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IRS Annouces Delays in Processing for Itemizers & Other Taxpayers

Thursday, January 6th, 2011

Because the con­gress passed cer­tain exten­ders very late last year, the IRS has to play catch up. The IRS has asked tax pre­par­ers NOT to e-file cer­tain kinds of tax returns until they give the go-ahead, some time in mid-to-late Feb­ru­ary, 2011. 

What does this mean?  Among the affected tax­pay­ers are those that 

  • item­ize,
  • take the tuition and fees deduction 
  • take edu­ca­tor expenses deduction 
  • take the DC First Time Home­buyer credit (Form 8859)
  • expe­ri­ence deductible casu­alty and theft loss (Form 4684)
  • use Form 3800, Gen­eral Busi­ness Credit
  • use Form 5405, First-Time Home­buyer Credit and Repay­ment of the Credit
  • use Form 6478, Alco­hol and Cel­lu­losic Bio­fuel Fuels Credit
  • use 8834, Qual­i­fied Plug-In Elec­tric and Elec­tric Vehi­cle Credit
  • use Form 8910, Alter­na­tive Motor Vehi­cle Credit
  • uses Form 8936, Qual­i­fied Plug-In Elec­tric Drive Motor Vehi­cle Credit

There will be a delay in pro­cess­ing these tax returns.  Whether the tax­payer e-files or sends in a paper tax return, it will NOT be processed until the IRS deems they are ready to receive that tax return. Although e-file usu­ally results in the quick­est payment,  refunds will not be paid out until the tax return is processed so there will also be a cor­re­spond­ing delay in refunds for these kinds of tax returns. 

If you are not an affected tax­payer, by all means, efile. If you ARE an affected tax­payer, you can paper file your taxes, but under­stand noth­ing your tax pre­parer does will pre­vent your tax return from being shelved until the IRS is ready to deal with it.  If a paper return is filed, it will be processed after sim­i­lar e-filed tax returns received after the go-ahead from the IRS. For affected tax­pay­ers it is advis­able to wait until the IRS gives the green light, then e-file; this method is the speed­i­est way to receive a tax refund. 

As always, small busi­ness ser­vices and tax­a­tion are our busi­ness.  If you need help Please give Art & Busi­ness Con­sult­ing a call.  We would love to engage you as a client. 

The usual dis­claimers: Although ABC has made every effort to insure the accu­racy of Taxes, Tips and Tools, mis­in­for­ma­tion, dis­in­for­ma­tion, changes, mis­takes, typos and hack­ers hap­pen, there­fore Art & Busi­ness Con­sult­ing LLC takes no respon­si­bil­ity for any action taken or results based on the infor­ma­tion sup­plied here in. The con­tent of this blog gen­er­ally applies to busi­ness and indi­vid­ual tax­a­tion in the United States of Amer­ica.  Inter­nal Rev­enue Ser­vice Cir­cu­lar 230 Dis­clo­sure:  As pro­vided for in Trea­sury reg­u­la­tions, advice (if any) relat­ing to fed­eral taxes that is con­tained in this com­mu­ni­ca­tion (includ­ing attach­ments) is not intended or writ­ten to be used, and can­not be used for the pur­pose of (1) avoid­ing penal­ties under the Inter­nal Rev­enue Code or (2) pro­mot­ing, mar­ket­ing or rec­om­mend­ing to another party any plan or arrange­ment address herein.  Art & Busi­ness Con­sult­ing LLC cur­rently does not have a cer­ti­fied pub­lic accoun­tant, human resource spe­cial­ist, cer­ti­fied finan­cial plan­ner or an attor­ney on staff; this infor­ma­tion is purely for edu­ca­tional pur­poses and not to be con­strued as legal or finan­cial advice. Art & Busi­ness Con­sult­ing LLC and its employ­ees, mem­bers and asso­ciates are not engage to prac­tice law; you always should dis­cuss legal mat­ters with your attor­ney before talk­ing to anyone else.

