are not deductible, but amounts deposited in the account grow tax free until distributed. The beneficiary will not owe tax on the distributions if they are less than a beneficiary’s qualified education expenses at an eligible institution. This benefit applies to qualified higher education expenses as well as to qualified elementary and secondary education expenses.
Here are some things to remember about distributions from Coverdell accounts:
Distributions are tax-free as long as they are used for qualified education expenses, such as tuition and fees, required books, supplies and equipment and qualified expenses for room and board.
There is no tax on distributions if they are for enrollment or attendance at an eligible educational institution. This includes any public, private or religious school that provides elementary or secondary education as determined under state law. Virtually all accredited public, nonprofit and proprietary (privately owned profit-making) post-secondary institutions are eligible.
Education tax credits can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell ESA, as long as the same expenses are not used for both benefits.
If the distribution exceeds qualified education expenses, a portion will be taxable to the beneficiary and will usually be subject to an additional 10% tax. Exceptions to the additional 10% tax include the death or disability of the beneficiary or if the beneficiary receives a qualified scholarship.

President Signs Extension of COBRA 65% Subsidy

2010-03-05T02:00:00.000-08:00

From Journal of Accountancy
President Barack Obama signed into law on Wednesday the Temporary Extension Act of 2010 (HR 4691), hours after the Senate passed it by a 78–19 vote. The main purpose of the bill is to extend unemployment benefits and health care subsidies for the unemployed, but it also extends through March 31, 2010, a federal tax credit that allows the federal government to subsidize 65% of the cost of COBRA premiums. The law also clarified the treatment of COBRA continuation that results from reductions in hours followed by termination of employment.

The COBRA subsidy was first enacted as part of the American Recovery and Reinvestment Act of 2009, PL 111-5. Under the provision, as long as an eligible individual pays 35% of the premium for COBRA continuation coverage, the group health plan must treat the individual as having paid the full premium. Eligible individuals can receive this subsidy for up to 15 months. Employers are reimbursed for the 65% subsidy by taking a credit on their payroll tax returns.

To be eligible, individuals must have been involuntarily terminated from their employment after Aug. 31, 2008, and before April 1, 2010. The Temporary Extension Act extended the end of the eligible period from Feb. 28, 2010, to March 31, 2010.

The act also added special rules for individuals who lost their health coverage because of a reduction in working hours. Under the act, if an individual did not make a COBRA continuation coverage election when his or her hours were reduced (or made an election but then discontinued COBRA coverage), if the individual is then involuntarily terminated from employment, that will be treated as a qualifying event for COBRA continuation coverage purposes.

IRS has unclaimed refunds

2010-03-04T15:53:00.000-08:00

The Internal Revenue Service said it has unclaimed refunds totaling more than $1.3 billion awaiting nearly 1.4 million people who did not file a federal income tax return for 2006, including over $150,000 in the state of California alone.
To collect the unclaimed money, taxpayers must file a return for 2006 with the IRS no later than Thursday, April 15, 2010. The IRS estimates that the median unclaimed refund for tax-year 2006 is $604.
In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If no return is filed to claim the refund within three years, the money becomes the property of the U.S. Treasury.

By failing to file a return, people stand to lose more than refunds of taxes withheld or paid during 2006. For example, most telephone customers, including most cell phone users, qualify for the one-time telephone excise tax refund. Available only on the 2006 return, this special payment applies to long-distance excise taxes paid on phone service billed from March 2003 through July 2006. The government offers a standard refund amount of $30 to $60, or taxpayers can base their refund request on the actual amount of tax paid. For details, see the Telephone Excise Tax Refund page on IRS.gov.
In addition, many low-and-moderate income workers may not have claimed the Earned Income Tax Credit. The EITC helps individuals and families whose incomes are below certain thresholds, which in 2006 were $38,348 for those with two or more children, $34,001 for people with one child and $14,120 for those with no children. For more information, visit the EITC Home Page.

Deductible Taxes

2010-02-26T05:00:00.000-08:00

Did you know that you may be able to deduct certain taxes on your federal income tax return? The IRS says you can if you file Form 1040 and itemize deductions on Schedule A. Deductions decrease the amount of income subject to taxation. There are four types of deductible non-business taxes:

State and local income and sales taxes;
Real estate taxes;
Personal property taxes; and
Foreign income taxes.

This year, people will have a chance of claiming a state and local tax deduction for either income or sales taxes on their returns.

You can deduct any estimated taxes paid to state or local governments and any prior year's state or local income tax as long as they were paid during the tax year. If deducting sales taxes instead, you may deduct actual expenses or use optional tables provided by the IRS to determine your deduction amount, relieving you of the need to save receipts. Sales taxes paid on motor vehicles and boats may be added to the table amount, but only up to the amount paid to the general sales tax rate.

Taxpayers will check a box on Schedule A, Itemized Deductions, to indicate whether their deduction is for income or sales tax.

Deductible real estate taxes are usually any state, local, or foreign taxes on real property. If a portion of your monthly mortgage payment goes into an escrow account and your lender periodically pays your real estate taxes to local governments out of this account, you can deduct only the amount actually paid during the year to the taxing authorities. Your lender will normally send you a Form 1098, Mortgage Interest Statement, at the end of the tax year with this information. Call us or contact us today to find out how we can save you money!

Selling your Home

2010-02-25T05:00:00.000-08:00

If you sold your main home, you may be able to exclude up to $250,000 of gain ($500,000 for married taxpayers filing jointly) from your federal tax return. This exclusion is allowed each time that you sell your main home, but generally no more frequently than once every two years.

To be eligible for this exclusion, your home must have been owned by you and used as your main home for a period of at least two out of the five years prior to its sale. You also must not have excluded gain on another home sold during the two years before the current sale.

If you and your spouse file a joint return for the year of the sale, you can exclude the gain if either of you qualify for the exclusion. But both of you would have to meet the use test to claim the $500,000 maximum amount.

To exclude gain, a taxpayer must both own and use the home as a principal residence for two of the five years before the sale. The two years may consist of 24 full months or 730 days. Short absences, such as for a summer vacation, count as periods of use. Longer breaks, such as a one-year sabbatical, do not.

If you do not meet the ownership and use tests, you may be allowed to exclude a reduced maximum amount of the gain realized on the sale of your home if you sold your home due to health, a change in place of employment, or certain unforeseen circumstances. Unforeseen circumstances include, for example, divorce or legal separation, natural or man-made disaster resulting in a casualty to your home, or an involuntary conversion of your home. Send us a message for more!

Charitable Contributions

2010-02-24T05:00:00.000-08:00

When preparing to file your federal tax return, don’t forget your contributions to charitable organizations. Your donations can add up to a nice tax deduction for your corporation or your personal taxes if you are a member of a flow-through business entity and itemize deductions on IRS Form 1040, Schedule A.

Here are a few tips to help make sure your contributions pay off on your tax return:

You cannot deduct contributions made to specific individuals, political organizations and candidates, the value of your time or services and the cost of raffles, bingo, or other games of chance.

To be deductible, contributions must be made to qualified organizations.

Organizations can tell you if they are qualified and if donations to them are deductible. IRS.gov has an exempt organization search feature to help you see if an organization is qualified. IRS Publication 78, Cumulative List of Organizations, lists all charitable organizations except those most recently granted tax exempt status. Pub. 78 is available online and in many public libraries. Alternatively, contact us for more!

Amended Returns

2010-02-23T05:00:00.000-08:00

Oops! You’ve discovered an error after your tax return has been filed. What should you do? You may need to amend your return.

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

Your filing status
Your total income
Your deductions or credits

Use Form 1040X, Amended U.S. Individual Income Tax Return, to correct a previously filed paper or electronically-filed Form 1040, 1040A, or 1040EZ return. Be sure to enter the year of the return you are amending at the top of Form 1040X. If you are amending more than one tax return, use a separate 1040X for each year and mail each in a separate envelope to the IRS processing center for your state. The 1040X instructions list the addresses for the centers.

