Tax measures large and small await Congressional action
Congress has returned to work after its August recess under a tight deadline to reduce the federal budget deficit and also, possibly, extend some expiring tax incentives. Between now and the end of the year, Congress could enact significant tax reform in a deficit reduction package; or it may take a piecemeal approach. All this Congressional activity contributes to uncertainty in tax planning.
Joint committee's task
On August 2, 2011, President Obama signed the Budget Control Act of 2011 (P.L. 112-25). Along with cutting approximately $1 trillion in federal spending and raising the federal debt ceiling, the Budget Control Act creates a special a bipartisan joint select committee of Congress to propose more deficit reduction measures. The Budget Control Act charges the Joint Select Committee on Deficit Reduction with reducing the federal government budget deficit by at least $1.5 trillion over fiscal years 2012 to 2021. If the joint committee cannot agree on deficit reduction measures, or if Congress rejects the committee's proposals, the Budget Control Act provides for automatic cuts over the coming decade.
The12-member joint committee is composed of an equal number of members from both parties: six Democrats and six Republicans. The joint committee must make its proposals, in legislative language, not later than November 23, 2011 (if a majority of the committee agrees on the proposals). Congress must vote on the proposals not later than December 23, 2011.
Flood of proposals expected
The joint committee is expected to be flooded with proposals to reduce the federal deficit. President Obama has urged the joint committee to take a "balanced approach" to deficit reduction. The president has called for reducing the federal deficit through a combination of spending cuts and revenue raisers. Some of the tax provisions mentioned by President Obama for repeal or reform include tax incentives for oil and gas producers and the last-in, first-out (LIFO) method of accounting. President Obama also wants Congress to extend the two percent payroll tax cut, which is scheduled to expire after 2011.
One of the most contentious proposals the joint committee may address is the fate of the Bush-era tax cuts. The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act (2010 Tax Relief Act) extended the Bush-era tax cuts through the end of 2012. President Obama wants to extend the Bush-era tax cuts for lower and middle income taxpayers but not for higher income taxpayers (which the White House defines as individuals with incomes over $200,000 and families with incomes over $250,000). It is unclear at this time if the joint committee will take up the Bush-era tax cuts.
The joint committee may look to some recent tax reform proposals for guidance. In 2010, the President's National Commission on Fiscal Responsibility and Reform developed a six-part plan to reduce the federal deficit. The commission recommended reducing or eliminating many tax incentives for individuals in exchange for lower individual income tax rates. The commission also endorsed lowering the corporate tax rate to 26 percent. In July 2011, a bipartisan group of senators, known as the "gang of six," introduced a plan for deficit reduction. The senators' plan would, among other provisions, replace the current individual income tax rate schedule with three new tax brackets along with abolishing the alternative minimum tax (AMT).
Expiring tax provisions
A number of popular but temporary tax incentives (known as "tax extenders) are scheduled to expire after 2011. In past years, Congress has routinely extended many of them. This year may be different. The joint committee could include the tax extenders in its work, extending some but allowing others to expire. Alternatively, the joint committee could decide not to touch the tax extenders. In that case, some or all of them could be extended in separate legislation.
Some of the extenders scheduled to expire after 2011 are (not an exhaustive list):
Research tax credit
15-year recovery for qualified leasehold improvements, restaurant property and retail improvements
Work Opportunity Tax Credit
Employer wage credit for activity military reservists
Indian employment credit and accelerated depreciation for business property on Indian reservations
Special expensing rules for film and production costs
Basis adjustment to stock of an S corporation making charitable contributions
Enhanced deduction for charitable contributions of food inventory, corporate charitable contributions of book inventory and corporate charitable contributions of computers
Expensing of environmental remediation costs
Grants for investment in certain energy property in lieu of tax credits
Income tax credit for alcohol fuels
Refined coal production facilities credit
Tax treatment of payments to controlling exempt organizations
Subpart F exceptions for active financing income
Additionally, one hundred percent bonus depreciation is scheduled to expire after 2011 (except for property with a longer production period). Enhanced Code Sec. 179 expensing ($500,000 maximum amount/$2 million investment ceiling) also is scheduled to expire after 2011.
