tax return
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!
Tax filing deadline extended, but don’t wait
Friday, January 7th, 2011 | tax | No Comments
We have an extra weekend for tax return preparation! Because April 15 is a holiday in Washington, D.C., the deadline for filing Forms 1040, 1065, and other returns normally due April 15 is Monday April 18, 2011.
If you’re working on your taxes that weekend, though, a smarter choice would be to request an automatic extension of time to file. You don’t want to rush through the return and risk making a mistake that could cost you higher taxes or, worse yet, penalties and interest. Better to gather your information and get it to us early, when we have more time to consider issues with your particular situation that may help reduce your tax bill.
We look forward to hearing from you soon.
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.
Beware Tennessee tax scam
Wednesday, December 15th, 2010 | tax | No Comments
We received word from the Tennessee Department of Revenue about a fraudulent email scam. Here are the details from TDOR:
An e-mail is circulating that looks like an e-mail from the Tennessee Department of Revenue requesting that the recipient go to a website and file tax forms with the department for the year 2010. This e-mail is a hoax and has a virus attached to the site. The virus appears to be a password capture virus. The department has notified the Federal Trade Commission. If you receive this e-mail delete it. Do not click on the hyperlink in the body of the e-mail. If you have received this e-mail and have clicked on the link, please run your virus protection software to scan for a virus. If you have any questions or concerns, please call (615) 532-8461.
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.
Payroll tax credit
Wednesday, July 7th, 2010 | tax | No Comments
It is time to prepare your second quarter payroll tax returns, due August 2, 2010 (July 31 falls on Saturday). If your company or tax-exempt organization has hired employees this year, you may be eligible for the HIRE Act new hire tax credit. You should check before filing Form 941. We previously posted about this and other tax credits in the spring.
Here is a checklist (but consult your tax adviser for specifics related to your situation):
- Was the new worker hired to fill a new position, or to replace someone who quit voluntarily or who was terminated for cause? The new worker may not be related to you or to another owner of the business.
- Was he/she hired after February 3, 2010, and before January 1, 2011?
- Did he/she work less than 40 hours during the 60 days ending on the hire date?
- Did he/she sign and give you the required Form W-11 certifying these facts? (Do not send this form to the IRS.)
If all of the above conditions are met, you qualify for an exemption of 6.2% (the employer share of Social Security tax) of wages paid between March 19 and December 31, 2010. This reduces the amount of your tax deposits for this year. It does not affect amounts withheld from the employee’s pay.
Form 941 has been modified to report wages to qualified employees starting with the second quarter. The IRS has provided more information in the instructions to the forms, and in a question-and-answer format at their website.
Congress helps homebuyers
Friday, July 2nd, 2010 | tax | No Comments
Homebuyers who were unable to close before July 1 have been granted a reprieve to claim the homebuyer credit. If the contract on their house was signed before May 1, they now have until September 30 to close on the purchase.
The homebuyer credit in its present form (it’s been amended three times now) is a tax credit of 10% of the home’s purchase price, up to a limit of $8,000. It is available to buyers who have not owned a principal residence in the last three years. A similar credit, limited to $6,500, is available to “long-time residents” who have lived in their old house for 5 consecutive years in the last eight before buying their new house.
In order to claim the credit, the buyers must have bought the house or signed a binding contract before May 1, 2010. The deadline to close the deal was June 30, but many buyers could not meet the deadline because of backlogs at lenders and federal agencies, construction delays, and difficulties working out terms of short sales. The extension of the closing deadline allows three more months to settle and close those deals, but it does not change the April 30 deadline for signing contracts.
There are limits and prcoedural rules to claiming the homebuyer credit. It is reduced or eliminated as income rises, and it cannot be claimed for homes whose purchase price exceeds $800,000. Dependents and purchasers under 18 cannot claim the credit, and it is not available if the house was purchased from certain relatives. Proper documentation must accompany Form 5405. Consult your tax advisor (our number is 865-523-8700) to make sure you follow all the rules to get your credit.
Tax code as cash flow tool
Thursday, July 1st, 2010 | consulting, tax | No Comments
Has your business suffered a net loss during the recession? A tax refund may give you a needed cash infusion. The federal tax code provides a means to smooth out the business cycle. If your company reports a net operating loss on this year’s tax return, you can recover tax paid in prior (or future) years when the company reported a net profit.
The technique is called a net operating loss carryback. You must elect to carry a loss back on a timely filed return, otherwise the loss may be carried forward to as many as twenty future tax years to reduce taxable income. Normally, the loss may be carried back two years. For either 2008 or 2009 (not both), a loss may be carried back up to five years. If the loss is not used up in the prior years, it may be carried forward.
The IRS provides a method to quickly recover taxes to be refunded because of the loss carryback. By properly filing an Application for Tentative Refund (Form 1139 for corporations, Form 1045 for individuals, estates, and trusts), you can recieve a refund within ninety days of filing. This can provide a relatively quick cash infusion to help pull your company through the rough patch.
If a coroporation expects a loss this year and has not yet filed its return for last year, it can apply on Form 1138 for an extension to pay last year’s tax. When the net loss for this year is calculated, the company will pay last year’s tax (plus interest) after applying the net operating loss.
A corporation that has paid more estimated tax than necessary in light of adjusted income or loss projactions may apply for a quick refund of those payments on Form 4466.
These techniques can return cash to the company for daily operations rather than tying it up until after the year’s tax return is filed. Other types of carrybacks are also available, such as casualty and theft loss, farming loss, foreign tax credit, and loss attributable to a federally declared disaster.
As usual, there are technical details and caveats to the use of these techniques. Some of these details are discussed in this article. You should consult your tax advisor to determine the most appropriate action for your situation. We will be happy to help you with these tools, and to find other ways to improve your cash flow.
Renting to relatives
Monday, June 28th, 2010 | consulting, tax | No Comments
Renting property to your relatives can be a good thing. You know them, and you probably have a good idea of how they will take care of the property. You may consider renting to your retired parents or to your children attending college. You must play by IRS rules to retain the tax advantages of renting out property. If you don’t, the deductions will be disallowed while the income is taxed - a double tax hit. You may also suffer unfavorable tax consequences when you sell the property.
Special rules apply to rental of a residence (rental house or apartment) and to vacation home rental.
You must charge a fair rent to your relative on a residence to avoid having that property reclassified as a second home (and losing rental deductions).
- Prove fair rent by collecting third-party documentation about rents for similar properties in the area from the want ads and craigslist. Letters from property managers and independent appraisals are good evidence to support fair rent.
- Do not make gifts to help your tenant pay the rent. The gift will be deemed to reduce the rent, putting it below fair value and jeopardizing the rental claim.
- One alternative for your relative who needs rent money is gifting business assets and having your company lease them back so that your tenant receives rental income. Another option is to hire your relative, although that generates payroll taxes.
- You may consider a good-tenant discount of no more than 10%. One justification for this discount is that there is no need for a rental management company, passing the savings to the tenant.
- If you wish to set up a rent-to-own situation, you must follow the rules for a shared-equity financing agreement for the rental to stand.
- Your relative must use the rental property as a principal residence.
If you have a vacation home that you rent for part of the year and also use personally, the tax code provides a break on rental income. Your personal use of the vacation home must not exceed the greater of 14 days or 10% of rental days per year. If your relatives use the vacation home, their use counts toward these limits even if you charge fair rent. If your combined use exceeds these limits, the property becomes a second home, which makes the rent income taxable while eliminating the usual rent expense deductions.
If you are considering renting to relatives, a call to us will help ensure that everything is done in a way that secures the greatest tax advantages and best financial outcome for your family.