Form 1040X has three columns. Column A is used to show original or adjusted figures from the original return. Column C is used to show the corrected figures. The difference between the figures in Columns A and C is shown in Column B. You should explain the items you are changing and the reason for each change on the back of the form.

If the changes involve another schedule or form, attach it to the 1040X. For example, if you are filing a 1040X because you have a qualifying child and now want to claim the Earned Income Tax Credit, you must complete and attach a Schedule EIC to the amended 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 the prior year, Form 1040X must be filed and the tax paid by April 15 of this year, to avoid any penalty and interest.

You generally must file Form 1040X to claim a refund 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. Please contact us for more!

Haiti Donations Deadline Approaches

2010-02-22T05:50:00.000-08:00

From Webcpa Daily

The Internal Revenue Service reminded taxpayers that the Feb. 28 deadline is fast approaching for Haiti earthquake relief donations that can be deducted this tax season.
Individuals and corporations have until midnight on Sunday, Feb. 28, to make cash contributions to charities providing earthquake relief in Haiti. These contributions can be claimed on either a 2009 or 2010 return, but not both. Contributions made after that date but before the end of the year can only be claimed on a 2010 return.
Contributions made by text message, check, credit card or debit card qualify for this special option. Donations charged to a credit card before the end of February count for 2009. This is true even if the credit card bill isn’t paid until after Feb. 28. Also, checks count for 2009 as long as they are mailed by the end of this month and clear your financial institution shortly thereafter.

Taxpayers can benefit from their donations most quickly by filing their 2009 returns early, filing electronically and choosing direct deposit. Refunds take as few as ten days and can be directly deposited into a savings, checking or brokerage account, or used to purchase Series I U.S. savings bonds.
The special provision on Haiti relief donations, enacted Jan. 22, does not apply to contributions of property. Eligible contributions must be made specifically for the relief of victims in areas affected by the Jan. 12 earthquake in Haiti. Gifts made directly to individual victims are not deductible. Notice 1396, a one-page notice describing this provision, is available on IRS.gov and is printed in English, Spanish, French and Haitian Creole.
To get a tax benefit, individuals must itemize their deductions on Schedule A. Those who claim the standard deduction, including all short-form filers, are not eligible. Taxpayers should be sure their contributions go to qualified charities. Most organizations eligible to receive tax-deductible donations are listed in a searchable online database available on IRS.gov under Search for Charities. Some organizations, such as churches or governments, may be qualified even though they are not listed on IRS.gov. Donors can find out more about organizations helping Haitian earthquake victims from agencies such as USAID.
The IRS noted that donors that contributions to foreign organizations generally are not deductible. IRS Publication 526, Charitable Contributions, provides information on making contributions to charities.
Federal law requires that taxpayers keep a record of any deductible donations they make. For donations by text message, a telephone bill will meet the recordkeeping requirement if it shows the name of the donee organization, the date of the contribution and the amount of the contribution. In addition, for text message donations of $250 or more, taxpayers must obtain a written acknowledgement from the charity.
For cash contributions made by other means, taxpayers should be sure to keep a bank record, such as a cancelled check, or a receipt from the charity showing the name of the charity and the date and amount of the contribution. Publication 526 has further details on the recordkeeping rules for cash contributions.

Making Work Pay Credit

2010-02-22T04:00:00.000-08:00

from www.irs.gov

Most eligible taxpayers qualify for the maximum making work pay credit of $800 for a married couple filing a joint return or $400 for other taxpayers. The credit equals 6.2 percent of earned income up to the maximum amount. Thus, any eligible couple whose earned income is $12,903 or more qualifies for the $800 maximum credit. Other taxpayers qualify for the $400 maximum if their earned income is $6,451 or more.

For most workers, the credit is based on the taxable wages reported to them on Forms W-2. Self-employed individuals figure the credit using the net profit or loss they receive from a business or farm. Additional calculations are necessary for some taxpayers, including those who have net business losses, wages from work performed while a prison inmate or foreign earned income. More information, including a worksheet, can be found in the instructions for Schedule M.

Some taxpayers are not eligible for the making work pay credit, including:

Joint filers whose modified adjusted gross income (MAGI) is $190,000 or more.
Other taxpayers whose MAGI is $95,000 or more.
Anyone who can be claimed as a dependent on someone else’s return.
A taxpayer who doesn’t have a valid social security number.
Joint filers, if neither spouse has a valid Social Security number.
Nonresident aliens.

Other taxpayers qualify for the credit but must reduce the amount of the credit they claim, including:

Joint filers whose MAGI is more than $150,000 but less than $190,000.
Other taxpayers whose MAGI is more than $75,000 but less than $95,000.
Taxpayers who received an economic recovery payment. This special $250 payment was made during 2009 to recipients of Social Security benefits, supplemental security income (SSI), railroad retirement benefits or veterans disability compensation or pension benefits.
Taxpayers who claim the government retiree credit.

See Schedule M and its instructions for details.

Though all eligible taxpayers must file Schedule M to claim the making work pay credit, most workers got the benefit of this credit through larger paychecks, reflecting reduced federal income tax withholding during 2009.

8 Facts about the New Vehicle Sales and Excise Tax Deduction

2010-02-20T12:38:00.001-08:00

Eight Facts about the New Vehicle Sales and Excise Tax Deduction

Taxpayers that purchased a new vehicle in 2009 may be entitled to a special tax deduction for the sales and excise taxes on the purchase regardless of whether the taxpayer takes the itemized or standard deduction on Form 1040.

Here are eight important facts the Internal Revenue Service wants you to know about this deduction.

1. State and local sales and excise taxes paid on up to $49,500 of the purchase price of each qualifying vehicle are deductible.
2. Qualified motor vehicles generally include new cars, light trucks, motor homes and motorcycles.
3. To qualify for the deduction, the new cars, light trucks and motorcycles must weigh 8500 pounds or less. New motor homes are not subject to the weight limit.
4. Purchases must occur after Feb. 16, 2009, and before Jan. 1, 2010.
5. Purchases made in states without a sales tax – such as Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon – may also qualify for the deduction. Taxpayers in these states may be entitled to deduct other qualifying fees or taxes imposed by the state or local government. The fees or taxes that qualify must be assessed on the purchase of the vehicle and must be based on the vehicle’s sales price or as a per unit fee.
6. This deduction can be taken regardless of whether the buyers itemize their deductions or choose the standard deduction. Taxpayers who do not itemize will add this additional amount to the standard deduction on their 2009 tax return.
7. The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.
8. Taxpayers who do not itemize on Schedule A must complete Schedule L, Standard Deduction for Certain Filers to claim the deduction.

