IRS Notice 2013 -71 now permits § 125 cafeteria plans to be amended to allow up to $500 of unused amounts remaining at the end of a plan year in a health FSA to be paid or reimbursed to plan participants for qualified medical expenses incurred during the following plan year, provided that the plan does not also incorporate the grace period rule. This carryover of up to $500 does not affect the maximum amount of salary reduction contributions that the participant is permitted to make under §125(i) of the Code ($2,500 adjusted for inflation after 2012). This carryover option provides an alternative to the current 2½ month grace period rule and administrative relief similar to that rule.
Showing posts with label tax credit / deduction. Show all posts
Showing posts with label tax credit / deduction. Show all posts
Thursday, October 31, 2013
Change to Cafeteria Plan
IRS Notice 2013 -71 now permits § 125 cafeteria plans to be amended to allow up to $500 of unused amounts remaining at the end of a plan year in a health FSA to be paid or reimbursed to plan participants for qualified medical expenses incurred during the following plan year, provided that the plan does not also incorporate the grace period rule. This carryover of up to $500 does not affect the maximum amount of salary reduction contributions that the participant is permitted to make under §125(i) of the Code ($2,500 adjusted for inflation after 2012). This carryover option provides an alternative to the current 2½ month grace period rule and administrative relief similar to that rule.
Tuesday, October 23, 2012
IRS announces inflation adjustments for 2013
http://www.journalofaccountancy.com/News/20126688.htm
On Thursday, the IRS released its annual revenue procedure making inflation adjustments to the gift tax annual exclusion and other items for tax years beginning in 2013 (Rev. Proc. 2012-41).
The gift tax annual exclusion will increase from $13,000 to $14,000 in 2013 and the amount of foreign earned income that taxpayers can exclude increases from $95,100 to $97,600. The amount used to reduce the net unearned income reported on a child’s tax return to calculate the kiddie tax increases from $950 to $1,000. Other inflation-adjusted amounts include the alternative minimum tax exemption for the kiddie tax, the private activity bond volume cap, the limitation on eligible long-term care premiums, high-deductible health plan definitions, the threshold for required reporting of receipt of large gifts from foreign persons, and 20 other provisions.
Rev. Proc. 2012-41 does not include the inflation adjustments for the tax tables, the Sec. 23 adoption credit, the Sec. 24 child tax credit, the Sec. 25A Hope scholarship and lifetime learning credits, the Sec. 32 earned income tax credit, the standard deduction, the Sec. 68 overall limitation on itemized deductions, the Sec. 132(f) qualified transportation fringe benefit, the Sec. 137 adoption-assistance exclusion, the Sec. 151 personal exemption, the Sec. 179 election, the Sec. 221 interest on education loans, and the unified estate credit, all of which will be addressed in separate guidance, the IRS said. Many of these items are scheduled to expire or change at the end of the year, and the IRS may be waiting to see what actions Congress takes in its lame-duck session.
The IRS also announced the 2013 contribution limits and other figures for pension plans and other retirement-related items (IR-2012-77). The elective deferral (contribution) limit for employees who participate in Sec. 401(k), 403(b), or 457(b) plans and the federal government’s Thrift Savings Plan increases from $17,000 to $17,500. The catch-up contribution limit under those plans for those age 50 and over is unchanged at $5,500.
On Tuesday, the Social Security Administration announced that the Social Security wage base for 2013 will be $113,700 (up from $110,100 in 2012).
—Sally P. Schreiber (sschreiber@aicpa.org) is a JofA senior editor
Also see http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits
On Thursday, the IRS released its annual revenue procedure making inflation adjustments to the gift tax annual exclusion and other items for tax years beginning in 2013 (Rev. Proc. 2012-41).
The gift tax annual exclusion will increase from $13,000 to $14,000 in 2013 and the amount of foreign earned income that taxpayers can exclude increases from $95,100 to $97,600. The amount used to reduce the net unearned income reported on a child’s tax return to calculate the kiddie tax increases from $950 to $1,000. Other inflation-adjusted amounts include the alternative minimum tax exemption for the kiddie tax, the private activity bond volume cap, the limitation on eligible long-term care premiums, high-deductible health plan definitions, the threshold for required reporting of receipt of large gifts from foreign persons, and 20 other provisions.
Rev. Proc. 2012-41 does not include the inflation adjustments for the tax tables, the Sec. 23 adoption credit, the Sec. 24 child tax credit, the Sec. 25A Hope scholarship and lifetime learning credits, the Sec. 32 earned income tax credit, the standard deduction, the Sec. 68 overall limitation on itemized deductions, the Sec. 132(f) qualified transportation fringe benefit, the Sec. 137 adoption-assistance exclusion, the Sec. 151 personal exemption, the Sec. 179 election, the Sec. 221 interest on education loans, and the unified estate credit, all of which will be addressed in separate guidance, the IRS said. Many of these items are scheduled to expire or change at the end of the year, and the IRS may be waiting to see what actions Congress takes in its lame-duck session.
The IRS also announced the 2013 contribution limits and other figures for pension plans and other retirement-related items (IR-2012-77). The elective deferral (contribution) limit for employees who participate in Sec. 401(k), 403(b), or 457(b) plans and the federal government’s Thrift Savings Plan increases from $17,000 to $17,500. The catch-up contribution limit under those plans for those age 50 and over is unchanged at $5,500.
On Tuesday, the Social Security Administration announced that the Social Security wage base for 2013 will be $113,700 (up from $110,100 in 2012).
—Sally P. Schreiber (sschreiber@aicpa.org) is a JofA senior editor
Also see http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits
Wednesday, September 26, 2012
Why the Health Care Tax Credit Eludes Many Small Businesses
http://www.cnbc.com/id/49178782
By: Robb Mandelbaum, The New York Times
The Agenda has now profiled three small businesses that are struggling in different ways with providing health insurance to employees. (Previous related stories: Small-Business Health Care Profiles) The companies are very different — they trade in very different parts of the economy, and couldn't be located much further apart geographically — but they do have one thing in common: Though all three have fewer than 25 employees, not one has qualified for the tax credit in the Affordable Care Act that was intended to help small businesses pay for health insurance. Indeed, the credit is one element of the controversial health law that has already fallen short of expectations.
It may be tempting to hold the Internal Revenue Service responsible for whatever burden accompanies the tax credit, but in this case, the complexity is written directly into the law. It turns out that legislators wrote the provision in a way that makes it appear more generous than it really is. Many businesses with both fewer than 25 employees and average wages below $50,000 are in fact unable to claim the credit.
The law also excludes owners and owners' families from counting toward the credit, which can cut both ways. On the one hand, owners don't count as employees and their salaries are excluded from the annual wages, exclusions that could make some companies eligible for a bigger credit than they might otherwise have gotten. On the other hand, premiums paid for the owners' and their families' insurance aren't eligible for the credit, which for some companies, as You're The Boss commenter JAB recently noted, "greatly reduces the incentive to provide coverage for employees."
By: Robb Mandelbaum, The New York Times
The Agenda has now profiled three small businesses that are struggling in different ways with providing health insurance to employees. (Previous related stories: Small-Business Health Care Profiles) The companies are very different — they trade in very different parts of the economy, and couldn't be located much further apart geographically — but they do have one thing in common: Though all three have fewer than 25 employees, not one has qualified for the tax credit in the Affordable Care Act that was intended to help small businesses pay for health insurance. Indeed, the credit is one element of the controversial health law that has already fallen short of expectations.
Estimates
of the number of businesses eligible to take the tax credit have ranged
from 1.4 million to 4 million companies, but in May, the Government
Accountability Office reported that only 170,300 firms actually claimed
the credit in 2010. Of these, only a small fraction, 17 percent, were
able to claim the whole credit.
For
eligible companies, the credit effectively refunds 35 percent of health
insurance expenses between 2010 and 2013.* After 2014, the credit
increases to 50 percent and is available for any two consecutive years.
The credit is fully available to companies with 10 or fewer full-time
employees and average wages below $25,000. It phases out as the number
of employees rises to 25 and wages grow to $50,000. In 2009, there were
about 4.6 million companies with fewer than 10 employees, according to
the Census Bureau, and 5.7 million with fewer than 100.
The
credit was aimed squarely at the smallest companies, which rarely offer
health insurance to employees. However, as we reported two weeks ago,
it appears not to have persuaded very many to start offering insurance.
The most recent study of employer health insurance from the Kaiser
Family Foundation found that just half of all companies with fewer than
10 employees offered insurance, a share that has not moved much since
2005.
So why has the credit fallen short of
expectations? The G.A.O. concluded that the credit was too small to sway
business owners. Moreover, it said, claiming the credit is a task so
complicated as to discourage many companies from trying. Companies have
to determine the number of hours each employee worked in the year, as
well as compile information about their insurance premiums.
"Small-business owners generally do not want to spend the time or money
to gather the necessary information to calculate the credit, given that
the credit will likely be insubstantial," the report said, citing
conversations with tax preparers. "Tax preparers told us it could take
their clients from two to eight hours or possibly longer to gather the
necessary information to calculate the credit and that the tax preparers
spent, in general, three to five hours calculating the credit."
The G.A.O. report hints at the complexity with this delicious example:
On
its Web site, I.R.S. tried to reduce the burden on taxpayers by
offering "3 Simple Steps" as a screening tool to help taxpayers
determine whether they might be eligible for the credit. However, to
calculate the actual dollars that can be claimed, the three steps become
15 calculations, 11 of which are based on seven worksheets, some of
which request multiple columns of information.
It may be tempting to hold the Internal Revenue Service responsible for whatever burden accompanies the tax credit, but in this case, the complexity is written directly into the law. It turns out that legislators wrote the provision in a way that makes it appear more generous than it really is. Many businesses with both fewer than 25 employees and average wages below $50,000 are in fact unable to claim the credit.
Under
the law, once such a business has calculated its potential credit, it is
required to reduce the credit first to account for any excess employees
over 10 and then separately reduce the potential credit to account for
any excess average wages paid over $25,000. For many companies, the two
reductions exceed the potential credit itself - meaning the business
gets no credit.
That's
what happened to Carrie Van Dyck, who along with her husband owns the
Herbfarm Restaurant outside of Seattle. Excluding its owners, the
Herbfarm, which we profiled in June, employed the equivalent of about 21
or 22 full-time staff members, who were paid an average wage of about
$35,000 - a few thousand dollars over the credit's threshold for 21
employees. The result surprised Ms. Van Dyck, she said recently by
e-mail, because "it would seem that we are a pretty typical small,
mom-and-pop type business that this should apply to."
Of
course, by making the credit less generous, the senators who wrote the
law made it less expensive to the United States Treasury. Now it is
apparent that credit will be even cheaper than planned: initially it was
expected to cost the Treasury $2 billion in 2010; instead it cost the
government only a quarter of that.
The law also excludes owners and owners' families from counting toward the credit, which can cut both ways. On the one hand, owners don't count as employees and their salaries are excluded from the annual wages, exclusions that could make some companies eligible for a bigger credit than they might otherwise have gotten. On the other hand, premiums paid for the owners' and their families' insurance aren't eligible for the credit, which for some companies, as You're The Boss commenter JAB recently noted, "greatly reduces the incentive to provide coverage for employees."
The
White House has said that the number of businesses claiming the credit
for 2011 has grown to at least 360,000, but that is still well below
even the smallest estimate of eligible businesses. Some advocates for
the law say that more businesses will take advantage of the credit in
2014, when it grows to 50 percent, especially if the new insurance
exchanges make it easier and cheaper for small companies to offer
insurance.
The
Obama administration has proposed making more businesses eligible for
the credit, in part by starting phase-outs at higher thresholds, and
also by changing the way it is calculated so that every business within
the limits, such as the Herbfarm Restaurant, can take some amount of
credit.
But
judging from the comments of Representative Sam Graves, chairman of the
House Small Business Committee, the initiative is unlikely to pass a
Republican-controlled House anytime soon. "This tax credit has already
largely failed to attract small-business owners, and expanding it will
not make the president's health care law affordable," the Missouri
Republican said in a statement. "For small employers that do not offer
health insurance, tax incentives are unlikely to cause many of them to
choose a massive new expense they just cannot afford in the first
place." It was Mr. Graves who sought the G.A.O. report.
Of
course, a business denied a credit has not been made worse off by the
2010 health law. But the law surely has raised and dashed a lot of
hopes, and these are the early days - the sweeping changes that are the
law's hallmark don't come until 2014.
*There are, of course, many caveats here, but the main one is that the company has to pay at least half of the premium.
Friday, August 3, 2012
Senate Panel Passes Bipartisan Tax Extenders Bill
The Senate Finance Committee approved legislation Thursday on a 19 to 5 vote extending
dozens of tax cuts known as tax extenders, including a two year alternative
minimum tax patch. Other provisions would extend the ability for school teachers to deduct
expenses for school supplies, mortgage debt relief to 2013 and the election to take an itemized
deduction for state and local general sales taxes in lieu of the
itemized deduction permitted for state and local income taxes, along
with the above-the-line deduction for qualified tuition-related
expenses and tax-free distributions from individual retirement plan for charitable purposes. Energy-related provisions include an extension of the wind
energy production tax credit for one year, through Dec. 31, 2013, while
changing the "placed in service" date for the wind energy facility to
when construction begins.
For more information, see http://www.finance.senate.gov/newsroom/chairman/release/?id=e3290a69-8fa4-4a6d-8c3a-756ea03a4224
For more information, see http://www.finance.senate.gov/newsroom/chairman/release/?id=e3290a69-8fa4-4a6d-8c3a-756ea03a4224
Tuesday, January 3, 2012
New Tax Provisions for 2012
http:http://www.blogger.com/img/blank.gif//www.journalofaccountancy.com/Web/20114954.htm
By Alistair M. Nevius
With the ringing in of the new year, several new tax provisions took effect. http://www.blogger.com/img/blank.gifhttp://www.blogger.com/img/blank.gifWhile the list of new items does not compare with the number of tax provisions that expired at the end of 2011 (see “Many Tax Provisions Set to Expire at Year-End”), practitioners should be aware of what has changed.
Inflation Adjustments
The applicable amounts for many tax items increased on Jan. 1, due to annual inflation adjustments. Revised tax tables are in effect, as well as an increahttp://www.blogger.com/img/blank.gifsed personal exemption amount (now $3,800) and standard deduction amounts. Various credits and other items also were adjusted (see Rev. Proc. 2011-52). Contribution limits and other amounts for pension plans retirement accounts were also changed for 2012 (see IR-2011-103). The Social Security wage base for 2012 is $110,100.
The standard mileage rate for business use of an automobile remains at 55½ cents per mile for 2012; for medical and moving expenses it decreases to 23 cents per mile (Notice 2012-1), down a half-cent from the second half of 2011.
Capital Gain and Loss Reporting
Taxpayers will have to report new information on Form 1040, Schedule D, Capital Gains and Losses, and file a new form, Form 8949, Sales and Other Dispositions of Capital Assets, to report gains and lhttp://www.blogger.com/img/blank.gifosses of certain capital assets. The information on Form 8949 will correspond to the new information being reported on 2011 Forms 1099-B, Proceeds from Broker and Barter Exchange Transactions.