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Posted in Business Taxes, Individual Taxes | 1 Comment »

December 17: 2010 Tax Relief Act

Sunday, December 19th, 2010

Note: Much of the fol­low­ing is extracted from the Sen­ate Finance Committee’s expla­na­tion of  Reid-McConnell Tax Relief, Unem­ploy­ment Insur­ance Reatho­riza­tion and Job Cre­ation Act, which incor­po­rated the amend­ments to HR4853 that Pres­i­dent Obama nego­ti­ated with the Sen­ate and passed back to the House.  There was some debate in the house about the Estate tax, but the estate tax amend­ment was not passed.  The bill sub­mit­ted by the Sen­ate to the house appar­ently passed the house unchanged.  If it turns out that changes were made, we will update the list below with a strike through…

It is almost the end of the year and con­gress acted on some pend­ing leg­is­la­tion last Fri­day. The tax brack­ets, many tax credits, items of deduc­tion and adjust­ments to income, were tem­porar­ily extended or passed or patched through 2011 or 2012.

Estate tax.  Con­gress passed $5 mil­lion exemp­tion with a 35% tax through 2012; for the estates of 2010 dece­dents there will be a choice between no estate tax & no step up in basis for assets in excess of the $1.3 Mil­lion exempted (2010 rules) OR the $5 Mil­lion exemp­tion & 35% tax arrange­ment (estate tax rules for 2011 and 2012). 

Other items in the exten­ders bill passed by the house late Fri­day night in the 2010 Tax Relief Act:

  • The Bush era tax rates: 10, 25, 28, 33, and 35 per­cent tax rates have been extended through 2012-all would have increase otherwise.
  • The per­sonal exemp­tion phase out as well as the item­ized deduc­tion lim­i­ta­tion have been repealed through 2012. 
  • The 0 and 15 per­cent cap­i­tal gains tax rates have been extended through 2012.
  • The cur­rent child tax credit has been extended through 2012. 
  • Mar­riage penalty relief for the 15% tax bracket, EITC & the stan­dard deduc­tion has been extended through 2012.
  • The expanded child tax credit has been extended through 2012.
  • The expanded adop­tion tax credit and adop­tion assis­tance pro­grams exclu­sion has been extended through 2012.
  • The employer credit for expenses asso­ci­ated with child care assis­tance has been extended through 2012.
  • The credit for the third child with respect to EITC has been extended through 2012.
  • The expanded Coverdale sav­ings accounts have been extended through 2012.
  • The expanded Stu­dent Loan inter­est deduc­tion has been extended through 2012. 
  • The expanded exclu­sion for employer pro­vided edu­ca­tional assis­tance has been extended through 2012.
  • The tem­po­rary exclu­sion from income of cer­tain schol­ar­ships has been extended through 2012. 
  • Arbi­trage rebate excep­tion for school con­struc­tion bonds has been extended through 2012. 
  • Tax exempt pri­vate activ­ity for qual­i­fied edu­ca­tion facil­i­ties has been extended through 2012. 
  • Extend the Amer­i­can Oppor­tu­nity Credit through 2012.
  • Extend tax relief for Alaska Set­tle­ment funds through 2012. 
  • Two year AMT patch: In 2010 exempts $47,450 ($72,450 MFJ) from AMT, and in 2011 $48,450 ($74,450 MFJ). It also allows non refund­able per­sonal cred­its to be used against AMT.
  • Bonus depre­ci­a­tion: For prop­erty place in ser­vice between Sep­tem­ber 8,2010 and Decem­ber 31st 2011 a spe­cial 100% bonus depre­ci­a­tion maybe allowed.  For prop­erty place in ser­vice in 2012 50% bonus depre­ci­a­tion may be allowed. 
  • The Small Busi­ness Jobs Act extended/expanded sec­tion 179 through 2011.  This Act extends sec­tion 179 at the 2007 lev­els at $125,000 with a $500,000 phase out thresh­old indexed for infla­tion for 2012.