Choosing an Accountant for your Small Business

2010-02-20T05:00:00.000-08:00

From Openforum.com

Small business owners often overlook the importance of having a good accountant on their side. The role of the accountant doesn't have to be limited to tax preparation. He can be a valuable adviser for your business year round. Here are some things your accoutant should be involved in for your small business.
Taxes
This is the area of expertise your accoutant should know backwards and forwards. Get an accountant who has a lot of small business clients -- even better, a lot of small business clients in your industry. There are a ton of tax laws and codes, and the more experience your accountant has in your particular industry, the better he can help you optimize your tax planning. He can advise you on common practices and keep you up to date on recent developments. He should also be monitoring your business growth, and be able to advise you on options as you grow. For example, he may recommend that you change your business structure (from LLC to C-Corp) if it looks like you can see significant tax savings based on your earnings. You should also be calling your accountant before you make large purchases or enter into lease agreements to see what options are most beneficial to you from a tax standpoint.
Money Management
Beyond tax considerations, your accountant should be able to advise you on all aspects of your financial planning and management. He can be a sounding board when you are considering an investment for your business. He can guide you through financial hurdles. Whether you have a problem with cash flow, credit, or collecting money due, your accountant should be the first person you call before taking any action. In addition to your business finances, you can go to your accountant for personal finance advice. Because he knows your business so well, he can make good recommendations on how you should save or invest your own money.
Employment Laws
From labor laws to benefits, your accountant can help you navigate through all the rules and regulations required of employers. Once you have employees, you'll need to find out about workers comp insurance, health and retirement benefits, and payroll taxes. If you're not ready to have a full fledged Human Resources department, your accountant can fill in. It can get complicated, and it'll be wise to have an accountant ready to guide you, especially as your business grows. For example, some employment laws only apply after you have a certain number of employees. It's important that someone is on top of the various phases of your business, and sometimes it's just nice if it doesn't have to be you.
Numbers Analysis
Numbers are a second language to accountants. You don't have to be good with numbers if you have an accountant. He can look at your sales figures and determine profitability. He can verify that your debt vs. equity ratio is appropriate. He can be a resource to help you compare your benchmarks within the industry. He can provide profit forecasts, cash flow projections, perform annual audits. These reports can help you greatly in monitoring and optimizing business performance and growth.
Business Financing
A good accountant is invaluable if you are seeking capital. He can help you evaluate various options available for business financing. He can read your financial statements and tell you exactly what your lenders are looking for. He can prepare you for the questions you'll need to answer and the documents you'll need to prepare. Additionally, it's likely that he'll have access to resources and contacts that will give you an edge for obtaining the best financing.
As tax season rolls around, you may want to give more thought to building a relationship with your accountant, or shop around for one who can provide expert advise for your small business.

IRS Issues Statement - Return Processing Not Affected

2010-02-19T14:45:00.000-08:00

In light of the recent Austin tragedy, the IRS wants to reassure Americans that this incident will not affect filing season activities, including tax return processing.
The IRS does not process tax returns or issue refunds at the Echelon 1 Building at 9430 Research Blvd.in Austin, Texas.
During this time, our dedicated workforce continues the work of the IRS, which includes helping taxpayers, processing tax returns and issuing refunds as quickly as possible.

Timely Action on IRA's and Retirement Plan Contributions can cut an individual's 2009 tax bill

2010-02-19T06:18:00.000-08:00

From Thomsonreuters.com

Many individuals think that the time to plan for the 2009 tax year has come and gone, and most of them are right—the door to almost all tax-saving moves for 2009 closed on Dec. 31, 2009. However, as this Practice Alert explains, there are some noteworthy exceptions involving IRA and retirement plan contributions.
Here are some moves clients can take right now to reduce their 2009 adjusted gross income:
Make regular IRA contributions. Contributions to traditional IRAs for tax year 2009 including deductible contributions by those eligible to make them, can be made as late as Apr. 15, 2010. A married client also should be reminded that he or she won't be treated as an active participant in an employer-sponsored retirement plan subject to the usual joint filer's IRA deduction phaseout (for 2009, between $89,000 and $109,000 of modified adjusted gross income (AGI)) merely because his or her spouse is a participant. Instead, the non-active-participant-spouse's IRA deduction phases out over $166,000 to $176,000 of modified AGI.
RIA illustration: For 2009, one spouse has $140,000 of salary income and is covered by a retirement plan, but the other is a home-maker with no earned income. Their combined modified AGI is $160,000. The home-maker can contribute $5,000 to a traditional IRA ($6,000 if age 50 or older) as late as Apr. 15, 2010, and the couple can deduct the full amount on their 2009 return.
Salvage a late-2009 IRA or qualified plan payout. A taxpayer who was financially compelled to take a distribution from a traditional IRA or an individual account in a qualified retirement plan late in 2009, but now has the money to replenish the retirement savings, can avoid taxes on the withdrawal by making a rollover to a traditional IRA generally no later than the 60th day after the day he received the distribution. Thus, for example, a taxpayer who had to withdraw $10,000 from a traditional IRA on Dec. 28, 2009, but now is able to replenish those funds, can avoid paying a tax on the withdrawal by recontributing $10,000 to a traditional IRA no later than Feb. 26, 2010. Even if he doesn't have the full $10,000, he can reduce his tax by rolling over a lesser amount, say $5,000. The 60-day requirement may be waived under some circumstances (see Federal Tax Coordinator ¶H-11472 which discusses the hardship exemptions to the 60-day rule).
Back out of a traditional-IRA-to-Roth-IRA conversion. A taxpayer who converted a traditional IRA to a Roth IRA during 2009 may decide that this wasn't a good tax move after all. For example, the taxpayer may realize that 2010 would be a better time to make the conversion because his tax bracket will be much lower this year than it was last year. Or the taxpayer may have made the conversion when the value of the assets held in the traditional IRA were much higher than they are now. The taxpayer can back out of the conversion by recharacterizing the Roth IRA as a traditional IRA. This involves transferring the converted amount (plus earnings, or minus losses) from the Roth IRA back to a traditional IRA via a direct (trustee-to-trustee) transfer.
RIA illustration: In 2009, Jim converted a traditional IRA invested in a stock fund to a Roth IRA invested in the same stock fund. At that time, the regular IRA had a $50,000 balance, all of it attributable to deductible contributions and their earnings. Jim's Roth IRA currently is worth only $40,000. To avoid paying tax on $10,000 of evaporated income, Jim can recharacterize the Roth IRA as a traditional IRA.
The easiest way to make a recharacterization is to do so by the due date (plus extensions) of the taxpayer's return for the affected year, and reflect it on that year's return. Thus, a taxpayer who made a 2009 conversion may recharacterize it on the return he files on or before Apr. 15, 2010 (he has until Oct. 15, 2010, if he gets an automatic extension of six months to file his 2009 return). However, a taxpayer who timely files his 2009 return without having recharacterized a 2009 conversion may do so as late as six months after the original due date for filing the 2008 return, i.e., by Oct. 15, 2010. If a 2009 conversion is recharacterized after the taxpayer timely files his 2009 return, he should file an amended return for 2009 reflecting the recharacterization.
RIA observation: A person who converted an amount from a traditional IRA to a Roth IRA may not only transfer the amount back to a traditional IRA in a recharacterization, but may later reconvert that amount from the traditional IRA to a Roth IRA. The reconversion cannot be made before the later of: (a) the beginning of the tax year following the tax year in which the amount was converted to a Roth IRA; or (b) the end of the 30-day period beginning on the day on which the IRA owner transfers the amount from the Roth IRA back to a traditional IRA by way of a recharacterization.
Turn a Roth IRA contribution into a traditional IRA contribution. A taxpayer in the process of getting together his documents for return preparation may now realize that a deductible contribution to a traditional IRA for 2009 would be preferable to the nondeductible Roth IRA contribution he actually made in 2009. The recharacterization strategy (if implemented by deadlines shown above for traditional-IRA-to-Roth IRA conversions) allows him to change his mind and get a 2009 deduction.
Shelter self-employment income. A taxpayer who earned self-employment income during 2009 can shelter part of it by making a deductible retirement plan contribution even if he didn't set up a retirement plan before the end of last year. He can both set up and contribute to a SEP (simplified employee pension) as late as his return due date (plus extensions). For 2009, the maximum deductible contribution generally is 20% of net earnings from self-employment income, or $49,000, whichever is less.
Source: Federal Tax Updates on Checkpoint Newsstand tab 2/19/2010

Beware of Suspicious E-Mails

2010-02-15T05:14:00.000-08:00

Beware of Suspicious E-Mails
Be aware of e-mail scams that fraudulently use the IRS name or Logo as a lure. The goal of the scam is to trick people into revealing personal and financial information, such as Social Security, bank account or credit card numbers, which the scammers can use to commit identity theft
and steal your money.
The IRS does not send unsolicited e-mails about a person's tax account or ask for detailed personal and financial information. Additionally, the IRS never asks people for the PIN numbers, passwords or similar secret access information for their credit card, bank or other financial
accounts.
If you receive an e-mail from someone claiming to be the IRS,
. Do not reply.
. Do not open any attachments. Attachments may contain malicious code that will infect your computer.
. Do not click on any links. If you clicked on links in a suspicious e-mail or phishing Web site and entered confidential information, visit the Identify Theft page on IRS.gov.

