Current Topics of Interest New Tax Changes Affecting the 2010 / 2011 Tax Years Everyone may be affected by some of the tax changes for 2011. There have been far more changes than just the Health Care and Extender bills. Employers and employees may want to look at the HIRE tax and Small Business Jobs Act. Clearly, not all of these tax changes will affect every return. Therefore, we should discuss the ones that may apply to you. Please contact us with any questions you may have. (859-873-0981) Individual Tax Payers - Make sure to review your beneficiary on life insurance and retirement plans (Do your life insurance and retirement plans have the accurate beneficiaries?)
- Home foreclosure and cancellation of debt is considered income, but may not necessarily be taxable.
- Dividends and capital gains tax rates range between 0% and 15%.
- The rules for charitable giving are stricter. You must have receipts!!!!!
- Non-custodial parents must have a current form 8332 signed by custodial parent. It must be filed with return.
- A new and better education credit is available.
- The Earned Income Credit amount and number of qualifying children have increased.
- There is no financial or hardship penalty exception for early withdrawal on retirement.
- Penalties for failure to file and failure to pay taxes have increased.
- Personal exemptions and itemized deductions no long phase out
- Children under aged 27 can be added to parents’ insurance policy even if not a dependant.
- Unemployment income is 100% taxable
- Mileage Deductions
- Business 51 cents, Medical 19 cents, Charity 14 cents
- Replacement of Chinese drywall is considered disaster loss
- Adoption credit increased to 13,170 and may be refundable
- Energy efficient credit extended through 2011 credit up to $1,500. (ask about Kentucky Energy Credit as well)
- 2010 Roth Rollovers taxation may be spread over 2 years
- Landlords that pay service providers at least $600 will have to issue 1099 and get then to fill out a W-9
- Very strict penalties on late or failure to file 1099's up to $500 per 1099
- 2010 Estates
- No taxes in 2010
- Executors may want to look at the Extender Bill for different options --ask us
- Form 8939 must be filed. Penalty is $10,000 for failure to file on any 2010 estates
- Basis in stock sold is computed on the FIFO accounting method, unless you request differently with your broker
- Starting in 2013 there is a 3.8% Medicare tax on unearned income
- All foreign bank accounts must be reported if you have an average balance of $10,000.
SOLE PROPRIETORS AND SINGLE MEMBER LLCs READ THE BUSINESS FILERS SECTION BELOW Business Tax Filers - Sole proprietors who chose to become limited liability corporations must know that the liability limitations do not cover payroll taxes.
- For business and personal taxes, we cannot supply a tax return to a 3rd party without written consent for each specific instance.
- Logs are required for laptops and vehicles.
- S–Corp owners/employees need to make sure compensation is reasonable. Cannot be $0.
- Stricter rules now apply for the deduction of self-employed health insurance for S-Corp shareholder/employee.
- Tanning Salon's have an additional 10% tax to be filed quarterly unless the tanning bed is a portion of a fitness center membership
- Self-employment tax reduced to 13.3% (employee FICA reduced to 4.2%) 2011 only.
- Code section 179 and special bonus depreciation limits have increased
- Special bonus depreciation on new asset purchases only from 9-9-2010 through 12-31-2011 is 100%
- Special bonus depreciation on new asset purchases from 1-1-2010 to 9-8-2010 is 50%
- Hiring the unemployed (refer to HIRE Act)
- Employers may not have to pay the 6.2% FICA when hiring previously unemployed people if all of the following conditions are met:
- For persons hired after 2-4-2010 employers may not have to pay the 6.2% FICA on those wages paid after 3-18-2010 through 12-31-2010
- To qualify for this credit the employer must have a W-11 on file for relevant employees
- The employee must not have worked for anyone for 40 hours for the past 60 days
- Additionally, employers may receive a $1,000 credit for these employees who work a 52 consecutive week period (credit to be received in 2012)
| | | | Update to the First Time Home Owner’s Tax Credit - Contracts signed by April 30, 2010 can qualify if they are closed by September 30, 2010
- Higher-Income earners can now claim it. (Phases out at 225,000 not 150,000)
- Current Home Owners can qualify for the credit (6500) if they wish to purchase a new home
- purchased before May 1, 2010
- old home must be owned five out of last eight years
- new home must be your primary residence
- Home cannot cost more than $800,000
- Home cannot be purchased from your in-laws (NO FAMILY)
- More Documentation is required to be submitted to IRS with qualifying credit
| | Energy Incentives for Individuals Residential Energy Property Credit An energy credit is available for energy efficient improvements placed in service in 2009 and 2010. The credit allows for 30% of the cost up to $1,500. Energy efficient improvements include: - Insulation
- Energy efficient exterior windows
- Energy efficient heating and air conditioning systems
This credit is similar to the one that was available in 2007; only the standards are higher for qualified products. Until the new guidelines are released, homeowner’s can continue to rely on the manufacture’s certification that the old guidelines were met. For windows and skylights purchased before June 1, 2009, the Energy star label may be used. This credit is also available for residential alternative energy equipment. Residential alternative energy equipment includes: - Solar hot water heaters
- Geothermal heat pumps
- Wind turbines
| | Hope and Lifetime Learning Credit Changes for 2009 through 2012 Hope Credit (American Opportunity Tax Credit) - 2009 through 2012 the hope credit will can be claimed for the first four years of post-secondary education. In 2008, it was only for the first two years.
- The Hope Credit has increased to $2,500 but is phased out in your adjusted between $160,000 and $180,000 if you file a joint return.
- 40% of this credit is refundable (up to $1,000) if no tax is due.
- “Qualified Tuition and Related Expenses” now includes “course materials” including books.
Lifetime Learning Credit - Begins to phase out if your modified adjusted gross income is $100,000 and $120,000 if you file a joint return.
For more information, see the article at www.irs.gov. | | Health Savings Accounts - To qualify for the tax deduction, the insurance must have a deductible of at least $1,200 for self-coverage or $2,400 for family coverage. This is good through 2011.
- Can contribute up to $3,050 for self-coverage or $6,150 for family coverage.
- If 55 or older, you can contribute $4,050 for self-coverage or $7,150 for family coverage.
- If 55 or older, married, and each spouse has an HSA, can contribute $8,150.
- Qualified medical expenses no longer include over the counter medicines that do not have a prescription.
- 20% Penalty on early withdrawal of HSA for non-medical expenses
For more information, see the article at www.irs.gov. | | Farm Loss In a private letter ruling, the IRS allowed a surviving spouse of a farmer to deduct the farm loss even though she had never managed the farm. Since her husband had materially participated in the farm for five out of the past eight years prior to his retirement, she was treated as a material participant in the farm after his death. CASE-MIS No.: TAM-137793-08 | | Net Operating Losses Losses cannot be carried back 3, 4, or 5 years. That ruling was only for the 2009 tax year. You can elect to carry losses back two years and forward 20 years. Rev. Proc. 2009-19 | | | | Penalty Free Qualified Plans and IRA Distributions If used for … your early distribution may be penalty free. Financial Distress and Hardships are not valid reasons - College Tuition (IRA only)
- Medical Expenses
- First Time Home Purchase (IRA only)
- Health Insurance (if you are unemployed 12 consecutive weeks) (IRA only)
- Aged 59 1/2
- Death of account owner
- Permanent disability of account owner
- Aged 55 on employer plan and separated from services (does not apply to IRAs)
- Distribution under a QDRO
- For IRS levies
- Qualified Disaster Relief
- Public Safety employees separated from service and over 50
- Reservists called to active duty for at least 179 days
| | | | | | | | | | | | |
|
|
|
|
|
|
