President Signs Tax Relief Act

 

In addition to extending the Bush tax cuts, providing relief from the AMT, and cutting the payroll tax by two percentage points, the recently enacted “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” (Tax Relief Act) extends a host of other important tax breaks for businesses and individuals. I’m writing to give you an overview of these key tax breaks that were extended by the new law. Please call our office for detailsof how the new changes may affect you or your business.

 

Individual tax relief

 

The following tax breaks for individuals that expired at the end of 2009 have been retroactively reinstated by the Tax Relief Act and extended through 2011:

 

  • The election to take an itemized deduction for State and local general sales taxes instead of the itemized deduction permitted for State and local income taxes.
  • The above-the-line deduction for qualified higher education expenses.
  • The $250 above-the-line tax deduction for teachers and other school professionals for expenses paid or incurred for books, certain supplies, equipment, and supplementary materials used by the educator in the classroom.
  • The increased contribution limits and carryforward period for contributions of appreciated real property (including partial interests in real property) for conservation purposes.
  • The provision that permits tax-free distributions to charity from an Individual Retirement Account (IRA) of up to $100,000 per taxpayer, per tax year. Individuals also will be allowed to make charitable transfers during January of 2011 and treat them as if made during 2010.
  • The look-thru rule for certain regulated investment company (RIC) stock in determining the gross estate of nonresidents.
  • The increase in the monthly exclusion for employer-provided transit and vanpool benefits to equal that of the exclusion for employer-provided parking benefits.

 

In addition, the new law extends for an additional year (i.e., through 2011) the rule allowing premiums for mortgage insurance to be deductible as qualified residence interest.

 

Business tax relief

 

On the business side, the following business tax breaks that expired at the end of 2009 have been retroactively reinstated and extended through 2011 by the Tax Relief Act:

 

  • The research and development credit.
  • 15-year writeoffs for qualified leasehold improvements, and restaurant buildings (and certain improvements to such restaurant buildings).
  • 7-year writeoffs for certain motorsports racetrack property.
  • The employer wage credit for activated military reservists.
  • The active financing exception from the Code’s Subpart F rules for a controlled foreign corporation predominantly engaged in the conduct of a banking, financing, or similar business.
  • Look-through treatment of payments between related controlled foreign corporations.
  • The Indian employment credit.
  • The new markets tax credit.
  • Accelerated depreciation for business property on an Indian reservation.
  • The railroad track maintenance credit.
  • The special expensing rules for certain film and television productions.
  • The mine rescue team training credit.
  • The election to expense advanced mine safety equipment.
  • Expensing of environmental remediation costs.
  • The deduction allowable for domestic production activities in Puerto Rico.
  • The American Samoa economic development credit.
  • The rules exempting from gross basis tax and from withholding tax the interest-related dividends and short-term capital gain dividends received from a RIC by certain foreign persons (extended to apply to tax years of a RIC beginning before 2012).
  • The inclusion of a RIC within the definition of a “qualified investment entity” under the provisions of the Foreign Investment in Real Property Tax Act as codified in. Code Sec. 897.
  • The enhanced deduction for contributions of food and book inventories, and computer equipment for educational purposes.
  • A liberal rule for S corporations making charitable donations.
  • The special rules for interest, rents, royalties and annuities received by a tax-exempt entity from a controlled entity.
  • Empowerment zone tax incentives.
  • Renewal community tax incentives.
  • Tax incentives for investments in the District of Columbia.
  • The work opportunity credit (extended for four months (through the end of 2011)).
  • Qualified zone academy bonds.

In addition, the new law extends for an additional year (i.e., through 2011) the temporary exclusion of 100% of gain on the sale of certain small business stock.

 

 

Energy provisions

 

The following energy provisions were extended by the Act (through 2011):

 

  • The credit for manufacturers of energy-efficient new homes.
  • Incentives for biodiesel and renewable diesel.
  • The credit for refined coal facilities.
  • Excise tax credits and outlay payments for alternative fuel and alternative fuel mixtures.
  • The special rule to implement FERCs and State electric restructuring policy.
  • Suspension of the limitation on percentage depletion for oil and gas from marginal wells.
  • Grants for specified energy property in lieu of tax credits.
  • Provisions related to alcohol used as fuel.
  • The energy efficient appliance credit.
  • The credit for energy-efficient improvements to existing homes.
  • The 30% investment tax credit for alternative vehicle refueling property.

