Posts Tagged ‘unemployment’

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  • The per­sonal exemp­tion phase out as well as the item­ized deduc­tion lim­i­ta­tion have been repealed through 2012.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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Posted in Business Taxes, Individual Taxes | 5 Comments »

Arizona Non Conformity — What Do You Do?

Thursday, August 12th, 2010

AZ tax­pay­ers beware.  On April 27, 2010 after the fil­ing dead­line with­out exten­sions passed, the Ari­zona leg­is­la­ture decided not to con­form to all the tax law changes made by the Fed­eral gov­ern­ment in 2009.  Areas of non con­for­mity are:

  • Unem­ploy­ment: you need to ADD the $2400 the fed­eral gov­ern­ment exempted from gross income back into your Ari­zona income and pay the addi­tional tax.
  • Auto­mo­bile Sales Tax deduc­tion: you need to REMOVE the auto­mo­bile sales tax from your deduc­tions, which will increase your income and you may owe addi­tional tax.
  • Haiti Con­tri­bu­tions made between Jan­u­ary 11 and before March 1, 2010 that were taken as a char­i­ta­ble deduc­tion in 2009.  These con­tri­bu­tions will be eli­gi­ble char­i­ta­ble deduc­tions on your Ari­zona taxes in 2010.  Again this will increase your 2009 income and you may owe addi­tional tax.
  • Dis­charge of Indebt­ed­ness (DOI) Income From Busi­ness Indebt­ed­ness Dis­charged by the Reac­qui­si­tion of a Debt Instru­ment–the feds allowed it to be added rat­ably over 5 years, AZ did not. 
  • Orig­i­nal Issue Dis­count (OID) on Reac­qui­si­tion of Debt Instru­ment–the feds allowed the income to be deferred, AZ did not. 
  • Spe­cial Fed­eral Net Oper­at­ing Loss (NOL) Car­ry­back Rules for 2008 and 2009 Losses-the feds allowed a spe­cial longer car­ry­back period of 3, 4, or 5 years, instead of 2, AZ did not. 

    • If you claimed any of these spe­cial deduc­tions or fol­lowed these spe­cial rules when you timely filed your AZ taxes for 2009, you need to file an amended Ari­zona tax return and pay more tax.  For­tu­nately for most tax­pay­ers the Ari­zona Depart­ment of Rev­enue (AZ DOR) has released a spe­cial tax form to deal with indi­vid­ual tax­payer non­con­for­mity issues OTHER THAN NOL non­con­for­mity.  This tax form is lim­ited only to indi­vid­ual tax form non­con­for­mity issues which makes it sim­pler to com­plete.  If a tax­payer com­pletes the new tax form and pays all the tax due by Octo­ber 17, 2011 the tax­payer will not owe any addi­tional tax. 

     The fol­low­ing are links to the new form and instruc­tions:
    Click here for Ari­zona Form 140X-NC.
    Click here for Ari­zona Form 140X-NC instruc­tions.

    You will need Adobe Acro­bat Reader ver­sion 7 or higher to view and print the form and instruc­tions. Adobe Acro­bat reader can be down­loaded for free from the Adobe.com web­site.  Note: ABC LLC is not afil­i­ated with the AZ DOR or Adobe.com.  These links will take you to their web­sites and you will be sub­ject to their poli­cies.  We do not know what their poli­cies are.

    As always, small busi­ness ser­vices and tax­a­tion are our busi­ness.  If you need help with this issue or any oth­ers, 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 advi­sor 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 Individual Taxes | No Comments »

    Midyear Tax Update 2010.

    Wednesday, June 30th, 2010

    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.

    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 advi­sor 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 »

    Tax Impacts of Losing a Job

    Friday, October 2nd, 2009

    It’s a ter­ri­ble event that many peo­ple are fac­ing these days, the job loss of a sig­nif­i­cant bread­win­ner. Pro­longed unem­ploy­ment may have ram­i­fi­ca­tions that may com­pletely alter your eco­nomic posi­tion and have tax con­se­quences beyond what you might imag­ine.  In this blog we dis­cuss var­i­ous ques­tions in a super­fi­cial man­ner in order to elab­o­rate on pos­si­ble effects of job loss on your finan­cial life in order to make you aware of them.

