Andrew Collins CPA PLLC Blog

Mileage and the Home Office

2012-02-01T11:09:00.001-08:00

If you work from home and use your car from business then you will want to know the rules on deducting mileage. In order to qualify, your home must meet the home office limitations (whether you claim the home office or not). That means you must have an area of the home that is exclusively and regularly used as the principal place of business. If that is the case, then all the mileage you conduct for business will be deductible. Otherwise, it is considered commuting and only trips between clients would be deductible. For more details see this helpful website.

Home Based Business Mileage Deduction

2012-01-11T10:46:00.000-08:00

For those who work from their home, here are some good pointers in deducting the mileage from your home to the various points of business that you will need to go to (Post Office, Supplies, Clients, Bank, etc.).

Your home must be regularly and exclusively used as the principal place of business. This can be met if you use it regularly for admin or management activities like bookkeeping and you don't have another fixed location that is set aside for those activities. Be sure that a room or at least portion of a room is used just for these business purposes (i.e. your kitchen table won't qualify).

More info

Congress extends the 2011 social security payroll tax cut of 2% for 2 more months

2012-01-11T10:37:00.000-08:00

In a compromise that will defer but not solve the problem, Congress has decided that two more months of payroll tax cuts will be given. A little tax savings is better than nothing.

With any tax law change, there are caveats and unintended consequences. One of those is that they don't want those in higher earning brackets to save more than 2/12's of their annual FICA savings by taking all their income in the first few months. To resolve that they have also added a recapture tax to the payroll system.

More info

Taxes due on April 17th this year

2012-01-11T09:54:00.000-08:00

Like last year, the Emancipation day celebrations in Washington DC will delay the filing day to April 17th. This will give procrastinators 2 extra days to take care of their annual tax filing!

Refund Calendar for IRS

2012-01-11T09:50:00.000-08:00

For 2012 the IRS has published the following chart that shows when you can expect your refund if you efile and direct deposit your refunds:

http://www.irs.gov/pub/irs-pdf/p2043.pdf

Basically if you send in your return by Wednesday, it will be available the following Wednesday. (Interesting since last year Friday was the key day for deposits). Note that this is if all goes smoothly and your return doesn't have any processing issues or flags for review and your banking institution doesn't have any processing delays.

Home Office Rules Reminder

2012-01-06T07:45:00.000-08:00

With many people losing their jobs in this economy, many are turning to home based work to make ends meet. One deduction that you may qualify for is the home-office deduction. This article does a good job of highlighting who would qualify.

More guidance on W-2 reporting of health insurance premiums

2012-01-05T06:59:00.001-08:00

For most small employers, this won't apply until 2013 at the soonest. The IRA has released more details about the disclosure requirements of health insurance premiums on employees W-2's. In 2011 (the W2 you will receive in a few weeks) the disclosure is optional as they transition in the requirement. Next year the disclosure is required if you employ more than 250 employees. After 2013 it is uncertain whether the 250 employee limit will still exempt smaller employers or not, so we will wait for further clarification. The notice also answers questions about what type of costs should be reported, and what to do if employees pay for a portion of the cost through paycheck withholding.

More details

2012 Mileage Rates

2011-12-12T07:10:00.001-08:00

The IRS has released the updated mileage reimbursement rates:

Business mileage rate is 55.5 cents/mile.
Medical mileage rate is 23 cents/mile
Moving expense rate is also 23 cents/mile
Charitable mileage rate is 14 cents/mile*

Source

Small Estates may still need to file an estate tax return

2011-12-02T11:41:00.000-08:00

Due to the portability options with the new estate tax laws, many people that don't have taxable estates and would not have needed to file a return under the old laws would benefit from filing now. By filing now they can port or transfer their estate tax exemption to their spouse, and in doing so increase the size of their spouses estate that escapes taxation.

More info

New Veteran Hiring Credit

2011-11-22T07:52:00.001-08:00

The president and congress have created a new tax credit aimed at hiring veterans.

The Details:

- A maximum $4,800 credit (40% of the first $12,000 in qualifying wages)for veterans with a service-related disability hired within 12 months of discharge (no change from prior law).

- A maximum credit of $9,600 (40% of the first $24,000 in qualifying wages) for veterans with a service-related disability who have been unemployed for at least six months of the prior 12 months.

- A maximum credit of $5,600 (40% of the first $14,000 in qualifying wages) for non-disabled veterans who have been out of work for at least six months out of the prior 12 months.

- A maximum credit of $2,400 (40% of the first $6,000 in qualifying wages) for veterans who have been unemployed at least four weeks, but less than six months, in the past year.

Be warned that you must file paperwork with state agencies before hiring this individual (or soon thereafter) to ensure they qualify. Just read up on the hoops you have to jump through if you potentially qualify.

Link for more info

S vs. C Corporation

2011-11-22T07:47:00.000-08:00

Many people, especially small service based professionals, elect to be an S Corporation. An S Corporation can offer liability as well as tax advantages that make it the right choice.

The C Corporation is an entity that may be a better fit for some businesses, and this article highlights some of the key reasons and pitfalls to consider when considering a C Corporation.

2011-12 Cost of Living Adjustments

2011-10-28T05:48:00.000-07:00

The IRS has revised various figures for 2012 to account for inflation:

- 401(k), 403(b) limits: $17,000 (was $16,500)

- Catch-up contribution for those 50 and older: $5,500 (unchanged)

- Personal exemption increases from $3,700 to $3,800) and standard deduction

- The $13,000 annual gift exclusion is unchanged.

- The estate and gift lifetime exclusion for decedents dying during 2012 goes up from $5 million to $5.12 million.

- The Social Security wage base for 2012 will be $110,100 (up from $106,800 in 2011).

-2012 Tax Brackets

Source 1

Source 2

NC Deduction in 2012 for Small Business Owners

2011-09-21T07:46:00.000-07:00

Some small business owners (sole proprietors filing Sch. C and S Corp officers who actively participate) will be able to deduct the first $50,000 in net business income on their 2012 NC tax returns. This offers a business owner the chance to avoid paying taxes on up to $50,000 to the state of NC. This is a very generous tax benefit being offered to business owners, presumably to help stimulate hiring and business activity in the state. This does not apply to passive rental income or C Corporation income.

More info - page 340 item 22

Doing business under an assumed name (DBA)

2011-08-10T06:34:00.000-07:00

If you are a sole proprietor that wants to operate under a separate legal name and avoid the cost of incorporating or setting up a seperate legal entity, you will need to register the name of your business. In NC that means contacting the county Register of Deeds where you will be operating.

This page will give more guidance on who must register and how it can be done.

This page lists the forms available for you to use.

More Info

Corporations and the Home Office

2011-07-28T06:12:00.000-07:00

So maybe you read this post about home offices and you are hoping you can write off your S Corporation's home office since it is based out of your home. If done correctly then you should be able to take advantage of this deduction.

The way to handle this is to have the S Corporation reimburse the shareholder directly for the actual home office expenses (calculated the same way a sole proprietor would, allocated by square footage). The S Corp. shows the office expense on it's income statement. This expense then flows through to the shareholder through the corporation's K-1. This needs to be done under an accountable plan, so you can't just give yourself a set amount each month. It needs to be based on and supported by documented actual numbers.

