Archive for the ‘Individual Taxes’ Category

« Older Entries
Newer Entries »

February 14, 2011 — IRS Accepting 1040 Schedule A e-file

Thursday, January 20th, 2011

In the last blog, we men­tioned that for many tax fil­ers, the IRS was delay­ing e-file accep­tance; it will not process cer­tain kinds of tax returns until their sys­tem has been mod­i­fied to incor­po­rated tax law changes passed very near the end of 2010.  The IRS has announced it will be accept­ing & begin pro­cess­ing tax returns which have a Sched­ule A, tuition & fees deduc­tion or edu­ca­tor expenses deduc­tion on Feb­ru­ary 14, 2011. 

You maybe ask­ing, “So what about these com­pa­nies say­ing they can get me my refund now?” First if you do not fit into one of the affected cat­e­gories, you can e-file now.  How­ever, if you do com­plete Form 1040 Sched­ule A obvi­ously there is no way any­one can e-file your tax return until the IRS accepts it.  What many of these ser­vices are offer­ing is some­thing called a refund antic­i­pa­tion loan (RAL)-the key word here is loan. In gen­eral these ser­vices charge a pretty hefty fee for you to get access to your refund imme­di­ately. Sec­ondly, you will owe the money for the loan if the IRS retains your refund for some rea­son. What are the rea­sons the IRS could keep your refund? If you owe back child sup­port, if you owe money on a gov­ern­ment stu­dent loan, if you owe money to a state or fed­eral agency for back taxes - these are just a cou­ple of rea­sons why your refund might not be paid out. 

In gen­eral, efil­ing is the fastest way to receive your tax refund, so if you can wait a while to receive your refund, it is prob­a­bly best to just wait until Feb­ru­ary 14, 2011 to file your taxes if you are pre­vented from doing so now.  It can save you some money. ABC does not offer RAL ser­vices, nor do we endorse the practice.

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.

Tags: , , , , , , , , , , , , , ,
Posted in Individual Taxes, Other Information | No Comments »

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.

Tags: , , , , , , , , , , , , , , , , , , ,
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.

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,
Posted in Business Taxes, Individual Taxes | 5 Comments »

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.

Tags: , , , , , , , , , , , , , , , , , , , ,
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.

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

« Older Entries
Newer Entries »