You can help shut down these schemes and prevent others from being victimized. Warn your friends and families about these suspicious emails.
If you receive a suspicious email claiming to be from the IRS, please forward the suspicious e-mail to phishing@irs.gov. Materials forwarded to this mailbox will be examined and acted on by their
information security staff.

Avoid an Audit: 6 "Red Flags" You Should Know

2010-02-10T05:50:00.000-08:00

by Glen Curtis, provided by Investopedia

If history is any indicator, less than 1% of Americans will be audited by the Internal Revenue Service in the coming year. And while some of these audits are totally random, and there's nothing that the individual taxpayer can do about them, many audits are actually instigated by the taxpayers themselves.
To that end, below is a list of "red flags" that can cause your return to be cherry picked by the IRS for review. Pay particular attention, as knowing what the flags are can keep you out of trouble.
1. Overestimating Donated Amounts
The IRS encourages individuals to donate things like clothes, food and even old automobiles to charities. It does this by offering a deduction in return for a donation. However, the problem with this system is that it is up to the taxpayer to determine the value of goods that are donated.
As a general rule, the IRS likes to see individuals value the items they donate at anywhere between 1% and 30% of the original purchase price (unless special circumstances exist). Unfortunately many, if not most, taxpayers either aren't aware of this, or simply choose to ignore this fact.
There are several other tips that the taxpayer can use to ensure that he or she is valuing donated goods at a "fair" price. Aside from the 30% and under rule mentioned above, consider having an appraiser write a letter. (In fact, for individual items valued at $5,000 or more, an appraisal is required.). Another benchmark the IRS uses that could come in handy is the willing-buyer-willing-seller test.
This means that taxpayers should value their goods at a point or price where a willing seller (who is under no duress) would be able to sell his property to a willing buyer (who also is under no duress to purchase the item). Using such a benchmark will keep you out of trouble and prevent you from placing an excessive value on your dad's old Frank Sinatra albums.
2. Math Errors
While this may sound simple, many returns are selected for audit due to basic math errors. So when filling out your tax return (or checking it after your accountant has completed the form) make sure that the columns add up. Also make sure that the total dollar value of capital gains and/or losses are properly calculated. Even a small error can raise eyebrows.
3. Failure to Sign the Return
A large percentage of folks simply forget to sign their tax returns. Don't be a part of that number! Failure to sign the return will almost guarantee that it will receive additional scrutiny. The IRS will wonder what else you might have forgotten to include in the return.
4. Under-Reporting Income
Tempting as it might be to exclude income from your tax return, it is vital that you report all money that you received throughout the year from work and/or from the sale of an asset (such as a home) to the IRS. If you fail to report income and you are caught, you will be forced to pay back-taxes plus penalties and interest.
How can the IRS tell if you've reported everything? In some situations it can't. After all, the system isn't perfect. However, a common way some individuals get caught is that they accept cash for a service they've performed. If the customer or individual who paid that individual the cash gets audited, the IRS will see a large cash disbursement from his or her bank account. The IRS agent will then follow that lead and ask the individual what that cash layout was for. Inevitably, the trail leads right back to the individual who failed to report that money as income.
In short, it's better to be safe than sorry. Make sure you report all of your income.
5. Home Office Deductions
Be careful with home office deductions. Excessive or unwarranted deductions can raise red flags. In addition, large deductions in proportion to your income can raise the ire of the IRS as well.
For example, if you earned $50,000 as an accountant (operating from home), home-office related deductions totaling $30,000 will raise more than a few eyebrows. Trying to write off the value of a new bedroom set as office equipment could also draw unwanted attention.
Deduct only items that were used in the course of your business.
6. Income Thresholds
There is nothing the individual taxpayer can do about this one, but if you earn more than $100,000 each year, your odds of being audited increase exponentially. In fact, some accountants put the odds of being audited at one in 72, compared to the one in 154 odds for people with lower incomes.
Other Sensitive Tax Areas
Partnership/Trust/Tax Shelter Risk
If you own shares in a limited partnership, control a trust or partake in any other tax shelter investments, you are more apt to be audited. While there may be no way to avoid such an audit, individuals that have a stake in such an entity should be aware that they have a target on their backs. They should also take even greater care to document deductions, donations and income.Small Business Ownership
Small business owners are an easy target - particularly those with cash businesses. Bars, restaurants, car washes and hair salons are exceptionally big targets, not only because they deal in so much cash, but also because there is so much temptation to under-report income and tips earned.
Incidentally, other actions that go part and parcel with business ownership may draw unwanted IRS interest too, including putting family members on the payroll and over-estimating expenses.
In short, business owners must know that they can't "push the envelope". If they want to stay in business and avoid the scrutiny of an audit, it's best to remain on the straight and narrow.
So why does the IRS seem to be cracking down more and more on individuals and small business owners these days? It's simple. According to the IRS there is roughly an annual $300 billion gap between what Americans pay in taxes versus what they owe. That equates to about $2,680 per household. The Congress knows this too, and given the deficits the United States government has run up over the past 20 years, there is enormous pressure on legislators and the IRS to collect all tax funds.
Being Audited
What should you do if you are audited? Be honest with the auditor and respond to all inquiries as quickly as possible. Don't be afraid to show all of your documentation. If possible, have a qualified accountant and/or tax attorney represent you.
Bottom Line
Audits have and will remain a part of the tax collection process for a long time to come, but that doesn't mean that you have to be among the "lucky" few to be chosen. The key to avoiding an audit is to be honest, document your deductions, donations and income.

IRS Debunks Frivolous Tax Arguments

2010-02-09T05:00:00.000-08:00

From IRS.gov

IR 2010-18; “The Truth About Frivolous Tax Arguments” (http://www.irs.gov/newsroom/article/0,,id=219104,00.html)
IRS has issued a detailed, 80-page document discussing and rebutting many of the more common frivolous arguments made by individuals and groups that oppose compliance with federal tax laws. An accompanying news release reminds taxpayers that under Code Sec. 6702, the penalty for frivolous tax returns is $5,000, and applies when a person submits a tax return or other specified submission, and any portion of the submission is based on a position that IRS identifies as frivolous.
Detailed rebuttals. IRS's “The Truth About Frivolous Tax Arguments” responds to some of the more common frivolous “legal” arguments about the federal tax system. Each contention is briefly explained, followed by a discussion of the legal authority that rejects the contention.
The document covers these broad categories of frivolous arguments:
· Various contentions that: the federal income tax system is voluntary; terms in the Code such as taxable income, gross income and “the taxpayer” are improperly defined; and payment of taxes is unconstitutional. Other arguments in the category have fictional legal bases, for example, that IRS isn't an agency of the U.S., or that taxpayers are entitled to the refund of social security taxes paid over their lifetime.
· Frivolous arguments in collection due process cases brought under Code Sec. 6320 or Code Sec. 6330 , including various contentions that assessments are invalid, or that the statutory notice of deficiency, notice of federal tax lien or statutory notice and demand is invalid.
· Contentions that the Tax Court isn't authorized to decide legal issues, or that IRS personnel don't have the authority to seize property in satisfaction of unpaid taxes, or that IRS employees lack credentials.
A final section of IRS's frivolous tax arguments document explains in detail the penalties that courts may impose on those who pursue tax cases on frivolous grounds, and cites scores of cases rejecting various frivolous arguments and imposing penalties.
RIA Research References: For penalties for frivolous income tax returns and specified frivolous submissions, see FTC 2d/FIN ¶ V-2551; United States Tax Reporter ¶ 67,024; TaxDesk ¶ 866,001.
Source: Federal Tax Updates on Checkpoint Newsstand tab 2/8/2010