Don't be tempted to have the corporation rent the office space from you either. This is an area of the tax law where the IRS will allow the rental deduction on the corporate books, and the shareholder reports the rental income on Schedule E. The deductions allowed on Sch. E are limited because of the employee/employer relationship. Only mortgage interest, real estate taxes, and casualty losses are allowed as deductions under section 280 A (c) (6) of the code. These expenses were already deductible, so the IRS has limited all other operating expenses like depreciation, utilities, HOA dues, repairs, etc. Because of this limitation I do not recommend this scenario. You are just creating extra headache for yourself with no real benefit.

Source 1
Source 2

1099 Law Repealed

2011-07-21T08:02:00.000-07:00

Congress Repealed the New 1099 Law that was going to put such a burden on small business.

It is sad when you are praised like a hero for cleaning up your own mess, but I am very thankful that this was taken care of.

Source

Tax Transcripts Online

2011-07-21T07:59:00.001-07:00

The IRS has always offered transcipts by mail by completing form 4506, but now you can request the transcripts online. Some notes about the process:

-A transcript is a computer printout that shows most of the line items found on your tax return when you filed it, including any accompanying forms and schedules. When it comes to verifying income, a transcript often is an acceptable substitute for a copy of your original tax return.However, any changes made after the return was filed will not be reflected on a basic transcript. For that you need a tax account transcript.

-A tax account transcript will provide any adjustments you or the IRS made after you filed your return. Like the basic tax transcript, the tax account transcript also shows things such as your marital status, type of return filed, adjusted gross income and taxable income.

-You can have a transcript sent directly to your lender, who should get it in about 10 days after you submit your request.

-There's no cost to order your current-year transcript, as well as transcripts for the past three years. If you need an exact copies of your old tax returns, that will take up to 60 days to process. It also will cost you $57 for each copy

Source

NC Sales Tax Decrease - 7.75 Wake County to 6.75%

2011-07-21T07:44:00.001-07:00

The 1% Sales tax temporary increase was allowed to expire and you have probably already seen the effect when shopping. In Wake county the tax rate is now 6.75%, down from 7.75%. That is a state rate of 4.75% plus a local rate of 2%.

Source

CFNC Deduction Extended

2011-07-21T07:42:00.000-07:00

For those who have been taking advantage of the NC income tax deduction for contributions to the NC college foundation, you can rest easy that this tax benefit has been extended. Here is the press release:

Recent legislation passed by the NC General Assembly preserves the deduction on NC 529 contributions for all North Carolinians, regardless of income. Adjusted gross income limitations scheduled to return in 2012 on the state tax deduction for the NC 529 Plan have been eliminated. The maximum annual contribution deductible from NC taxable income remains the same at $2,500 (individual) or $5,000 (married, filing jointly).

IRS to Offer Free Tax Software??

2011-07-21T07:36:00.000-07:00

Currently the IRS website offers links to those who have agreed to provide free tax preparation to qualified individuals. Some recently felt like it would be a good idea for the IRS to create it's own software and offer it free to everyone. Some possible problems with that scenario:

-It would be a giant programming task. I can't tell you how many updates I get during the year to my tax software to keep up with the tax laws as they change. For the IRS to take on this task with no benefit to itself would be difficult to say the least.

-Someone has to foot the bill, so really you are asking the taxpayers to pony up for this plan. Is this the most efficient and cost effective method?

-The IRS has a conflict of interest. They are trying to squeeze what they can out of people, and the job of the software providers and taxpayers is to pay as little as required. It would be giving the fox the rule of the henhouse.

While paying for tax software isn't enjoyable for anyone, it is a small investment to ensure you are getting a reliable product and minimizing your taxes.

Source

Mileage Rate Increase to 55.5 cents July 1, 2011

2011-07-21T07:34:00.001-07:00

The IRS has changed it's mind and decided to revise the standard mileage rates for 2011 in teh middle of hte year. Now employers may reimburse up to 55.5 cents per mile driven in teh last half of hte year. The IRS is just acknowledging what we already knew, that gas prices are up and it is costing more to get around!

Source

FUTA tax decrease

2011-07-21T07:31:00.001-07:00

Be sure your payroll software is up to date, because there is a rare change in the federal unemployment tax rate. The temporary .2% surtax that was put in place in 1976 was allowed to expire. This is very surprising in the wake of the budget shortfalls we are facing, particularly due to the unemployment insurance payments the government is making.

Regardless, businesses will appreciate any tax cut right now.

Source

Paper Savings Bonds are Coming to an End

2011-07-21T07:26:00.000-07:00

The Treasury Department has announced that paper savings bonds will be a thing of the past, and everything will be moving electronic in 2012. Bonds can be bought through the website www.treasurydirect.gov .

One website noted that this will limit the amount of bonds that can be bought per person per year because in the past you could buy up to 5,000 in each (paper and electronic) and now you are limited to just 5,000 in electronic bonds.

Source

Sales Tax Holiday for Certain Items in NC 8/4/11-8/7/11

2011-07-21T07:24:00.000-07:00

The NC Department of Revenue has released a reminder that the annual sales tax holiday for school supplies, clothes, and some electronics is coming up soon. For more details you can visit their website here.

Like Kind Exchange to Defer Tax on Business Property Sale

2011-06-16T09:24:00.000-07:00

Here is an interesting article that claims you can use the like-kind exchange rules to push the tax into the next tax year, without having to truly reinvest the funds. It means you can't touch them, and there are a lot of i's to dot and t's to cross to make sure you toe the line, but it could be worth a shot if you are dealing with a large gain and want to defer the taxes one year.

Link

"Settle for Pennies on the Dollar"

2011-06-06T08:58:00.000-07:00

We've all seen the commercials, and with the hard economic times I'm hearing from more and more people wondering if these deals are legitimate. Well here is an insightful article that brings some reality to the situation, even if it isn't what most people want to hear. If you want to settle for less than your are owed, consider this advice they give:

The two fundamental rules IRS operates by for offers in compromise are:

a) If you have enough assets to pay the taxes, your offer will not get approved.

b) If you earn enough money to pay your tax debt over 5-10 years, your offer will be rejected.

Let's be honest, the IRS has the power to collect, so why would they settle for less if they didn't have to? For most people the best bet is an installment agreement. You end up paying the whole amount, but over time. The IRS stops harassing you because you are back in compliance. This doesn't mean everyone will qualify for an OIC, but the truth is that few do.

Another word of advice, don't ignore the tax notices. The sooner you reply the more the IRS is willing to talk and be reasonable.

More Guidance on Health Insurance Reporting on your W-2

2011-05-10T09:59:00.000-07:00

The IRS has offered more clarity about who is required to report the employer provided health insurance costs on employee W-2's. In 2011 it is optional for all employers, but in 2012 larger employers (250 or more employees) will have to begin reporting the value of health benefits provided. This does not mean that the benefits will be taxed, but is just additional information that is being provided to the IRS.

More info

IRS Offers Relief to NC Storm Victims

2011-04-21T05:46:00.001-07:00

Those living in counties declared a disaster area by FEMA (see link) will have penalties and interest waived for late filing and payment due to the storm systems and tornadoes that rolled through April 16th. More info here.