Under Sec. 6045, as amended in 2008, brokers are required to report to the IRS and their customers the customers’ adjusted basis in securities sold and to classify the customers’ gain as long term or short term. This basis reporting applies to covered securities acquired in 2011 and later (certain corporate stock in 2011 and other securities starting in later years; see Sec. 6045(g)(3)(C)).
Individuals will be required to report both short-term and long-term gains and losses of capital assets in the following three situations:
Veterans Work Opportunity Credits
The Three Percent Withholding Repeal and Job Creation Act, P.L. 112-56, extended the work opportunity tax credit (now called the returning heroes and wounded warriors work opportunity tax credits) for businesses that hire certain military veterans. Employers will be eligible for a credit of up to $9,600 for each qualified veteran that they hire after the law’s enactment date (Nov. 21, 2011) and before Jan. 1, 2013.
Under the returning heroes tax credit, an employer may be eligible for a credit of up to $2,400 for hiring a veteran who has been unemployed for at least four weeks and up to $5,600 for hiring a veteran who has been unemployed for more than six months. Under the wounded warriors tax credit, an employer may be eligible forhttp://www.blogger.com/img/blank.gif a credit of up to $9,600 for hiring a veteran with a service-connected disability who has been unemployed for more than six months and up to $4,800 for hiring a veteran with a service-connected disability (who does not meet the returning hero credit requirements) or who qualifies as a food stamp recipient.
Foreign Asset Reporting
Under the Foreign Account Tax Compliance Act, individuals are required to report interests in specified foreign financial assets when filing their federal income tax returns (Sec. 6038D). This requirement was suspended until the Form 8938, Statement of Specified Foreign Financial Assets, was released (Notice 2011-55). The IRS posted the final version of the form and its instructions in December; taxpayers subject to the reporting requirement must file the form in 2012 for 2011 tax years. In addition, taxpayers who would have been required (except for the suspension of the requirement) to file Form 8938 in 2011 for a tax year that began after March 18, 2010, must file it for the prior year with their return for the current tax year.
Bonus Depreciation
The 100% first-year bonus depreciation provision expired on Dec. 31, but 50% bonus depreciation is available for property placed in service in 2012. (100% bonus depreciation does still apply in the case of certain longer-lived and transportation property placed in service before 2013.)
Estate Tax
Estates of decedents who died in 2010 have until Jan. 17, 2012, to elect not to have the estate tax apply and to have heirs’ bases in assets they inherit http://www.blogger.com/img/blank.gifhttp://www.blogger.com/img/blank.gifdetermihttp://www.blogger.com/img/blank.gifned under the modified carryover basis rules in Sec. 1022. This election is made by filing Form 8939, Allocation of Increase in Basis for Property Acquired from a Decedent. (For more on the Form 8939 requirements, see Cantrell, “Preparing and Filing Form 8939,” The Tax Adviser, November 2011.)
The estate and gift tax lifetime exclusion increases to $5.12 million for 2012.
EITC Due Diligence
The penalty for failing to meet the Sec. 6695(g) earned income tax credit (EITC) due diligence requirements increased from $100 to $500, effective for returns required to be filed after Dec. 31, 2011.
Voluntary Classification Settlement Program
http://www.blogger.com/img/blank.gif
A new voluntary classification settlement program (VCSP) introduced in September (Announcement 2011-64) allows eligible taxpayers to voluntarily reclassify their workers as employees for federal employment tax purposes for future tax periods while receiving relief for part of the tax liability relating to the past treatment of the workers as nonemployees. Taxpayers are eligible if they have consistently treated the workers as nonemployees, filed all required Forms 1099 for the previous three years, are not currently under IRS audit, are not currently under audit by the U.S. Department of Labor or a state agency, and complied with the audit results if the taxpayers were previously audited by the IRS or the Department of Labor.
The VCSP limits the tax liability to 10% of the employment tax liability that would have been due on the compensation paid to the workers in the most recent tax year, as calculated under the reduced rates of Sec. 3509. Interest and penalties are not charged on the liability.
The classification of these workers for prior years is not subject to an employment tax audit, but the statute of limitation on assessment of employment taxes is extended from three to six years for the first, second and third calendar years beginning after the date the taxpayers begin treating the workers as employees under the VCSP closing agreement.
By Alistair M. Nevius
With the ringing in of the new year, several new tax provisions took effect. http://www.blogger.com/img/blank.gifhttp://www.blogger.com/img/blank.gifWhile the list of new items does not compare with the number of tax provisions that expired at the end of 2011 (see “Many Tax Provisions Set to Expire at Year-End”), practitioners should be aware of what has changed.
Inflation Adjustments
The applicable amounts for many tax items increased on Jan. 1, due to annual inflation adjustments. Revised tax tables are in effect, as well as an increahttp://www.blogger.com/img/blank.gifsed personal exemption amount (now $3,800) and standard deduction amounts. Various credits and other items also were adjusted (see Rev. Proc. 2011-52). Contribution limits and other amounts for pension plans retirement accounts were also changed for 2012 (see IR-2011-103). The Social Security wage base for 2012 is $110,100.
The standard mileage rate for business use of an automobile remains at 55½ cents per mile for 2012; for medical and moving expenses it decreases to 23 cents per mile (Notice 2012-1), down a half-cent from the second half of 2011.
Capital Gain and Loss Reporting
Taxpayers will have to report new information on Form 1040, Schedule D, Capital Gains and Losses, and file a new form, Form 8949, Sales and Other Dispositions of Capital Assets, to report gains and lhttp://www.blogger.com/img/blank.gifosses of certain capital assets. The information on Form 8949 will correspond to the new information being reported on 2011 Forms 1099-B, Proceeds from Broker and Barter Exchange Transactions.
Under Sec. 6045, as amended in 2008, brokers are required to report to the IRS and their customers the customers’ adjusted basis in securities sold and to classify the customers’ gain as long term or short term. This basis reporting applies to covered securities acquired in 2011 and later (certain corporate stock in 2011 and other securities starting in later years; see Sec. 6045(g)(3)(C)).
Individuals will be required to report both short-term and long-term gains and losses of capital assets in the following three situations:
- When basis was reported in box 3 of Form 1099-B;
- When basis was not reported on Form 1099-B; or
- When no Form 1099-B was received.
Veterans Work Opportunity Credits
The Three Percent Withholding Repeal and Job Creation Act, P.L. 112-56, extended the work opportunity tax credit (now called the returning heroes and wounded warriors work opportunity tax credits) for businesses that hire certain military veterans. Employers will be eligible for a credit of up to $9,600 for each qualified veteran that they hire after the law’s enactment date (Nov. 21, 2011) and before Jan. 1, 2013.
Under the returning heroes tax credit, an employer may be eligible for a credit of up to $2,400 for hiring a veteran who has been unemployed for at least four weeks and up to $5,600 for hiring a veteran who has been unemployed for more than six months. Under the wounded warriors tax credit, an employer may be eligible forhttp://www.blogger.com/img/blank.gif a credit of up to $9,600 for hiring a veteran with a service-connected disability who has been unemployed for more than six months and up to $4,800 for hiring a veteran with a service-connected disability (who does not meet the returning hero credit requirements) or who qualifies as a food stamp recipient.
Foreign Asset Reporting
Under the Foreign Account Tax Compliance Act, individuals are required to report interests in specified foreign financial assets when filing their federal income tax returns (Sec. 6038D). This requirement was suspended until the Form 8938, Statement of Specified Foreign Financial Assets, was released (Notice 2011-55). The IRS posted the final version of the form and its instructions in December; taxpayers subject to the reporting requirement must file the form in 2012 for 2011 tax years. In addition, taxpayers who would have been required (except for the suspension of the requirement) to file Form 8938 in 2011 for a tax year that began after March 18, 2010, must file it for the prior year with their return for the current tax year.
Bonus Depreciation
The 100% first-year bonus depreciation provision expired on Dec. 31, but 50% bonus depreciation is available for property placed in service in 2012. (100% bonus depreciation does still apply in the case of certain longer-lived and transportation property placed in service before 2013.)
Estate Tax
Estates of decedents who died in 2010 have until Jan. 17, 2012, to elect not to have the estate tax apply and to have heirs’ bases in assets they inherit http://www.blogger.com/img/blank.gifhttp://www.blogger.com/img/blank.gifdetermihttp://www.blogger.com/img/blank.gifned under the modified carryover basis rules in Sec. 1022. This election is made by filing Form 8939, Allocation of Increase in Basis for Property Acquired from a Decedent. (For more on the Form 8939 requirements, see Cantrell, “Preparing and Filing Form 8939,” The Tax Adviser, November 2011.)
The estate and gift tax lifetime exclusion increases to $5.12 million for 2012.
EITC Due Diligence
The penalty for failing to meet the Sec. 6695(g) earned income tax credit (EITC) due diligence requirements increased from $100 to $500, effective for returns required to be filed after Dec. 31, 2011.
Voluntary Classification Settlement Program
http://www.blogger.com/img/blank.gif
A new voluntary classification settlement program (VCSP) introduced in September (Announcement 2011-64) allows eligible taxpayers to voluntarily reclassify their workers as employees for federal employment tax purposes for future tax periods while receiving relief for part of the tax liability relating to the past treatment of the workers as nonemployees. Taxpayers are eligible if they have consistently treated the workers as nonemployees, filed all required Forms 1099 for the previous three years, are not currently under IRS audit, are not currently under audit by the U.S. Department of Labor or a state agency, and complied with the audit results if the taxpayers were previously audited by the IRS or the Department of Labor.
The VCSP limits the tax liability to 10% of the employment tax liability that would have been due on the compensation paid to the workers in the most recent tax year, as calculated under the reduced rates of Sec. 3509. Interest and penalties are not charged on the liability.
The classification of these workers for prior years is not subject to an employment tax audit, but the statute of limitation on assessment of employment taxes is extended from three to six years for the first, second and third calendar years beginning after the date the taxpayers begin treating the workers as employees under the VCSP closing agreement.
Sunday, July 17, 2011
The 8 Most Annoying Fees
I am surprised bank charges don't make the list. Bank of America started charging a $3 per month fee for sending check images with the bank statement. Mind you, it's not the actual cancelled checks, just the front side of the check image. I would not have minded if BofA lists the details of the checks such as payee names with each cleared check on the statement. That would have satisfied IRS. But when BofA only lists the check numbers, taxpayers need something more to substantiate a tax deduction.
http://finance.yahoo.com/banking-budgeting/article/113142/most-annoying-fees-moneytalks
by Len Penzo
Fees for this, fees for that -- even a fee for paying a fee. Where does it end? I'm afraid I know the answer ...
In this tough economy, businesses of all types are trying to nickel and dime us with add-on charges. They want you to believe these fees are necessary to cover the cost of doing business, but more often than not, they simply mislead the consumer by adding a hidden mark-up to the advertised price.
Sometimes the fees are small, but other times they can be severe. The mortgage loan industry has been doing this forever, but now the practice has spread like the plague to many other services. I can't be the only person who is outraged by this continuing practice. Or am I?
Here are eight classic fees that really gnaw at me. Some of them I do a pretty good job of avoiding. Others, not so much ...
1. Unlisted Phone Number Fees
This is arguably the granddaddy of them all. I currently get charged $1.75 per month for my unlisted telephone number -- $21 per year. Why does it cost the phone company more to keep my number out of the phone book than in it? That's a rhetorical question, but I'll answer it anyway: It doesn't.
2. Convenience Fees
I recently bought four tickets online from Ticketmaster so I could take the wife and kids to see the Harlem Globetrotters. Cost: $300 for the set. But on top of that was a "convenience charge" of $5 per ticket that added $20 to my bill. Usually, buying online saves a company money that they'd otherwise spend on a telephone operator or a store clerk. So why am I being charged to make Ticketmaster's existence more convenient?
3. Fees for Printing Tickets
I'm not done with Ticketmaster. After gagging on the $20 "convenience" charge for my Globetrotter tickets, Ticketmaster wanted to charge me $2.50 so that I could print the tickets from my home printer. Keep in mind that I also had the option to get the tickets via the postal service -- for no charge. Where's the logic in that? How much do you think it costs Ticketmaster to print the tickets on heavier stock paper, using their ticket machines, and then pay their staff to place the tickets in envelopes with the proper postage and mail it to my house? I don't know either, but I made sure that's exactly what Ticketmaster did.
4. Hotel Safe Fees
There are more than a few hotels out there that charge you just for the privilege of using their in-room safes -- whether you use it or not. Here's one hotel that charges $1.69 per night. What a joke. Whenever I see this fee, I ask to have it waived.
5. Tax e-Filing Fees
Among the most egregious fees out there are the ones that charge money for essentially doing nothing more than making a mouse click or pushing a couple of keys on a computer keyboard. How much money does it cost to send some bits of information through the Internet? Well, if you ask TurboTax, it's $36.95. That's what they charge to e-file a state tax return. So rather than printing out the return and sending it through the mail, I clenched my teeth and reluctantly paid it. Hey, if you paid attention you'll find a lesson on opportunity cost buried in there.
6. Tax Refund Fees
After spending four hours doing my taxes with the online edition of TurboTax, I was due a refund. "Perfect!" I thought, "I'll have TurboTax simply deduct what I owe them directly from my refund." Unfortunately, it turns out TurboTax charges an additional $29.95 if you choose to go that route. My only other option was to pay by credit card -- at no charge. How does that make any sense? So I paid with plastic. I hope TurboTax had to pay the credit card company an interchange fee for me using it too. Dummies.
7. Mortgage Junk Fees
There are dozens of mortgage junk fees out there, some more dubious than others, that make you scratch your head and ask what the heck is that for? Re-conveyance verification fees, commitment fees, and the infamous "warehouse fee" are just three classic examples. (I know, I already mentioned them above -- but I wanted to make it official.)
8. And Then There's This ...
It's bad enough that airlines almost universally charge fees to people who have the audacity to travel with luggage. But a while back, United, US Airways, and Delta took things a step further by charging their "valued" customers who chose to pay for their bags at the airport, rather than online, an additional fee of between $2 and $3 per bag.
That's right, folks. A fee for paying a fee.
http://finance.yahoo.com/banking-budgeting/article/113142/most-annoying-fees-moneytalks
by Len Penzo
Fees for this, fees for that -- even a fee for paying a fee. Where does it end? I'm afraid I know the answer ...
In this tough economy, businesses of all types are trying to nickel and dime us with add-on charges. They want you to believe these fees are necessary to cover the cost of doing business, but more often than not, they simply mislead the consumer by adding a hidden mark-up to the advertised price.
Sometimes the fees are small, but other times they can be severe. The mortgage loan industry has been doing this forever, but now the practice has spread like the plague to many other services. I can't be the only person who is outraged by this continuing practice. Or am I?
Here are eight classic fees that really gnaw at me. Some of them I do a pretty good job of avoiding. Others, not so much ...
1. Unlisted Phone Number Fees
This is arguably the granddaddy of them all. I currently get charged $1.75 per month for my unlisted telephone number -- $21 per year. Why does it cost the phone company more to keep my number out of the phone book than in it? That's a rhetorical question, but I'll answer it anyway: It doesn't.
