deduction
What’s taxable? Prizes
Wednesday, March 16th, 2011 | tax | No Comments
What’s taxable? According to the IRS, all receipts from all sources in any form, unless specifically excluded from taxation. Did you win the lottery? Taxable, although you can deduct the cost of the lottery tickets you bought (you saved them as proof, right?) Did you win a TV in a giveaway? Taxable. ‘Tax-exempt’ interest income? Might be taxable, depending on your income and other factors.
A Houston man won coupons for a year’s supply of donuts and coffee at the Astros Fan Appreciation Day last year. Great, right? That sweetness took on a bitter aftertaste when he received a Form 1099 for the fair market value of the coupons, $927.61. He must report that as income and pay taxes on it, whether he uses the coupons or not.
One way to make the tax pill easier to swallow might be for him to donate some of the coupons to charity or use them to promote his business, brewing up tax deductions in the process. Thinking like that is how we help our clients make the best of their tax situations. How can we help solve your tax problem?
Last-minute filer? Risky!
Tuesday, March 15th, 2011 | tax | No Comments
Studies have shown that people who wait until the last minute to file their tax returns make more errors and miss tax breaks. As you are gathering your records, think back through last year’s events and transactions. Make a list and ask your accountant about them. You may be surprised to find out that they have an income tax impact.
Kiplinger magazine publishes its list of the most-overlooked tax breaks:
- State sales taxes,
- Reinvested dividends,
- Out-of-pocket charitable contributions,
- Student loan interest paid by parents,
- Job-hunting costs,
- Moving expenses,
- Military reservists’ travel expenses,
- Health insurance deduction to reduce self-employment tax,
- Child care credit,
- Estate tax on income in respect of a decedent,
- State tax paid last year,
- Refinancing points,
- Jury pay turned over to your employer,
- American Opportunity credit,
- Making Work Pay credit,
- Credit for energy-saving home improvements,
- Bonus depreciation on business asset purchases,
- Stock received in a demutualization,
- Home buyer credit.
Call us with questions about any of these items, or any other events in your life in 2010. We recommend that you pull together your information and questions and get them to us now so we will have time to do our best work for you.
Landlord? Get ready for 1099
Monday, February 7th, 2011 | tax | 1 Comment
If you have property that you rent to others, the IRS says you are engaged in a trade or business beginning January 1, 2011. This means you become subject to Form 1099 rules. If you pay an individual or company (not a corporation) more than $600 in the calendar year, you must report these payments to the payee and the IRS (usually on Form 1099-MISC, the same form you may be receiving for your rental income). These individuals include, for example, your repairman, plumber, landscaper, accountant, and attorney.
Considering this, it’s a good idea to collect the information you will need as each service provider does the work for you. The IRS created Form W-9 for this purpose, but you’re not required to use it. Just make sure you get at least their name, address, and Social Security number or Employer Identification number. This will save you the hassle of tracking them down next year before the January 31 deadline.
There are exceptions to the new rule:
- An active member of the uniformed services or an employee of the intelligence community who rents your principal residence on a temporary basis;
- An individual who receives rental income below a minimal amount (the IRS has not yet established this amount);
- Any other individual for whom the requirement would cause hardship (the IRS has not yet established what would constitute hardship).
We will keep you posted as regulations are developed to more fully define this new rule, which was part of the 2010 Small Business Jobs Act. You may have heard news about repealing the 1099 reporting provision contained in the health care reform act. We have word that although Congress is considering repealing those requirements, the law’s application to landlords is likely to stand.
There may be a legitimate way to avoid the 1099 reporting rule (besides not collecting rent). We’ll tell you more about that in a future post.
IRS not ready for some 2010 tax returns
Tuesday, February 1st, 2011 | tax | 1 Comment
The Tax Relief Act extended several tax credits and deductions that expired at the end of 2009. As a result, the IRS has delayed processing of several 2010 tax returns. The delays impact these returns:
- Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return
- Form 941 (First Quarter 2011), Employer’s Quarterly Federal Tax Return
- Form 709, Gift Tax Return
- Form 706, Estate (and Generation-Skipping Transfer) Tax Return
- Form 706-NA, United States Estate (and Generation-Skipping Transfer) Tax Return for non-resident
- Form 8849 Schedule 3 (Calendar year 2011), Certain Fuel Mixtures and the Alternative Fuel Credit
The delay affects both paper and electronic filers. We can prepare these returns and hold them until the IRS is ready to process them. The starting date for these returns will be announced in the future by the IRS.