NC DOR offers relief to storm victims

2011-04-18T15:04:00.000-07:00

If the recent tornadoes and storms caused you to file or pay late on your April 15th NC tax return, you can find relief by filing form 5500 with your return. More info is found on their website here:
Link

NC Notices Sent in Error

2011-03-18T11:15:00.000-07:00

If you recently received a notice for NC DOR for tax year 2008, it may have been sent in error.

More Details

Bank account with Rewards

2011-03-11T13:01:00.000-08:00

If you enjoy the rewards of a credit card, but don't want the temptation of falling into consumer debt (or are trying to rebuild your credit), you may want to consider the Perkstreet Financial checking account. It pays 1-2% in rewards when you use your debit card (but ring it up as a credit card). The payment will immediately come out of your account, so no temptation to overspend, but you get a small cash back reward as well. Just another option that some might like.

New Accounting Resource for CIRA's (Homeowners Associations)

2011-03-11T11:33:00.000-08:00

The AICPA has compiled a list of some of the authoritative accounting principles and rulings for homeowners associations. This could be a useful resource if you are trying to understand an audit better or to determine the appropriate accounting principle for your HOA.
Link

IRS Efile Refund Schedule

2011-02-02T07:32:00.000-08:00

Source

* The IRS does not guarantee a specific date that a refund will be deposited into a taxpayer's financial institution account or mailed. Taxpayers who e-filed can generally get refund information 72 hours after the electronic return data is acknowledged as accepted by the IRS. To check the status of a refund go to www.irs.gov and click on Where's My Refund? Taxpayers without internet access can get refund information by calling 1-800-829-1954 or 1-800-829-4477.

2011 IRS e-file Refund Cycle Chart

Transmitted & Accepted (by 11:00 am) between...	Direct Deposit Sent*	Paper Check Mailed*
Jan 14 and Jan 20, 2011	Jan 28, 2011	Feb 4, 2011
Jan 20 and Jan 27, 2011	Feb 4, 2011	Feb 11, 2011
Jan 27 and Feb 3, 2011	Feb 11, 2011	Feb 18, 2011
Feb 3 and Feb 10, 2011	Feb 18, 2011	Feb 25, 2011
Feb 10 and Feb 17, 2011	Feb 25, 2011	Mar 4, 2011
Feb 17 and Feb 24, 2011	Mar 4, 2011	Mar 11, 2011
Feb 24 and Mar 3, 2011	Mar 11, 2011	Mar 18, 2011
Mar 3 and Mar 10, 2011	Mar 18, 2011	Mar 25, 2011
Mar 10 and Mar 17, 2011	Mar 25, 2011	Apr 1, 2011
Mar 17 and Mar 24, 2011	Apr 1, 2011	Apr 8, 2011
Mar 24 and Mar 31, 2011	Apr 8, 2011	Apr 15, 2011
Mar 31 and Apr 7, 2011	Apr 15, 2011	Apr 22, 2011
Apr 7 and Apr 14, 2011	Apr 22, 2011	Apr 29, 2011

NC Returns due April 18th as well

2011-02-01T12:49:00.000-08:00

NC DOR has officially announced that due to the federal holiday in Washington DC on April 15th, that NC returns will also have until the following Monday to be filed. That gives taxpayers an extra weekend to get their returns and payments in. Note that some corporate filings and payments are not included in this extension.
Source

1099 Repeal in the works

2011-01-14T16:50:00.000-08:00

Apparently the new congress has heard the cries of the business world about the headache the former congress created with the 1099 law in the Health care bill. They are set to introduce a bill that will repeal this part of the bill. While it was done to raise revenues to pay for some of the health care legislation, this provision has become so unpopular on both sides of the aisle that it looks like it should pass. To that, I say thank goodness. What a waste of time and paper compliance with this law would have been.

Source

Many Filers Can't file until Mid February because of Congress' procrastination

2011-01-03T09:12:00.001-08:00

The IRS is having to reprogram it's computers because of the changes that Congress pushed through at the last minute. This means that for many filers (particularly itemizers), you can't file until mid to late February. There is no firm date yet, so we will wait and see when the IRS is ready to receive you return. This may cause some hardship for a few itemizers who were anticipating using their refund to ease cash flow early in 2011. They will be forced to wait until the IRS gives the green light to file.

US Returns due April 18 this year

2010-12-27T10:22:00.000-08:00

Since Washington DC will be celebrating the local holiday of Emancipation Day on April 15th, Federal returns will be due the following Monday, April 18th, 2011. This gives procrastinators more time to delay the inevitable. One catch may be the state returns. It is unclear how many states will also go along with this localized holiday. Since NC DOR offices will be open on April 15th, your NC return may still be due on time even if the US gives you an extension of 3 days. We'll wait and see if NC releases more details on this unique event this year.

More info

2011 Inflation Adjustments

2010-12-23T10:45:00.000-08:00

Personal and dependent exemptions are $3,700, up $50 from 2010.
The new standard deduction is $11,600 for married couples filing a joint return, up $200, $5,800 for singles and married individuals filing separately, up $100, and $8,500 for heads of household, also up $100. The additional standard deduction for blind people and senior citizens is $1,150 for married individuals, up $50, and $1,450 for singles and heads of household, also up $50.
Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $69,000, up from $68,000 in 2010.
The maximum earned income tax credit (EITC) for low- and moderate- income workers and working families rises to $5,751, up from $5,666 in 2010. The maximum income limit for the EITC rises to $49,078, up from $48,362 in 2010.The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children.
The modified adjusted gross income threshold at which the lifetime learning credit begins to phase out is $102,000 for joint filers, up from $100,000, and $51,000 for singles and heads of household, up from $50,000.

Source

Estate tax for 2010 and beyond

2010-12-20T09:19:00.001-08:00

Congress has finally brought some clarity to the estate tax situation with the recent tax legislation that was signed. Here are the highlights:

You can now choose to apply the new or old rules to estate in 2010.
The old rules - No estate taxes but everyone has carryover rather than stepped up basis in the assets they inherit. (In reality some designated assets will receive stepped up basis through a lower exclusion).
The new rules - 35% estate tax on assets greater than 5 million. All assets receive a stepped up basis to their FMV as of the date of death. Also, the $5 million exemption is portable, so that if a spouse dies after 2010 and doesn't use all their exemption then the surviving spouse can inherit the unused portion through 2012.

While the death tax is seen as completely unfair and should be rid of completely by many, this seems to be a fair compromise that will exempt the vast majority of estates and offer the tax benefits of the stepped up basis to the majority of Americans.

Source 1
Source 2

2011 Tax Legislation

2010-12-20T09:18:00.001-08:00

The wait is over, and congress finally figured out what our tax rates will be next month. Talk about procrastination!