2. Convenience Fees
I recently bought four tickets online from Ticketmaster so I could take the wife and kids to see the Harlem Globetrotters. Cost: $300 for the set. But on top of that was a "convenience charge" of $5 per ticket that added $20 to my bill. Usually, buying online saves a company money that they'd otherwise spend on a telephone operator or a store clerk. So why am I being charged to make Ticketmaster's existence more convenient?
3. Fees for Printing Tickets
I'm not done with Ticketmaster. After gagging on the $20 "convenience" charge for my Globetrotter tickets, Ticketmaster wanted to charge me $2.50 so that I could print the tickets from my home printer. Keep in mind that I also had the option to get the tickets via the postal service -- for no charge. Where's the logic in that? How much do you think it costs Ticketmaster to print the tickets on heavier stock paper, using their ticket machines, and then pay their staff to place the tickets in envelopes with the proper postage and mail it to my house? I don't know either, but I made sure that's exactly what Ticketmaster did.
4. Hotel Safe Fees
There are more than a few hotels out there that charge you just for the privilege of using their in-room safes -- whether you use it or not. Here's one hotel that charges $1.69 per night. What a joke. Whenever I see this fee, I ask to have it waived.
5. Tax e-Filing Fees
Among the most egregious fees out there are the ones that charge money for essentially doing nothing more than making a mouse click or pushing a couple of keys on a computer keyboard. How much money does it cost to send some bits of information through the Internet? Well, if you ask TurboTax, it's $36.95. That's what they charge to e-file a state tax return. So rather than printing out the return and sending it through the mail, I clenched my teeth and reluctantly paid it. Hey, if you paid attention you'll find a lesson on opportunity cost buried in there.
6. Tax Refund Fees
After spending four hours doing my taxes with the online edition of TurboTax, I was due a refund. "Perfect!" I thought, "I'll have TurboTax simply deduct what I owe them directly from my refund." Unfortunately, it turns out TurboTax charges an additional $29.95 if you choose to go that route. My only other option was to pay by credit card -- at no charge. How does that make any sense? So I paid with plastic. I hope TurboTax had to pay the credit card company an interchange fee for me using it too. Dummies.
7. Mortgage Junk Fees
There are dozens of mortgage junk fees out there, some more dubious than others, that make you scratch your head and ask what the heck is that for? Re-conveyance verification fees, commitment fees, and the infamous "warehouse fee" are just three classic examples. (I know, I already mentioned them above -- but I wanted to make it official.)
8. And Then There's This ...
It's bad enough that airlines almost universally charge fees to people who have the audacity to travel with luggage. But a while back, United, US Airways, and Delta took things a step further by charging their "valued" customers who chose to pay for their bags at the airport, rather than online, an additional fee of between $2 and $3 per bag.
That's right, folks. A fee for paying a fee.
Monday, January 24, 2011
What's New on the 2010 Form 1040
http://finance.yahoo.com/taxes/article/111872/whats-new-on-1040-in-2010
by Bill Bischoff
Monday, January 24, 2011
By now, some of you may already have your 2010 W-2 and 1099s in hand. If not, it won't be long. So it's not too soon to think about starting your 2010 Form 1040. Before you begin, there are some key changes to note. Here's what you need to know.
Due Date is April 18
Even though April 15 falls on a Friday this year, the deadline for your 2010 Form 1040 is Monday April 18. Reason: Emancipation Day is a District of Columbia holiday, and it falls on April 15. So the tax filing deadline for the whole nation is deferred to April 18 . If your return won't be ready by then, you can extend the deadline all the way out to October 17 by filing Form 4868 on or before April 18.
No More Phase-Outs for Itemized Deductions and Exemptions
For years, high-income folks have seen their write-offs for the most popular itemized deduction items (including mortgage interest, state and local income and property taxes, and charitable donations) reduced by a nasty phase-out rule. Another nasty phase-out rule reduced or eliminated personal and dependent exemption deductions. Thankfully, both phase-outs were completely repealed for 2010 as part of the Bush-era tax cuts. So you can write off the full amount of your itemized deductions and exemptions on your 2010 Form 1040 without any worries and without having to fill out phase-out worksheets to penalize yourself. More good news: the recent tax cut extension legislation repealed the phase-outs for 2011 and 2012 as well.
Liberalized Adoption Credit
For 2010, the maximum adoption credit was increased to $13,170 (up from $12,150 in 2009). In addition, the credit was made 100% refundable for the 2010 tax year (previously, it was nonrefundable). That means you'll receive a check for any leftover adoption credit after your federal income tax bill has been reduced to zero. To claim the credit, fill out Form 8839 (Qualified Adoption Expenses), and enter the credit on line 71 of Form 1040.
One-Time Break for Self-Employed Individuals
Self-employed folks can generally deduct their health insurance premiums on page 1 of Form 1040 (use line 29 for 2010). The deduction reduces their federal income tax bills, which is nice. However, the self-employed have never been allowed to deduct those premiums when calculating their self-employment tax bills on Schedule SE. Good news: for 2010 only, you can deduct health insurance premiums on line 3 of Schedule SE. So those premiums will reduce both your income tax bill and your SE tax bill. Unfortunately, this break will not be available for 2011 and beyond unless Congress extends it.
Homebuyer Credit Repayment Rules Kick In
As I explained in an earlier column, you may have to repay part or all of the credit claimed for a 2008 or 2009 home purchase with your 2010 Form 1040.
In most cases, however, only those who purchased homes in 2008 will be affected. They will generally have to repay 1/15 of the credit with the 2010 Form 1040. If this rule impacts you, fill out Form 5405 (First-Time Homebuyer Credit and Repayment of the Credit), and enter the repayment amount as an addition to your tax bill on line 59 of Form 1040.
Real Estate Tax Deduction for Non-Itemizers is Gone
For 2008 and 2009, unmarried individuals who did not itemize could write off up to $500 of state and local real property taxes by claiming an increased standard deduction. Married joint-filing couples could write off up to $1,000. This add-on standard deduction deal for real estate taxes expired at the end of 2009, and it was not reinstated for 2010.
Deductions for Sales Taxes on New Vehicle Purchases Are Gone
The 2009 Stimulus Act created a temporary write-off for non-itemizers who paid state and local sales taxes on new vehicles purchased between 2/17/09 and 12/31/09. The write-off came in the form of an additional standard deduction allowance. Similarly, itemizers were allowed to claim an extra itemized deduction for such taxes. Both breaks lapsed at the end of 2009, and they were not reinstated for 2010.
Break for Unemployment Benefits Is Gone
In 2009, the first $2,400 of unemployment benefits was federal-income-tax-free. This break was not continued for 2010. Therefore, 100% of 2010 unemployment benefits generally must be reported as income on Form 1040 (use line 19).
Your Tax Preparer Might E-File Your Return This Time
Over the last few years, Congress has made tax-law changes that place increasing pressure on professional return preparers to electronically file more and more returns. As a result, your preparer might be forced to e-file your 2010 Form 1040 even if your returns for earlier years have always been done on paper. Get used to it.
by Bill Bischoff
Monday, January 24, 2011
By now, some of you may already have your 2010 W-2 and 1099s in hand. If not, it won't be long. So it's not too soon to think about starting your 2010 Form 1040. Before you begin, there are some key changes to note. Here's what you need to know.
Due Date is April 18
Even though April 15 falls on a Friday this year, the deadline for your 2010 Form 1040 is Monday April 18. Reason: Emancipation Day is a District of Columbia holiday, and it falls on April 15. So the tax filing deadline for the whole nation is deferred to April 18 . If your return won't be ready by then, you can extend the deadline all the way out to October 17 by filing Form 4868 on or before April 18.
No More Phase-Outs for Itemized Deductions and Exemptions
For years, high-income folks have seen their write-offs for the most popular itemized deduction items (including mortgage interest, state and local income and property taxes, and charitable donations) reduced by a nasty phase-out rule. Another nasty phase-out rule reduced or eliminated personal and dependent exemption deductions. Thankfully, both phase-outs were completely repealed for 2010 as part of the Bush-era tax cuts. So you can write off the full amount of your itemized deductions and exemptions on your 2010 Form 1040 without any worries and without having to fill out phase-out worksheets to penalize yourself. More good news: the recent tax cut extension legislation repealed the phase-outs for 2011 and 2012 as well.
Liberalized Adoption Credit
For 2010, the maximum adoption credit was increased to $13,170 (up from $12,150 in 2009). In addition, the credit was made 100% refundable for the 2010 tax year (previously, it was nonrefundable). That means you'll receive a check for any leftover adoption credit after your federal income tax bill has been reduced to zero. To claim the credit, fill out Form 8839 (Qualified Adoption Expenses), and enter the credit on line 71 of Form 1040.
One-Time Break for Self-Employed Individuals
Self-employed folks can generally deduct their health insurance premiums on page 1 of Form 1040 (use line 29 for 2010). The deduction reduces their federal income tax bills, which is nice. However, the self-employed have never been allowed to deduct those premiums when calculating their self-employment tax bills on Schedule SE. Good news: for 2010 only, you can deduct health insurance premiums on line 3 of Schedule SE. So those premiums will reduce both your income tax bill and your SE tax bill. Unfortunately, this break will not be available for 2011 and beyond unless Congress extends it.
Homebuyer Credit Repayment Rules Kick In
As I explained in an earlier column, you may have to repay part or all of the credit claimed for a 2008 or 2009 home purchase with your 2010 Form 1040.
In most cases, however, only those who purchased homes in 2008 will be affected. They will generally have to repay 1/15 of the credit with the 2010 Form 1040. If this rule impacts you, fill out Form 5405 (First-Time Homebuyer Credit and Repayment of the Credit), and enter the repayment amount as an addition to your tax bill on line 59 of Form 1040.
Real Estate Tax Deduction for Non-Itemizers is Gone
For 2008 and 2009, unmarried individuals who did not itemize could write off up to $500 of state and local real property taxes by claiming an increased standard deduction. Married joint-filing couples could write off up to $1,000. This add-on standard deduction deal for real estate taxes expired at the end of 2009, and it was not reinstated for 2010.
Deductions for Sales Taxes on New Vehicle Purchases Are Gone
The 2009 Stimulus Act created a temporary write-off for non-itemizers who paid state and local sales taxes on new vehicles purchased between 2/17/09 and 12/31/09. The write-off came in the form of an additional standard deduction allowance. Similarly, itemizers were allowed to claim an extra itemized deduction for such taxes. Both breaks lapsed at the end of 2009, and they were not reinstated for 2010.
Break for Unemployment Benefits Is Gone
In 2009, the first $2,400 of unemployment benefits was federal-income-tax-free. This break was not continued for 2010. Therefore, 100% of 2010 unemployment benefits generally must be reported as income on Form 1040 (use line 19).
Your Tax Preparer Might E-File Your Return This Time
Over the last few years, Congress has made tax-law changes that place increasing pressure on professional return preparers to electronically file more and more returns. As a result, your preparer might be forced to e-file your 2010 Form 1040 even if your returns for earlier years have always been done on paper. Get used to it.
Sunday, November 14, 2010
Blowing up the tax code
http://money.cnn.com/2010/11/11/news/economy/simpson_bowles_tax_reform/index.htm
By Jeanne Sahadi, senior writerNovember 12, 2010: 7:57 AM ET
NEW YORK (CNNMoney.com) -- So much to love. So much to hate.
That's what everyone will find in the tax reform proposals laid out this week by the co-chairmen of President Obama's fiscal commission.
And that may also be the best indication that Erskine Bowles and Alan Simpson got something right.
The truth is, there's no escaping the need to make serious tradeoffs on taxes if the goal is to create a tax code that supports economic growth, provides enough revenue to fund everything Americans want their government to do, and achieves real deficit reduction when paired with spending cuts. (10 biggest cuts the co-chairmen recommend)
Of course, politicians aren't yet willing to acknowledge those tradeoffs. Most Republicans still cleave publicly to the idea that taxes are the devil's spawn and must be beaten back. And most Democrats think that only the wealthiest should ever have to pay more in taxes.
That doesn't mean there isn't something for them to like in the Bowles-Simpson proposal.
For one thing, the co-chairmen propose simplifying the tax code, while lowering rates. They would also eliminate the Alternative Minimum Tax (a.k.a. the crazy-making-calculate-your-taxes-twice-to-see-if-you-owe-more tax).
Think you're smart about the deficit? Try this
In exchange, their proposal calls for a reduction -- or the complete elimination -- of the hundreds of tax deductions, credits and exemptions in the code.
Tax breaks reduce the amount of revenue the government takes in by more than $1 trillion a year, much of which comes from just a few of the biggest and most popular ones like the mortgage interest deduction.
Many experts regard tax breaks as a stealth form of spending. That's because the lost revenue doesn't appear anywhere on the federal budget. And once a break is passed into law, it's rare that anybody reviews its effectiveness.
"They're unsustainable. They have no oversight. And they really cost this country a bundle," Simpson told CNN.
Still, as the co-chairmen know all too well, removing them will elicit all sorts of "shrieking," as the ever-tart-tongued Simpson has put it many times. Tax breaks are enjoyed by many powerful special interests -- to say nothing of many Americans.
Fewer breaks = lower rates
Bowles and Simpson offer two options that slash tax breaks. And by doing so, they can lower income tax rates.
In their "zero plan" option, breaks are eliminated altogether. Under that scenario, individual income tax rates -- which they reduce from six brackets to three -- can fall substantially.
For instance, the lowest two rates (10% and 15%) could fall to 8%. The middle two rates (25% and 28%) could drop to 14%. And the top two rates (33% and 35%) could drop to 23%.
The corporate rate, meanwhile, could drop to 26% from 35%, to make it more attractive for companies to invest in the United States.
On the other hand, of course, lawmakers could choose to retain tax breaks. But the fewer they prune, the less rates can be lowered.
The second option from Simpson and Bowles, building on a bipartisan proposal in Congress, would reduce the mortgage interest deduction. The tax break would apply only to the first $500,000 of a loan on one's primary residence, about half of what counts today.
The second option would also repeal the state and local tax deduction and various other itemized deductions.
Individual tax rates under that plan would be 15%, 25% and 35%.
Another big proposed change under both reform plans would affect investment income. Capital gains and dividends, which are currently taxed at 15%, would be taxed as ordinary income -- that is, at higher rates.
More revenue on tap
The Simpson-Bowles tax reform options would raise an estimated $80 billion in additional revenue in 2015 and $160 billion by 2020. Their plan overall would cap federal revenue at 21% of GDP.
Who exactly will be paying in all that extra revenue? A specific break-out by income groups is still in the works.
It is likely that more people would end up with higher -- rather than lower -- tax bills, a commission staffer said. But he also noted that the revised tax code would probably be more progressive.
No one will like paying more, of course. But the staffer said the comparison shouldn't be to what someone is paying today but rather to what that person is likely to pay in the future if no changes to the tax code or to the federal balance sheet are made.
Translation: Taxes are going up one way or the other. The question is will those higher taxes be levied in a system that is widely considered to be outdated, overly complex and highly inefficient, or in a system that is simpler and smarter?
By Jeanne Sahadi, senior writerNovember 12, 2010: 7:57 AM ET
NEW YORK (CNNMoney.com) -- So much to love. So much to hate.