At this time, September 2011, it is not too early to contemplate how tax reform could impact your planning. Please contact Doeren Mayhew and we can schedule a time to review your tax strategy.
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.
Showing posts with label accounting cpa. Show all posts
Showing posts with label accounting cpa. Show all posts
Wednesday, September 28, 2011
Wednesday, September 7, 2011
September 2011 tax compliance calendar
As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important tax reporting and filing data for individuals, businesses and other taxpayers for the month of September 2011.
September 2
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates August 27-30.
September 8
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates August 31-September 1 and 2.
September 9
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates September 3-6.
September 12
Employees who work for tips. Employees who received $20 or more in tips during August must report them to their employer using Form 4070.
September 14
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates September 7-9.
Monthly depositors. Monthly depositors must deposit employment taxes for payments in August.
September 15
Individuals. Third installment of estimated income tax for 2011 is due, using Form 1040-ES.
Corporations. Third installment of estimated income tax for 2011 is due, using worksheet, Form 1120-W.
Corporations. Corporations that timely requested an automatic six-month extension to file a 2010 calendar year income tax return Form 1120 (Form 1120S for S corporations) must file and pay any tax, interest and penalties due. S corporations on such extension must also provide each shareholder with a copy of Schedule K-1 (Form 1120S).
Partnerships. Partnerships that timely requested an automatic five-month extension to file a 2010 calendar year income tax return Form 1065 must file, using Form 1065 and provide each partner with a copy of Schedule K-1 (Form 1065).
September 16
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates September 10-13.
September 21
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates September 14-16.
September 23
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates September 17-20.
September 28
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates September 21-23.
September 30
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates September 24-27.
Please contact Doeren Mayhew for more information.
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.
September 2
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates August 27-30.
September 8
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates August 31-September 1 and 2.
September 9
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates September 3-6.
September 12
Employees who work for tips. Employees who received $20 or more in tips during August must report them to their employer using Form 4070.
September 14
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates September 7-9.
Monthly depositors. Monthly depositors must deposit employment taxes for payments in August.
September 15
Individuals. Third installment of estimated income tax for 2011 is due, using Form 1040-ES.
Corporations. Third installment of estimated income tax for 2011 is due, using worksheet, Form 1120-W.
Corporations. Corporations that timely requested an automatic six-month extension to file a 2010 calendar year income tax return Form 1120 (Form 1120S for S corporations) must file and pay any tax, interest and penalties due. S corporations on such extension must also provide each shareholder with a copy of Schedule K-1 (Form 1120S).
Partnerships. Partnerships that timely requested an automatic five-month extension to file a 2010 calendar year income tax return Form 1065 must file, using Form 1065 and provide each partner with a copy of Schedule K-1 (Form 1065).
September 16
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates September 10-13.
September 21
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates September 14-16.
September 23
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates September 17-20.
September 28
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates September 21-23.
September 30
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates September 24-27.
Please contact Doeren Mayhew for more information.
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.
Wednesday, August 10, 2011
How do I?...Qualify for the Code Sec. 25C residential energy property tax credit in 2011
In recent years, Congress has used the Tax Code to encourage individuals to make energy-efficient improvements to their homes. The credit is very popular. The Treasury Department estimates that more than 6.8 million individuals claimed over $5.8 billion in residential energy tax credits in 2009.
The nonrefundable Code Sec. 25C tax credit was originally enacted on a temporary basis. Most recently, Congress renewed and modified the residential energy property tax credit in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (2010 Tax Relief Act) through 2011.
