So we are halfway through the year; congress has done nothing except pass health care reform. There are rumors that incumbents are so terrified of losing their jobs, that they are afraid to act. I don’t know about you, but congress’s inactivity also speaks to me-it’s congress’s job to make these decisions so that Joe & Jill average taxpayer can plan their taxes; right now its hard to say how much taxes they should be withholding. At the rate congress is are going none of these issues will be addressed until after November elections. At that point several issues may be resolved in the lame duck session, which is far too late for tax planning.
Millions on unemployment need congress to act to receive extended benefits that were already in the works. As an unemployed person reaches the end of their current tier of benefits, they will not be receiving benefits under the next tier unless congress acts. Even if congress acts there is no plan to extend benefits beyond 99 weeks.
As for other expiring legislation the usual suspects are in the offing:
- Deductions for college tuition
- Deduction teachers supplies
- R&D credit,
- Farm machinery write off over 5 years
- Leasehold improvements over 15 years.
There is talk they will revive:
- Writing of state sales taxes in lieu of state income tax,
- tax-free direct payouts to charities from IRAs,
- the extra standard deduction for personal property taxes.
Some new tax breaks they are kicking around
- A break on capital gains taxes on sales of stock for owners of a certain small companies, for stock held over 5 years,
- A larger deduction for business start up costs,
- Pension funding relief,
The estate tax talks are also underway, but are being addressed separately, and law makers plan to reinstate it retroactively, but may face a legal challenge. Congress is deciding whether to exempt $5M and have a tax rate of 35% or or $3.5 M and have a 45% tax rate. Nobody wants it to drop back $1 M in 2011. Currently there is no estate tax.
Alternative Minimum Tax (AMT) is also not in the current bill either-if congress does not pass higher AMT exemptions then they will fall back to pre-2001 levels and AMT will affect millions more taxpayers..
In other news the IRS is denying protective claims of refund for FICA taxes on severance pay for laid off workers. Short of filing a lawsuit against the IRS, companies can file an administrative appeal with the IRS. The appeals officer can take into consideraton the hazards of litigation and offer a settlement, but if no agreement is reached the company still has two more years to sue the IRS for the refund and by then the IRS appeal of the lower court ruling should be decided.
In 2011 all paid tax preparers must be registered. Starting in September the IRS should have a system in place for unregistered preparers to get a preparer tax identification number (PTIN). Licensed preparers that already have a PTIN will have to re-register it too. The fee for registration is slated to be between $100 and $200. Only unlicensed preparers will be subject to IRS competency testing; unlicensed preparers will have 3 years to pass the competency exam.
UBS turned over the names of 4000 account holders who may have stashed money overseas to avoid taxes. If you are among these 4000 you may want to consider turning yourself in and throwing yourself on the IRS’s mercy in order to avoid criminal prosecution. You may want to get a lawyer.
A recent ruling (Shiekh, TC Memo, 2010-126) upholds passsive loss rule for real-estate pros with multiple rental properties-they must attach a statement to the tax return saying the properties are being treated as one activity in order to satify material participation rules to be treated as a nonpassive activity. Merely grouping them all together on on schedule E does not qualify as a valid election to group the rentals into one activity for material partipation purposes.
Business should be gearing up now to report health benefits received in 2010 on W-2s in 2011. A health plan’s value is the same as would be used to compute the allowable premium for COBRA coverage.
Stay tuned.
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.
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