That's what everyone will find in the tax reform proposals laid out this week by the co-chairmen of President Obama's fiscal commission.
And that may also be the best indication that Erskine Bowles and Alan Simpson got something right.
The truth is, there's no escaping the need to make serious tradeoffs on taxes if the goal is to create a tax code that supports economic growth, provides enough revenue to fund everything Americans want their government to do, and achieves real deficit reduction when paired with spending cuts. (10 biggest cuts the co-chairmen recommend)
Of course, politicians aren't yet willing to acknowledge those tradeoffs. Most Republicans still cleave publicly to the idea that taxes are the devil's spawn and must be beaten back. And most Democrats think that only the wealthiest should ever have to pay more in taxes.
That doesn't mean there isn't something for them to like in the Bowles-Simpson proposal.
For one thing, the co-chairmen propose simplifying the tax code, while lowering rates. They would also eliminate the Alternative Minimum Tax (a.k.a. the crazy-making-calculate-your-taxes-twice-to-see-if-you-owe-more tax).
Think you're smart about the deficit? Try this
In exchange, their proposal calls for a reduction -- or the complete elimination -- of the hundreds of tax deductions, credits and exemptions in the code.
Tax breaks reduce the amount of revenue the government takes in by more than $1 trillion a year, much of which comes from just a few of the biggest and most popular ones like the mortgage interest deduction.
Many experts regard tax breaks as a stealth form of spending. That's because the lost revenue doesn't appear anywhere on the federal budget. And once a break is passed into law, it's rare that anybody reviews its effectiveness.
"They're unsustainable. They have no oversight. And they really cost this country a bundle," Simpson told CNN.
Still, as the co-chairmen know all too well, removing them will elicit all sorts of "shrieking," as the ever-tart-tongued Simpson has put it many times. Tax breaks are enjoyed by many powerful special interests -- to say nothing of many Americans.
Fewer breaks = lower rates
Bowles and Simpson offer two options that slash tax breaks. And by doing so, they can lower income tax rates.
In their "zero plan" option, breaks are eliminated altogether. Under that scenario, individual income tax rates -- which they reduce from six brackets to three -- can fall substantially.
For instance, the lowest two rates (10% and 15%) could fall to 8%. The middle two rates (25% and 28%) could drop to 14%. And the top two rates (33% and 35%) could drop to 23%.
The corporate rate, meanwhile, could drop to 26% from 35%, to make it more attractive for companies to invest in the United States.
On the other hand, of course, lawmakers could choose to retain tax breaks. But the fewer they prune, the less rates can be lowered.
The second option from Simpson and Bowles, building on a bipartisan proposal in Congress, would reduce the mortgage interest deduction. The tax break would apply only to the first $500,000 of a loan on one's primary residence, about half of what counts today.
The second option would also repeal the state and local tax deduction and various other itemized deductions.
Individual tax rates under that plan would be 15%, 25% and 35%.
Another big proposed change under both reform plans would affect investment income. Capital gains and dividends, which are currently taxed at 15%, would be taxed as ordinary income -- that is, at higher rates.
More revenue on tap
The Simpson-Bowles tax reform options would raise an estimated $80 billion in additional revenue in 2015 and $160 billion by 2020. Their plan overall would cap federal revenue at 21% of GDP.
Who exactly will be paying in all that extra revenue? A specific break-out by income groups is still in the works.
It is likely that more people would end up with higher -- rather than lower -- tax bills, a commission staffer said. But he also noted that the revised tax code would probably be more progressive.
No one will like paying more, of course. But the staffer said the comparison shouldn't be to what someone is paying today but rather to what that person is likely to pay in the future if no changes to the tax code or to the federal balance sheet are made.
Translation: Taxes are going up one way or the other. The question is will those higher taxes be levied in a system that is widely considered to be outdated, overly complex and highly inefficient, or in a system that is simpler and smarter?
Thursday, September 30, 2010
Obama Signs Small Business Jobs Act
http://www.webcpa.com/news/Obama-Signs-Small-Business-Jobs-Act-55725-1.html
Washington, D.C.
By WebCPA Staff
President Obama signed the Small Business Jobs Act into law on Monday, providing $12 billion in tax breaks and a $30 billion lending fund for small businesses.
"It was critical that we cut taxes and make more loans available to entrepreneurs," said Obama. "So today, after a long and tough fight, I am signing a small business jobs bill that does exactly that."
The bill eliminates all capital gains taxes on small business investments held more than five years. Over 1 million small businesses are eligible this year for investments that, if held for five years or longer, could be completely excluded from any capital gains taxation.
In addition, the bill increases for 2010 and 2011 the amount of investments that businesses would be eligible to immediately write off to $500,000, while raising the level of investments at which the write-off phases out to $2 million. Prior to the passage of the bill, the expensing limit would have been $250,000 this year, and only $25,000 next year. An estimated 4.5 million small businesses and individuals will be able to make new business investments under this provision and earn a larger break on their taxes for this year, according to the White House.
The bill also extends a Recovery Act provision for 50 percent “bonus depreciation” through 2010, providing 2 million businesses, large and small, with the ability to make new investments and know they can receive a tax cut for this year by accelerating the rate at which they deduct capital expenditures.
The bill also allows 2 million self-employed to get a deduction for the cost of health insurance for themselves and their family members in calculating their self-employment taxes for this year. This provision is estimated to provide over $1.9 billion in tax cuts for entrepreneurs.
The Small Business Jobs Act also changes rules so that the use of cell phones can be deducted without burdensome extra documentation.
The bill temporarily increases the amount of start-up expenditures that entrepreneurs can deduct from their taxes for this year from $5,000 to $10,000 (with a phase-out threshold of $60,000 in expenditures), offering an immediate incentive for someone with a new business idea to invest in starting up a new small business today.
In addition, the bill would allow certain small businesses to "carry back" their general business credits to offset five years of taxes, providing them with a break on their taxes for this year – while also allowing these credits to offset the Alternative Minimum Tax, reducing taxes for these small businesses.
The bill would change, beginning this year, the penalty for failing to report certain tax transactions from a fixed dollar amount – which was criticized for imposing a disproportionately large penalty on small businesses in certain circumstances – to a percentage of the tax benefits from the transaction.
With funds provided in the bill, the Small Business Administration will begin funding new Recovery loans within a few days of President Obama’s signature, starting with the more than 1,400 businesses – with loans totaling more than $730 million – that are waiting in the SBA’s Recovery Loan Queue. In total, the extension of these provisions is expected to provide the capacity to support an estimated $14 billion in loans to small businesses.
The bill also increases the maximum loan size for SBA loan programs, which in the coming weeks will allow more small businesses to access more credit to allow them to expand and create new jobs. The bill will permanently raise the maximum size for the SBA’s two largest loan programs, increasing the maximum 7(a) and 504 loans from $2 million to $5 million, and the maximum 504 manufacturing related loan from $4 million to $5.5 million. In addition, it will temporarily increase the maximum loan size for SBA Express loans from $350,000 to $1 million, providing greater access to working capital loans that small businesses use to purchase new inventory and take on their next order – allowing them to create new jobs.
The bill would establish a new $30 billion Small Business Lending Fund which – by providing capital to small banks with incentives to increase small business lending – could support several multiples of that amount in new credit.
In addition, the bill will support at least $15 billion in small business lending through a new State Small Business Credit Initiative, strengthening state small business programs that leverage private-sector lenders to extend additional credit – many of which have been forced to cut back due to budget cuts.
__________
For more information, read http://tax.cchgroup.com/legislation/Small-Business-Jobs-Act-7-23-10.pdf
Washington, D.C.
By WebCPA Staff
President Obama signed the Small Business Jobs Act into law on Monday, providing $12 billion in tax breaks and a $30 billion lending fund for small businesses.
"It was critical that we cut taxes and make more loans available to entrepreneurs," said Obama. "So today, after a long and tough fight, I am signing a small business jobs bill that does exactly that."
The bill eliminates all capital gains taxes on small business investments held more than five years. Over 1 million small businesses are eligible this year for investments that, if held for five years or longer, could be completely excluded from any capital gains taxation.
In addition, the bill increases for 2010 and 2011 the amount of investments that businesses would be eligible to immediately write off to $500,000, while raising the level of investments at which the write-off phases out to $2 million. Prior to the passage of the bill, the expensing limit would have been $250,000 this year, and only $25,000 next year. An estimated 4.5 million small businesses and individuals will be able to make new business investments under this provision and earn a larger break on their taxes for this year, according to the White House.
The bill also extends a Recovery Act provision for 50 percent “bonus depreciation” through 2010, providing 2 million businesses, large and small, with the ability to make new investments and know they can receive a tax cut for this year by accelerating the rate at which they deduct capital expenditures.
The bill also allows 2 million self-employed to get a deduction for the cost of health insurance for themselves and their family members in calculating their self-employment taxes for this year. This provision is estimated to provide over $1.9 billion in tax cuts for entrepreneurs.
The Small Business Jobs Act also changes rules so that the use of cell phones can be deducted without burdensome extra documentation.
The bill temporarily increases the amount of start-up expenditures that entrepreneurs can deduct from their taxes for this year from $5,000 to $10,000 (with a phase-out threshold of $60,000 in expenditures), offering an immediate incentive for someone with a new business idea to invest in starting up a new small business today.
In addition, the bill would allow certain small businesses to "carry back" their general business credits to offset five years of taxes, providing them with a break on their taxes for this year – while also allowing these credits to offset the Alternative Minimum Tax, reducing taxes for these small businesses.
The bill would change, beginning this year, the penalty for failing to report certain tax transactions from a fixed dollar amount – which was criticized for imposing a disproportionately large penalty on small businesses in certain circumstances – to a percentage of the tax benefits from the transaction.
With funds provided in the bill, the Small Business Administration will begin funding new Recovery loans within a few days of President Obama’s signature, starting with the more than 1,400 businesses – with loans totaling more than $730 million – that are waiting in the SBA’s Recovery Loan Queue. In total, the extension of these provisions is expected to provide the capacity to support an estimated $14 billion in loans to small businesses.
The bill also increases the maximum loan size for SBA loan programs, which in the coming weeks will allow more small businesses to access more credit to allow them to expand and create new jobs. The bill will permanently raise the maximum size for the SBA’s two largest loan programs, increasing the maximum 7(a) and 504 loans from $2 million to $5 million, and the maximum 504 manufacturing related loan from $4 million to $5.5 million. In addition, it will temporarily increase the maximum loan size for SBA Express loans from $350,000 to $1 million, providing greater access to working capital loans that small businesses use to purchase new inventory and take on their next order – allowing them to create new jobs.
The bill would establish a new $30 billion Small Business Lending Fund which – by providing capital to small banks with incentives to increase small business lending – could support several multiples of that amount in new credit.
In addition, the bill will support at least $15 billion in small business lending through a new State Small Business Credit Initiative, strengthening state small business programs that leverage private-sector lenders to extend additional credit – many of which have been forced to cut back due to budget cuts.
__________
For more information, read http://tax.cchgroup.com/legislation/Small-Business-Jobs-Act-7-23-10.pdf
Monday, September 20, 2010
Small Business Jobs and Credit Act of 2010 (H.R. 5297)
Senate has approved the Small Business Jobs and Credit Act of 2010 (H.R. 5297) which includes a package of enhanced small business tax incentives. In addition to many non-tax provisions related to small business lending and access to capital, tax provisions in the legislation include a retroactive extension of bonus depreciation, a doubling of the Code Sec. 179 expense limit, a five-year general business credit carryback, a 100-percent exclusion for qualified investments in small business, an increase in start-up business expensing and a five-year holding period for built-in gains of S Corporations. Other provisions address the tax treatment of business-provided cell phones, the penalty for failure to report a listed transaction, Roth accounts in 401(k), 403(b) and 457(b) plans and the treatment of nonqualified annuities.
But the Bill also includes a provision that requires landlords to issue Forms 1099-MISC to service providers who were paid $600 or more in any calendar year. The Bill also substantially increases the penalties for failure to file these information tax returns.
The House is expected to pass a similar Bill this week and President Obama has said he would sign the Bill into law as soon as it arrives at his desk.
For more information, read http://tax.cchgroup.com/legislation/Small-Business-Jobs-Act-7-23-10.pdf
But the Bill also includes a provision that requires landlords to issue Forms 1099-MISC to service providers who were paid $600 or more in any calendar year. The Bill also substantially increases the penalties for failure to file these information tax returns.
The House is expected to pass a similar Bill this week and President Obama has said he would sign the Bill into law as soon as it arrives at his desk.
For more information, read http://tax.cchgroup.com/legislation/Small-Business-Jobs-Act-7-23-10.pdf
Friday, December 4, 2009
Energy Incentives for Individuals in the American Recovery and Reinvestment Act
http://www.irs.gov/newsroom/article/0,,id=206875,00.html
Audio File for Podcast: Energy Tax Credits
The American Recovery and Reinvestment Act (ARRA) provides numerous tax incentives for individuals to invest in energy-efficient products.
Residential Energy Property Credit (Section 1121): The new law increases the energy tax credit for homeowners who make energy efficient improvements to their existing homes. The new law increases the credit rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 for improvements placed in service in 2009 and 2010.
The credit applies to improvements such as adding insulation, energy efficient exterior windows and energy-efficient heating and air conditioning systems.
A similar credit was available for 2007, but was not available in 2008. Homeowners should be aware that the standards in the new law are higher than the standards for the credit that was available in 2007 for products that qualify as “energy efficient” for purposes of this tax credit. The IRS has issued Notice 2009-53 that will allow manufacturers to certify that their products meet these new standards.
Until the guidance is released, homeowners generally may continue to rely on manufacturers’ certifications that were provided under the old guidance. For exterior windows and skylights, homeowners may continue to rely on Energy Star labels in determining whether property purchased before June 1, 2009, qualifies for the credit. Manufacturers should not continue to provide certifications for property that fails to meet the new standards.
Residential Energy Efficient Property Credit (Section 1122): This nonrefundable energy tax credit will help individual taxpayers pay for qualified residential alternative energy equipment, such as solar hot water heaters, geothermal heat pumps and wind turbines. The new law removes some of the previously imposed maximum amounts and allows for a credit equal to 30 percent of the cost of qualified property. See Notice 2009-41.
Plug-in Electric Drive Vehicle Credit (Section 1141): The new law modifies the credit for qualified plug-in electric drive vehicles purchased after Dec. 31, 2009. To qualify, vehicles must be newly purchased, have four or more wheels, have a gross vehicle weight rating of less than 14,000 pounds, and draw propulsion using a battery with at least four kilowatt hours that can be recharged from an external source of electricity. The minimum amount of the credit for qualified plug-in electric drive vehicles is $2,500 and the credit tops out at $7,500, depending on the battery capacity. The full amount of the credit will be reduced with respect to a manufacturer's vehicles after the manufacturer has sold at least 200,000 vehicles.