2011 rules
Under current law, the Code Sec. 25 tax credit provides a 10 percent credit for the purchase of qualified energy efficiency improvements to existing homes. A qualified energy efficiency improvement is any energy efficiency building envelope component:
Meeting or exceeding criteria for the component established by the 2009 International Energy Conservation Code or, in the case of certain windows, skylights and doors, and metal roofs, meeting Energy Star requirements;
Installed in or on a dwelling located in the United States and owned and used by the taxpayer as the taxpayer's principal residence;
Original use of which commences with the taxpayer; and
The qualified energy-efficient improvement reasonably can be expected to remain in use for at least five years.
Examples of energy-efficient improvements include, but are not limited to, qualified electric heat pumps, certain furnaces, metal roofs meeting certain criteria, certain types of exterior windows and doors. In some cases, only the cost of the energy-efficient improvement is eligible for the Code Sec. 25C tax credit; installation costs are ineligible. For example, the costs associated with installing a qualified electric heat pump are eligible for the Code Sec. 25C tax credit but costs associated with installing a qualified metal roof are ineligible.
Lifetime limits
The 2010 Tax Relief Act set the maximum Code Sec. 25C credit allowable is $500 over the lifetime of the taxpayer. The $500 amount must be reduced by the aggregate amount of previously allowed credits the taxpayer received in 2006, 2007, 2009, and 2010. This provision can complicate planning for the Code Sec. 25C credit because Congress made changes to the credit before and after 2009, particularly regarding the lifetime limit.
Let's look at an example. Amanda qualified for a $400 Code Sec. 25C tax credit in 2006. The maximum credit allowable is $500 over her lifetime. This means that Amanda can get an additional Code Sec. 25C tax credit of up to $100 in 2011.
Under the 2010 Tax Relief Act, no more than $200 of the Code Sec. 25C credit may be attributable to expenditures on exterior windows and skylights. Taxpayers must reduce the $200 amount by the aggregate amount of previously allowed credits for windows and skylights that the taxpayer received in 2006, 2007, 2009, and 2010.
Dollar limits
Additionally, certain dollar limitations apply to various improvements. For property placed in service in 2011, the dollar limits are $300 for any item of qualified energy-efficient property; $50 for an advanced main air circulating fan; and $150 for any qualified natural gas, propane or oil furnace or hot water boiler.
Energy standards
Moreover, the qualified energy-efficient property must meet standards set by the by the 2009 International Energy Conservation Code (IECC). The 2010 Tax Relief Act treats exterior windows, skylights and exterior doors are qualified energy efficiency improvements if they meet the Energy Star Program requirements in 2011.
Certification statements
Many energy-efficient improvements come with a manufacturer's certification statement. The statement indicates if the improvement qualifies for the tax credit. It is not necessary to submit a copy of the manufacturer's certification statement with the individual's tax return, but taxpayers should keep a copy of the certification statement for their records.
Another credit
The Code Sec. 25D tax credit also is intended to reward taxpayers for making certain energy-efficient improvements. The Code Sec. 25C tax credit covers items such as geothermal heat pumps, solar water heaters, solar panels, and small wind energy systems. Many of the rules for the Code Sec. 25D tax credit are similar to the Code Sec. 25C tax credit but there are some differences. For example, the Code Sec. 25D credit has no lifetime limit. If you are considering making one of these improvements, please contact our office for more details about this tax credit.
Form 5695
Taxpayers claim the Code Sec. 25C tax credit on Form 5695, Residential Energy Credits. The IRS has identified some abuses of the Code Sec. 25C tax credit and it intends to make revisions to Form 5695 to curb fraudulent claims and verify eligibility for the credit. These changes are expected to appear on the Form 5695 that taxpayers will file in 2012.
If you have any questions about the Code Sec. 25C tax credit, please contact our office.
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.
For more information, contact Doeren Mayhew.
Wednesday, July 20, 2011
Check status of a charity before making a contribution
Americans donate hundreds of millions of dollars every year to charity. It is important that every donation be used as the donors intended and that the charity is legitimate. The IRS oversees the activities of charitable organizations. This is a huge job because of the number and diversity of tax-exempt organizations and one that the IRS takes very seriously.
