TAX RETURNS TO BE DELAYED

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

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

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

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

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

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

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

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:

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

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

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

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

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

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

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...

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

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

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

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

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

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

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.