  • Emer­gency unem­ploy­ment and extended ben­e­fits have been con­tin­ued for 1 year. 
  • Dur­ing 2011 employ­ees and self-employeds will have Social Secu­rity with­hold­ing reduced by 2%.
  • The fol­low­ing cred­its have been extended through 2011: Biodiesel & Renew­able Diesel, Refined Coal, Energy-Efficient Homes, Alter­na­tive Fuels, Spe­cial rules on the sale of elec­tronic trans­mis­sion prop­erty, spe­cial rule for mar­ginal wells, Sec­tion 1603 of the Amer­i­can Recov­ery & Rein­vest­ment act, Ethanol, Energy-Efficent appli­ances, Energy-Efficient Exist­ing homes, Alter­na­tive vehi­cle refu­el­ing property. 
  • The fol­low­ing indi­vid­ual adjust­ments and cred­its have been extended through 2011: $250 above the line deduc­tion for ele­men­tary & sec­ondary school teach­ers, the deduc­tion of state & local taxes in lieu of state & local income taxes, increased con­tri­bu­tion lmi­its for appre­ci­ated real prop­erty for con­ser­va­tion pur­poses, above the line deduc­tion for qual­i­fied tuition and related expenses, tax-free retire­ment plan dis­tri­b­u­tions (up to $100,000)  to char­ity, estate tax look-thorugh for RIC stock  held by non­res­i­dents, par­ity for mass tran­sit benefits.
  • Refund and tax credit dis­re­gard for means test­ing has been extended through 2012. 
  • The fol­low­ing busi­ness cred­its and deduc­tions have been extended through 2011: R&D, Indian Employ­ment, New Mar­kets, Rail­road track main­te­nance, mine res­cue team train­ing, employer credit for acti­vated mil­i­tary reservists, the spe­cial 15 year recov­ery period for cer­tain retail, restau­rant & leash­old improve­ments, 7-year straight line recov­ery period for motor­sport enter­tain­ment com­plexes, accel­er­ated depre­ci­a­tion of prop­erty on an Indian reser­va­tion, enhanced char­i­ta­ble deduc­tion for food inven­tory, enhanced char­i­ta­ble deduc­tion for con­tri­bu­tion of book inven­tory to pub­lic schools, enhanced char­i­ta­ble deduc­tion of com­puter equip­ment for edu­ca­tional pur­poses, elec­tion to expense advanced mine safety equip­ment, exten­sion of spe­cial rules for US films and TV show pro­duc­tions,  expens­ing envi­ro­men­tal reme­di­a­tion, DPAD in Puerto Rico, spe­cial rules for cer­tain pay­ments made to an tax-exempt entity from a con­trol­ing entity, spe­cial treat­ment of cer­tain div­i­dends of RICs, exten­sion of treat­ment of cer­tain RIC as Qual­i­fied Invest­ment Enti­ties under FIRPTA, the active financ­ing excep­tion, look-though treat­ment of related for­eign con­trolled cor­po­ra­tions, pro­vi­sion that allows S-Corporation share­hold­ers to take into account their pro-rata share of char­i­ta­ble con­tri­bu­tions even if the deduc­tion exceeds the shareholder’s basis in the cor­po­ra­tion, Empow­er­ment Zones, DC Enter­prise Zone, Amer­cian Samoa econ­mic devel­op­ment credit, Work Oppor­tu­nity Tax credit, exten­sion and increased autho­riza­tion for qual­i­fied zone acad­emy bonds, Pre­mi­ums for mort­gage insur­ance ded­cutible as inter­est that is qual­i­fied res­i­dence inter­est, extend the 100% exclu­sion of cer­tain small busi­ness stock acquired in 2011 and held for more than 5 years.
  • NY Lib­erty Zone bonds issue extended through 2011
  • Credit for reha­bil­i­tat­ing his­toric build­ings in the GO Zone extended through 2011
  • Credit for GO Zone low income hou­se­ing placed in ser­vice through 2011.
  • GO Zone bonds issue extended through 2011
  • 50% depre­ci­a­tion allowance for GO Zone busi­ness prop­erty placed in ser­vice through 2011