How Do I Adjust My Tax Withholding

2010-02-08T12:20:00.000-08:00

from thomsonreuters.com

The 2010 version of Publication 919, How Do I Adjust My Tax Withholding, is now on the IRS website at http://www.irs.gov/pub/irs-pdf/p919.pdf. Employees use this publication to help them determine if their federal income tax withholding is sufficient, and, if necessary, to prepare a new Form W-4 to adjust their withholding. The publication includes worksheets to help employees estimate their 2010 tax liability (Worksheets 1 and 2), compute withholding (Worksheet 7), and determine the amount of the “Making Work Pay” credit that they will receive (Worksheet 9). The IRS advises employees to check their withholding if they had a lifestyle change (such as a marriage, divorce, birth or adoption of a child, purchase of a new home, or retirement) or significant changes in their income or itemized deductions. There is a good chance that employees are not having enough tax withheld if: (1) they have more than one job at a time; (2) their spouse also works; (3) they have income not subject to withholding, such as capital gains, rental income, interest, and dividends; or (4) they owe other taxes, such as self-employment tax or household employment taxes. Form W-4, line 6, is used to request additional withholding. Adjustments to withholding allowances are made on Form W-4, line 5. Employees must complete a new Form W-4 to adjust their withholding. It is helpful for employers to keep a few copies of IRS Publication 919 in the office, because some employees may soon discover after they file their 2009 personal income tax returns that they didn't have enough money withheld from their paychecks.

IRS helps with Free Tax Preparation Services

2010-02-07T05:00:00.000-08:00

Some 12,000 free tax preparation sites will be open this year as a result of expanded cooperation agreements between IRS and nonprofit and community organizations performing tax services for low-income and elderly taxpayers.

The IRS Volunteer Income Tax Assistance (VITA) Program provides help to individuals who earn less than $49,000. The Tax Counseling for the Elderly (TCE) Program offers assistance to taxpayers age 60 and above. Most of the sites use free electronic filing. To e-file a “Married Filing Jointly” tax return, both spouses must be present to sign the required forms.

Taxpayers must bring the following items when they visit a VITA or TCE site: photo identification; valid Social Security cards for the taxpayer, spouse, and dependents; birthdates for all those listed on the tax return; the current year's tax package, if received; wage and earnings statements from all employers; interest and dividend statements from banks; a copy of last year's federal and state returns, if available; bank routing numbers and account numbers for direct deposit; other relevant information about income and expenses; the total amount paid for daycare; and the day care provider's identifying number.

CPA firm produces donation-tracking iPhone App

2010-02-06T07:00:00.000-08:00

From Accountingweb.com

CPA firm produces donation-tracking iPhone AppThe Lincoln, NE-based firm BMG Certified Public Accountants, LLP has released a $2.99 donation-tracking application for iPhone, iPod Touch, and iPad users. Written by a team of CPAs, iDonatedIt allows taxpayers to track non-cash donations, which typically include clothes or household goods that are to be donated to organizations like The Salvation Army or Goodwill. According to the BMG Web site, iDonatedIt is the first app to track and value your non-cash charitable donations.
Users first indicate the name and address of the organization and the date of the donation, then add entries for the individual items. The application suggests market values for donated goods based on the users' description of the condition of the item. Values differ based on rankings of good, better or best. Users can attach pictures of the donated items to the donation record, and then e-mail a report of their donations to themselves or their tax preparer. BMG has created a three-minute YouTube video demonstrating the use of iDonatedIt, as well as a step-by-step guide. iDonatedIt can be purchased at the iTunes App Store.

With this release, BMG joins the ranks of 30,000 iPhone app developers, who have collectively created approximately 150,000 apps. Potential iPhone application developers can view the Developing Apps for iPhone video on the Apple Web site for tips on getting started.

Introduced Legislation: "Hire Now Tax Cut Act of 2010"

2010-02-05T07:00:00.000-08:00

On February 3, Senator Chuck Schumer (D-NY) and Orrin Hatch (R-UT) introduced the “Hire Now Tax Cut Act of 2010” to help stimulate the hiring of workers by the private sector. It would exempt employers that hire a worker who has been unemployed for at least 60 days from having to pay the employer's 6.2% of the Social Security payroll tax on that employee for the remainder of 2010. What's more, if the new hire is on payroll continuously for at least 52 weeks, and his pay for the second 26-week period is at least 80% of what it was in the first 26-week period, then the employer could claim a $1,000 credit for hiring the employee. Workers hired after the date of introduction would be eligible for the payroll tax forgiveness and the retention bonus, but only wages paid after the enactment date would receive the exemption from payroll taxes.
A press release issued by Schumer and Hatch stressed that their measure would be simple to explain and administer, and give businesses an immediate incentive for hiring workers right away.
An employer couldn't claim the new tax breaks for hiring family members, or for replacing another worker who performed the same job for the employer (unless the prior employee left voluntarily or for cause). The bill would bar employers from claiming the new tax breaks as well as the Work Opportunity Tax Credit for the same new hire.

A Different Perspective on the Registration of Tax Preparers

2010-02-04T17:51:00.000-08:00

As has been in the news of late, the IRS is working toward a program so that all tax preparers are licensed and tested. This has been a hotly-debated issue, and from reading below, the issue is far from resolved.

Although most observers are on board with the new proposals to register, test and license tax return preparers, some questions about the goals and the process remain.

“This is being done in large part because of the tax gap,” said Marty Davidoff, CPA, Esq., of Dayton, N.J.-based E. Martin Davidoff & Associates. “But most of the tax gap is due to intentionally bad behavior, not incompetent behavior. When a preparer underreports $100,000 in income, it’s not because someone didn’t know it’s reportable; it’s because a person wanted to cheat. And when the preparer makes up a deduction for $30,000 for automobile expenses and $10,000 for travel and entertainment, it has nothing to do with his lack of knowledge.”Registration is good, and should be encouraged, according to Davidoff. “Return preparers should be registered and should be subject to Circular 230, the same as CPAs, attorneys and enrolled agents,” he said. “The most important aspect is to clearly identify the entire preparer community. Once we do that, we should be eliminating bad behavior.”

“The problem with testing is that it won’t motivate preparers to register – it will have the opposite effect,” he said. “If people know they will be tested, fewer will register. The greater the requirements, the more preparation work will be pushed underground, or the very small preparers will choose to no longer help out their friends and family. People will have fewer choices.”

Even if an individual is registered, licensed and competent, they may still be a tax cheat, while someone who may not pass the test can still be competent to file 1040 EZs, he observed.
“Teachers, police and doctors are three of the most trusted professions, yet many fail to report correctly,” said Davidoff. “Practically every newspaper has ads for private tutoring. When you call the number it’s usually a school teacher, and half the time that teacher will ask to be paid in cash.
“Likewise, many police precincts have a precinct tax preparer,” he added. “It’s often a retired cop who’s good with numbers. When he makes up numbers he’s encouraging the young cop who doesn’t know any better and thinks it’s a game, that ‘it’s OK to cheat the system and I’ll help you.’
"And in the case of doctors, the cash co-pay is the biggest boon for tax cheating,” Davodoff pointed out. “The front desk girl hands the cash to the doctor and it never goes into the accounting system. Of course, not every teacher, policeman or doctor does this, but I’ve run into numerous examples of these.”
The testing process will be an enormous task. “It has to be easier than the enrolled agent exam because you need 900,000 to 1.2 million individuals to pass,” he said. “Otherwise there won’t be enough preparers in the country. Most people don’t understand what an enrolled agent is, but now they will have another class of accredited prepares. Some of them, even though passing the test, may not be good preparers. And, inevitably, some of them will be cheats.”
As it is with the enrolled agent exam, the testing process will emphasize memorization of facts that are built into preparation software, according to Sarah A. Fields, a tax controversy specialist at Davidoff’s firm. “For example, you have to memorize the phase-out amounts for certain credits or the AMT exemption,” she said. “It’s not necessary to know this to prepare a return so long as you know they exist and how they work.”
Davidoff hopes that by the time the deliberative process is complete, more emphasis will be placed on registration and enforcement than on testing and licensing. “Never could you see more well-intentioned people than those who are working on this,” he said. “They are hard working and super smart people who really want to do the right thing.”