The good - the tax breaks that were extended:

The lowered tax rates we enjoy today will be extended for two years, until 2012.
15% rates on LT capital gains and qualified dividends was extended for 2 years (or 0 percent if you are in the bottom two tax brackets).
Those paying PMI can continue to deduct the PMI premiums on Schedule A if they meet income limits in 2011 (but not 2012).
Bonus depreciation (used to be 50% of the cost of the asset in year 1) has been increased to 100% for 2011. This makes it operate very similarly to Section 179 depreciation deduction, except bonus depreciation doesn't apply to used purchases. It 2012 it goes back to 50%, and then in 2013 it disappears.
Luxury auto deduction cap is 11,060 per year, which is the same as 2010, but would have dropped if this law had not been signed.
Section 179 - 500,000 in 2010, 500,000 in 2011, 125,000 in 2012.
This is a big one that is off most radars - AMT exemption patch for 2010 and 2011 at 72,450 for MFJ. For years this has been a last minute fix, but in 2011 we will have certainty for a change.
A new FICA tax reduction of 2% for employees (employer half of FICA remains same).
Continue the repeal of the personal exemption and itemized deduction phaseouts on higher income filers. This also applies to sole proprietors who will receive a 2% reduction in their 2011 self employment tax.
$250 teacher deduction for supplies purchased personally
Extend the child tax credit at $1000 per child rather than $500, as well as the current rules for how much of this credit can be refunded.
Marriage penalty relief in the tax brackets.
Keep the max child care expenses eligible for the credit as 3000 per child rather than 2,400.
Extend the Earned Income tax credit qualification of a third child.
Extends the tax benefit properties of Coverdale Education Savings accounts for two more years.
Remove the time limit on student loan interest deductions for two more years.
Extend the American Opportunity Tax Credit for tuition and fees for two more years. This is a much more generous credit than the Hope Credit.
Ability to deduct state sales taxes paid rather than income taxes paid for itemizers.
Extend the tuition deduction as an above the line deduction.
the ability to make a tax-free transfer of up to $100,000 directly from an IRA to a qualified charity.
The energy credit for qualified improvements to your home is extended, but at it's pre-2009 less generous amount.

The bad - the tax breaks that were not extended:

The ability for standard deduction filers to deduct a portion of their real estate taxes. This means that it won't be an option in 2010. This benefit was originally targeted at senior citizens who owned their home outright but didn't benefit from the real estate tax deduction because of the lack of mortgage interest.
The $400/$800 Making Work Pay credit of 2009 and 2010 was not extended.

Also, NC has not adopted these tax changes yet, and may not do so with the budget cuts they are facing.

Source 1:
Source 2:
Source 3:
Source 4:

2011 Standard Mileage Rates

2010-12-06T07:22:00.000-08:00

The IRS has adjusted the 2011 mileage reimbursement rates to reflect current costs of operating a vehicle. In 2011 the approved rates are:

51 cents per mile for business miles driven
19 cents per mile driven for medical or moving purposes
14 cents per mile driven in service of charitable organizations

Link

Small Business Health Care Credit for Owner Spouses?

2010-12-06T07:18:00.001-08:00

It has been debated, but now settled by the IRS. Spouses of owners who are on the company health insurance policy will generally not qualify for the health insurance credit that was a key party of the recent Obamacare legislation. While this may be disappointing to many who legitimately employ their spouse in the business, it should not come as a surprise to anyone as this is in line with the general spirit of tax law.

Today the IRS answered "no" in Notice 2010-82:

The definition of "family members" for purposes of § 45R does not specifically refer to spouses. However, spouses of certain business owners are excluded from being taken into account as employees by operation of the ownership attribution rules in the Code. Therefore, the following individuals also are not taken into account as employees for purposes of § 45R: (1) the employee-spouse of a shareholder owning more than two percent of the stock of an S corporation; (2) the employee-spouse of an owner of more than five percent of a business; (3) the employee-spouse of a partner owning more than a five percent interest in a partnership; and (4) the employee-spouse of a sole proprietor. See § 45R(e)(1)(A); 1372(b), 318, 416(i)(1)(B)(i).

Link

2011 401K Max

2010-12-06T07:13:00.001-08:00

There is no change in the amount that you can contribute to your 401K, 403(b), of 457(b) in 2011, due to the lack of an increase in the inflation indexes. So in 2011, plan to put $16,500 or less in your 401K.

The catch up contribution max continues to be $5,500 as well for those over 50.

Simple IRA contribution limits remain at $11,500 in 2011.

IRA limits remain at $5,000 as well in 2011.

Link

IRS Delays the provision requiring Health Insurance Premiums on W-2's until 2012

2010-10-13T15:52:00.000-07:00

The IRS has delayed the enactment of the portion of the Obama Healthcare Reforms that require employers to disclose the Health Insurance premiums that they pay on an employee's W-2. This is welcome news because it delays the additional paperwork that this portion of the law would require, even if it is for only a year.

Source

Social Security - No increase in 2011 - Democrats propose $250 payment to make up the difference

2010-10-11T05:58:00.000-07:00

Social security recipients will not be receiving a cost of living adjustment in 2011 for the second year straight. The annual increases are tied to the CPI, and for the second year straight it didn't increase enough to warrant an increase in social security benefits.

Lawmakers are considering a one time $250 payment to recipients to make up for this lack of an increase. This is similar to the move they did in the past.

Source

EFTPS phishing scam

2010-10-11T05:56:00.000-07:00

Employers and small businesses need to beware of any emails coming from EFTPS, the federal tax payment processing system. These emails are attempts to steal your information and ultimately your money. The IRS and the EFTPS system do not operate by email, so you can always disregard an email from these entities.

Source

Should churches apply for 501(c)3 tax exempt Status with the IRS

2010-10-11T05:53:00.000-07:00

Corey Pfaffe, CPA answers this common question that young churches and start-ups have about their IRS status. His advice, it's not required for churches to complete the application but could be helpful in establishing once and for all that donations are tax-deductible.

More here

NC Tax Credit for Unemployment taxes paid

2010-09-30T10:17:00.000-07:00

The NC legislature has created a new tax credit for NC Businesses that will refund some of the unemployment taxes they have had to pay on NC workers. Once the forms are finalized we'll have to see how this works out, but it could offer some real benefit to NC Businesses who have been hit hard by increasing unemployment rates.

"Effective for the 2010 and 2011 taxable years, small businesses with cumulative gross
receipts from business during the taxable year not exceeding $1,000,000 may claim a
refundable income tax credit equal to 25 percent of contributions made during the taxable
year to the State Unemployment Insurance Fund for wages paid for employment in North
Carolina." Source

G.S. 105-129.16J.
Temporary unemployment insurance refundable tax credit:
A new section was added to allow a tax credit for small businesses that make
contributions to the State Unemployment Insurance Fund with respect to wages paid for
employment in this State. A small business is defined as a business whose cumulative
gross receipts from the business activity for the tax year do not exceed one million
dollars ($1,000,000). The amount of tax credit allowed is 25% of the qualified
contributions to the State Unemployment Insurance Fund and applies to taxable years
2010 and 2011 only.
This credit may be claimed only against corporate and individual income taxes. If the
credit exceeds the amount of tax for the taxable year reduced by the sum of all credits
allowable, the excess is refundable. The refundable excess is governed by the
provisions governing a refund of an overpayment by the taxpayer of the tax imposed in
Article 4. In computing the amount of tax against which multiple credits are allowed,
nonrefundable credits are subtracted before refundable credits.