The pre­ced­ing list was what was in the bill the Sen­ate passed to the house on Decem­ber 15, 2010.  The bill sub­mit­ted by the Sen­ate to the house appar­ently passed the house unchanged. 

Expanded Infor­ma­tion Report­ing: Repeal of the expanded infor­ma­tion report­ing is not likely to happen-the bill intro­duced by Sen­a­tor Bac­cus of Mon­tana to do that very thing was soundly voted down.  The IRS has a year to work out the wrin­kles before this infor­ma­tion report­ing actu­ally begins, so there will be more guid­ance coming.  For more infor­ma­tion on this topic read here.   

The fol­low­ing items were NOT EXTENDED

  • The increase stan­dard deduc­tion for prop­erty taxes. 
  • The waiver of Required Min­i­mum Distributions
  • Mid­west­ern dis­as­ter relief
  • Hope & Life­time learn­ing tax cred­its — they have been replace by the Amer­i­can Oppor­tu­nity Credit

Small Busi­ness Jobs Act: There has been some activ­ity with respect to cer­tain busi­ness cred­its and deduc­tion ear­lier in the year with the Small Busi­ness Jobs Act; you can read about the impli­ca­tions of that act here.

The Busi­ness Mileage rate for 2011 has been announced: 51 cents per mile, med­ical and mov­ing mileage is still 19 cents per mile and char­i­ta­ble mileage is still 14 cents per mile.

Paid Tax Pre­parer Over­sight: Remem­ber start­ing in 2011 all paid tax pre­par­ers must have a Pre­parer Tax Iden­ti­fi­ca­tion Num­ber (PTIN).  All Tax Return Pre­par­ers are now sub­ject to the over­sight of the Trea­sury Depart­ment.  All indi­vid­u­als who pre­vi­ously had a PTIN issued have to renew their PTINs with the IRS before prepar­ing any tax returns in 2011.  Fur­ther­more tax pre­par­ers who file more than 100 tax returns per year will need to obtain an EFIN as they will be required to e-file all tax returns.

As always, small busi­ness ser­vices and tax­a­tion are our busi­ness.  If you need help Please give Art & Busi­ness Con­sult­ing a call.  We would love to engage you as a client. 

The usual dis­claimers: Although ABC has made every effort to insure the accu­racy of Taxes, Tips and Tools, mis­in­for­ma­tion, dis­in­for­ma­tion, changes, mis­takes, typos and hack­ers hap­pen, there­fore Art & Busi­ness Con­sult­ing LLC takes no respon­si­bil­ity for any action taken or results based on the infor­ma­tion sup­plied here in. The con­tent of this blog gen­er­ally applies to busi­ness and indi­vid­ual tax­a­tion in the United States of Amer­ica.  Inter­nal Rev­enue Ser­vice Cir­cu­lar 230 Dis­clo­sure:  As pro­vided for in Trea­sury reg­u­la­tions, advice (if any) relat­ing to fed­eral taxes that is con­tained in this com­mu­ni­ca­tion (includ­ing attach­ments) is not intended or writ­ten to be used, and can­not be used for the pur­pose of (1) avoid­ing penal­ties under the Inter­nal Rev­enue Code or (2) pro­mot­ing, mar­ket­ing or rec­om­mend­ing to another party any plan or arrange­ment address herein.  Art & Busi­ness Con­sult­ing LLC cur­rently does not have a cer­ti­fied pub­lic accoun­tant, human resource spe­cial­ist, cer­ti­fied finan­cial plan­ner or an attor­ney on staff; this infor­ma­tion is purely for edu­ca­tional pur­poses and not to be con­strued as legal or finan­cial advice. Art & Busi­ness Con­sult­ing LLC and its employ­ees, mem­bers and asso­ciates are not engage to prac­tice law; you always should dis­cuss legal mat­ters with your attor­ney before talk­ing to anyone else.

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Small Business Jobs Act-Misnomer?

Thursday, October 7th, 2010

Con­gress finally did some­thing, only it wasn’t all of what we all have been wait­ing on.  There still is no estate tax fix, no AMT patch, no rein­state­ment of Bush tax cuts, no deci­sion on cap­i­tal gains taxes and other tax breaks such as teacher’s sup­plies, col­lege tuition etc. Look for these issues to be addressed one way or the other in the post-election lame duck session.

Any­way, on Sep­tem­ber 27, the Small Busi­ness Jobs Act was signed into law by Pres­i­dent Obama.  It is sup­posed to pro­vide $12 bil­lion in tax breaks for small businesses-but the “small” busi­nesses that will ben­e­fit from these tax breaks are prob­a­bly NOT con­sid­ered “small” busi­ness by your aver­age Mom & Pop operation. 

What are the pro­vi­sions (and off­sets) of this act?

