If you already have a corporation, you may be considering whether it should be changed from and S to a C or a C to an S. This is not an easy decision or one that should be undertaken lightly, becuase the tax consequences to your change could be great. This site does a fair job of outlining the differences between an S and a C corporation and why you might want to switch from one to the other.

Just know that switching from a C to an S does not avoid taxation on any retained earnings you have already earned or assets that have appreciated but not sold. There is a 10 year waiting period for selling any assets (including receivables and goodwill) held by a C that has converted to an S. The BIG tax (Built in Gains) goes away after 10 years, but if you are considering converting from a C to an S you would be wise to have an appriasal done of your business just in case you need to sell an asset before the 10 year time limit expires.

If you were considering converting your traditional IRA (or Simple or SEP IRA) to a Roth IRA for the future tax benefits, you may want to check out this tool over at Vangaurd.com

The recent Stimulus legislation extended the generous depreciation limits we have been enjoying.

The Home Office deduction is becoming more and more popular these days with new work situations and more people turning to self-employment.

To see if you qualify for the home office deduction, here are the IRS guideline.

• your principal place of business (if you work from home, this one is usually easy to accomplish) or
  
• a place that you meet your customers, clients or patients as a part of your normal course of business or
• you have a separate structure that you use in connection with your business.
  

Your deduction is limited to income from your business (any excess is carried forward).

The allocation percentage is based on the square footage of your office space to the square footage of your entire home.

The kinds of expenses you can deduct would be mortgage interest, property taxes, HOA dues, utilities, pest control, home insurance, and maintenance and repairs on your home.

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As an employer, one of your responsibilities is to verify the accuracy of the social security number your employees provide to you. If there is an error in the number you use, it could cause headaches later down the road when the reports you file are returned for correction.

"Employers can now verify employee Social Security numbers for wage reporting purposes using an automated Telephone Number Employer Verification(TNEV) service 24 hours a day, 7 days a week. TNEV allows registered users to verify up to 10 employee names and SSNs at one time - without having to speak to a Social Security representative."

http://www.socialsecurity.gov/employer/w2news/documents/TNEV.pdf

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As you no doubt heard, Congress extended the Home Buyers Credit and expanded it to cover even more people. Here are the details to see if you qualify...

[Quoted from Here]

First-time home buyers still get a credit of as much as 10% of the purchase price, up to a maximum $8,000. "First-time" means people, including both partners of a married couple, who haven't owned a principal residence for three years before the purchase. So if you have never owned a home, but your wife has recently, then you don't qualify.

All taxpayers who claim a credit must use the home as a principal residence for the next three consecutive years.

Under the new law, as under the old, 2009 home buyers may claim the credit on either their 2008 or 2009 returns, and 2010 buyers may claim the credit on either their 2009 or 2010 returns.

Taxpayers do not qualify for a credit if they buy from a lineal ancestor or descendent, including parents or grandparents and children or grandchildren. Also, it can't be from their spouse or the spouse's lineal relatives.

To take advantage of the tax credits, a buyer must have a contract in place before May 1, 2010, and the deal must close before July 1, 2010. No further extension is expected.

The price of the house is now capped. For purchases made after Nov. 6, no credit is available for any home costing more than $800,000.

There is now a tax credit for repeat buyers as well as for first-time buyers. Taxpayers who have lived in one residence for five consecutive years of the past eight can now qualify for a tax credit of as much as 10% of the purchase price, up to a maximum $6,500, of a new principal residence. The new home does not have to cost more than the old one. [so you can't buy a second home or a rental property to qualify]

Income limits for people who qualify for a tax credit are far more generous than under the previous law. For single filers, the credits now phase out between $125,000 and $145,000 of modified adjusted gross income; for married couples, the range is $225,000 to $245,000. For most people, modified adjusted gross income will be the same as adjusted gross income.