Man Please Guilty to Filing 250 Tax Returns for Dead People

2010-02-04T05:43:00.000-08:00

Man Pleads Guilty to Filing 250 Tax Returns for Dead People
Riverside, Calif.

By WebCPA Staff
A California man has pleaded guilty to conspiracy to defraud the U.S. after he was accused of filing at least 250 tax returns of deceased individuals.
Haroon Amin of Upland, Calif., pleaded guilty Monday to the charges. He was indicted, along with Ather Ali of Diamond Bar, Calif., in December 2008. The two were accused of filing the returns in 2002 and 2003 falsely stating that the deceased individuals earned wages from which income tax was withheld. The false returns claimed more than $2 million in income tax refunds.
The IRS rejected most of the refund claims, but it issued a number of refund checks that were delivered to addresses controlled by Amin, Ali and their co-conspirators, including to various mailboxes opened by Ali using false forms of identification. Most of the refund checks were then delivered overseas to be deposited in bank accounts in Armenia and Pakistan.

Amin admitted that he was a knowing participant in the scheme. According to the indictment and statements made at the plea hearing, he and his co-conspirators obtained deceased individuals’ Social Security numbers and other identification information from the Internet. The returns filed as part of the scheme had fictitious Form W-2 wage and tax statements as attachments. Amin created fake W-2 forms using employer identification numbers that he had obtained from an acquaintance who was a CPA.
Judge Robert H. Whaley has scheduled Amin's sentencing for June 22, 2010. Amin faces up to five years in prison and a maximum fine of $250,000.
Ali is scheduled to begin trial on March 2, 2010.

2009 Changes to the Earned Income Tax Credit (EITC)

2010-02-03T18:03:00.000-08:00

The IRS reminds taxpayers that for the 2009 tax year there are new additional EITC and income thresholds for a third qualifying child, as well as changes to the uniform definition of a child.
For tax years 2009 and 2010, the American Recovery and Reinvestment Act (ARRA) created a new category three or more children, which will provide larger credits to larger families. The change in the uniform definition of a child adds two new rules to the definition of who is a “qualifying child.”
The child must::
(1) be younger than the person claiming the child, unless the child is permanently and totally disabled; and
(2) not have filed a joint return other than to claim a refund.Also new for 2009, if a qualifying child can be claimed by both a parent and another person, the other person must have an adjusted gross income (AGI) higher than the parent in order to claim the child for EITC purposes.
For the 2009 tax year, a taxpayer's earned income and (AGI) must each be less than:
... $43,279 ($48,279) married filing jointly) with three or more qualifying children
... $40,295 ($45,295 married filing jointly) with two qualifying children
... $35,463 ($40,463 married filing jointly) with one qualifying child
... $13,440 ($18,440 married filing jointly) with no qualifying children
For the 2009 tax year, the maximum credit amounts are:
... $5,657 with three or more qualifying children
... $5,028 with two qualifying children... $3,043 with one qualifying child
... $457 with no qualifying children
Qualification for the EITC.
To qualify, the IRS explains, taxpayers must meet certain requirements and file a tax return, even if they did not earn enough money to be obligated to file a U.S. individual income tax return.
Other requirements provide that a taxpayer:
... must have earned income
.... must have a valid Social Security number for himself, his spouse (if married filing jointly) and his qualifying child
.... must not have investment income in excess of $3,100
.... have a filing status that's not “married filing separately.”
... generally, be a U.S. citizen or resident alien all year
.... not be a qualifying child of another person
.... not file Form 2555 or Form 2555-EZ (related to foreign earned income)
.... have income that exceeds certain limitations.I
f a taxpayer claims a child, he or she must meet three eligibility tests:
· Residency test. The child must have lived with the taxpayer in the U.S. for more than half of 2009.
· Relationship test.
The child must be the taxpayer's son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them.
A taxpayer's child includes:
... A foster child who was placed with you by an authorized placement agency, or by judgment, decree, or other order of any court of competent jurisdiction; or
... A legally adopted child or a child lawfully placed with you for legal adoption.
· Age test. At the end of 2009, the child must have been under age 19, a full-time student under age 24, younger than the EITC-claiming taxpayer or any age if permanently and totally disabled at anytime during 2009.
A qualifying child cannot be used by more than one person to claim EITC. If a child meets the rules to be a qualifying child of more than one person, only one person can treat that child as a qualifying child and claim EITC.If a taxpayer doesn't have a child, he must meet three additional tests:
... At the end of 2009, you must have been at least age 25, but under age 65.
... The taxpayer can't qualify as the dependent of another person.
... The taxpayer must have lived in the U.S. for more than half of 2009.

2010 Haitian Contributions can be deducted on 2009 Returns

2010-02-02T13:47:00.000-08:00

As a result of legislation passed last month through Congress, the President has signed a bill into law allowing 2010 Haitian relief contributions to be deducted on 2009 returns; Public law number assigned
On January 22, President Obama signed into law H.R. 4462, a bill that allows donors to accelerate the income tax benefits of charitable cash contributions for the relief of victims of the earthquake in Haiti. The Senate had previously passed the bill by voice vote on January 21, and the House had similarly passed it by voice vote on January 20. The Act has been assigned a Public law number: P.L. 111-126.
The bill allows individuals who make charitable contributions to aid Haitian earthquake victims to elect to claim an itemized charitable deduction on their 2009 tax return (instead of having to wait until next year to claim the deductions on their 2010 tax return). The election applies only to Haitian relief contributions made in cash after Jan. 11, 2010, and before Mar. 1, 2010. If the election is made, Haiti relief donations are deductible on the 2009 return, not the 2010 return. The bill also relieves recordkeeping requirements for Haitian relief contributions. For these contributions, a telephone bill satisfies the Code Sec. 170(f)(17) recordkeeping requirements if it shows the name of the donee organization, the date of the contribution, and the amount of the contribution. See article below for additional discussion.

Credits for Education

2010-01-23T06:23:00.000-08:00

Education Credits have existed for many years and have been helpful to many families while their adult-age children or other members of the family pursue post secondary educations.
The American Recovery and Reinvestment Act of 2009 introduced significant changes to education credits.
· American Opportunity Credit (AOC) – This credit modifies the existing Hope Credit for tax years 2009 and 2010, making the Hope Credit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. Taxpayers may be able to take a credit of up to $2,500 for qualified education expenses paid for each student who qualifies for the American opportunity credit. Additionally, up to 40% of this credit may be refundable.
· Hope Credit – The Hope Credit is for the payment of the first two years of tuition and related expenses for an eligible student. This credit may be more advantageous only if at least one student attended an educational institution located in the Midwestern disaster area. For qualifying education institutions located in a Midwestern disaster area there is an expanded definition of qualifying expense and a credit of up to $3,600. However, both the American Opportunity Credit and Hope Credit cannot be claimed on the same tax return. If claiming the Hope credit for one student that attended an educational institution in a Midwestern disaster area, the Hope Credit must be claimed for all students that qualify.
· Lifetime Learning Credit – For the tax year, taxpayers may be able to claim a lifetime learning credit of up to $2,000 ($4,000 for students in Midwestern disaster areas) for qualified education expenses paid for all students enrolled in eligible educational institutions. There is no limit on the number of years the lifetime learning credit can be claimed for each student. However, a taxpayer cannot claim the Hope, American Opportunity and the Lifetime Learning credit for the same student in one year.