Exempt organizations
Charitable organizations often are organized as tax-exempt entities. To be tax-exempt under Code Sec. 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes in Code Sec. 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization; that is, it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates. Churches that meet the requirements of Code Sec. 501(c)(3) are automatically considered tax exempt and are not required to apply for and obtain recognition of tax-exempt status from the IRS.
Tax-exempt organizations must file annual reports with the IRS. If an organization fails to file the required reports for three consecutive years, its tax-exempt status is automatically revoked. Recently, the tax-exempt status of more than 200,000 organizations was automatically revoked. Most of these organizations are very small ones and the IRS believes that they likely did not know about the requirement to file or risk loss of tax-exempt status. The IRS has put special procedures in place to help these small organizations regain their tax-exempt status.
Contributions
Contributions to qualified charities are tax-deductible. They key word here is qualified. The organization must be recognized by the IRS as a legitimate charity.
The IRS maintains a list of organizations eligible to receive tax-deductible charitable contributions. The list is known as Publication 78, Cumulative List of Organizations described in Section 170(c) of the Internal Revenue Code of 1986. Similar information is available on an IRS Business Master File (BMF) extract.
In certain cases, the IRS will allow deductions for contributions to organizations that have lost their exempt status but are listed in or covered by Publication 78 or the BMF extract. Additionally, private foundations and sponsoring organizations of donor-advised funds generally may rely on an organization's foundation status (or supporting organization type) set forth in Publication 78 or the BMF extract for grant-making purposes.
Generally, the donor must be unaware of the change in status of the organization. If the donor had knowledge of the organization's revocation of exempt status, knew that revocation was imminent or was responsible for the loss of status, the IRS will disallow any purported deduction.
Churches
As mentioned earlier, churches are not required to apply for tax-exempt status. This means that taxpayers may claim a charitable deduction for donations to a church that meets the Code Sec. 501(c)(3) requirements even though the church has neither sought nor received IRS recognition that it is tax-exempt.
Foreign charities
Contributions to foreign charities may be deductible under an income tax treaty. For example, taxpayers may be able to deduct contributions to certain Canadian charitable organizations covered under an income tax treaty with Canada. Before donating to a foreign charity, please contact our office and we can determine if the contribution meets the IRS requirements for deductibility.
The rules governing charities, tax-exempt organizations and contributions are complex. Please contact Doeren Mayhew if you have any questions.
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.
Exempt organizations
Charitable organizations often are organized as tax-exempt entities. To be tax-exempt under Code Sec. 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes in Code Sec. 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization; that is, it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates. Churches that meet the requirements of Code Sec. 501(c)(3) are automatically considered tax exempt and are not required to apply for and obtain recognition of tax-exempt status from the IRS.
Tax-exempt organizations must file annual reports with the IRS. If an organization fails to file the required reports for three consecutive years, its tax-exempt status is automatically revoked. Recently, the tax-exempt status of more than 200,000 organizations was automatically revoked. Most of these organizations are very small ones and the IRS believes that they likely did not know about the requirement to file or risk loss of tax-exempt status. The IRS has put special procedures in place to help these small organizations regain their tax-exempt status.
Contributions
Contributions to qualified charities are tax-deductible. They key word here is qualified. The organization must be recognized by the IRS as a legitimate charity.
The IRS maintains a list of organizations eligible to receive tax-deductible charitable contributions. The list is known as Publication 78, Cumulative List of Organizations described in Section 170(c) of the Internal Revenue Code of 1986. Similar information is available on an IRS Business Master File (BMF) extract.
In certain cases, the IRS will allow deductions for contributions to organizations that have lost their exempt status but are listed in or covered by Publication 78 or the BMF extract. Additionally, private foundations and sponsoring organizations of donor-advised funds generally may rely on an organization's foundation status (or supporting organization type) set forth in Publication 78 or the BMF extract for grant-making purposes.