Donating a Used Car to Charity - Be Careful

2010-09-29T15:40:00.000-07:00

The IRS has tightened up in response to the abuses it saw over the years dealing with donating a used car to a charity to get the deduction of its fair market value. They rewrote the tax laws so that you can only get a deduction for what the charity sells the car for if it disposes of the car. Clark Howard notes that some charities are selling the cars to brokers at liquidated prices, and leaving the donors high and dry with a paltry deduction. The moral, do your research before you donate and find out what the charity plans to do with your car and where it will likely end up. More info about donating a car at Edmunds.com

Obama Signs Small Business Tax Bill

2010-09-27T15:56:00.000-07:00

President Obama today signed the new small business tax bill that offers accelerated deductions that are aimed to stimulate investment in equipment and grow the economy. The details of the bill are outlined well here. The biggest benefit I see is increased immediate expensing of equipment in 2011 (the prior limit was set at 25,000, and now it is 500,000), the continued increase to the luxury car depreciation limits, and the health insurance deduction for the self employed when figuring self employment taxes.

More info.

Quickfinder.

CCH.

UBIT part 2

2010-09-22T12:48:00.000-07:00

In a follow up to this post, Cornell University and other nonprofits are facing greater scrutiny as they compete with private businesses on an even playing field. To level the playing field of taxation, the IRS assess Unrelated Business Income Tax on charities and other tax exempt entities (Your IRA) when they delve into the business sector). Read more here.

Household Workers

2010-09-22T12:29:00.001-07:00

If you have someone over 18 that you have hired as a nanny, housekeeper, maid, private nurse, caretaker, butler, or personal assistant and they work in your home then you likely will owe the employment taxes for your household worker. If you pay a person more than 1,700 in 2010 then you must worry about this tax. You will report the salary at the end of the year on a form W-2 and also on your personal tax return. You will be responsible for submitting the social security taxes on their wages, as you are the employer. For more info on this aspect of income tax, read here.

FSA/HSA Rule Changes Coming Soon

2010-09-22T12:16:00.000-07:00

Those with flexible spending accounts will find that part of the Obama health care changes include a change to what is an eligible expense for their FSA or HSA. Over the counter medications are not going to be reimbursable in 2011 unless they are prescribed by a doctor (so stock up now). This will also make is more difficult to spend and remaining FSA dollars at the end of the year so that they won't be lost. This law change will align the definition of deductible medical expenses for schedule A, FSA, and HSAs.

More Info

See Bush vs. Obama vs. Pre-Bush

2010-07-26T07:13:00.000-07:00

Want to see what your taxes would look like if the Bush tax cuts are left to expire? What about what they would look like under President Obama's proposed tax structure? This website will give you a quick look at just some of the main changes between the different administrations.

Bottom line, if the Bush tax cuts are allowed to expire for everyone, we are all looking at some major tax increases. Fortunately, I don't think anyone expects this to happen in an election year. This will bode well for lower income brackets, but I don't think anyone expects much relief for the higher income brackets.

So check it out, and see how politics can really impact your bottom line (to the tune of thousands if you have multiple kids)

Link

EFTPS to become required for most businesses in 2011

2010-07-22T10:42:00.000-07:00

The treasury department has issued a ruling that beginning in 2011 most businesses will be required to use the EFTPS federal wire transfer system for payment of their employment taxes. There is a small exemption for those who pay in less than 2,500 per quarter.

So if you are still taking your federal tax deposit to the bank with form 8109, you should go ahead and get the EFTPS set up for your business so that you can hit the ground running in 2011. It is free and saves you a trip to the bank. However, it is a sign of the times when the federal government won't accept legal tender that it creates, that the rest of the business world uses daily without complaint, for payment of its own taxes.

By the way, the penalty for paying with a check rather than using the electronic transfer system is steep. Failure to use EFTPS when required results in a "failure-to-deposit" penalty of up to 15% of the amount required to be electronically deposited, even if the taxes are timely paid by paper. I would hope they would show grace during the transition.

Source 1
Source 2

COBRA Premium Assistance Notes

2010-07-22T07:18:00.001-07:00

Here are a few notes on the federal COBRA Premium assistance program under the American Recovery and Reinvestment Act.

Eligible workers pay 35 percent of the premium to their former employers.
The employer receives a payroll tax credit on form 941/944 for the other 65%.
To qualify you must have been involuntarily separated from your job between Sept. 1, 2008, and May 31, 2010.
This subsidy is reduced if your filing status is single and your modified adjusted gross income exceeds $125,000 ($250,000 if you file a joint return). If your modified adjusted gross income exceeds $145,000 ($290,000 for joint filers), you do not qualify for the subsidy.
For assistance-eligible individuals, the qualifying event must occur on or before March 31, 2010, and the COBRA subsidy may apply for up to nine months. (03/1710)
An employer may reduce its payroll tax deposits during a quarter by the amount of subsidy provided during the quarter. However, in all cases, credit for the subsidy must be claimed on the employer’s payroll tax return.

More info can be found here.

NC Sales Tax Holiday

2010-07-20T11:24:00.001-07:00

Mark your calendar, because in a few weeks you will be free from NC's sales tax, even if it is only on certain items, and only for a few days.

When: August 6-8, 2010
What Qualifies: Clothing, footwear, and school supplies of $100 or less per item; school instructional materials of $300 or less per item; sports and recreational equipment of $50 or less per item; computers of $3,500 or less per item; and computer supplies of $250 or less per item will be exempt from sales tax.

Source

Health Insurance Rumor - Additional Income on your W-2???

2010-07-20T11:14:00.001-07:00

Maybe you have received the email or heard the rumor going around that the new health care law is going to make your employer provided health care benefits a taxable benefit in the future. I know I have personally heard this rumor many times from different clients or acquaintances.

Well fortunately it is FALSE. The new health care law does require that your tax free benefits be printed on your W-2, but it is for informational purposes only, and not as additional income. It would be similar to the way your employer reports the retirement contributions on your W-2. It's purpose is twofold (as far as I can tell).

1. It proves to the IRS that you are covered under a health plan, and that you are not subject to the penalties that are assessed against the uninsured.

2. It proves to the IRS the value of your employer benefits, becuase insurance companies that provide high dollar "Cadillac Plans" will have to pay a tax beginning in 2018 on those plans. Note the insurance company pays the tax, not the employee (but don't kid yourself if you don't think that cost won't get passed on to the customer).

So the good news is that this benefit will continue to be a tax free benefit (as long as employers can afford to provide it). The bad news is that employers and payroll preparers will have a new task each year as they prepare the W-2 forms.

Link

1099 Headache - Repeal on the way???

2010-07-20T09:54:00.000-07:00

By now you have probably heard that the new health care act passed by Congress will require businesses to send a multitude of new 1099's that they were not required to send in the past. Exemptions for corporations and suppliers under the old law have been removed beginning in 2012.

One congressman has seen the potential mountain of paperwork and burden this is going to create for taxpayers as well as the IRS who has to process all this info. He is introducing a bill that will repeal the 1099 mandate and restore the old rules. I think this is a bill that everyone can get behind.

Housing Credit Extension

2010-07-06T08:47:00.000-07:00

If you have a binding contract on a home but weren't able to close by the June 30th deadline, you are in luck. Congress extended the Homebuyer credit deadline to September 30th. More details can be found here or at irs.gov

Coverdale Education IRA's - Taxable in 2011

2010-06-16T06:20:00.001-07:00

Due to the expiration of the tax law that made Coverdale/Education IRA's a tax free college savings vehicle, in 2011 the earnings that are withdrawn from that account will be taxable. You would think that congress would have a more long term horizon for college funding options, but this really shows a lack of planning and foresight. I always preferred the Coverdale over the 529 becuase it was more flexible in allowing you to use it towards expenses at a private elementary, middle, or high school, not just college. This will be the death of the Coverdale account though.