    What is tax­able income in the unem­ploy­ment sce­nario? Assum­ing that you are eli­gi­ble you may receive unused vaca­tion pay, sev­er­ance and unem­ploy­ment com­pen­sa­tion.   All of these pay­ments are tax­able income.  In Ari­zona you can­not start receiv­ing unem­ploy­ment until you have been paid your unused vaca­tion and severance.

    Who pays the with­hold­ing taxes? In gen­eral your employer should with­hold taxes from your unused vaca­tion pay and sev­er­ance, but if not then you are respon­si­ble.  Unem­ploy­ment pay­ments may or may not have taxes with­held.  In Ari­zona you can elect to have money with­held to cover state and fed­eral income taxes or not.  Unem­ploy­ment is income but not earned income – Unem­ploy­ment is sub­ject to income tax only, but sev­er­ance and unused vaca­tion pay must have the 7.65% (employee por­tion) of social secu­rity & Medicare with­held in addi­tion to income tax.

    When will I get my W-2? Even those employ­ers who go out of busi­ness are sup­posed to deliver the W-2 by the usual due date, which is Jan­u­ary 31 of the year fol­low­ing, although an employer can deliver one sooner.  But it is advis­able for you to keep your final paystubs show­ing your total with­hold­ing and your total income until you receive your W-2. If the final pay stub does not show a total with­hold­ing and total income, then you may need to keep more paystubs to esti­mate these amounts.  In the event your employer goes out of busi­ness or oth­er­wise does not sup­ply a W-2 you can use the final pay stub to cre­ate a sub­sti­tute W-2 so you can file your taxes.

    Pay­ing Esti­mated Taxes. If you need to pay esti­mated tax you can com­plete a form 1040 ES and make pay­ments to the fed­eral gov­ern­ment.  Remem­ber, the US tax sys­tem is pay as you go.  If you under­pay your tax with­hold­ing, you will be charged a penalty and inter­est.  Safe har­bor is greater of: Under $1000 OR, 90% of all of your taxes owed for the cur­rent year OR, 100% of the tax you owed last year unless you earned more than $150,000 then its 110%. We rec­om­mend you obtain the Form 1040ES from IRS.gov (use the IRS search box); the work­sheet on Form 1040ES can help you deter­mine what you may owe and how much.  If you do deter­mine you have with­hold­ing tax lia­bil­ity you will need to fig­ure out how much you need to pay each quar­ter to make up the deficit.  The deposit due dates for Cal­en­dar year tax­pay­ers are April 15, June 15, Sep­tem­ber 15 and Jan­u­ary 15 of the year fol­low­ing; NOTE these pay­ments are not spread evenly through­out the year.  Even if you pay all you need to by Jan­u­ary 15 of the year fol­low­ing, you may owe a penalty if you under­paid in any quar­ter. The Ari­zona esti­mated tax Form, 140ES, is used to make with­hold­ing pay­ments to the state of Ari­zona – the  Ari­zona income thresh­old is $75,000, but in gen­eral it is ben­e­fi­cial to pay at least some of the tax you will owe as you go, instead of com­ing up with the entire amount due at tax time.  The due dates of Ari­zona esti­mated tax pay­ments are the same as the Fed­eral due dates.

    Who is eli­gi­ble for the COBRA sub­sidy? Med­ical insur­ance is a big issue for many laid off work­ers. Often times you will get the COBRA offer and decide it is too expen­sive; you may opt to obtain less expen­sive cov­er­age or go with­out.  How­ever for some peo­ple, who have been laid off between Sep­tem­ber 1, 2008 and Decem­ber 31, 2009 there is the COBRA sub­sidy, which pays 65% of the COBRA pay­ment for 9 months; this sub­sidy may make retain­ing med­ical cov­er­age afford­able to many more tax pay­ers — at least 9 months that it is offered.  Be sure to ask for it if you qual­ify, when you receive your COBRA paperwork.

    Health Insur­ance. The cost of health insur­ance may be deductible if you item­ize deduc­tions on your tax return (File Sched­ule A with form 1040).  The total of med­ical expenses that exceed 7.5% of your income is deductible on your Sched­ule A. For exam­ple, if your income was $20,000 then you would only be able to deduct med­ical expenses includ­ing health insur­ance that exceed $1500 and only if you item­ize deduc­tions.  HSAs. If you qual­ify for an HSA, you can claim a tax deduc­tion for con­tri­bu­tions made by you, your employer or some other per­son, to your HSA even if you do not item­ize deduc­tions on your tax return.