We had previously posted that IRS processing of certain individual tax returns will begin on February 14. This date has not been changed, but it does not apply to the forms listed above. We will keep you posted as we learn of developments.
Itemizers may file Feb. 14
Friday, January 21st, 2011 | tax | 1 Comment
Beginning Feb. 14, the IRS will start processing both paper and e-filed returns claiming itemized deductions on Schedule A, the higher education tuition and fees deduction on Form 8917 and the educator expenses deduction. As we explained in a prior post, the late passage of the Tax Relief Act in December gave the IRS too little time to reprogram their computers. While filing season started for most taxpayers on January 15, returns containing these deductions face the processing delay.
This does not mean that you must wait to have your return prepared. We are ramping up our tax prep season, and we can prepare your return and hold it until the IRS is ready to accept it for processing. We look forward to working on your return soon!
FSA and HRA debit card use revised
Thursday, January 13th, 2011 | tax | No Comments
You can use your FSA or HRA debit card to buy over-the-counter medicine with a prescription after January 15. As I mentioned in a previous post on this topic, the Affordable Care Act revised rules for HRA, medical FSA, and HSA plans regarding over-the-counter medicines. A prescription is required for these medicines (except insulin) to be reimbursable under the plans. That rule took effect on January 1, 2011, and is still in place.
Many of these plans issue debit cards for their participants to use to pay for medical costs allowed under the plans (check your plan documents for details). The IRS originally declared that debit cards could not be used to buy over-the-counter medicines even with a prescription. They have now relented. In essence, the new guidance says that pharmacies must handle prescriptions for over-the-counter meds the same way they handle all other prescriptions. In practical terms, this means you will need to get a prescription from your doctor for your over-the-counter meds and present the prescription to the pharmacist when you buy them. After January 15, 2011, you may pay for these meds with your FSA or HRA debit card.
Here’s an interesting point that we have not seen discussed yet: Under the rules for the itemized deduction for medical expenses, non-prescription medicine is not deductible. If you now have a prescription for over-the-counter medicine, does that make it deductible even though it is available without a prescription? We think probably so, and we’ll be monitoring guidance, as always.
Tax filing delayed for some
Monday, December 27th, 2010 | tax | 1 Comment
The tax relief law enacted on December 17 extended current tax rates and other provisions for two years. It also retroactively extended several tax breaks that had expired at the end of 2009. As a result, the IRS must reprogram their processing systems before the agency can begin receiving tax returns that claim these breaks. The IRS will announce a specific date, which they expect to be in middle to late February. The delay affects both paper and electronic filing.
Taxpayers who fall into the following categories must wait to file:
- Those who claim itemized deductions on Form 1040 Schedule A. The tax relief law extended the deduction for state and local sales tax, which many Tennesseeans claim.
- Those who claim the Higher Education Tuition and Fees deduction, covering up to $4,000 of tuition and fees for post-secondary education. Taxpayers who claim other education credits, including the American Opportunity (modified Hope) credit and Lifetime Learning credit, are not affected by the delay.
- Educators who claim the $250 Educator Expense deduction on Form 1040 or 1040A for out-of-pocket classroom expenses.
For most taxpayers, who are not in these categories, tax filing season will begin on time in mid-January.
For answers to your questions about the tax relief law or other changes, please contact us from here, email us, or give us a call at (865) 523-8700.
2011 standard mileage rates
Wednesday, December 8th, 2010 | tax | No Comments
The IRS has announced the standard mileage rates that will go into effect January 1, 2011:
- 51 cents per mile for business miles;
- 19 cents per mile for medical or moving expenses;
- 14 cents per mile in service of charitable organizations.