The new law contains anti-abuse measures designed to stem fraud, which became a problem with the previous home-buyer tax credit. Most buyers must be 18 or older, and no taxpayer may take a credit if he or she is claimed as a dependent on someone else's return. Taxpayers taking the credit will also have to furnish proof of purchase. According to Robert Dietz of the National Association of Home Builders, this will usually be a HUD-1 form.

Q: If I buy a new home and live in it, do I also have to sell my old one in order to take advantage of the credit?

This is unclear. The law appears to allow repeat buyers to retain their old home, for which no tax credit was given, while claiming a credit for the new one. What is clear is that if you buy a new home using the credit, you must use it as your principal residence.

Q: Is it possible to qualify for a credit if I am building a home on a lot I already own?

Yes, according to the National Association of Home Builders. The purchase date is usually considered to be the date of first occupancy, so you would need to move in before July 1, 2010.

Note: This credit has been abused greatly, and most professionals are expecting a very high audit rate of those who claim this credit. That doesn't mean don't claim it, after all they are giving away money here, but make sure you qualify (and double check the rest of your return while you're at it).

The IRS has made the deduction of S Corp Officer Health insurance premiums like walking a maze. The officer must include the premiums in their wages (reported on their W-2). Then the corporation deducts this as officer fringe benefit/compensation. So far, we have a wash (especially if there is only one shareholder).

Now the officer can deduct the premiums paid on their personal return as an above the line deduction, just like any self-employed person.

While I understand the reasoning behind this, the IRS could have just ruled it a wash and saved a lot of time and payroll headache and we arrive at the same bottom line. But that would make too much sense I guess.

Be sure to note the other requirements about whose name the policy should be in and that the company needs to either pay the premium directly or reimburse the shareholder.

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As an employer you likely want to reward those employees that have been loyal to you over a long period of time or have made some other noteworthy acheivement. Unfortunately, if you give a gift or check to an employee it will be considered compensation (and therefore taxable) unless it meats one of the IRS's exceptions. Those are:

1. De minimis fringe benefits. Awards qualify as de minimis fringe benefits and may be excluded from recipients' incomes if they are:

• given occasionally;
• non-cash; and
• nominal in value.

Examples: plaques, certificates of achievement, mentions in internal newsletters.

2. Length-of-service awards. That gold watch, for example, can be pricier, but may not be given for fewer than five years of service.

3. Safety achievement awards. These awards are tangible, but must be limited to 10% of eligible employees a year. Managers can't receive these awards.

Other things to note regarding awards: "Length-of-service and safety achievement awards come with some additional strings. First, these awards must be part of a meaningful ceremony. Meaningful is flexible. Second, the maximum that any one employee can receive tax-free depends on whether you have a written plan that doesn't discriminate in favor of upper management. If you do, you may exclude up to $1,600 a year from an employee's pay. The average cost per recipient of all awards in a year can't exceed $400. If you don't have a plan, you may exclude only up to $400 from an employee's pay."

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If you are selling mutual funds, you will likely calculate your stock basis on the average cost basis (that is what many fund companies report the basis to you at).

That option is not available for individual stocks though. The IRS assumes you will use FIFO (first in first out) unless you make the written election to use specific identification. FIFO means that the first shares you bought will be the first sold. In an appreciating market, this likely means that you will face a gain on the sale of the stock. By specifically identifying the shares sold, you may be able to defer some of the tax gain until you later sell the remaining shares.

In order to specifically ID the shares sold, you need to communicate to your broker something like "Sell the 1,000 shares that I originally purchased on February 16th." Or you could even say "Sell 1,000 shares of that I originally bought for $5 a share." Be sure to do this before the sale occurs. Then next big step is to follow up with your broker becuase you need a confirmation from them in writing for your files showing that they received your request and followed it.

For more info...Link

While the rate remains the same (7.75%), the breakdown between state and county will change effective October 1, 2009. So be careful when completing your Nov. 15th sales tax returns of this change.

Wake County residents will pay the state rate of 5.75% and the county rate of 2%.

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