  • An increase in the deduc­tion for startup costs from $5,000 to $10,000 & the startup expense maximum, before dol­lar for dol­lar decrease in the deduc­tion begins, is bumped from $50,000 to $60,000.  Need­less to say this is not of any ben­e­fit to busi­nesses that were in exis­tance at the begin­ning of 2010.
  • The write off of up to $500,000 in new equip­ment pur­chased in 2010, and the limit before dol­lar for dol­lar reduc­tion occurs raised to $2 mil­lion. Spe­cial 50% Bonus depre­ci­a­tion is also extended for 2010. Cer­tain real prop­erty is eli­gi­ble for expens­ing as well. For larger small busi­nesses these exten­sions of expens­ing ben­e­fits may be useful.  If a busi­ness is truly “small,” or a service-based busi­ness, it is not heav­ily invested in equip­ment; the increase in Sec­tion 179 and extend­ing 50% Bonus depre­ci­a­tion for another year isn’t too helpful.
  • A 5-year car­ry­back period for unused Gen­eral Busi­ness Credits.  Of course the ben­e­fit requires a busi­ness to have unused Gen­eral Busi­ness Cred­its and have prof­itable years to carry them back to.  An eli­gi­ble small busi­ness for pur­poses of this tax break is one with aver­age gross receipts of less than $50 mil­lion dol­lars over the last three years. 
  • In 2010 the Gen­eral Busi­ness Credit can off­set AMT.
  • The hold­ing period for Built-In-Gains tax for a C-corporations that con­verted to S-corporation is reduced from 10 years if the 7th year of the hold­ing period pre­cedes 2009 or 2010, and or the 5th year of the hold­ing period precedes 2011. 
  • Reduc­tion of net earn­ings from self-employment tax for insur­ance pre­mi­ums paid by the self-employed. It is a good tax break.  Of course the small busi­ness owner must be pay­ing health insur­ance pre­mi­ums to take advantage.
  • The act does have sev­eral ways to increase money avail­able to bor­row­ers, includ­ing a $30 bil­lion fund to increase lend­ing by com­mu­nity banks, and reduced fees for cer­tain SBA loans, but it has not changed lend­ing stan­dards, which have tight­ened up con­sid­er­ably since the reces­sion began. Mom & Pop’s abil­ity to bor­row tends to be pred­i­cated on their indi­vid­ual FICO scores.  Also lend­ing tends to be pred­i­cated on growth-Mom & Pop would have to pro­duce a busi­ness plan, show­ing how they intend to use the money to grow (and pro­vide jobs perhaps), but growth is not some­thing hap­pen­ing in many small busi­nesses right now.  Lenders could change their stan­dards, but they don’t have to…  How­ever a small busi­ness may be able to ben­e­fit from these loans if they can move for­ward with a coher­ent SBA loan application. 
  • For years 23% of fed­eral con­tracts have been sup­posed to go to small busi­ness.  The act is sup­posed to reduce the red tape for get­ting a fed­eral con­tract and peri­od­i­cally check on the size of fed­eral con­trac­tors to make sure they still qual­ify as a small business. 
  • Investors have a very lim­ited win­dow of oppor­tu­nity to invest in small busi­nesses and get a 100% tax break from cap­i­tal gains taxes down the road.  How­ever this tax break is for busi­nesses orga­nized as C-Corporations only-those that issue Qual­i­fied Small Busi­ness Stock.  For S-Corporations, LLCs, part­ner­ships and sole pro­pri­etor­ships there is no sim­i­lar incen­tive for investors. 
  • Busi­nesses get relief from the Tax Code require­ment that they account for how much of their employ­ees’ company-issued cell phone use is for per­sonal calls in order to deduct the full cost of the phones. Removing cell phones from listed prop­erty is a wel­come change.
  • Lim­i­ta­tion of penalty for fail­ure to dis­close cer­tain reportable trans­ac­tions on a return; the penalty is lim­ited to 75% of the reduc­tion in tax from the transaction-there are min­i­mum and max­i­mum penal­ties as well.  The change in penal­ties is retroac­tive to 2007. 
  • The IRS can levy a fed­eral con­trac­tor before a CDP hearing, although tax­pay­ers would still have a rea­son­able time for a CDP hear­ing after the levy is issued.
  • Start­ing in 2011, par­tic­i­pants in 457 plans are allowed to treat elec­tive defer­rals as Roth IRA contributions
  • Rollovers from elec­tive defer­ral plans 403(b), 401(k) and 457(b) are allowed to be treated as rollovers into Roth IRAs.
  • There is also a pro­vi­sion for more favor­able treat­ment of non­qual­i­fied annu­ity contracts
  • Guar­an­tee Fees paid by US tax­pay­ers to for­eign per­sons will be sub­ject to with­hold­ing tax.
  • Any fuel with an acid num­ber greater than 25 (crude tall oil, a waste pro­duc­tion from paper man­u­fac­tur­ing) is excluded from the def­i­n­i­tion of “cel­lu­losic bio­fuel” for pur­poses of the tax credit for alco­hol used as fuel.
  • Start­ing in 2011 there is an increase in the penalty for fail­ure to report pay­ments via 1099s from $50 to $250 and busi­nesses receiv­ing rental income are required to report pay­ments of more than $600 on Forms 1099-MISC and Form 1096 (with some excep­tions such as mil­i­tary per­son­nel tem­porar­ily rent­ing out their prin­ci­pal res­i­dences etc.). This reg­u­la­tion is on top of the  expanded 1099-MISC infor­ma­tion report­ing that was buried in the health care legislation. 