 

 

Disaster relief provisions

 

The following disaster relief provisions are extended through 2011:

 

  • New York Liberty Zone tax-exempt bond financing.
  • Increased rehabilitation credit for structures in the Gulf Opportunity Zone.
  • Low-income housing credit rules for buildings in Gulf Opportunity Zones.
  • Tax-exempt bond financing for the Gulf Opportunity Zones.
  • Bonus depreciation deduction applicable to specified Gulf Opportunity Zone extension property.

 

I hope this information is helpful. If you would like more details about these changes or any other aspect of the new law, please do not hesitate to call. 

Ben R. Loggins
Certified Public Accountant
ben@logginscpa.com

 

Health Reform — Hidden Tax Change

Health care??

On March 23rd, President Obama signed into law health care changes that will impact how you issue 1099s for your business.   There are only a few lines buried in the new law in Section 9006 that will impact businesses in the U.S. drastically.  Planning for that change now can turn a year-end tax nightmare into a January dream come true. 

 
Those few lines mandate that beginning in 2012, all businesses must issue 1099s to everyone they pay more than $600 to during the year.  This changes the 1099 reporting requirement in two ways.  You will need to report payments for services as well as well as tangible goods (materials).  Currently you are only required to report payments for services and legal fees.  You will also be required to report payments to corporations as well as individuals.  These two small changes could impact the number of 1099s you are required to file exponentially. 
 
But still, what does the Health Care reform bill have to do with 1099s?  To help offset the cost of the health care bill, the 1099 provision would help uncover fraudulent deductions and unreported income.  The IRS estimates that more than $300 billion in tax revenue goes unreported each year.   By enforcing tax compliance, they are able to reduce the cost of the health care bill while offering millions in tax credits.   
 
So the question is, “what can I do now to make this change transparent for my company?”  The answer – 1) Start collecting W-9 forms for anyone you pay regardless if it is for services or goods, regardless of whether they are incorporated or not; regardless of the amount, and  2) make sure these tax ID numbers are entered into your accounting program.  When it is time to print out 1099s in January of 2012, you and/or your accountant will no longer need to go through each payee to determine if it they are a service provider, if the company is incorporated or not, then track down the taxpayer ID number.  Now there’s only one criteria – is it over $600?
 
Give us a call for more information on this and many other tax changes resulting from the new health reform legislation. 

 

President signs HIRE Act

Good Afternoon:
 
I am writing to give you an overview of the key tax changes affecting business in the Hiring Incentives to Restore Employment (HIRE) Act enacted on March 18, 2010.   The new law provides hiring incentives, expense extensions and tax credits to help stimulate the hiring of unemployed workers.
 
  • Payroll Tax Forgiveness – a qualified employer is exempt from paying the 6.2 percent share of Social Security payroll tax on qualified new hires.  A “qualified employee” must start work anytime after February 3, 2010 and before January 1, 2011, and generally must have been unemployed for at least 60 days or worked less than 40 hours per week before his or her start date with your company.  The newly hired cannot be related to the owner or a majority stockholder of the company; they can only be hired to replace a position from which someone left voluntarily or someone was let go for good cause.     Retained Worker Credit – Tax Credit Up to $1,000 – for employers who hire individuals, qualified under the Payroll Tax Forgiveness, AND keep them on the payroll for at least 52 consecutive weeks may be eligible for a tax credit for each qualifying employee on their 2010 tax return.  The Credit is the lesser of $1,000 or 6.2% of wages paid to the qualified retained working during the 52-consecutive week period.  Wages for last 26 weeks must be equal to at least 80% of wages for first 26 weeks. 
  • Extension of Section 179 Expensing – gives a one-year extension to enhanced expensing rules which was to expire December 31, 2009.  The maximum deduction for Section 179 was $250,000 with a phase out limit for qualifying property purchased at $800,000.  Without the new legislation the limit would be $125,000 with a $500,000 cap.  The HIRE Act extends the enhanced expensing at the $200,000/$800,000 threshold levels through December 31, 2010. 
 
Requirements 
  • Use new IRS Form W-11 to confirm qualified employees under the HIRE Act.  Only employees who meet all requirements may complete this form and sign the affidavit under penalty of perjury.   Click Here for Form W-11.    
  • Beginning with Second Quarter 2010, use new IRS Form 941 to claim an exemption equal to the employer’s share of Social Security taxes on wages paid in 2010.  Credits for qualifying First Quarter 2010 wages will be reported on the Second Quarter return.  You should Not file an amended return for First Quarter 2010.  Click Here for the Newly Revised Form 941.
 