If you have any questions concerning education or other credits, please contact our office at (615) 746-4632.

Changes to First Time Homebuyer and Standard Deduction

2010-01-20T13:33:00.000-08:00

The Internal Revenue Service (IRS) has now published the new Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, with instructions on its Web site, and the IRS wants more information from home purchasers than was requested last year. Taxpayers must check a box to indicate that they did not purchase the home from a related person, they must enter the purchase price of the new home, and, in the case of first-time homebuyers, confirm that they have not owned a home for three years. Long-term homeowners now eligible for a reduced credit for the purchase of a new home through April 10, 2010 must provide documentation that they have lived in their previous residence for five consecutive years of the last eight years. All claimants for the credit must document their purchase. Paper returns will be required for claiming the credit because of the added documentation.

Documentation of Purchase and Home Ownership

Both the first-time homebuyer and the long-term homeowner must attach a copy of the properly executed settlement statement (or similar documentation) used to complete the purchase. In most cases, this will be a HUD-1 Settlement Statement, complete with dates, and signed by all parties. Long-term homeowners taking advantage of the credit must also provide documentation of ownership of their previous home in the form of mortgage interest statements, property tax records, or homeowner's insurance records.

The Form 5405 for 2008 asked only for the address of the home purchased and the date acquired, in addition to income information. No documentation of the purchase was required.

Repayment

Taxpayers who claimed the credit for a home purchased in 2008, owned and used as their main home during all of 2009 and 2010, will begin repayment of the credit over a 15-year period with their 2010 return. These people should not file a Form 5405 with their 2009 return.

Individuals who have sold or disposed of a property, including through foreclosure, for which they claimed the credit in 2008 or 2009 must file a Form 5405 and repay the credit. The amount of the previously received credit is entered as a tax on their individual returns.

Increases to Standard Deduction -- Schedule L

Claiming the standard deduction is still easier than itemizing for most people, and three potential increases have added to the tax benefits for taxpayers who do not itemize. But these added deductions require a little more work on the part of filers who will have to complete the new Schedule L to claim an increase in their deductions, because they paid real estate tax, paid sales or excise tax on the purchase of a new motor vehicle, or lived in federal disaster areas and had disaster losses.

Last year taxpayers who paid real estate taxes calculated their standard deduction on a worksheet and checked a box on their return to show the addition ($500 for a filing single and $1,000 for joint filers).

Schedule L asks questions about filing status and income and requires the taxpayer to enter the specific amount of state or local real estate taxes paid as part of the calculation. If taxpayers want to claim an increase in the standard deduction because they paid state or local sales or excise tax on the purchase of a new motor vehicle after February 16, 2009, they need to provide the sales price of the motor vehicle and the amount of the tax on Schedule L. The totals of the vehicle and real estate taxes after certain calculations and net disaster losses are added to the standard deduction.

To claim a net disaster loss from a federally declared disaster that occurred in 2009 taxpayers will have to complete Form 4684 and Schedule L.

Tips for Choosing a Tax Preparer

2010-01-17T20:04:00.000-08:00

This is an article written from an interview with IRS Manager, Melany Partner.

Although I am biased and think that my firm offers the most personal and professional tax preparation service in the Middle Tennessee area, I would strongly suggest reading this article and consider its points when choosing a new or replacement tax preparer.

If you have any questions, please feel free to call our team at (615) 746-4632.

If you pay someone to prepare your tax return, choose that preparer wisely. Taxpayers are legally responsible for what’s on their own tax returns even if prepared by someone else. So, it is important to choose carefully when hiring an individual or firm to prepare personal returns. Most return preparers are professional, honest and provide excellent service to their clients. Here are a few points to keep in mind when someone else prepares your return:

A Paid Preparer is required by law to sign the return and fill in the preparer areas of the form. The preparer should also include their appropriate identifying number on the return. Although the Preparer signs the return, you are responsible for the accuracy of every item on your return. In addition, the preparer must give you a copy of the return.
Review the completed return to ensure all tax information, your name, address and Social Security number(s) are correct. Make sure that none of these spaces is left blank.
Review and ensure you understand the entries and are comfortable with the accuracy of the return before you sign.
Never sign a blank return, and never sign in pencil.
If you have provided specific authorization in a power of attorney filed with the IRS, you may have copies of notices or refund checks mailed to your preparer or representative; but only you can sign and cash your refund check. For further information on Powers of Attorney, refer to Topic 311.
A Third Party Authorization Check Box on Form 1040 allows you to designate your Paid Preparer to speak to the IRS concerning how your return was prepared, payment and refund issues and mathematical errors.

It’s important for taxpayers to find qualified tax professionals if they need help preparing and filing their tax returns. Unqualified tax preparers may overlook legitimate deductions or credits that could cause clients to pay more tax than they should. Unqualified preparers may also make costly mistakes causing their clients to incur assessed deficiencies, penalties, and interest. Here are some suggestions to consider when hiring a tax professional:

A paid preparer must sign the return as required by law.
Avoid preparers who claim they can obtain larger refunds than other preparers. If your returns are prepared correctly, every preparer should derive substantially similar numbers.
Beware of a preparer who guarantees results or who bases fees on a percentage of the amount of the refund. A practitioner may not charge a contingent fee (percentage of your refund) for preparing an original tax return.
Understand that the most reputable preparers will request to see your receipts and will ask you multiple questions to determine your qualifications for expenses, deductions and other items. By doing so they have your best interest in mind and are trying to help you avoid penalties, interest or additional taxes that could result from an IRS examination.
Choose a preparer you will be able to contact and one who will be responsive to your needs. Ask who will actually prepare the return before engaging services. Avoid firms where your work may be delegated down to someone with less training or some unknown worker. You should know exactly who works with your tax matters at all times and how to contact him or her; after all, you are paying for it. Determine if the preparer is exporting your return to a foreign country for preparation. Foreign countries do not have the same security and privacy laws as the United States nor is there any recourse should your information be compromised as a result of lax or nonexistent privacy procedures.
Investigate whether the preparer has any questionable history with the Better Business Bureau, the state’s board of accountancy for CPAs, the state’s bar association for attorneys or the IRS Office of Professional Responsibility (OPR) for enrolled agents or the oversight agency in states that license or register tax preparers.
Determine if the preparer’s credentials meet your needs or if your state mandates licensing or registration requirements for paid preparers. As of 2008, California and Oregon are the only two states that regulate paid tax preparers. Is he or she an Enrolled Agent, Certified Public Accountant (CPA) or Tax Attorney? Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in all matters including audits, collection actions and appeals. Other return preparers may represent taxpayers only in audits regarding a return that they signed as a preparer.
Find out if the preparer is affiliated with a professional organization that provides or requires its members to pursue continuing education and holds them accountable to a code of ethics.
Check IRS.gov for information regarding abusive shelters and other tax schemes and scams. Remember, if it sounds too good to be true, chances are it is.

E-File Season Begins

2010-01-15T05:47:00.000-08:00

The IRS has begun accepting electronically filed returns as of January 15th, 2010. The first refunds will be direct deposited to the taxpayers bank accounts on January 29, 2010.

If you are ready to file your return, please contact our office at (615) 746-4632 to set you convenient appointment.

Charitable Contributions

2010-01-12T15:40:00.000-08:00

One area of deductions that is fairly common is that of charitable contributions. Our office quite often will assist our valued clients in properly deducting the contributions made to charitable organizations.

Below, I have outlined some of the highlights of the code involving charitable contributions.

Charitable contributions are deductible only if you itemize deductions on Form 1040, Schedule A. You cannot take the deduction if you use the standard deduction.

To be deductible, charitable contributions must be made to qualified organizations.

The following list gives some examples of qualified organizations.