Some of these pro­vi­sions are not pro-Mom & Pop moves and do not “help Main Street busi­nesses com­pete with large cor­po­ra­tions.”  Whereas a moderate-sized busi­ness prob­a­bly has resources to han­dle reg­u­la­tory red tape — the aver­age Mom & Pop does not; respond­ing to red tape takes valu­able time and money away from their busi­ness, resources they can ill afford in the cur­rent eco­nomic climate. It is very hard for Mom & Pop to respond on the fly to con­tin­u­ously chang­ing rules for employ­ees, envi­ro­men­tal reg­u­la­tions and tax laws.

Small busi­ness cre­ates most jobs, but right now there is no con­sumer demand. Few small busi­nesses are in a posi­tion to take advan­tage of the pro-growth pro­vi­sions in the Small Busi­ness Jobs Act. It is hard to see how this act actu­ally will cre­ate jobs. For the aver­age Mom & Pop there aren’t many pro­vi­sions that ben­e­fit them. 

Of course we can always hope the Small Busi­ness Jobs Act accom­plishes it goals…

As always, small busi­ness ser­vices and tax­a­tion are our busi­ness.  If you need help Please give Art & Busi­ness Con­sult­ing a call.  We would love to engage you as a client. 

The usual dis­claimers: Although ABC has made every effort to insure the accu­racy of Taxes, Tips and Tools, mis­in­for­ma­tion, dis­in­for­ma­tion, changes, mis­takes, typos and hack­ers hap­pen, there­fore Art & Busi­ness Con­sult­ing LLC takes no respon­si­bil­ity for any action taken or results based on the infor­ma­tion sup­plied here in. The con­tent of this blog gen­er­ally applies to busi­ness and indi­vid­ual tax­a­tion in the United States of Amer­ica.  Inter­nal Rev­enue Ser­vice Cir­cu­lar 230 Dis­clo­sure:  As pro­vided for in Trea­sury reg­u­la­tions, advice (if any) relat­ing to fed­eral taxes that is con­tained in this com­mu­ni­ca­tion (includ­ing attach­ments) is not intended or writ­ten to be used, and can­not be used for the pur­pose of (1) avoid­ing penal­ties under the Inter­nal Rev­enue Code or (2) pro­mot­ing, mar­ket­ing or rec­om­mend­ing to another party any plan or arrange­ment address herein.  Art & Busi­ness Con­sult­ing LLC cur­rently does not have a cer­ti­fied pub­lic accoun­tant, human resource spe­cial­ist, cer­ti­fied finan­cial plan­ner or an attor­ney on staff; this infor­ma­tion is purely for edu­ca­tional pur­poses and not to be con­strued as legal or finan­cial advice. Art & Busi­ness Con­sult­ing LLC and its employ­ees, mem­bers and asso­ciates are not engage to prac­tice law; you always should dis­cuss legal mat­ters with your attor­ney before talk­ing to any­one else.

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Posted in Business Taxes, General Business | 1 Comment »

September 2010 Tax Update

Saturday, September 4th, 2010

Con­gress con­tin­ues to do noth­ing.  There is a lot of spec­u­la­tion about what they might do and when, but basi­cally things are pretty much where they have been for months. Some think that con­gress will act on extend­ing the Bush tax cuts, extend­ing pro­vi­sions that lapsed at the begin­ning of this year and AMT before the Novem­ber elec­tions and some think they will do some­thing in the lame duck ses­sion after the Novem­ber elec­tions. The rea­son for inac­tion is pol­i­tics — the Democ­rats want to make an issue of tax cuts to high income indi­vid­u­als and Repub­li­can oppo­si­tion to other mea­sures that help low income folks, the Repub­li­cans say the Democ­rats’ tax hikes hurt small business. 

In a sim­i­lar vein there is some spec­u­la­tion that con­gress will act to repeal the expanded 1099-MISC infor­ma­tion report­ing it made law with the health care leg­is­la­tion.  Once again, until that actu­ally hap­pens tax­pay­ers must deal with mat­ters as they are now, not as they hope they will be. 