So if you are one of those who tried to do the right thing and fund your kid's college education, you do have a few options before the end of the year:

Spend the money on qualified expenses (tuition and fees to college or K-12, new computer, internet access)
Roll the Coverdell money into a 529 savings plan, penalty-free, as long as the accounts have the same beneficiary.

If you don't act then the earnings from the account will be taxable when you withdraw them, and you could face a 10% penalty if the earnings aren't used for college expenses.

Source

IRS Penalties and When they will Abate them

2010-06-15T06:50:00.000-07:00

Here is an excellent website with a description of the many penalties the IRS may levy against a taxpayer, as well as a list of the possible ways you might be able to get the IRS to abate (forgive) those penalties.

Form W-11

2010-04-20T13:56:00.000-07:00

With new laws, comes new documentation...
If you are hiring and plan to take advantage of the tax brakes offered to those who hire a previously unemployed worker, you will need that employee to complete and sign form W-11 (or a statement showing the equivalent). This is part of the new HIRE act passed by Congress recently.

Health Care Law Tax Changes

2010-04-02T13:16:00.000-07:00

If you thought the tax code was long and arduous enough, Congress would like to inform you that they have added thousands of new pages for you to pour through. While many of the laws in the new health care bill deal with insurance, some have nothing to do with it except they are an effort to pay for the changes by raising taxes. The AICPA and a few other sources have done a noble task of summarizing this mammoth of a tax law change. It offers some benefits to those who are uninsured and small businesses, but it increases many reporting requirements which is not going to sit well with the HR and accounting departments as these are phased in over the next few years.

One change that will effect many but has not been widely publicized...starting in 2012 you have to send anyone who you pay more than $600 to a 1099. Corporations are no longer excluded. This is a major change and is going to create some major paperwork headaches.

High earners (those with income over $250,000) are clearly in the cross-hairs, so if this is you it would be wise to do some planning before this coming tax wave hits.

AICPA

FarmCPA

NY Daily News

Christian Science Monitor

Hiring Incentives to Restore Employment (HIRE) Act

2010-03-18T16:44:00.000-07:00

President Obama signed into law today the HIRE Act to help offer some tax benefits to encourage employers to hire the unemployed workers.

From the IRS Website
"WASHINGTON — Two new tax benefits are now available to employers hiring workers who were previously unemployed or only working part time. These provisions are part of the Hiring Incentives to Restore Employment (HIRE) Act enacted into law today.

Employers who hire unemployed workers this year (after Feb. 3, 2010 and before Jan. 1, 2011) may qualify for a 6.2-percent payroll tax incentive, in effect exempting them from their share of Social Security taxes on wages paid to these workers after March 18, 2010. This reduced tax withholding will have no effect on the employee’s future Social Security benefits, and employers would still need to withhold the employee’s 6.2-percent share of Social Security taxes, as well as income taxes. The employer and employee’s shares of Medicare taxes would also still apply to these wages.

In addition, for each worker retained for at least a year, businesses may claim an additional general business tax credit, up to $1,000 per worker, when they file their 2011 income tax returns.

“These tax breaks offer a much-needed boost to employers willing to expand their payrolls, and businesses and nonprofits should keep these benefits in mind as they plan for the year ahead,” said IRS Commissioner Doug Shulman.

The two tax benefits are especially helpful to employers who are adding positions to their payrolls. New hires filling existing positions also qualify but only if the workers they are replacing left voluntarily or for cause. Family members and other relatives do not qualify.

In addition, the new law requires that the employer get a statement from each eligible new hire certifying that he or she was unemployed during the 60 days before beginning work or, alternatively, worked fewer than a total of 40 hours for someone else during the 60-day period. The IRS is currently developing a form employees can use to make the required statement.

Businesses, agricultural employers, tax-exempt organizations and public colleges and universities all qualify to claim the payroll tax benefit for eligible newly-hired employees. Household employers cannot claim this new tax benefit.

Employers claim the payroll tax benefit on the federal employment tax return they file, usually quarterly, with the IRS. Eligible employers will be able to claim the new tax incentive on their revised employment tax form for the second quarter of 2010. Revised forms and further details on these two new tax provisions will be posted on IRS.gov during the next few weeks."

Other provisions in the bill:
One benefit was that it extends the higher section 179 depreciation expenses for 2010 so that it is the same as it was in 2009 ($250,000).

Increased reporting requirements and penalties for failing to report on large foreign investment income.

Link

If you are thinking about hiring a relative, consulte this site to see if you can still qualify for the HIRE credit (it depends on your business structure).

New 1099 on the block

2010-03-15T07:03:00.000-07:00

The IRS has created a new 1099 form filing requirement starting in 2011. It is for credit card companies and similar third party payers to report the amount they processed for your business. As long as this filing responsibility is passed on to the credit card issuers, hopefully this will not be a major change for most filers.

Link

Stock Options - Navigating the Maze

2010-03-12T06:58:00.000-08:00

If your employer offers stock options to you as an incentive, be sure to read up on the rules and regulations regarding their exercise and sale. Not doing so could lead to a very costly tax bill. The following articles are helpful in understanding the ins and outs of stock options.

Article 1

Article 2

Benefits for the Unemployed are Extended

2010-03-05T05:54:00.000-08:00

Clark Howard is reporting good news to those who are unemployed. Benefits are being extended beyond the original deadline, offering more time for people to find employment and get back on their feet.

"There is a new extension of jobless benefits for 99 weeks in select states (These states include Alabama, Arizona, California, Florida, Georgia, Idaho, Illinois, Indiana, Kentucky, Massachusetts, Maine, Michigan, Mississippi, Missouri, Nevada, New Jersey, North Carolina, New York, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Washington, Wisconsin and West Virginia.)"

Cobra subsidies are also being extended by one month to March 2010.

Link

NC Taxes digital property downloads

2010-02-16T09:24:00.000-08:00

If you run a business that delivers property digitally, you need to be aware of a change in the sales tax code effective 1/1/10. NC now charges sales tax on the download or electronic delivery of software, photos, periodicals, and much more. Check out this press release for more information.

Link

NC Refund Status

2010-02-15T17:29:00.000-08:00

The State of NC had a cash crunch last year when people were filing and requesting refunds. The payments were slow but steady. This year the state seems to be falling into this same scenario due to the slowing economy and tightened budget. So my advice to you, file ASAP and be patient with the state.

Here is the site to check on the state of you NC refund once you have filed.

Medical Deductions - Be sure you have a doctor's prescription

2010-02-04T06:23:00.000-08:00

The courts have ruled against the IRS and allowed a deduction for a sex reassignment operation. While the IRS said this was elective and not medically necessary, the courts said it was necessary based on the psychiatric necessity for the person's mental health. So the take home lesson here is to make sure you have a doctor's order or prescription on file before you take a medical deduction on your tax return.

"O’Donnabhain’s lawyers argued that because gender-identity disorder is a recognized mental disorder that is generally treated with hormones and surgery, the costs are legitimate medical deductions."

Link

Homebuyers Credit for Repeat Homebuyers - Details

2010-01-26T17:15:00.000-08:00

Below are the details on the $6,500 homebuyer credit for existing homeowners.