Churches, a convention or association of churches, temples, synagogues, mosques, and other religious organizations.
Most nonprofit charitable organizations such as the Red Cross and the United Way.
Most nonprofit educational organizations, including the Boy (and Girl) Scouts of America, colleges, museums, and daycare centers if substantially all the childcare provided is to enable individuals (the parents) to be gainfully employed and the services are available to the general public. However, if your contribution is a substitute for tuition or other enrollment fee, it is not deductible as a charitable contribution, as explained later under Contributions You Cannot Deduct.
Nonprofit hospitals and medical research organizations.
Utility company emergency energy programs, if the utility company is an agent for a charitable organization that assists individuals with emergency energy needs.
Nonprofit volunteer fire companies.
Public parks and recreation facilities.
Civil defense organizations.

If your contribution entitles you to merchandise, goods, or services, including admission to a charity ball, banquet, theatrical performance, or sporting event, you can deduct only the amount that exceeds the fair market value of the benefit received. For a contribution of cash, check, or other monetary gift (regardless of amount), you must maintain as a record of the contribution either a bank record or a written communication from the qualified organization containing the date and amount of the contribution and the name of the organization. You generally can deduct the fair market value of any property you donate, as well as your cash contributions, to qualified organizations.

For any contribution of $250 or more (including contributions of cash or property), you must obtain and keep in your records a contemporaneous written acknowledgment from the qualified organization indicating the amount of the cash and a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift. One document from the qualified organization may satisfy both the written communication requirement for monetary gifts and the contemporaneous written acknowledgment requirement for all contributions of $250 or more.

You must fill out Form 8283, and attach it to your return, if your total deduction for all noncash contributions is more than $500. If you claim a deduction for a contribution of noncash property worth $5,000 or less, you must fill out Form 8283, Section A. If you claim a deduction for a contribution of noncash property worth more than $5,000, you will need a qualified appraisal of the noncash property and must fill out Form 8283, Section B. If you claim a deduction for a contribution of noncash property worth more than $5,000,000, you will also need to attach the qualified appraisal to your return.

If you have any questions regarding charitable contributions, please do not hesitate to call our office at (615) 746-4632.

Exemptions/Deductions Continued

2010-01-08T14:23:00.000-08:00

The last post regarded the qualifying child dependency tests and how a child is qualified as a dependent. This post will deal with the second type of dependent, the qualifying relative.

There are four test that must be met for a person to be your qualifying relative. The four tests are;
(1) Not a qualifying child test - obviously, if the relative is your qualifying child, or the qualifying child of any other taxpayer, you will not be able to claim that child as an additional dependent;
(2) Member of household or relationship test - The person must either live with you all year as a member of your household, or, be related to you,
(3) Gross Income Test - a person's gross income for the year must be less that $3,650.00,
(4) Support Test - you generally must provide more than half of a person's total support during the calendar year.

The Support Test for qualifying child and qualifying relative can be extensive and complex.

These rules generally apply, but certain exceptions may apply

Exemptions/Dependents

2010-01-08T13:59:00.000-08:00

For each person or dependent in your household, you are allowed to deduct $3,650.00 in 2009 as a exemption. If you are married filing jointly, you can claim an additional exemption for your spouse. But, what is the definition of a dependent?

The term dependent means either a qualifying child, or a qualifying relative. To qualify as a child, there are six tests that must be met.
(1) Relationship test - the child must be your son, daughter, stepchild, foster child, or a descedant of any of those, or, your brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of those listed,
(2) Age test - the child must be under the age of 19 at the end of the year and younger than you, a fullt-time student under the age of 24 at the end of the year, or, permanently and totally disabled at any time during the year, regardless of age,
(3) Residency test - child must have lived with you for more than half of the year. There are certain exceptions to this rule,
(4) Support test - the child cannot have provided more than half of his or her own support for the year,
(5) Joint Return test - the child cannot file a joint return for the year, and
(6) Special Test for Qualifying Child of More than One Person - If your qualifying child is not a qualifying child of anyone else, this test does not apply. If the child can meets the other five listed tests for more than one person, there the tiebreaker rules apply.
To determine which person can treat the child as a qualifying child, the following tie-breaker rules apply:
(a) If only one of the persons is the child's parent, the child is treated as the qualifying child of the parent,
(b) If the parents do not file a joint return together but both parents claim the child as a qualifying child, the IRS will treat the child as the qualifying child of the parent with whom the child lived for the longer periof of time during the year,
(c) If no parent can claim the child as a qualifying child, the child is treated as the qualifying child of the person who had the highest adjusted gross income (AGI) for the year,
(d) If a parent can claim the child as a qualifying child but no parent does so, the child is treated as the qualifying child of the person who had the highest AGI for the year, but only if that person's AGI is higher than the highest AGI of any of the child's parents who can claim the child.

These rules will generally apply, but there could be exceptions in your particular case.

to be continued...

W-2 and 1099 Filing Promotion

2010-01-06T10:53:00.001-08:00

BUSINESS OWNERS, CHURCHES AND NON-PROFITS, EMPLOYERS - Dreading preparing W-2's and 1099's? Hate the idea of endless runs to the office supply store to get more forms?

We have a better idea...Let our professional, courteous team prepare them for your organization for the LOW PRICE OF $10.00 PER FORM!

This price includes summary forms, envelopes and instructions.

Call today at (615) 746-4632 for more information

Deduction for Driving?

2010-01-06T10:08:00.000-08:00

Did you know the IRS allows for deductions for driving your personal vehicle?

If you are self-employed, drive for the benefit of your employer and are not reimbursed, drive for medical or moving purposes, or drive for charitable activities, you may be allowed to received a deduction for the use of your vehicle.

In 2009, the mileage rates were as follows: 55 cents for business, 24 cents for medical or moving purposes, and 14 cents for charitable purposes. The rates effective January 1, 2010 are 50 cents for business, 16.5 cents for medical or moving purposes and 14 cents for charitable activities.

These rates are used in lieu of tracking actual expenses related to the operation of a vehicle, such as fuel, repairs and maintenance, and depreciation. In addition to using the mileage rates, you may also claim parking and toll fees in addition to these expenses as separate items for deductions.

In order to claim the deductions, you must be able to substantiate the number of miles driven as well as the purpose of the trip, such as banking, post office, meetings with clients or potential clients. Our firm recommends the use of mileage logs available at many office supply stores at a very reasonable price.

These rules will generally apply in most situations. There are certain exceptions that we will be more than happy to discuss with you.

Please give our office a call at (615) 746-4632, if you have any questions regarding this or other tax-related issues.

Do I Have to File?

2010-01-04T15:10:00.000-08:00

Do I have to file? This is a common question that is answered by answering 3 question...(1) What is your filing status, (2) Are you older than 65, and (3) what is your gross income? If you can answer these 3 questions, by using the table below, you can determine if you have to file a return for 2009.
If your filing status is Single and you are under 65, you do not have to file until your gross income exceeds $9,350.00. If you're over 65, you do not have to file until your gross income exceed $10,750.00

If your filing status is Married filing jointly, and both spouses are under 65, you do not have to file until your gross income exceeds $18,700.00. If one spouse is over 65, the gross income goes up to $19,800.00, and if both spouses are over 65, then you do not have to file untile your gross income exceeds $20,900.00

If you plan to file married filing separately, regardless of age, you do not have to file as long as your income is less than $3,650.00.

If you qualify as Head of Household are are under 65, you do not have to file until your income exceeds $12,000.00, and if 65 or older, you do not have to file until your income exceeds $13,400.00.

These rules generally apply, but there are exceptions. For instance, if you are a W-2 wage earner and had taxes withheld from your earnings, even though you may not have exceed the gross income amounts, you would still want to file in order to receive a refund for all or part of your withheld taxes.

If you have any questions about your filing requirements, please do not hesitate to call our office at (615) 746-4632.