The  Estate tax: short advice is to talk to a pro­fes­sional that spe­cial­izes in Estate taxes.  GOT that? This is not a DYI activ­ity.  The vast major­ity of peo­ple do not wind up fil­ing the Estate Tax Return, Form 706.  But for those that do, proper advice is essen­tial.  What is dif­fer­ent in 2010? Given that in 2010, so far, there is no estate tax, heirs will start with the decedent’s basis for assets (rather than the step up in basis of the assets at the time of death or alter­nate val­u­a­tion date). The execu­tor can then increase the value of up to $1.3 Mil­lion in assets to the date of death val­u­a­tion. Up to $3 mil­lion extra can be allo­cated to the sur­viv­ing spouse.  The basis allo­ca­tion can­not increase the asset’s basis over its value.  That means for very large estates, heirs will have to pay up, but the cap­i­tal gains tax is far less than the estate tax would have been AND the heirs con­trol when they pay the tax because it is not due until the heir sell the asset.

Expanded 1099-MISC Report­ing: Busi­nesses need to have their account­ing sys­tems in place start­ing 2011-they need to have the abil­ity to track the dif­fer­ence between pay­ment via Debit or Credit Card, verses pay­ment Cash, Check or Barter (to cor­po­ra­tions) so they can take advan­tage of the IRS guid­ance.  They will need  Form w-9 or equiv­a­lent from all busi­nesses with whom they exchange more than $600 per year for goods and/or ser­vices in 2011. Real­ize busi­nesses are sup­posed to do 28 % backup with­hold­ing from busi­nesses that refuse to sup­ply their TIN — busi­nesses should col­lect the W-9 as soon as they pay a busi­ness money in 2011, espe­cially if they know it will add up to more than $600 by year’s end.   

With respect to other tax breaks…

State­ment No 1. If your favorite tax break has not been re-enacted, do not plan for it to be.  Set aside some funds to pay the extra tax. 

State­ment No.2. Whether before or after the Novem­ber elec­tions, right now many believe:

  • the tax rate cuts for tax­pay­ers with incomes below $200,000 will be extended,
  • the 15% cap­i­tal gains rate will be extended,
  • there will be an exten­sion of Sec­tion 179,
  • exten­sion of Bonus Depreciation,
  •  exten­sion of busi­ness and indi­vid­ual energy tax credits,
  • exten­sion of the state and local prop­erty tax stan­dard deduction,
  • exten­sion of state and local sales tax in lieu of the state and local income tax deduction,
  • exten­sion of tax free dis­tri­b­u­tion from an IRA,
  • exten­sion of the research credit for businesses,
  • exten­sion of enhanced char­i­ta­ble con­tri­bu­tions for food inven­tory and cor­po­rate com­puter dona­tions for education.

All of these tax cuts are expected to be revived, but see State­ment No. 1.  The best advice is for tax­pay­ers must plan around things as they stand now, after­all no one pre­dicted that con­gress would actu­ally let the Estate Tax expire and yet… it did.

As always, small busi­ness ser­vices and tax­a­tion are our busi­ness.  If you need help Please give Art & Busi­ness Con­sult­ing a call.  We would love to engage you as a client.  Please note: Our offices will be closed until Octo­ber 1, 2010.  We may respond to emails and calls in the inter­rim, but no staff will be avail­able to meet with you in per­son until Octo­ber 1, 2010. 

The usual dis­claimers: Although ABC has made every effort to insure the accu­racy of Taxes, Tips and Tools, mis­in­for­ma­tion, dis­in­for­ma­tion, changes, mis­takes, typos and hack­ers hap­pen, there­fore Art & Busi­ness Con­sult­ing LLC takes no respon­si­bil­ity for any action taken or results based on the infor­ma­tion sup­plied here in. The con­tent of this blog gen­er­ally applies to busi­ness and indi­vid­ual tax­a­tion in the United States of Amer­ica.  Inter­nal Rev­enue Ser­vice Cir­cu­lar 230 Dis­clo­sure:  As pro­vided for in Trea­sury reg­u­la­tions, advice (if any) relat­ing to fed­eral taxes that is con­tained in this com­mu­ni­ca­tion (includ­ing attach­ments) is not intended or writ­ten to be used, and can­not be used for the pur­pose of (1) avoid­ing penal­ties under the Inter­nal Rev­enue Code or (2) pro­mot­ing, mar­ket­ing or rec­om­mend­ing to another party any plan or arrange­ment address herein.  Art & Busi­ness Con­sult­ing LLC cur­rently does not have a cer­ti­fied pub­lic accoun­tant, human resource spe­cial­ist, cer­ti­fied finan­cial plan­ner or an attor­ney on staff; this infor­ma­tion is purely for edu­ca­tional pur­poses and not to be con­strued as legal or finan­cial advice. Art & Busi­ness Con­sult­ing LLC and its employ­ees, mem­bers and asso­ciates are not engage to prac­tice law; you always should dis­cuss legal mat­ters with your attor­ney before talk­ing to any­one else.