Must have owned your prior home for 5 years (Be ready to prove it)
Must buy a new home and live there as a personal residence for 3 years. (Sell it too soon and you will be refunding the money)
The credit is for 10% of the purchase price of the home, for a maximum of $6,500 (married filing joint).
The credit is for those with an adjusted gross income below $250,000 if married/125,000 if single.
The credit is reported on form 5405

Source

Efile Refund Schedule

2010-01-26T06:26:00.000-08:00

The IRS has published the following general schedule so that you can know when to expect a refund payment. Payments are made on Fridays, and it is generally the second friday after your return is received. Note that these are just general guidelines and they do not guarantee your payment by any date. Also note that paper checks are processed later and then you have the mail lag as well.

The state of NC does not provide any schedule like this, and with the budget problems we faced last year I wouldn't expect a refund by them to be processed too quickly.

Transmitted & Accepted (by 11:00 am) between...	Direct Deposit Sent	Paper Check Mailed
Jan 15 and Jan 21, 2010	Jan 29, 2010	Feb 5, 2010
Jan 21 and Jan 28, 2010	Feb 5, 2010	Feb 12, 2010
Jan 28 and Feb 4, 2010	Feb 12, 2010	Feb 19, 2010
Feb 4 and Feb 11, 2010	Feb 19, 2010	Feb 26, 2010
Feb 11 and Feb 18, 2010	Feb 26, 2010	Mar 5, 2010
Feb 18 and Feb 25, 2010	Mar 5, 2010	Mar 12, 2010
Feb 25 and Mar 4, 2010	Mar 12, 2010	Mar 19, 2010
Mar 4 and Mar 11, 2010	Mar 19, 2010	Mar 26, 2010
Mar 11 and Mar 18, 2010	Mar 26, 2010	Apr 2, 2010
Mar 18 and Mar 25, 2010	Apr 2, 2010	Apr 9, 2010
Mar 25 and Apr 1, 2010	Apr 9, 2010	Apr 16, 2010
Apr 1 and Apr 8, 2010	Apr 16, 2010	Apr 23, 2010
Apr 8 and Apr 15, 2010	Apr 23, 2010	Apr 30, 2010

Complete Chart

If there is a problem or delay, you can check on your refund at this website or call 1-800-829-1954 or 1-800-829-4477.

Source

NC Withholding for ITIN Contractos

2010-01-25T06:14:00.000-08:00

The NC Department of Revenue has released a new withholding requirement for companies that use contractors that have an individual tax ID number (rather than a social security number) who earn more than $1,500. Contractors with ITIN's must have 4% of their pay withheld and then reported on their 1099 as NC withholding. For more information, see their website here.

Haiti Donations and Tax Deductions

2010-01-19T08:24:00.001-08:00

Congress is looking to pass a bill that will allow a deduction of a 2010 charity donation on your 2009 tax return. The contribution has to go towards the Haiti relief efforts. You can't take the deduction in both years, but it gives you the option of taking the deduction in the year that benefits you the most. For more info, you can visit this site.

Instead of a Refund, How about a Government Loan (with interest)

2010-01-12T09:13:00.000-08:00

The IRS gives you the option to take your refund as an I bond this year if you feel inclined. You just need to tell your tax preparer or use form 8888 to request that all or part of your refund be issued as savings bonds rather than a direct deposit to your account or check sent to you. While I have nothing against I bonds, cash is king in my book, especially in an economy where cash flow is so tight.

Source

Ministers Exemption from Self Employment Taxes

2010-01-11T06:27:00.000-08:00

For ministers who are considering opting out of the social security system, here are some timing guidelines that you need to consider.

Article

Waiters and Waitresses - Tip Income

2010-01-08T14:10:00.000-08:00

Here is a good article on the rules waiters and other tipped employees face on their income.

Estate Tax Issues

2010-01-08T14:00:00.000-08:00

The expiration of the estate tax has been met with much fanfare, but it doesn't come without it's share of complications as well. Such is the case with any changes I guess.

Some people will need to look over their wills to make sure that the amount that passes to their spouse is not tied to the estate tax exemption. With no estate tax exemption this year, you could be leaving your spouse empty handed if something happens to you. This is a planning tool to avoid estate taxes that may end up backfiring on a few people.

Another issue is the bumped up basis in an asset that you inherit. This is a huge timesaver for inherited property, becuase it is much easier to look up the price of a stock on a date of death than to go back through years of purchase records and reinvestment activity to determine a stocks original basis. Well with the expiration of the estate tax, the bumped up basis is also being threatened. What is a boon to a few (who actually faced an estate tax), is going to become a headache to the multitude (who received the benefit of the bumped up basis they inherit).

And since most see this is a temporary status until they agree to the terms of a new estate tax (or just let the current terms expire next year), it will create a year of exceptions to the otherwise well known rules.

Here is an article that explains the pros and cons of these changes well, as well as who is likely to benefit and who will pay more under the new law.

Wikipedia offers some insight quoted below on the ability to still receive some stepped up basis even under this new law (up to 1.3 million per estate), but it is not as cut and dry as the older rules.

"If the law does not change, for 2010 property transferred from decedents will be treated as if it is transferred by gift. This means the basis of the property for calculating capital gains when the recipient eventually sells the property will be the same basis as in the hands of the decedent. This is generally called carryover basis. However most recipients will effectively get the same result they would receive under present law, because section 1022 allows the executor of an estate to allocate up to 1.3 million in basis for singles and 3 million for surviving spouses to the property of the estate. This will effectively give most recipients a tax basis in the property equal to the full market value ie. "step up basis". See 26 U.S.C. § 1022."

Source

A Winding Road to a Deduciton - S Corp Officer Health Ins

2010-01-08T13:56:00.000-08:00

If you are an officer to an S Corporation, you are going to have to jump through some hoops to properly report your officer's health insurance premiums. The IRS has ruled that in order to get the deduction on your form 1040 like most business owners (self employed), you have to include the premiums as taxable income on your W-2, and then deduct it on your corporate return as wages expense, and then deduct it again on your personal return. So two minuses and one plus equals one deduction. The IRS isn't known for making things simple, but they make the rules.

Source

Real Estate Owned by a Corporation - Is this a good Idea

2009-12-09T13:01:00.000-08:00

This article does a good job highlighting some of the problems you may encounter if you purchase real estate within a corporation:

Source

7 Reasons to Keep Real Estate Out of your Corporation

By Dawn Winstead, CPA, CFP®

One of the most important decisions you will make when investing in real estate is what type of entity should hold the assets. Many investors use corporations to hold their real estate because of the liability protection. However, holding real estate in a corporation is a big mistake for tax purposes.