Plug-In Electric Vehicle Credit (Section 1142): The new law also creates a special tax credit for two types of plug-in vehicles — certain low-speed electric vehicles and two- or three-wheeled vehicles. The amount of the credit is 10 percent of the cost of the vehicle, up to a maximum credit of $2,500 for purchases made after Feb. 17, 2009, and before Jan. 1, 2012. To qualify, a vehicle must be either a low speed vehicle propelled by an electric motor that draws electricity from a battery with a capacity of 4 kilowatt hours or more or be a two- or three-wheeled vehicle propelled by an electric motor that draws electricity from a battery with the capacity of 2.5 kilowatt hours. A taxpayer may not claim this credit if the plug-in electric drive vehicle credit is allowable. For more information see: Questions and Answers, IR-2009-44, Notice 2009-54 and Notice 2009-58.
Conversion Kits (Section 1143): The new law also provided a tax credit for plug-in electric drive conversion kits. The credit is equal to 10 percent of the cost of converting a vehicle to a qualified plug-in electric drive motor vehicle and placed in service after Feb. 17, 2009. The maximum amount of the credit is $4,000. The credit does not apply to conversions made after Dec. 31, 2011. A taxpayer may claim this credit even if the taxpayer claimed a hybrid vehicle credit for the same vehicle in an earlier year.
Treatment of Alternative Motor Vehicle Credit as a Personal Credit Allowed Against AMT (Section 1144): Starting in 2009, the new law allows the Alternative Motor Vehicle Credit, including the tax credit for purchasing hybrid vehicles, to be applied against the Alternative Minimum Tax. Prior to the new law, the Alternative Motor Vehicle Credit could not be used to offset the AMT. This means the credit could not be taken if a taxpayer owed AMT or was reduced for some taxpayers who did not owe AMT.
Questions and Answers
If you have questions about the energy incentives for individuals, these questions and answers might help.
Related Items:
Audio File for Podcast: Energy Tax Credits
The American Recovery and Reinvestment Act (ARRA) provides numerous tax incentives for individuals to invest in energy-efficient products.
Residential Energy Property Credit (Section 1121): The new law increases the energy tax credit for homeowners who make energy efficient improvements to their existing homes. The new law increases the credit rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 for improvements placed in service in 2009 and 2010.
The credit applies to improvements such as adding insulation, energy efficient exterior windows and energy-efficient heating and air conditioning systems.
A similar credit was available for 2007, but was not available in 2008. Homeowners should be aware that the standards in the new law are higher than the standards for the credit that was available in 2007 for products that qualify as “energy efficient” for purposes of this tax credit. The IRS has issued Notice 2009-53 that will allow manufacturers to certify that their products meet these new standards.
Until the guidance is released, homeowners generally may continue to rely on manufacturers’ certifications that were provided under the old guidance. For exterior windows and skylights, homeowners may continue to rely on Energy Star labels in determining whether property purchased before June 1, 2009, qualifies for the credit. Manufacturers should not continue to provide certifications for property that fails to meet the new standards.
Residential Energy Efficient Property Credit (Section 1122): This nonrefundable energy tax credit will help individual taxpayers pay for qualified residential alternative energy equipment, such as solar hot water heaters, geothermal heat pumps and wind turbines. The new law removes some of the previously imposed maximum amounts and allows for a credit equal to 30 percent of the cost of qualified property. See Notice 2009-41.
Plug-in Electric Drive Vehicle Credit (Section 1141): The new law modifies the credit for qualified plug-in electric drive vehicles purchased after Dec. 31, 2009. To qualify, vehicles must be newly purchased, have four or more wheels, have a gross vehicle weight rating of less than 14,000 pounds, and draw propulsion using a battery with at least four kilowatt hours that can be recharged from an external source of electricity. The minimum amount of the credit for qualified plug-in electric drive vehicles is $2,500 and the credit tops out at $7,500, depending on the battery capacity. The full amount of the credit will be reduced with respect to a manufacturer's vehicles after the manufacturer has sold at least 200,000 vehicles.
Plug-In Electric Vehicle Credit (Section 1142): The new law also creates a special tax credit for two types of plug-in vehicles — certain low-speed electric vehicles and two- or three-wheeled vehicles. The amount of the credit is 10 percent of the cost of the vehicle, up to a maximum credit of $2,500 for purchases made after Feb. 17, 2009, and before Jan. 1, 2012. To qualify, a vehicle must be either a low speed vehicle propelled by an electric motor that draws electricity from a battery with a capacity of 4 kilowatt hours or more or be a two- or three-wheeled vehicle propelled by an electric motor that draws electricity from a battery with the capacity of 2.5 kilowatt hours. A taxpayer may not claim this credit if the plug-in electric drive vehicle credit is allowable. For more information see: Questions and Answers, IR-2009-44, Notice 2009-54 and Notice 2009-58.
Conversion Kits (Section 1143): The new law also provided a tax credit for plug-in electric drive conversion kits. The credit is equal to 10 percent of the cost of converting a vehicle to a qualified plug-in electric drive motor vehicle and placed in service after Feb. 17, 2009. The maximum amount of the credit is $4,000. The credit does not apply to conversions made after Dec. 31, 2011. A taxpayer may claim this credit even if the taxpayer claimed a hybrid vehicle credit for the same vehicle in an earlier year.
Treatment of Alternative Motor Vehicle Credit as a Personal Credit Allowed Against AMT (Section 1144): Starting in 2009, the new law allows the Alternative Motor Vehicle Credit, including the tax credit for purchasing hybrid vehicles, to be applied against the Alternative Minimum Tax. Prior to the new law, the Alternative Motor Vehicle Credit could not be used to offset the AMT. This means the credit could not be taken if a taxpayer owed AMT or was reduced for some taxpayers who did not owe AMT.
Questions and Answers
If you have questions about the energy incentives for individuals, these questions and answers might help.
Related Items:
- IR-2009-44, Energy-Saving Steps This Year May Result in Tax Savings Next Year
- Fact Sheet 2009-10, Energy Provisions of the American Recovery and Reinvestment Act of 2009
- Energy Incentives for Businesses in the American Recovery and Reinvestment Act
- U.S. Department of Energy Energystar Web site
- The American Recovery and Reinvestment Act of 2009: Information Center
Tuesday, November 17, 2009
Stimulus surprise: 15 million may owe IRS
http://money.cnn.com/2009/11/17/pf/taxes/making_work_pay/index.htm
Treasury report estimates many may be getting paid more of the Making Work Pay credit than they should. Their refunds may be cut or they'll have to cough up the overpaid amount.
By Jeanne Sahadi, CNNMoney.com senior writer
Last Updated: November 17, 2009: 9:45 AM ET
NEW YORK (CNNMoney.com) -- Nothing with taxes is ever simple, even when you're getting a tax break.
An estimated 15.4 million tax filers may be getting paid more of the Making Work Pay credit than they should, according to a report from a Treasury Department inspector general publicly released Monday.
And that means they either will get less of a refund than they expected, or will actually owe money to the IRS on their 2009 taxes.
The IRS said in a written response to the report that the agency believes far fewer people than the inspector general estimates would be affected, and that the majority who might be would see less of a refund but would not have an out-of-pocket tax liability come April 15.
The taxpayers most vulnerable are those in two-earner couples; those who have dependents who earn wages; single or married filers who have more than one job at the same time; and filers who get pension payments or have a job and receive Social Security benefits.
The Making Work Pay credit, created as part of the stimulus legislation enacted in February, is equal to 6.2% of earnings up to $400 per person (or up to $800 per couples who file jointly). The full credit is paid to people making $75,000 or less ($150,000 per couple per household). A partial credit would be paid to those making above those amounts but no more than $95,000 ($190,000 for couples per household).
Bailout Tracker: Understand the rescues
For most who qualify, the 2009 credit is being paid in advance incrementally through their paychecks. And it's been automatic - meaning employers, based on what they know of a worker's income and using IRS withholding tables, automatically reduce the amount of taxes withheld from a worker's paycheck.
But an employer doesn't know the income of the worker's spouse or whether the worker is claiming a dependent who also is earning money, or whether the worker has income from other jobs.
So, for instance, two spouses might be receiving the full credit at their jobs when their joint income only qualifies them for a partial credit or none at all. Another scenario: A single person with more than one job might be receiving the full credit at each of his jobs, when in fact he's only entitled to $400 total.
You get the picture.
Such taxpayers could have increased their withholding to account for the possibility that they might receive more of the credit than they should. Indeed, when the credit was first passed, the IRS put out statements and created a calculator to help taxpayers in such situations figure out how much tax they should have withheld. But that doesn't mean that everyone did.
Those who have had too little tax withheld this year will either face a reduced refund or owe money to the IRS. The money primarily would be the amount of the credit overpaid to them. But a much smaller group might also owe a penalty if they were significantly underwithheld.
"More than 1.2 million taxpayers included in these groups may be subject to: 1) paying back some or all of the Making Work Pay Credit and 2) being assessed the estimated tax penalty or an increased estimated tax penalty as a direct result of the Making Work Pay Credit," the inspector general's report said.
The good news is that the IRS is likely to waive penalties for filers who may have to pay an estimated tax penalty or who would see their estimated penalty increased as a result of the Making Work Pay credit, according to the report.
The inspector general's report also recommended that the IRS embark on an expanded effort to publicize this issue more and specifically target the message to those tax filers most likely to be affected. To top of page
First Published: November 17, 2009: 3:55 AM ET
Treasury report estimates many may be getting paid more of the Making Work Pay credit than they should. Their refunds may be cut or they'll have to cough up the overpaid amount.
By Jeanne Sahadi, CNNMoney.com senior writer
Last Updated: November 17, 2009: 9:45 AM ET
NEW YORK (CNNMoney.com) -- Nothing with taxes is ever simple, even when you're getting a tax break.
An estimated 15.4 million tax filers may be getting paid more of the Making Work Pay credit than they should, according to a report from a Treasury Department inspector general publicly released Monday.
And that means they either will get less of a refund than they expected, or will actually owe money to the IRS on their 2009 taxes.
The IRS said in a written response to the report that the agency believes far fewer people than the inspector general estimates would be affected, and that the majority who might be would see less of a refund but would not have an out-of-pocket tax liability come April 15.
The taxpayers most vulnerable are those in two-earner couples; those who have dependents who earn wages; single or married filers who have more than one job at the same time; and filers who get pension payments or have a job and receive Social Security benefits.
The Making Work Pay credit, created as part of the stimulus legislation enacted in February, is equal to 6.2% of earnings up to $400 per person (or up to $800 per couples who file jointly). The full credit is paid to people making $75,000 or less ($150,000 per couple per household). A partial credit would be paid to those making above those amounts but no more than $95,000 ($190,000 for couples per household).
Bailout Tracker: Understand the rescues
For most who qualify, the 2009 credit is being paid in advance incrementally through their paychecks. And it's been automatic - meaning employers, based on what they know of a worker's income and using IRS withholding tables, automatically reduce the amount of taxes withheld from a worker's paycheck.
But an employer doesn't know the income of the worker's spouse or whether the worker is claiming a dependent who also is earning money, or whether the worker has income from other jobs.
So, for instance, two spouses might be receiving the full credit at their jobs when their joint income only qualifies them for a partial credit or none at all. Another scenario: A single person with more than one job might be receiving the full credit at each of his jobs, when in fact he's only entitled to $400 total.
You get the picture.
Such taxpayers could have increased their withholding to account for the possibility that they might receive more of the credit than they should. Indeed, when the credit was first passed, the IRS put out statements and created a calculator to help taxpayers in such situations figure out how much tax they should have withheld. But that doesn't mean that everyone did.
Those who have had too little tax withheld this year will either face a reduced refund or owe money to the IRS. The money primarily would be the amount of the credit overpaid to them. But a much smaller group might also owe a penalty if they were significantly underwithheld.
"More than 1.2 million taxpayers included in these groups may be subject to: 1) paying back some or all of the Making Work Pay Credit and 2) being assessed the estimated tax penalty or an increased estimated tax penalty as a direct result of the Making Work Pay Credit," the inspector general's report said.
The good news is that the IRS is likely to waive penalties for filers who may have to pay an estimated tax penalty or who would see their estimated penalty increased as a result of the Making Work Pay credit, according to the report.
The inspector general's report also recommended that the IRS embark on an expanded effort to publicize this issue more and specifically target the message to those tax filers most likely to be affected. To top of page
First Published: November 17, 2009: 3:55 AM ET
Friday, November 13, 2009
Lowdown on Home-Buyer Tax Credits
http://online.wsj.com/article/SB10001424052748703808904574529512997057836.html
By LAURA SAUNDERS
Last week, President Barack Obama signed a law that extends through next spring a temporary tax credit of up to $8,000 for some first-time home buyers, which was due to expire Nov. 30. The law also adds a new tax credit of up to $6,500 for certain repeat home buyers. The package, which the government estimates will cost a total of $11 billion, is intended to help spur housing sales, a critical part of the economy.
Here are some answers to common questions about the new rules.
Q: What has stayed the same in the new law?
1) First-time home buyers still get a credit of as much as 10% of the purchase price, up to a maximum $8,000. "First-time" means people, including both partners of a married couple, who haven't owned a principal residence for three years before the purchase.
2) All taxpayers who claim a credit must use the home as a principal residence for the next three consecutive years.
3) The credits offer dollar-for-dollar reductions of tax and are refundable. This means that a taxpayer who doesn't pay enough tax to offset the credit can get a refund. For example, if you qualify for an $8,000 credit but only owe $5,000 in tax, you could receive a $3,000 check from the Internal Revenue Service.
4) Under the new law, as under the old, 2009 home buyers may claim the credit on either their 2008 or 2009 returns, and 2010 buyers may claim the credit on either their 2009 or 2010 returns.
5) Taxpayers do not qualify for a credit if they buy from a lineal ancestor or descendent (sic), including parents or grandparents and children or grandchildren.
Q: What has changed?
Several important features took effect as of Nov. 6:
1) To take advantage of the tax credits, a buyer must have a contract in place before May 1, 2010, and the deal must close before July 1, 2010. No further extension is expected.
2) The price of the house is now capped. For purchases made after Nov. 6, no credit is available for any home costing more than $800,000.
3) There is now a tax credit for repeat buyers as well as for first-time buyers. Taxpayers who have lived in one residence for five consecutive years of the past eight can now qualify for a tax credit of as much as 10% of the purchase price, up to a maximum $6,500, of a new principal residence. The new home does not have to cost more than the old one.
4) Income limits for people who qualify for a tax credit are far more generous than under the previous law. For single filers, the credits now phase out between $125,000 and $145,000 of modified adjusted gross income; for married couples, the range is $225,000 to $245,000. For most people, modified adjusted gross income will be the same as adjusted gross income.
5) The new law contains anti-abuse measures designed to stem fraud, which became a problem with the previous home-buyer tax credit. Most buyers must be 18 or older, and no taxpayer may take a credit if he or she is claimed as a dependent on someone else's return. Taxpayers taking the credit will also have to furnish proof of purchase. According to Robert Dietz of the National Association of Home Builders, this will usually be a HUD-1 form.
6) People taking the tax credit, as under the old law, aren't allowed to buy a home from a lineal ancestor or descendent. The new law, applying to purchases made after Nov. 6, also says a person may not take a credit if the home is purchased from a spouse or the spouse's lineal relatives.
Q: If I bought a house last spring or summer, can I get a tax credit?
You qualify if you are a first-time buyer and meet the other requirements, but not if you are a repeat buyer. The new credit for repeat buyers applies only to purchases made after Nov. 6.