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Posted in Business Taxes, Individual Taxes, Other Information | 1 Comment »

Hiring Your Spouse Without Running Afoul The IRS.

Tuesday, August 17th, 2010

On the advice of a CPA a farmer hired his wife who had worked on the fam­ily farm for years with­out pay.  All the farm and per­sonal expenses were paid from the same joint check­ing account (this is called co-mingling of funds).  The ratio­nal for sud­denly hir­ing his wife and pay­ing her a mod­est salary was so they could set up a plan to reim­burse the her as an employee for med­ical expenses.  The wife opened an account to receive her pay and to pay for the med­ical expenses.  The IRS denied the med­ical reim­burse­ments on the Sched­ule C and the tax court agreed (Shel­lito V Com­mis­sioner TC Memo 2010–41).

Why? The Eco­nomic Sub­stance Doc­trine.  The wife had work for years with no pay and the only rea­son to make the change was to receive a tax ben­e­fit.  The change in the farmer’s busi­ness prac­tice had no eco­nomic sub­stance other than the tax ben­e­fit so the ben­e­fit was denied.

Bot­tom Line: When related par­ties are involved employ­ers should fol­low all legal for­mal­i­ties and have an eco­nomic sub­stance behind them.  The farmer did not have a rea­son for sud­denly pay­ing for work that was pre­vi­ously unpaid, and did not estab­lish that the pay was rea­son­able for the work done.  Also since the farm and per­sonal expenses were paid from an account co-owned by the farmer’s wife she was essen­tially reim­burs­ing herself.

See Med­ical Insur­ance Plans for Small/Micro Busi­ness Own­ers about one way to do it properly.

See Tips to Avoid Get­ting Audited, and How to Make Your Audi­tor Drool for more infor­ma­tion about not co-mingling your funds and other ways to steer clear of an IRS audit.

As always, small busi­ness ser­vices and tax­a­tion are our busi­ness.  If you need help Please give Art & Busi­ness Con­sult­ing a call.  We would love to engage you as a client.

The usual dis­claimers: Although ABC has made every effort to insure the accu­racy of Taxes, Tips and Tools, mis­in­for­ma­tion, dis­in­for­ma­tion, changes, mis­takes, typos and hack­ers hap­pen, there­fore Art & Busi­ness Con­sult­ing LLC takes no respon­si­bil­ity for any action taken or results based on the infor­ma­tion sup­plied here in. The con­tent of this blog gen­er­ally applies to busi­ness and indi­vid­ual tax­a­tion in the United States of Amer­ica.  Inter­nal Rev­enue Ser­vice Cir­cu­lar 230 Dis­clo­sure:  As pro­vided for in Trea­sury reg­u­la­tions, advice (if any) relat­ing to fed­eral taxes that is con­tained in this com­mu­ni­ca­tion (includ­ing attach­ments) is not intended or writ­ten to be used, and can­not be used for the pur­pose of (1) avoid­ing penal­ties under the Inter­nal Rev­enue Code or (2) pro­mot­ing, mar­ket­ing or rec­om­mend­ing to another party any plan or arrange­ment address herein.  Art & Busi­ness Con­sult­ing LLC cur­rently does not have a cer­ti­fied pub­lic accoun­tant, human resource spe­cial­ist, finan­cial plan adviser, or an attor­ney on staff; this infor­ma­tion is purely for edu­ca­tional pur­poses and not to be con­strued as legal or finan­cial advice. Art & Busi­ness Con­sult­ing LLC and its employ­ees, mem­bers and asso­ciates are not engage to prac­tice law; you always should dis­cuss legal mat­ters with your attor­ney before talk­ing to any­one else.

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Posted in Business Taxes, General Business, Individual Taxes | No Comments »

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