Here are just a few reasons you should think twice about holding your real estate in a corporation:

Double taxation for C corporations. When you sell appreciated assets in a C corporation you will be hit by double taxation on the gain. The company will pay tax on the gain when the property is sold, and then the shareholders will pay tax on the proceeds once they are distributed out.
Franchise tax (certain states). As your real estate appreciates, so will the yearly tax.
No favorable capital gains rates for C corporations. The 15% favorable capital gains tax rate available to individuals is not available to C corporations. Therefore, any gain on real estate sales will be taxed at the company’s regular tax rate. Currently, the highest rate for C corporations is 35%.
No basis step-up for beneficiaries. When you own assets individually or through a partnership, your family may inherit the assets at their fair market value when you die. They can then sell the assets with minimal gain. However, if they inherit the stock of your corporation, there is no “step-up” in basis for the real estate. The shares of stock will be passed on at fair market value, but not the real estate. It is more difficult to sell the stock of a company than it would be to sell just the real estate it holds.
Loss limitations with an S corporation. S corporation shareholders do not receive debt basis for loans made by a third party to their corporation like partners in partnerships do. The only way the shareholders can acquire debt basis is to personally make loans to the company. Since basis (both stock and debt) determines the taxation of distributions and the deductibility of losses, not receiving basis from third party debt is a major disadvantage for S corporations holding real estate. S corporations cannot refinance their properties and distribute the proceeds to the shareholders tax-free unless the shareholders have sufficient basis.
Built-in Gains Tax (BIG). When a C corporation that owns appreciated assets converts to an S corporation and then sells those assets at a gain within 10 years of the conversion, the corporation will be charged the BIG tax at 35%. The calculation of the tax is quite complicated and can be affected by other things, including the corporation’s taxable income.
Personal Holding Company Tax (PHC). A C corporation with rental income may be charged the PHC tax if it does not make regular dividend distributions to its shareholders. The PHC tax is at a 15% rate and it is computed in addition to the company’s regular income tax.

If you are planning on making a real estate investment, extra care should be taken to decide upon what the appropriate entity structure should be. Typically the ideal entity to hold real estate will be a Limited Liability Company.

Corporate Tax Brackets

2009-12-04T08:02:00.000-08:00

Corporate Income Tax Rates--2010, 2009, 2008, 2007, 2006, 2005

       Taxable income over     Not over      Tax rate

         $         0        $    50,000        15%
              50,000             75,000        25%
              75,000            100,000        34%
             100,000            335,000        39%
             335,000         10,000,000        34%
          10,000,000         15,000,000        35%
          15,000,000         18,333,333        38%
          18,333,333         ..........        35%

Source

2010 - Drop in Business Mileage Rate

2009-12-04T06:31:00.000-08:00

With the wild fluctuation in gas prices comes fluctuation in the IRS approved mileage reimbursement rate. For 2010, the rates that are approved are:

50 cents per mile for business,
16.5 cents per mile for moving, and
16.5 cents per mile for medical trips.

That is a drop from 2009's rate of 55 cents per mile.
Source

Retirement Plan Options

2009-12-04T06:28:00.000-08:00

If you are self-employed, you may or may not be aware of how many retirement plan options are available to you. This webpage does a good job of summarizing those choices and some of the pros and cons of each. Some plans are easier and cheaper to administer, while others offer a much larger tax deduction. Let me know if you have any questions or if I can help you in getting one of these plans set up for you and your company.

C to S or S to C Corporation Change

2009-11-30T08:52:00.000-08:00

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.

Convert Your Roth IRA

2009-11-13T09:34:00.000-08:00

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

Depreciation Limits in Stimulus Bill

2009-11-13T09:32:00.001-08:00

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

The government has increased the total limits on the Section 179 deduction to $250,000.

They also extended the 50% bonus depreciation allowance on non-section 179 assets. This helps businesses recover a large portion of their costs in the first year of an assets life.

Home Office Rules - Do you Qualify

2009-11-13T09:27:00.000-08:00

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.

Part of your home must be used exclusively and regularly as either:

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.

If you're an employee you must also work from home for your EMPLOYER'S convenience, not yours.

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.

[Source]

Verifying Social Security Numbers

2009-11-13T09:23:00.000-08:00

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

[Source]

Extended Home Buyers Credit

2009-11-13T09:09:00.001-08:00

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).

S Corp Officer Health Insurance

2009-11-13T08:06:00.000-08:00

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.

Link
Link 2

Employer Incentives - Taxable or Not?

2009-11-13T07:16:00.000-08:00

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."

Link

Calculating Stock Basis - FIFO or Specific ID

2009-11-06T07:18:00.000-08:00

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

NC Sales Tax Changes

2009-11-03T10:34:00.000-08:00

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%.

Link

Innocent Spouse Relief Info

2009-10-27T10:45:00.000-07:00

If you are facing a tax bill on money your spouse didn't claim and you had no knowledge of on your joint return, you may qualify for innocent spouse relief. It is not easy, but here are some steps to try to find relief from your spouse's (or ex-spouse's) tax bills.

Link

Insurance Demutualization Cost Basis

2009-10-22T07:23:00.000-07:00

The IRS has held that stock received from an insurance company during a demutualization has no cost basis and if you take the cash, the proceeds are 100% capital gain.

A recent court case has told them their position is wrong, but the details about what your basis in the stock is is still cloudy. Some point to the amount (or a percentage of) the premiums you have paid over the years. Others point to the IPO price as a good value of what the stock ownership was valued at. We'll wait and see how this one plays out.

You may have received these kind of proceeds from Met Life or Prudential, two popular insurance companies that went through his many years ago. If you are still holding the stock, then you will want to stay up to date on this issue.

[Link]

Inflations affects upon our tax code

2009-10-22T07:02:00.000-07:00

With each new year, many aspects of the IRS tax code is adjusted for inflation. Inflation is very low right now, and for the first time since I can remember many of tax code amounts are holding steady from 2009 to 2010.

The FICA max remains steady at 106,800. [Link]

401K maximum contribution amount remains at 16,500 and the catch-up max remains at 5,500 [Link]

IRA Contribution limits remain at 5,000 and 1,000 for catch-up participants. [Link]

2009 Required Minimum Distributions

2009-10-14T14:23:00.001-07:00

If you are over 70 1/2 then you are required to take distributions from your traditional IRA. In 2009 the IRS waived this requirement due to the economic hardships that many are facing. If you have already taken your RMD and you didn't want to, you can roll it over to a new IRA account so that it doesn't face taxation.

"Individuals generally have until the later of Nov. 30, 2009, or 60 days after the date the distribution was received, to roll over the distribution. "

Link

Housing Allowances

2009-10-14T14:17:00.000-07:00

Some basic rules for housing allowances for ministers:

The housing allowance must be officially designated before the compensation is received and the declaration should come from the payer, not the recipient.
The housing allowance is not including in gross wages on the W-2 or 1099, but it should be noted in box 12 of the W-2 or an additional statement accompanying the 1099. The reason is because this income is subject to self-employment tax.
Housing allowances are not subject to income tax, but they are subject to self-employment tax.
Note that if you are exempt from social security taxes, then housing allowances are free from any taxation.

Education Costs - Deductibility

2009-10-14T14:11:00.001-07:00

Educational expenses are usually deductible, but how you should deduct them is another matter that is more difficult.

If the education maintains or improves your skills in your current job or it is required by your employer to keep your salary, status, or job, then you can deduct them as a business expense (Either on your corporate return, Sch. C, or Sch. A as a misc. itemized deduction).

If the education is to meet the minimum educational requirements to qualify for a trade or business, or if it is part of a program of study to qualify for a new trade or business, then it can't be deducted as a business expense. Instead it should be deducted with the tuition and fees deduction or the various tuition credits. Note that only tuition and fees qualify for these deductions though.

Link