    Is Pub­lic Assis­tance or Food Stamps Tax­able? No.

    Are gifts tax­able? Gen­er­ally the gift tax is paid by the giver NOT the recip­i­ent.  If the gift pro­duces income, inter­est, div­i­dends and the like, the recip­i­ent is respon­si­ble for pay­ing taxes on the income pro­duced.  Cer­tain gifts paid directly to med­ical insti­tu­tions or edu­ca­tional insti­tu­tions on behalf of the recip­i­ent may not incur a gift tax.  Givers can gift up to $13,000 per per­son in 2009 with­out incur­ring a gift tax, but real­ize this max­i­mum gift amount includes cash, but also presents, cards etc.; a giver should be wary about giv­ing the whole $13,000 in cash to a per­son; a lesser amount that will allow for the odd birth­day gift, greet­ing card etc. is more advisable.

    Can I file early? Tax returns can­not be filed early even if you antic­i­pate that you will receive a hefty refund.  The soon­est a tax return can be filed is Jan­u­ary 2 of the year fol­low­ing (Jan­u­ary 1 is a hol­i­day after all).

    Stocks and Bonds and other with­drawals. If you cash out stocks or bonds, you may owe taxes on the prof­its from these sales.  The amount you paid for these stocks or bonds is usu­ally not tax­able; only the amount received above the amount paid and cost of dives­ture is tax­able.  You will need to include this income in your income and also include it when fig­ur­ing your esti­mated taxes.

    Retire­ment accounts.  The usual rules are in effect for IRAs and other tax advan­taged retire­ment accounts, even when you are laid off.  If you do a trustee to trustee trans­fer you can roll you retire­ment account over to another retire­ment account tax-free, how­ever if you opt to receive the money before rolling it over, most trustees will with­hold 20% from the amount dis­trib­uted to you.  If you decide to put the money back into a retire­ment account within 60 days you will need to make up the amount with­held by the trustee in order to avoid pay­ing the taxes and penalty for early with­drawal of it.  If it is your intent to just roll the money over, a trustee to trustee trans­fer is the best way to go.

    With all rollover trans­ac­tions there are sev­eral pro­hib­ited trans­ac­tions: Bor­row­ing from the dis­tri­b­u­tion, receiv­ing undue com­pen­sa­tion for man­ag­ing these funds, buy­ing per­sonal prop­erty for future or present use, or using the dis­tri­b­u­tion as secu­rity for a loan.  If you engage in a pro­hib­ited trans­ac­tion the retire­ment account will lose its tax-advantaged sta­tus as of Jan­u­ary 1 of the year in which the pro­hib­ited trans­ac­tion occurred and all taxes will be due on the amounts in that account includ­ing the penal­ties for early with­drawal etc.

    If you decide to make a with­drawal from your IRA or other retire­ment account before eli­gi­ble age you will owe income taxes but also may owe a penalty for early with­drawal.  The rules vary from plan to plan so it is advis­able to talk to the plan admin­is­tra­tor about your options before mak­ing a withdrawal.

    There are a few excep­tions to the early with­drawal penalty such as dis­tri­b­u­tions pur­suant to a QDRO, per­ma­nent and total dis­abil­ity, money used to pay med­ical expenses in excess of 7.5% of your income etc.

    If, in the cur­rent year, you paid money into an IRA and with­draw that amount plus any inter­est earned by that deposit before year’s end, you can with­draw that amount with­out incur­ring a penalty, but you must add it and the asso­ci­ated inter­est to back into your income.

    If you made pre­vi­ous non tax-advantaged con­tri­bu­tions to an IRA you will need forms 8606 from those years, and you will need to fig­ure out how much of your IRA dis­tri­b­u­tion is tax­able using a work­sheet in the Fed­eral Pub­li­ca­tion 590, Indi­vid­ual Retire­ment Arrange­ments; a pdf of this pub­li­ca­tion  can be down­loaded from IRS.gov or you can visit your local IRS office to see if they have one.

    Start­ing a busi­ness. It is entirely pos­si­ble for you to start a busi­ness after you have been laid off.  Noth­ing stops you from being an employee and a busi­ness owner in the same year; indeed if you form a cor­po­ra­tion you maybe an employee of your cor­po­ra­tion and a busi­ness owner at the same time.