Q: What is the definition of "principal residence"?
If you own more than one home, your principal residence is usually the one where you spend most of your time. In determining residence the IRS may also consider where your family lives and your mailing address for bills and correspondence, among other factors.
Q: Can a principal residence be something besides a conventional house?
Yes. A principal residence may also be a condominium, co-op apartment, attached or semi-attached townhouse, or even—if it has eating, sleeping and toilet facilities—a boat, motor home or trailer. Manufactured homes qualify in some states.
Q: Does the person who claims the credit have to use the home as a principal residence?
Yes.
Q: If I buy a new home and live in it, do I also have to sell my old one in order to take advantage of the credit?
This is unclear. The law appears to allow repeat buyers to retain their old home, for which no tax credit was given, while claiming a credit for the new one. What is clear is that if you buy a new home using the credit, you must use it as your principal residence.
Q: How may the credits be allocated among two or more unmarried buyers?
This also is unclear. But if the IRS adopts the rules that applied to the previous tax credit, which are detailed in IRS Notice 2009-12, there is room for planning. The notice says that taxpayers may use "any reasonable manner" to allocate the credit. It even provides an example in which two unmarried buyers allocate the credit to the lower earner in order to qualify for it.
Q: I need the credit refund to help make the down payment. What can I do?
There's no rushing the IRS. But one option is to adjust your current withholding from your paychecks to reflect the fact that you will be taking the credit later. But be careful: If you don't make the purchase, then you may owe interest and penalties. Consult a tax adviser.
Q: Is it possible to qualify for a credit if I am building a home on a lot I already own?
Yes, according to the National Association of Home Builders. The purchase date is usually considered to be the date of first occupancy, so you would need to move in before July 1, 2010.
Q: May I take a credit if I am building a large addition to my home?
No; these credits apply only to the purchase of a home.
Q: Are there special rules for the military?
Yes. In general, members of the military and foreignservice and intelligence communities who are serving overseas on "official extended duty" for at least 90 days during 2009 and the first four months of 2010 have an extra year to take advantage of these credits. Consult a tax adviser who specializes in this area.
Q: Where can I get more information?
Go to federalhousingtaxcredit.com, a Web site sponsored by the National Association of Home Builders. You can also look for links from the IRS's home page, www.irs.gov, or search for Homebuyer Credit. Another option is to consult a professional tax adviser.
Write to Laura Saunders at laura.saunders@wsj.com
By LAURA SAUNDERS
Last week, President Barack Obama signed a law that extends through next spring a temporary tax credit of up to $8,000 for some first-time home buyers, which was due to expire Nov. 30. The law also adds a new tax credit of up to $6,500 for certain repeat home buyers. The package, which the government estimates will cost a total of $11 billion, is intended to help spur housing sales, a critical part of the economy.
Here are some answers to common questions about the new rules.
Q: What has stayed the same in the new law?
1) First-time home buyers still get a credit of as much as 10% of the purchase price, up to a maximum $8,000. "First-time" means people, including both partners of a married couple, who haven't owned a principal residence for three years before the purchase.
2) All taxpayers who claim a credit must use the home as a principal residence for the next three consecutive years.
3) The credits offer dollar-for-dollar reductions of tax and are refundable. This means that a taxpayer who doesn't pay enough tax to offset the credit can get a refund. For example, if you qualify for an $8,000 credit but only owe $5,000 in tax, you could receive a $3,000 check from the Internal Revenue Service.
4) Under the new law, as under the old, 2009 home buyers may claim the credit on either their 2008 or 2009 returns, and 2010 buyers may claim the credit on either their 2009 or 2010 returns.
5) Taxpayers do not qualify for a credit if they buy from a lineal ancestor or descendent (sic), including parents or grandparents and children or grandchildren.
Q: What has changed?
Several important features took effect as of Nov. 6:
1) To take advantage of the tax credits, a buyer must have a contract in place before May 1, 2010, and the deal must close before July 1, 2010. No further extension is expected.
2) The price of the house is now capped. For purchases made after Nov. 6, no credit is available for any home costing more than $800,000.
3) There is now a tax credit for repeat buyers as well as for first-time buyers. Taxpayers who have lived in one residence for five consecutive years of the past eight can now qualify for a tax credit of as much as 10% of the purchase price, up to a maximum $6,500, of a new principal residence. The new home does not have to cost more than the old one.
4) Income limits for people who qualify for a tax credit are far more generous than under the previous law. For single filers, the credits now phase out between $125,000 and $145,000 of modified adjusted gross income; for married couples, the range is $225,000 to $245,000. For most people, modified adjusted gross income will be the same as adjusted gross income.
5) The new law contains anti-abuse measures designed to stem fraud, which became a problem with the previous home-buyer tax credit. Most buyers must be 18 or older, and no taxpayer may take a credit if he or she is claimed as a dependent on someone else's return. Taxpayers taking the credit will also have to furnish proof of purchase. According to Robert Dietz of the National Association of Home Builders, this will usually be a HUD-1 form.
6) People taking the tax credit, as under the old law, aren't allowed to buy a home from a lineal ancestor or descendent. The new law, applying to purchases made after Nov. 6, also says a person may not take a credit if the home is purchased from a spouse or the spouse's lineal relatives.
Q: If I bought a house last spring or summer, can I get a tax credit?
You qualify if you are a first-time buyer and meet the other requirements, but not if you are a repeat buyer. The new credit for repeat buyers applies only to purchases made after Nov. 6.
Q: What is the definition of "principal residence"?
If you own more than one home, your principal residence is usually the one where you spend most of your time. In determining residence the IRS may also consider where your family lives and your mailing address for bills and correspondence, among other factors.
Q: Can a principal residence be something besides a conventional house?
Yes. A principal residence may also be a condominium, co-op apartment, attached or semi-attached townhouse, or even—if it has eating, sleeping and toilet facilities—a boat, motor home or trailer. Manufactured homes qualify in some states.
Q: Does the person who claims the credit have to use the home as a principal residence?
Yes.
Q: If I buy a new home and live in it, do I also have to sell my old one in order to take advantage of the credit?
This is unclear. The law appears to allow repeat buyers to retain their old home, for which no tax credit was given, while claiming a credit for the new one. What is clear is that if you buy a new home using the credit, you must use it as your principal residence.
Q: How may the credits be allocated among two or more unmarried buyers?
This also is unclear. But if the IRS adopts the rules that applied to the previous tax credit, which are detailed in IRS Notice 2009-12, there is room for planning. The notice says that taxpayers may use "any reasonable manner" to allocate the credit. It even provides an example in which two unmarried buyers allocate the credit to the lower earner in order to qualify for it.
Q: I need the credit refund to help make the down payment. What can I do?
There's no rushing the IRS. But one option is to adjust your current withholding from your paychecks to reflect the fact that you will be taking the credit later. But be careful: If you don't make the purchase, then you may owe interest and penalties. Consult a tax adviser.
Q: Is it possible to qualify for a credit if I am building a home on a lot I already own?
Yes, according to the National Association of Home Builders. The purchase date is usually considered to be the date of first occupancy, so you would need to move in before July 1, 2010.
Q: May I take a credit if I am building a large addition to my home?
No; these credits apply only to the purchase of a home.
Q: Are there special rules for the military?
Yes. In general, members of the military and foreignservice and intelligence communities who are serving overseas on "official extended duty" for at least 90 days during 2009 and the first four months of 2010 have an extra year to take advantage of these credits. Consult a tax adviser who specializes in this area.
Q: Where can I get more information?
Go to federalhousingtaxcredit.com, a Web site sponsored by the National Association of Home Builders. You can also look for links from the IRS's home page, www.irs.gov, or search for Homebuyer Credit. Another option is to consult a professional tax adviser.
Write to Laura Saunders at laura.saunders@wsj.com
Thursday, November 5, 2009
Senate extends home buyer tax credit
http://www.examiner.com/x-12378-Consumer-News-Examiner~y2009m11d4-Update-Firsttime-home-buyer-tax-credit
November 4, 6:24 Consumer News Examiner Broderick Perkins
Rushing to escrow to take advantage of the waning federal first-time home buyer tax credit?
Relax.
If you miss the Nov. 30 deadline, you'll likely get a reprieve.
An extension and expansion of the popular tax credit is expected to give both new and move-up buyers a tax incentive to buy a home until at least April 30, 2010, longer for military personnel.
And it could come as early as this week.
An overwhelming 85 to 2 roll call vote in the U.S. Senate this week to cut off debate on the first-time home buyer tax credit measure and others pretty much seals the deal on legislation President Obama has already agreed to sign.
If passed into law, the new tax credit would extend the existing credit for first-time homebuyers, worth up to $8,000, and offer a new credit of up to $6,500 for some existing homeowners.
The reduced credit would be available to all homebuyers who have been in their current residence for a consecutive five-year period in the past eight years.
The new rule also raises the qualifying income limits to $125,000 for single taxpayers and $250,000 for joint taxpayers, from the current $75,000 and $150,000.
The maximum allowed home purchase price would be $800,000.
A home buyer must have a sale agreement in hand by April 30 and close escrow by June 30, 2010.
Military personnel, deployed overseas for a minimum of 90 days in 2008 or 2009, would have until April 30, 2011 to claim the tax credit.
That's all good news for the housing market.
The National Association of Realtors says as many as 400,000 resale transactions (1.2 million for both new and resale homes) were completed specifically because of the first-time home buyer tax credit, since it began, and that put a dent in the housing inventory.
Home sales also add property and sales tax revenues to the coffers of local governments as reduced inventory helps boost prices and home values.
Fortunately, the first-time home buyer tax credit's availability has coincided with mortgage rates often hanging below 5 percent, according to Jeff Howard, CEO of Erate.com.
As the Nov. 30 tax credit deadline neared, reports from the Commerce Department, revealed new home sales slipped 3.6 percent in September and were down 7.8 percent from September 2008.
Tax credit history
As part of the Housing and Economic Recovery Act of 2008, Congress first created a $7,500 first-time home buyer tax credit for those who purchased a home between April 8, 2008, and July 1, 2009.
Later, under the American Recovery and Reinvestment Act of 2009, Congress extended the credit and raised it to an$8,000 tax credit for those who purchased homes by the current Nov. 30, 2009 expiration date.
By October 9, 2009, more than 1.2 million tax returns had claimed about $8.5 billion in the refundable tax credit, for both new and resale homes - according to the Treasury Inspector General for Tax Administration (TIGTA).
A TIGTA audit also revealed last month that nearly 90,000 taxpayers -- including nearly 600 children -- may have fraudulently enjoyed the credit, hoodwinking the government out of more than $600 million.
The new legislation includes provisions to stifle fraud after the Internal Revenue Service identified 167 suspected criminal schemes and opened nearly 107,000 examinations of potential civil violations of the first-time homebuyer tax credit.
Cheating the IRS is a federal felony that comes with a fine of up to $250,000 and three years in a federal pen, or both.
To combat fraud, a HUD-1 Settlement Statement will have to be attached to the tax return to secure the credit.
November 4, 6:24 Consumer News Examiner Broderick Perkins
Rushing to escrow to take advantage of the waning federal first-time home buyer tax credit?
Relax.
If you miss the Nov. 30 deadline, you'll likely get a reprieve.
An extension and expansion of the popular tax credit is expected to give both new and move-up buyers a tax incentive to buy a home until at least April 30, 2010, longer for military personnel.
And it could come as early as this week.
An overwhelming 85 to 2 roll call vote in the U.S. Senate this week to cut off debate on the first-time home buyer tax credit measure and others pretty much seals the deal on legislation President Obama has already agreed to sign.
If passed into law, the new tax credit would extend the existing credit for first-time homebuyers, worth up to $8,000, and offer a new credit of up to $6,500 for some existing homeowners.
The reduced credit would be available to all homebuyers who have been in their current residence for a consecutive five-year period in the past eight years.
The new rule also raises the qualifying income limits to $125,000 for single taxpayers and $250,000 for joint taxpayers, from the current $75,000 and $150,000.
The maximum allowed home purchase price would be $800,000.
A home buyer must have a sale agreement in hand by April 30 and close escrow by June 30, 2010.
Military personnel, deployed overseas for a minimum of 90 days in 2008 or 2009, would have until April 30, 2011 to claim the tax credit.
That's all good news for the housing market.
The National Association of Realtors says as many as 400,000 resale transactions (1.2 million for both new and resale homes) were completed specifically because of the first-time home buyer tax credit, since it began, and that put a dent in the housing inventory.
Home sales also add property and sales tax revenues to the coffers of local governments as reduced inventory helps boost prices and home values.
Fortunately, the first-time home buyer tax credit's availability has coincided with mortgage rates often hanging below 5 percent, according to Jeff Howard, CEO of Erate.com.
As the Nov. 30 tax credit deadline neared, reports from the Commerce Department, revealed new home sales slipped 3.6 percent in September and were down 7.8 percent from September 2008.
Tax credit history
As part of the Housing and Economic Recovery Act of 2008, Congress first created a $7,500 first-time home buyer tax credit for those who purchased a home between April 8, 2008, and July 1, 2009.
Later, under the American Recovery and Reinvestment Act of 2009, Congress extended the credit and raised it to an$8,000 tax credit for those who purchased homes by the current Nov. 30, 2009 expiration date.
By October 9, 2009, more than 1.2 million tax returns had claimed about $8.5 billion in the refundable tax credit, for both new and resale homes - according to the Treasury Inspector General for Tax Administration (TIGTA).
A TIGTA audit also revealed last month that nearly 90,000 taxpayers -- including nearly 600 children -- may have fraudulently enjoyed the credit, hoodwinking the government out of more than $600 million.
The new legislation includes provisions to stifle fraud after the Internal Revenue Service identified 167 suspected criminal schemes and opened nearly 107,000 examinations of potential civil violations of the first-time homebuyer tax credit.
Cheating the IRS is a federal felony that comes with a fine of up to $250,000 and three years in a federal pen, or both.
To combat fraud, a HUD-1 Settlement Statement will have to be attached to the tax return to secure the credit.
Thursday, October 8, 2009
Recovery Act Reminders for 2009
http://www.journalofaccountancy.com/Issues/2009/Oct/20091725.htm
By ELLEN COOK, CPA, ANNA FOWLER, CPA, PH.D., ANNETTE NELLEN, ESQ., CPA, NORA STAPLETON, CPA and JOSEPH W. WALLOCH, CPA
OCTOBER 2009
Given the breadth and variety of tax relief provisions in the American Recovery and Reinvestment Act (ARRA) of 2009, PL 111-5, one or more could affect your clients’ individual returns for the 2009 tax year. Many are intended to provide relief for taxpayers in financial distress, stimulate consumer spending or provide an incentive for more environmentally friendly living. They cover everything from tax treatment of unemployment benefits to child credits. Tax organizers and client letters should already reflect these measures; the following is a summary of some of the most prominent points to cover in correspondence and discussions with clients.
INCOME
Net operating losses. The ARRA amended IRC § 172(b)(1)(H) to allow eligible small businesses to carry back a 2008 net operating loss (NOL) up to five years instead of the otherwise available two-year limit.