Health care tax credit starts this year
Monday, December 6th, 2010 | tax | No Comments
If your company or tax-exempt organization provides group health insurance coverage to your employees, it may be eligible for a tax credit on its 2010 return. The criteria for taxable entities:
- Employ fewer than 25 “full-time equivalent” employees (FTE, explained later);
- Pay average annual wages less than $50,000 per FTE;
- Maintain a “qualifying arrangement” for which the employer pays at least 50% of the premium cost.
The IRS has released Form 8941 to claim the credit. In the instructions to the form, they provide a worksheet to help you determine your eligibility for the credit, which phases out as the number of FTEs and average wages increase. The rules are slightly different for tax-exempt entities, but all employers use Form 8941 to claim the credit.
You should consult your tax advisor to ensure you don’t get tripped up by details in the law and regulations, but here are some highlights:
- Owners and their family members are not included in the calculations (check with your tax advisor for details).
- Full-time equivalent employees (FTEs) include part-time employees. Add every employee’s total hours, then divide by 2,080 (40 x 52 weeks), then round down to calculate the number of FTEs.
- Divide the total wages by the number of FTEs to calculate the average annual wages. All wages, including overtime and those for hours worked over the 2,080 full-time hours, must be taken into account.
- A self-insured plan, Health Reimbursement Arrangement (HRA), Health Flexible Spending Arrangement (FSA), or Health Savings Account (HSA) does not constitute a qualifying arrangement. The plan must be issued by a licensed insurer.
- Plans covering leased employees and multi-employer plans may be qualifying arrangements.
- Eligible premiums are only those paid for the employees, not their spouses or dependents.
The maximum credit is 35% of the qualifying premiums (25% for tax-exempt entities). It is reduced as the number of FTEs exceeds 10 and the average annual wages exceed $25,000.
Eligibility for the credit may affect your tax planning. Project your taxable income for the year to determine if there is an income tax liability that can be offset by the credit. Its value is lost to the extent that the tax bill is less than the credit.
This credit remains in place under current law until 2014, when health care reform takes full effect.
Take action now to reduce taxes
Tuesday, November 23rd, 2010 | consulting, tax | No Comments
Year-end is the best time to take actions that have an impact on next spring’s tax bill. There’s not much you can do after the year is over. Take time to do financial projections through year-end and calculate your tax bill. Working with your accountant, you can identify actions to take that may reduce your tax or improve your financial position.
Although we are still waiting for Congress to act on several important tax issues, laws were passed earlier this year that change the calculations for many business owners. You still have time to arrange things to take advantage of these new provisions.
The Affordable Care Act introduced a tax credit that takes effect this year for smaller employers who pay at least part of their workers’ health insurance premiums. After determining whether your company is eligible and the amount of the credit, you can calculate how much net income (and taxes) will be offset by the credit.
The HIRE Act offers a payroll tax reduction for hiring new workers, starting with the second quarter of 2010. If you have not been taking advantage of this reduction, amend the prior returns and reduce the amount of your deposits in this final quarter for a holiday cash windfall. Beware, though, that the reduction may also reduce your payroll tax expense deduction and increase your income tax bill. If you keep those new hires on the payroll for a year, you get an income tax credit in 2011.
The Small Business Jobs Act, enacted in September, contains about a dozen and a half provisions that may affect your business’s tax situation this year and next. They include:
- Several adjustments to depreciation deduction limits for first-year write-offs and bonus depreciation for various types of property and vehicles.
- An increase in the up-front deduction for business start-up expenses if the business starts operation in 2010 only.
- An option to carry back business credits five years and recover taxes previously paid.
- Relaxation of the record-keeping rules for deducting cell phones. (Did you know you had to log every business call?)
- A reduction in self-employment tax for self-employed persons who buy health insurance for themselves and their families.
These provisions may affect you starting in 2011:
- Many rental income recipients must begin issuing Forms 1099 to service providers (e.g., plumbers, painters, etc.) to whom they pay $600 or more. (Some exceptions apply.)
- Penalties for failure to file information returns such as Forms 1099 have been increased substantially.
If you work through the projections and consult with your tax professional before year-end, you can make decisions that may save your company taxes and improve your financial position.