    There are three basic types of busi­nesses: Sole proprietor-an unin­cor­po­rated busi­ness started by one per­son, a partnership-an unin­cor­po­rated busi­ness started by 2 or more peo­ple, or a cor­po­ra­tion.  Lim­ited Lia­bil­ity com­pa­nies are not rec­og­nized by the IRS for tax pur­poses so it will default, or elect to be treated as one of these other basic entity types.  The deci­sion as to what type of busi­ness to start involves risk fac­tors, record keep­ing require­ments and other issues that are beyond the scope of this discussion.

    Gen­er­ally all busi­nesses need to keep records reflect­ing the income received by the busi­ness and the expenses relat­ing to pro­duc­ing that income.  Finan­cial state­ments, bank records, receipts, bills, etc.  all should be kept as well.  How to keep records and what records to keep are beyond the scope of this discussion.

    Busi­ness income is reported on a Sched­ule C (sole pro­pri­etor), Sched­ule E (rental real-estate and roy­alty income), Sched­ule F (farm income), Form 1065 (part­ner­ship income), Form 1120S (S-corporation Income), or Form 1120 (C-Corporation income).   All busi­ness own­ers have to pay 15.3% self-employment taxes in addi­tion to reg­u­lar income taxes.  If a busi­ness has employ­ees the own­ers have to pay employ­ment taxes (employer por­tion of social secu­rity & Medicare, state and fed­eral unem­ploy­ment etc) on their employ­ees as well.  In addi­tion to self-employment taxes busi­ness own­ers have to pay esti­mated income taxes on their busi­ness income as well.  Exactly which forms to file and when is beyond the scope of this discussion.

    Sole pro­pri­etors may be eli­gi­ble for the earned income credit.  Self-employed peo­ple may also qual­ify for adjust­ment so income for pro­vid­ing their own health insur­ance and set­ting up retire­ment accounts for their busi­ness.  The details are beyond the scope of this discussion.

    Expenses of look­ing for a job. If you item­ize you deduc­tions on your tax return (file a sched­ule A with your 1040) you may be able to deduct some of the expenses of look­ing for a new job.  Expenses such as resume prepa­ra­tion, out place­ment agency fees, costs of mail­ing your resume, cer­tain expenses for travel overnight more than 50 miles from your home to look for work (if it pri­mar­ily for this pur­pose and not for per­sonal plea­sure) may be deductible.  The deduc­tions are lim­ited by the 2% lim­i­ta­tion of income; for exam­ple, if you made $20,000 then only the total mis­cel­la­neous expenses that exceed $400 will be deductible and only if you item­ize your deductions.

    Edu­ca­tional expenses. Some peo­ple may ben­e­fit from pick­ing up a lit­tle edu­ca­tion while look­ing for a new job.  You may qual­ify for the Hope or Life­time Learn­ing credit.  Some­times tuition costs may deductible as employee busi­ness expenses sub­ject to the 2 % lim­i­ta­tion of income on 1040 sched­ule A. To qual­ify as an employee busi­ness expense the edu­ca­tion must relate to your cur­rent work and it can­not pre­pare you for a dif­fer­ent job, or higher level job; edu­ca­tion that takes an LPN to an RN or a tech­ni­cian to an engi­neer, or that makes a doc­tor a lawyer, etc. is not con­sid­ered work-related edu­ca­tion although this edu­ca­tion may qual­ify for the Hope or Life­time Learn­ing credit.

    Mov­ing Expenses. Cer­tain expenses relat­ing to mov­ing to obtain a new job are deductible, gen­er­ally the move has to be closely related in time to start­ing the new job and you must have moved at least 50 miles.

    Sell­ing your home. If you sell your home, whether it is vol­un­tar­ily or because you have to move to obtain new work, and if you have owned and lived in your main home for at least 2 of the last 5 years, you may be able to exclude gain of up to $250,000 ($500,000 Mar­ried fil­ing Jointly).   If you are fore­closed on in between 2007 and 2012, the fore­clo­sure is directly related to a decline in your home’s value or your finan­cial con­di­tion, and your debt is for­given, you may debt for­give­ness income that may also be excluded from your income.

    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.   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 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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