The IRS issued a clarifying revenue procedure because many taxpayers had inadvertently submitted invalid elections to claim a three-, four- or five-year carryback for 2008 NOLs (Revenue Procedure 2009- 26, 2009-19 IRB 935). It modifies and supersedes Revenue Procedure 2009-19. To be eligible for the longer carryback period, the loss must arise from an eligible small business—a proprietorship, partnership or corporation with average gross receipts of $15 million or less for the three-year period ending in 2008 (section 172(b)(1)(H)(iv)).
Under section 172(d)(4)(C), a deduction for losses under section 165(c) from a transaction entered into for profit or from theft or casualty may be treated as a business deduction even if not attributable to the taxpayer’s trade or business. Consequently, the Service pointed out in Revenue Ruling 2009-9 in connection with losses from fraudulent investments (“Ponzi schemes”), this NOL carryback relief is also available to individuals who claim a section 165(c) loss sustained after Dec. 31, 2007, and who are otherwise eligible under the average gross receipts test. The NOL must have arisen in a tax year ending in or beginning in 2008.
The election for the longer carryback period may be made on the original return by attaching a statement to a timely filed return and specifying the longer carryback period elected. If the tax year for the loss ended before Feb. 17, 2009, the taxpayer must make the election by the later of the due date (including extensions) or April 17, 2009. Alternately, the election can be made by filing an appropriate form and applying the carryback period selected.
The appropriate forms are 1139, Corporation Application for Tentative Refund; 1120X, Amended U.S. Corporation Income Tax Return; 1045, Application for Tentative Refund; 1040X, Amended U.S. Individual Income Tax Return; or amended 1041, U.S. Income Tax Return for Estates and Trusts. The form must be filed no later than the later of six months after the due date (including extensions) for the tax return of the loss year or April 17, 2009. (Note that this date is earlier than the typical due date for filing forms 1045 and 1139, which is within 12 months after the tax year of the NOL.)
The taxpayer does not need to file a statement or label with the form. Taxpayers selecting the option of filing an amended return must file the return for the earliest tax year to which the taxpayer is carrying back the loss.
A taxpayer who elected to waive the carryback was required to file the revocation and new election no later than April 17, 2009.
Unemployment compensation. For 2009, $2,400 of unemployment compensation is excluded from tax.
DEDUCTIONS
Motor vehicle taxes. Taxpayers may deduct “qualified motor vehicle taxes,” defined as state or local sales or excise taxes imposed on the purchase of a new qualified motor vehicle. The vehicle must be a passenger car, light truck or motorcycle weighing 8,500 pounds or less or a motor home. The vehicle must be acquired after Feb. 17, 2009, and before 2010. The deduction is limited to tax on the first $49,500 of the purchase price.
Taxpayers who itemize and elect to deduct general sales taxes rather than state and local income taxes may not claim the additional standard deduction for the vehicle sales tax. The deduction phases out for individuals with modified AGI between $125,000 and $135,000 ($250,000 and $260,000 if married filing jointly). The deduction is also allowed for alternative minimum tax (AMT) purposes if claimed as a standard deduction. Guidance is needed on whether the deduction is allowed for AMT when the taxpayer itemizes deductions.
Limitation on itemized deductions. In a news release April 7, 2009, the IRS said convenience fees associated with the electronic payment of federal tax, including payment of estimated tax, can be deducted as a miscellaneous itemized deduction (IR-2009-37). This reversed a previous policy. Accordingly, taxpayers who are able to file Form 1040, Schedule A, Itemized Deductions, and deduct miscellaneous deductions exceeding 2% of their adjusted gross income (AGI) will get a tax deduction for these fees.
Credit or debit card convenience fees charged for paying taxes electronically vary but average about 2.5% of the tax payment. The fees are deductible in the year they occur.
Most individuals still pay their federal tax obligations by check, but last year more than 4 million taxpayers paid their taxes electronically, according to the news release.
CREDITS
Child tax credit. While the amount of the child tax credit remains at $1,000 per dependent child under age 17, under the ARRA, the refundable portion is increased for tax years 2009 and 2010 to the extent of 15% of the taxpayer’s earned income over $3,000 (lowered from $8,500). Beginning in tax year 2009, a child who qualifies for the child tax credit must also be the taxpayer’s dependent.
Hope credit. For tax years beginning after Dec. 31, 2008, the section 25A Hope credit, renamed the American Opportunity Tax Credit by the ARRA, is increased to a maximum of $2,500 per year (100% of the first $2,000 of qualifying expenses and 25% of the next $2,000), with 40% of the credit refundable.
The credit is phased out for taxpayers with AGI between $80,000 and $90,000 ($160,000 and $180,000 for married filing jointly). The provision extended the credit to all four years of college and expanded the definition of qualifying expenses to include course materials. The Treasury Department is directed to study and report within one year of enactment on how to coordinate the section 25A education credits (including the Lifetime Learning Credit) with the federal Pell Grant program and the feasibility of requiring students to perform community service in return for the credits.
Energy credits. The ARRA introduced or extended a range of energy tax incentives for individuals and businesses, including credits for energy efficiency equipment and building components, plug-in electric drive vehicles (section 30D) and renewable energy production.
Earned income credit. For tax years 2009 and 2010, the earned income tax credit percentage for families with three or more qualifying children is increased from 40% to 45%.
First-time homebuyer credit. For home purchases after Dec. 31, 2008, and before Dec. 1, 2009, the ARRA increased the amount of the first-time homebuyer credit from $7,500 to $8,000 ($4,000 for married taxpayers filing separately). A first-time homebuyer is an individual who had no ownership interest in a principal residence in the United States during the three-year period ending on the date of the purchase of the home to which the credit applies. Further, taxpayers who remain in the home for 36 months are not required to repay the credit. In any case, no amount is required to be recaptured after the death of the taxpayer. The credit phases out for individuals with AGI between $75,000 and $95,000 ($150,000 to $170,000 AGI for joint filers).
The taxpayer may elect to treat a purchase during 2009 as made on Dec. 31, 2008, so it may be claimed on a 2008 amended return (the AGI limitations would then be based on 2008 information).
Notice 2009-12, 2009-6 IRB 446, explains how to divide the credit when two or more unmarried individuals purchase the principal residence. The notice provides several examples on how to claim the credit.
Making work pay credit. New section 36A allows a credit of the lesser of 6.2% of an individual’s earned income or $400 ($800 for married filing jointly). Earned income for these purposes includes net earnings from self-employment that are includable in taxable income, as well as combat pay excluded from gross income under section 112.
Effective for tax years 2009 and 2010, the credit is intended to offset an individual’s share of FICA on the first $6,452 of earnings. The credit is phased out at a 2% rate for individuals whose modified AGI exceeds $75,000 ($150,000 for married filing jointly). The credit is not available to nonresident aliens, individuals who may be claimed as a dependent by another taxpayer, or any estate or trust. It may be claimed through a reduction in wage withholding or in a lump sum on the tax return filed for the year the wages were earned.
The credit will be reduced by the onetime economic recovery payments of $250 provided by the Veterans Administration, Railroad Retirement Board and the Social Security Administration under ARRA §§ 2201 or 2202. New Schedule M, Making Work Pay and Government Retiree Credits, is attached to Form 1040 to compute theproper amount of the credit.
ALTERNATIVE MINIMUM TAX
AMT exemptions. The ARRA increased the AMT exemptions for 2009 to $70,950 for a joint return, $46,700 for single taxpayers and heads of household and $35,475 for married taxpayers filing separately. Commonly referred to as the “AMT patch,” this measure comes with an estimated cost of $70 billion to provide AMT relief to an estimated 26 million taxpayers. The ARRA also extends to tax years beginning in 2009 the rule allowing nonrefundable personal tax credits against AMT.
Adjustments in computing AMT. The ARRA allowance for up to a five-year carryback of NOLs for tax years beginning or ending in 2008 (see “Net operating losses” earlier) applies under the AMT as well as regular tax. However, the 90% limit on use of an AMT NOL did not change (a proposal to change the limit to 100% did not become law).
By ELLEN COOK, CPA, ANNA FOWLER, CPA, PH.D., ANNETTE NELLEN, ESQ., CPA, NORA STAPLETON, CPA and JOSEPH W. WALLOCH, CPA
OCTOBER 2009
Given the breadth and variety of tax relief provisions in the American Recovery and Reinvestment Act (ARRA) of 2009, PL 111-5, one or more could affect your clients’ individual returns for the 2009 tax year. Many are intended to provide relief for taxpayers in financial distress, stimulate consumer spending or provide an incentive for more environmentally friendly living. They cover everything from tax treatment of unemployment benefits to child credits. Tax organizers and client letters should already reflect these measures; the following is a summary of some of the most prominent points to cover in correspondence and discussions with clients.
INCOME
Net operating losses. The ARRA amended IRC § 172(b)(1)(H) to allow eligible small businesses to carry back a 2008 net operating loss (NOL) up to five years instead of the otherwise available two-year limit.
The IRS issued a clarifying revenue procedure because many taxpayers had inadvertently submitted invalid elections to claim a three-, four- or five-year carryback for 2008 NOLs (Revenue Procedure 2009- 26, 2009-19 IRB 935). It modifies and supersedes Revenue Procedure 2009-19. To be eligible for the longer carryback period, the loss must arise from an eligible small business—a proprietorship, partnership or corporation with average gross receipts of $15 million or less for the three-year period ending in 2008 (section 172(b)(1)(H)(iv)).
Under section 172(d)(4)(C), a deduction for losses under section 165(c) from a transaction entered into for profit or from theft or casualty may be treated as a business deduction even if not attributable to the taxpayer’s trade or business. Consequently, the Service pointed out in Revenue Ruling 2009-9 in connection with losses from fraudulent investments (“Ponzi schemes”), this NOL carryback relief is also available to individuals who claim a section 165(c) loss sustained after Dec. 31, 2007, and who are otherwise eligible under the average gross receipts test. The NOL must have arisen in a tax year ending in or beginning in 2008.
The election for the longer carryback period may be made on the original return by attaching a statement to a timely filed return and specifying the longer carryback period elected. If the tax year for the loss ended before Feb. 17, 2009, the taxpayer must make the election by the later of the due date (including extensions) or April 17, 2009. Alternately, the election can be made by filing an appropriate form and applying the carryback period selected.
The appropriate forms are 1139, Corporation Application for Tentative Refund; 1120X, Amended U.S. Corporation Income Tax Return; 1045, Application for Tentative Refund; 1040X, Amended U.S. Individual Income Tax Return; or amended 1041, U.S. Income Tax Return for Estates and Trusts. The form must be filed no later than the later of six months after the due date (including extensions) for the tax return of the loss year or April 17, 2009. (Note that this date is earlier than the typical due date for filing forms 1045 and 1139, which is within 12 months after the tax year of the NOL.)
The taxpayer does not need to file a statement or label with the form. Taxpayers selecting the option of filing an amended return must file the return for the earliest tax year to which the taxpayer is carrying back the loss.
A taxpayer who elected to waive the carryback was required to file the revocation and new election no later than April 17, 2009.
Unemployment compensation. For 2009, $2,400 of unemployment compensation is excluded from tax.
DEDUCTIONS
Motor vehicle taxes. Taxpayers may deduct “qualified motor vehicle taxes,” defined as state or local sales or excise taxes imposed on the purchase of a new qualified motor vehicle. The vehicle must be a passenger car, light truck or motorcycle weighing 8,500 pounds or less or a motor home. The vehicle must be acquired after Feb. 17, 2009, and before 2010. The deduction is limited to tax on the first $49,500 of the purchase price.
Taxpayers who itemize and elect to deduct general sales taxes rather than state and local income taxes may not claim the additional standard deduction for the vehicle sales tax. The deduction phases out for individuals with modified AGI between $125,000 and $135,000 ($250,000 and $260,000 if married filing jointly). The deduction is also allowed for alternative minimum tax (AMT) purposes if claimed as a standard deduction. Guidance is needed on whether the deduction is allowed for AMT when the taxpayer itemizes deductions.
Limitation on itemized deductions. In a news release April 7, 2009, the IRS said convenience fees associated with the electronic payment of federal tax, including payment of estimated tax, can be deducted as a miscellaneous itemized deduction (IR-2009-37). This reversed a previous policy. Accordingly, taxpayers who are able to file Form 1040, Schedule A, Itemized Deductions, and deduct miscellaneous deductions exceeding 2% of their adjusted gross income (AGI) will get a tax deduction for these fees.
Credit or debit card convenience fees charged for paying taxes electronically vary but average about 2.5% of the tax payment. The fees are deductible in the year they occur.
Most individuals still pay their federal tax obligations by check, but last year more than 4 million taxpayers paid their taxes electronically, according to the news release.
CREDITS
Child tax credit. While the amount of the child tax credit remains at $1,000 per dependent child under age 17, under the ARRA, the refundable portion is increased for tax years 2009 and 2010 to the extent of 15% of the taxpayer’s earned income over $3,000 (lowered from $8,500). Beginning in tax year 2009, a child who qualifies for the child tax credit must also be the taxpayer’s dependent.
Hope credit. For tax years beginning after Dec. 31, 2008, the section 25A Hope credit, renamed the American Opportunity Tax Credit by the ARRA, is increased to a maximum of $2,500 per year (100% of the first $2,000 of qualifying expenses and 25% of the next $2,000), with 40% of the credit refundable.
The credit is phased out for taxpayers with AGI between $80,000 and $90,000 ($160,000 and $180,000 for married filing jointly). The provision extended the credit to all four years of college and expanded the definition of qualifying expenses to include course materials. The Treasury Department is directed to study and report within one year of enactment on how to coordinate the section 25A education credits (including the Lifetime Learning Credit) with the federal Pell Grant program and the feasibility of requiring students to perform community service in return for the credits.
Energy credits. The ARRA introduced or extended a range of energy tax incentives for individuals and businesses, including credits for energy efficiency equipment and building components, plug-in electric drive vehicles (section 30D) and renewable energy production.
Earned income credit. For tax years 2009 and 2010, the earned income tax credit percentage for families with three or more qualifying children is increased from 40% to 45%.
First-time homebuyer credit. For home purchases after Dec. 31, 2008, and before Dec. 1, 2009, the ARRA increased the amount of the first-time homebuyer credit from $7,500 to $8,000 ($4,000 for married taxpayers filing separately). A first-time homebuyer is an individual who had no ownership interest in a principal residence in the United States during the three-year period ending on the date of the purchase of the home to which the credit applies. Further, taxpayers who remain in the home for 36 months are not required to repay the credit. In any case, no amount is required to be recaptured after the death of the taxpayer. The credit phases out for individuals with AGI between $75,000 and $95,000 ($150,000 to $170,000 AGI for joint filers).
The taxpayer may elect to treat a purchase during 2009 as made on Dec. 31, 2008, so it may be claimed on a 2008 amended return (the AGI limitations would then be based on 2008 information).
Notice 2009-12, 2009-6 IRB 446, explains how to divide the credit when two or more unmarried individuals purchase the principal residence. The notice provides several examples on how to claim the credit.
Making work pay credit. New section 36A allows a credit of the lesser of 6.2% of an individual’s earned income or $400 ($800 for married filing jointly). Earned income for these purposes includes net earnings from self-employment that are includable in taxable income, as well as combat pay excluded from gross income under section 112.