I hope this information is helpful.  If you believe that your company may qualify for any of these benefits, contact our office to ensure that you are meeting the criteria and receiving the correct benefits.
 
Ben R. Loggins
Certified Public Accountant

Unemployment Taxes — Increase in 2010

 Employers should anticipate increases in their unemployment taxes in 2010 and possibly beyond, whether or not their business has had any claims.  State unemployment trust funds have fallen to such a low level that rate increases may be required to rebuild their balances even when employment improves.  Some states have had to borrow money from the federal government under the Federal Umemployment Trust Act (FUTA) to cover their current obligations will need to pay this money back with interest. 

November 2009 Georgia’s unemployment rate rose to 10.2% even during a seasonal employment period.  Also in November, the number of Georgians receiving umemployment benefits has risen 11.5% over November 2008.  Year-to-date 2009, Georgia Department of Labor has paid out $1.6 billion in umemployment benefits.  Although Georgia has received authorization to receive federal funds, they had not done so as of November.  Georgia estimates that approximately 15% of employers will see a “modest” increase in their 2010 premiums.

2010 QuickBooks Notice

Certified ProAdvisor
Remember to update your 2010 SUTA rates in your QuickBooks before your first payroll of 2010.  New rates sheets were mailed December 31st.  Also please fax Loggins a copy of this notice for your file. 

New Tax Break — Haiti Contributions

A new tax law allows people who contributed in 2010 to charities providing earthquake relief in Haiti to take a tax deduction for the contribution on their 2009 tax return instead of their 2010 return.  You do not have to wait; you can receive an immediate tax benefit. 
 
Certain requirements apply.  Call our office or visit www.irs.gov for more information.