Effective for tax years 2009 and 2010, the credit is intended to offset an individual’s share of FICA on the first $6,452 of earnings. The credit is phased out at a 2% rate for individuals whose modified AGI exceeds $75,000 ($150,000 for married filing jointly). The credit is not available to nonresident aliens, individuals who may be claimed as a dependent by another taxpayer, or any estate or trust. It may be claimed through a reduction in wage withholding or in a lump sum on the tax return filed for the year the wages were earned.
The credit will be reduced by the onetime economic recovery payments of $250 provided by the Veterans Administration, Railroad Retirement Board and the Social Security Administration under ARRA §§ 2201 or 2202. New Schedule M, Making Work Pay and Government Retiree Credits, is attached to Form 1040 to compute theproper amount of the credit.
ALTERNATIVE MINIMUM TAX
AMT exemptions. The ARRA increased the AMT exemptions for 2009 to $70,950 for a joint return, $46,700 for single taxpayers and heads of household and $35,475 for married taxpayers filing separately. Commonly referred to as the “AMT patch,” this measure comes with an estimated cost of $70 billion to provide AMT relief to an estimated 26 million taxpayers. The ARRA also extends to tax years beginning in 2009 the rule allowing nonrefundable personal tax credits against AMT.
Adjustments in computing AMT. The ARRA allowance for up to a five-year carryback of NOLs for tax years beginning or ending in 2008 (see “Net operating losses” earlier) applies under the AMT as well as regular tax. However, the 90% limit on use of an AMT NOL did not change (a proposal to change the limit to 100% did not become law).
Tuesday, September 15, 2009
Education tax credit sweetened
http://www.latimes.com/business/la-fi-perfin13-2009sep13,0,6813339.column
The incentives have been bumped up to as much as $2,500 per student and are now available to families earning up to $180,000. But the tax break is good only through 2010.
By Kathy M. Kristof Personal Finance
September 13, 2009
Parents: Save those education receipts.
For the first time -- and for a limited time -- upper-middle-income parents will be able to take advantage of huge tax breaks for paying college bills.
This is thanks to a law that temporarily supplants the Hope Tax Credit with the far more lucrative and inclusive American Opportunity Tax Credit.
What's this law and how can you take advantage of it?
The American Opportunity Tax Credit is one of several generous tax breaks that were passed into law in February as part of the American Recovery and Reinvestment Act, aimed at stimulating the U.S. economy.
It provides a federal income tax credit equal to 100% of the first $2,000 in qualified education expenses and 25% of the next $2,000 in expenses per student for qualified families.
That's a total of up to $2,500 in tax credits per student. It also bears mentioning that tax credits are far more valuable than tax deductions because credits reduce your tax on a dollar-for-dollar basis. Deductions just reduce the amount of income subject to tax.
However, this break is available only for 2009 and 2010. After that, the American Opportunity Tax Credit expires.
Who can claim the credit?
Three criteria determine whether you qualify:
Single filers are eligible for a full credit unless their "modified adjusted gross income" exceeds $80,000 and for partial credits if they earn less than $90,000, at which point they are no longer eligible to claim the credit.
Married couples can get the full credit with up to $160,000 in income and a partial credit with up to $180,000 in modified adjusted gross income.
What's modified adjusted gross income?
That's an important question. It starts with adjusted gross income, which is all your earnings -- wages, tips and investment income -- minus contributions to workplace benefits and retirement programs such as 401(k) plans, dependent care accounts and health savings accounts. Modified adjusted gross adds in some relatively rare sources of tax-free income, such as income earned overseas. For most people, "modified adjusted gross" is simply adjusted gross income.
Why is that such an important question?
Because you can manipulate your adjusted income by boosting your contributions to workplace benefit plans or self-employment retirement plans.
If your income exceeds these thresholds, Santa Barbara tax specialist Jennifer MacMillan suggests you look carefully at reducing that figure by contributing as much as possible to qualifying plans. It can make a huge difference in your tax liability, she adds.
A family of four earning $170,000, with two children in college, for example, would lose 50% of the American Opportunity Tax Credit if they did nothing. Because they would get two credits -- one for each child -- they'd lose out on $2,500.
If each parent put $5,000 into deductible retirement accounts, it pushes their modified adjusted gross under the threshold, generating another $2,500 in tax credits.
By doing this, they'd also reduce their taxable income, which, assuming a combined federal and state income tax rate of 30%, would save them $3,000 more. The bottom line: Saving an extra $10,000 in retirement plans returns $5,500 in tax savings.
Can my child claim the credit, if I can't meet the income thresholds?
Yes. But you would not be able to claim your child as a dependent, so this would work only for college students and graduate students who have significant other income and are largely able to support themselves.
Can I use the credit to recover the cost of room and board at college?
No. Qualified expenses are tuition, fees, books and supplies.
How do I claim it?
You must fill out a 29-line work sheet, Form 8863, said Jackie Perlman, a tax specialist at H&R Block in Kansas City.
This form was previously used to claim the Lifetime Learning Credit and the Hope Tax Credit, which the American Opportunity Tax Credit largely replaces for 2009 and 2010.
However, because there are a few instances when you might still try for a Hope Credit (mainly if you attend college in a Midwestern disaster zone) the form is twice as complicated as it was last year. If you prepare your own return, make sure to read the instructions carefully.
Do I need to send in tuition bills or any other evidence of my expenses?
No. Just keep them with your records, Perlman said, and keep your records at least four years.
What happens if I have college expenses after 2010? Will I still get a tax break?
Maybe. Congress could extend this break, or you might qualify for another one. However, the other tax breaks for college students in current law are not as generous, and most have lower qualifying earnings restrictions.
kathykristof24@gmail.com
The incentives have been bumped up to as much as $2,500 per student and are now available to families earning up to $180,000. But the tax break is good only through 2010.
By Kathy M. Kristof Personal Finance
September 13, 2009
Parents: Save those education receipts.
For the first time -- and for a limited time -- upper-middle-income parents will be able to take advantage of huge tax breaks for paying college bills.
This is thanks to a law that temporarily supplants the Hope Tax Credit with the far more lucrative and inclusive American Opportunity Tax Credit.
What's this law and how can you take advantage of it?
The American Opportunity Tax Credit is one of several generous tax breaks that were passed into law in February as part of the American Recovery and Reinvestment Act, aimed at stimulating the U.S. economy.
It provides a federal income tax credit equal to 100% of the first $2,000 in qualified education expenses and 25% of the next $2,000 in expenses per student for qualified families.
That's a total of up to $2,500 in tax credits per student. It also bears mentioning that tax credits are far more valuable than tax deductions because credits reduce your tax on a dollar-for-dollar basis. Deductions just reduce the amount of income subject to tax.
However, this break is available only for 2009 and 2010. After that, the American Opportunity Tax Credit expires.
Who can claim the credit?
Three criteria determine whether you qualify:
- You must be paying higher education expenses such as tuition, fees, books and supplies for a student who is seeking a degree, certificate or credential and attending school at least half time.
- The student must be you or a qualifying dependent, such as a spouse, child or stepchild.
- Your income must not exceed certain thresholds.
Single filers are eligible for a full credit unless their "modified adjusted gross income" exceeds $80,000 and for partial credits if they earn less than $90,000, at which point they are no longer eligible to claim the credit.
Married couples can get the full credit with up to $160,000 in income and a partial credit with up to $180,000 in modified adjusted gross income.
What's modified adjusted gross income?
That's an important question. It starts with adjusted gross income, which is all your earnings -- wages, tips and investment income -- minus contributions to workplace benefits and retirement programs such as 401(k) plans, dependent care accounts and health savings accounts. Modified adjusted gross adds in some relatively rare sources of tax-free income, such as income earned overseas. For most people, "modified adjusted gross" is simply adjusted gross income.
Why is that such an important question?
Because you can manipulate your adjusted income by boosting your contributions to workplace benefit plans or self-employment retirement plans.
If your income exceeds these thresholds, Santa Barbara tax specialist Jennifer MacMillan suggests you look carefully at reducing that figure by contributing as much as possible to qualifying plans. It can make a huge difference in your tax liability, she adds.
A family of four earning $170,000, with two children in college, for example, would lose 50% of the American Opportunity Tax Credit if they did nothing. Because they would get two credits -- one for each child -- they'd lose out on $2,500.
If each parent put $5,000 into deductible retirement accounts, it pushes their modified adjusted gross under the threshold, generating another $2,500 in tax credits.
By doing this, they'd also reduce their taxable income, which, assuming a combined federal and state income tax rate of 30%, would save them $3,000 more. The bottom line: Saving an extra $10,000 in retirement plans returns $5,500 in tax savings.
Can my child claim the credit, if I can't meet the income thresholds?
Yes. But you would not be able to claim your child as a dependent, so this would work only for college students and graduate students who have significant other income and are largely able to support themselves.
Can I use the credit to recover the cost of room and board at college?
No. Qualified expenses are tuition, fees, books and supplies.
How do I claim it?
You must fill out a 29-line work sheet, Form 8863, said Jackie Perlman, a tax specialist at H&R Block in Kansas City.
This form was previously used to claim the Lifetime Learning Credit and the Hope Tax Credit, which the American Opportunity Tax Credit largely replaces for 2009 and 2010.
However, because there are a few instances when you might still try for a Hope Credit (mainly if you attend college in a Midwestern disaster zone) the form is twice as complicated as it was last year. If you prepare your own return, make sure to read the instructions carefully.
Do I need to send in tuition bills or any other evidence of my expenses?
No. Just keep them with your records, Perlman said, and keep your records at least four years.
What happens if I have college expenses after 2010? Will I still get a tax break?
Maybe. Congress could extend this break, or you might qualify for another one. However, the other tax breaks for college students in current law are not as generous, and most have lower qualifying earnings restrictions.
kathykristof24@gmail.com
Tuesday, July 15, 2008
Car donation drops
http://accounting.smartpros.com/x62523.xml
New Tax Laws Dry up Car Donations
July 15, 2008 (Business Wire) -- Car donations have plummeted since Congress in 2004 tightened the tax rules for claiming charitable deductions, according to a Grant Thornton analysis of new IRS data.
Before 2005, taxpayers who donated a vehicle were allowed to deduct its fair market value. Tax legislation enacted in 2004 changed the rules to generally limit vehicle donation deductions of over $500 to either the actual proceeds from a vehicle's sale or the vehicle's fair market value -- whichever is less.
Recently released IRS statistics reveal the 2004 law had an immediate and drastic affect on car donations. An analysis of the new numbers by Grant Thornton's National Tax Office shows that between tax year 2004 and 2005, car donations of over $500 dropped by two-thirds.
Over 900,000 tax returns claimed deductions for donated automobiles in 2004. In 2005, the last year for which the IRS has detailed data, less than 300,000 tax returns included such claims.. The total amount deducted for all car donations declined from $2.4 billion in 2004 to just a half a billion dollars the following year, a decrease of over 80 percent.
"Congress was concerned that people were inflating the value of donated cars under the old system, claiming full blue book value for vehicles that had been turned down by the local junk yard," said Mel Schwarz of Grant Thornton's National Tax Office in Washington, D.C. "The hope was that charities would still get the same number of cars they could auction for the same amount of money, and the only change would be the elimination of excess charitable deductions. That hope was clearly not recognized."
It is worth noting that the although the total number of car donations fell by 67 percent, and the amount of deductions claimed as a result of such donations fell by over 80 percent, the deduction claimed per car donated only declined by 41 percent. "This suggests a generous tax deduction was not the only thing lost with this change," noted Schwarz.
Donations of vehicles besides automobiles also declined. The number of returns claiming non-car vehicle donations dropped over 25 percent from 2004 to 2005, and the amount claimed in deductions fell from $205 million to $140 million.
The new restrictions on car donations have not dampened Americans' overall generosity. The total amount of deductions claimed for charitable deductions increased from $156 billion in 2004 to $172 billion in 2005. In 2006, the number increased again to $173 billion.
New Tax Laws Dry up Car Donations
July 15, 2008 (Business Wire) -- Car donations have plummeted since Congress in 2004 tightened the tax rules for claiming charitable deductions, according to a Grant Thornton analysis of new IRS data.
Before 2005, taxpayers who donated a vehicle were allowed to deduct its fair market value. Tax legislation enacted in 2004 changed the rules to generally limit vehicle donation deductions of over $500 to either the actual proceeds from a vehicle's sale or the vehicle's fair market value -- whichever is less.
Recently released IRS statistics reveal the 2004 law had an immediate and drastic affect on car donations. An analysis of the new numbers by Grant Thornton's National Tax Office shows that between tax year 2004 and 2005, car donations of over $500 dropped by two-thirds.
Over 900,000 tax returns claimed deductions for donated automobiles in 2004. In 2005, the last year for which the IRS has detailed data, less than 300,000 tax returns included such claims.. The total amount deducted for all car donations declined from $2.4 billion in 2004 to just a half a billion dollars the following year, a decrease of over 80 percent.
"Congress was concerned that people were inflating the value of donated cars under the old system, claiming full blue book value for vehicles that had been turned down by the local junk yard," said Mel Schwarz of Grant Thornton's National Tax Office in Washington, D.C. "The hope was that charities would still get the same number of cars they could auction for the same amount of money, and the only change would be the elimination of excess charitable deductions. That hope was clearly not recognized."
It is worth noting that the although the total number of car donations fell by 67 percent, and the amount of deductions claimed as a result of such donations fell by over 80 percent, the deduction claimed per car donated only declined by 41 percent. "This suggests a generous tax deduction was not the only thing lost with this change," noted Schwarz.
Donations of vehicles besides automobiles also declined. The number of returns claiming non-car vehicle donations dropped over 25 percent from 2004 to 2005, and the amount claimed in deductions fell from $205 million to $140 million.
The new restrictions on car donations have not dampened Americans' overall generosity. The total amount of deductions claimed for charitable deductions increased from $156 billion in 2004 to $172 billion in 2005. In 2006, the number increased again to $173 billion.
Thursday, May 15, 2008
2009 Health Savings Account Limits
http://www.webcpa.com/article.cfm?ARTICLEID=27777
The Internal Revenue Service has published the 2009 inflation-adjusted deduction limits for health savings accounts.
For calendar year 2009, the annual limitation on deductions for an individual with self-only coverage under a high-deductible health plan is $3,000. For 2009, the annual limitation on deductions for an individual with family coverage under a high-deductible health plan is $5,950.
For 2009, a high-deductible health plan is defined as a health plan with an annual deductible that is not less than $1,150 for self-only coverage, or $2,300 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $5,800 for self-only coverage or $11,600 for family coverage.
The Internal Revenue Service has published the 2009 inflation-adjusted deduction limits for health savings accounts.
For calendar year 2009, the annual limitation on deductions for an individual with self-only coverage under a high-deductible health plan is $3,000. For 2009, the annual limitation on deductions for an individual with family coverage under a high-deductible health plan is $5,950.
For 2009, a high-deductible health plan is defined as a health plan with an annual deductible that is not less than $1,150 for self-only coverage, or $2,300 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $5,800 for self-only coverage or $11,600 for family coverage.
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