IRA Rollover Opportunity

Nest Egg
I am writing to tell you of an interesting new rollover opportunity that’s coming up in a few months. After 2009, you will be able to roll over amounts in qualified employer sponsored retirement plan accounts, such as 401(k)s and profit sharing plans, and regular IRAs, into Roth IRAs, regardless of your adjusted gross income (AGI). Currently, individuals with more than $100,000 of adjusted gross income as specially modified are barred from making such rollovers.
What’s so attractive about a Roth IRA? Here’s a summary:
  • Earnings within the account are tax-sheltered (as they are with a regular qualified employer plan or IRA).
  • Unlike a regular qualified employer plan or IRA, withdrawals from a Roth IRA aren’t taxed if some relatively liberal conditions are satisfied.
  • A Roth IRA owner does not have to commence lifetime required minimum distributions (RMDs) after he or she reaches age 70 1/2 as is generally the case with regular qualified employer plans or IRAs. (For 2009, there’s a moratorium on RMDs.)
  • Beneficiaries of Roth IRAs also enjoy tax-sheltered earnings (as with a regular qualified employer plan or IRA) and tax-free withdrawals (unlike with a regular qualified employer plan or IRA). They do, however, have to commence regular withdrawals from a Roth IRA after the account owner dies.
The catch, and it’s a big one, is that the rollover will be fully taxed, assuming the rollover is being made with pre-tax dollars (money that was deductible when contributed to an IRA, or money that wasn’t taxed to an employee when contributed to the qualified employer sponsored retirement plan) and the earnings on those pre-tax dollars. For example, if you are in the 28% federal tax bracket and roll over $100,000 from a regular IRA funded entirely with deductible dollars to a Roth IRA, you’ll owe $28,000 of tax. So you’ll be paying tax now for the future privilege of tax-free withdrawals, and freedom from the RMD rules.
Should you consider making the rollover to a Roth IRA? The answer may be “yes” if:
  1. … You can pay the tax hit on the rollover with non-retirement-plan funds. Keep in mind that if you use retirement plan funds to pay the tax on the rollover, you’ll have less money building up tax-free within the account.
  2. … You anticipate paying taxes at a higher tax rate in the future than you are paying now. Many observers believe that tax rates for upper middle income and high income individuals will trend higher in future years.
  3. … You have a number of years to go before you might have to tap into the Roth IRA. This will give you a chance to recoup (via tax-deferred earnings and tax-deferred payouts) the tax hit you absorb on the rollover.
  4. … You are willing to pay a tax price now for the opportunity to pass on a source of tax-free income to your beneficiaries.
You also should know that Roth rollovers made in 2010 represent a novel tax deferral opportunity and a novel choice. If you make a rollover to a Roth IRA in 2010, the tax that you’ll owe as a result of the rollover will be payable half in 2011 and half in 2012, unless you elect to pay the entire tax bill in 2010.
401k SignWhy on earth would you choose to pay a tax bill in 2010 instead of deferring it to 2011 and 2012? Keep in mind that absent Congressional action, after 2010 the tax brackets above the 15% bracket will revert to their higher pre-2001 levels. That means the top four brackets will be 39.6%, 36%, 31%, and 28%, instead of the current top four brackets of 35%, 33%, 28%, and 25%. The Administration has proposed to increase taxes only for those making $250,000, but it is difficult to predict who will get hit by higher rates. What’s more, there’s a health reform proposal before the House of Representatives right now that would help finance healthcare reform with a surtax on higher-income individuals.
So if you believe there’s a strong chance your tax rates will go up after 2010, you may want to consider paying the tax on the Roth rollover in 2010.
Here are some ways individuals can prepare now for next year’s rollover opportunity.
  1. Non-high-income individuals who are able to make deductible IRA contributions this year should do so. They’ll reduce their 2009 tax bill and, if they make the conversion to Roth IRA next year, they won’t have to pay back the tax savings until 2011 and 2012.
  2. Individuals who have never opened a traditional IRA because they weren’t able to make deductible contributions (and who never rolled over pre-tax dollars to a regular IRA) should consider opening such an IRA this year and making the biggest allowable nondeductible contribution they can afford. If they convert the traditional IRA to a Roth IRA next year they will have to include in gross income only that part of the amount converted that is attributable to income earned after the IRA was opened, presumably a small amount. In 2010 and later years, they could continue to make nondeductible contributions to a traditional IRA and then roll the contributed amount over into a Roth IRA. However, note that if an individual previously made deductible IRA contributions, or rolled over qualified plan funds to an IRA, complex rules determine the taxable amount.
  3. Some high-income individuals may plan to make large conversions in 2010 but to opt out of the deferral of tax until 2011 and 2012 because they fear they will be in a higher tax bracket in those years than in 2010. These individuals should avoid the standard year-end-planning wisdom of accelerating deductions and deferring income but should, rather, do the reverse in an effort to avoid being pushed into the highest brackets by a large IRA-to-Roth-IRA conversion in 2010. These individuals should be considering ways to defer deductions to 2010, and accelerate income from next year into 2009.
We should discuss your and your family’s entire financial situation before you plan for a large rollover to a Roth IRA after 2009. There also are many details that we should go over, such as whether the amounts you are thinking of switching to a Roth IRA are eligible for the rollover (technically, they are called “eligible rollover distributions”), whether you can make rollovers from your employer sponsored plan (for example, there are restrictions on rollovers from 401(k) plans), and the tax impact of rolling over amounts that represent nondeductible as well as deductible contributions. 
 
-Ben Loggins

First Time Homebuyer Credit Extended — Income Limits Decreased

Home CredtiA new law that went into effect November 6 extends the first-time homebuyer credit five months and expands the eligibility requirements for purchasers. The Worker, Homeownership, and Business Assistance Act of 2009 extends the deadline for qualifying home purchases from Nov. 30, 2009, to April 30, 2010. Additionally, if a buyer enters into a binding contract by April 30, 2010, the buyer has until June 30, 2010, to settle on the purchase.

2010 Mileage Rates Released

Auto MileageThe IRS just released the 2010 mileage rates to be used by employees, self-employed individuals and other taxpayers to compute deductible costs of operating an automobile (including vans, pickups and panel trucks) for business, medical, moving and charitable purposes. These rates are established based on an annual study conducted by an independent contractor on behalf of the IRS, which analyzes fixed and variable costs of operating an automobile.

The 2010 rates for business purposes will be 50 cents per mile, a 5 cent per mile decrease from the 2009 rates. When the standard business mileage rate of 50 cents is used for automobiles owned by the taxpayer, depreciation will be considered to have been allowed at a rate of 23 cents per mile, 2 cents per mile more than in 2008 and 2009. Such depreciation reduces the taxpayer’s basis in the automobile.

The standard mileage rate for medical and moving expenses will be 16.5 cents per mile. This represents a 7.5 cent per mile decrease from 2009. The standard mileage rate for charitable purposes will be 14 cents per mile, the same rate as in 2009. The charitable rate is determined under the Internal Revenue Code.