Generally, the donor must be unaware of the change in status of the organization. If the donor had knowledge of the organization's revocation of exempt status, knew that revocation was imminent or was responsible for the loss of status, the IRS will disallow any purported deduction.
Churches
As mentioned earlier, churches are not required to apply for tax-exempt status. This means that taxpayers may claim a charitable deduction for donations to a church that meets the Code Sec. 501(c)(3) requirements even though the church has neither sought nor received IRS recognition that it is tax-exempt.
Foreign charities
Contributions to foreign charities may be deductible under an income tax treaty. For example, taxpayers may be able to deduct contributions to certain Canadian charitable organizations covered under an income tax treaty with Canada. Before donating to a foreign charity, please contact our office and we can determine if the contribution meets the IRS requirements for deductibility.
The rules governing charities, tax-exempt organizations and contributions are complex. Please contact Doeren Mayhew if you have any questions.
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.
Wednesday, July 6, 2011
July 2011 tax compliance calendar
As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important tax reporting and filing data for individuals, businesses and other taxpayers for the month of July 2011.
July 1
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates June 25-28.
July 7
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates June 29-30, July 1.
July 8
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates July 2-5.
July 11
Employees who work for tips. Employees who received $20 or more in tips during June must report them to their employer using Form 4070.
July 13
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates July 6-8.
July 15
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates July 9-12.
Monthly depositors. Monthly depositors must deposit employment taxes for payments in June.
July 20
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates July 13-15.
July 22
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates July 16-19.
July 27
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates July 20-22.
July 29
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates July 23-25.
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.
Please contact Doeren Mayhew for more information.
July 1
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates June 25-28.
July 7
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates June 29-30, July 1.
July 8
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates July 2-5.
July 11
Employees who work for tips. Employees who received $20 or more in tips during June must report them to their employer using Form 4070.
July 13
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates July 6-8.
July 15
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates July 9-12.
Monthly depositors. Monthly depositors must deposit employment taxes for payments in June.
July 20
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates July 13-15.
July 22
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates July 16-19.
July 27
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates July 20-22.
July 29
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates July 23-25.
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.
Please contact Doeren Mayhew for more information.
Wednesday, June 29, 2011
Actual vehicle expense method may help offset higher gas prices
As gasoline prices have climbed in 2011, many taxpayers who use a vehicle for business purposes are looking for the IRS to make a mid-year adjustment to the standard mileage rate. In the meantime, taxpayers should review the benefits of using the actual expense method to calculate their deduction. The actual expense method, while requiring careful recordkeeping, may help offset the cost of high gas prices if the IRS does not make a mid-year change to the standard mileage rate. Even if it does, you might still find yourself better off using the actual expense method, especially if your vehicle also qualifies for bonus depreciation.
Two methods
Taxpayers can calculate the amount of a deductible vehicle expense using one of two methods:
Standard mileage rate
Actual expense method
Under the standard mileage rate, taxpayers calculate the amount of the allowable deduction by multiplying all business miles driven during the year by the standard mileage rate. One of the chief attractions of the standard mileage rate is its ease of use. Taxpayers do not have to substantiate expense amounts; however, they must substantiate business purpose and other items. There are also limitations on use of the business standard mileage rate.
The standard mileage rate for 2011 for business use of a car (van, pickup or panel truck) is 51 cents-per-mile. The IRS calculates the standard mileage rate on an annual study of the fixed and variable costs of operating an automobile. The IRS set the standard mileage rate for 2011 in late 2010 when gasoline prices were lower than today. It is a flat amount, whether or not your vehicle is fuel efficient, operates on premium grade fuel, is brand new or ten years old, or is subject to high repair bills.
During past spikes in gasoline prices, the IRS has made a mid-year change to the standard mileage rate for business use of a vehicle. In 2008, the IRS increased the business standard mileage rate from 50.5 cents-per-mile to 58.5 cents-per-mile for last six months of 2008 because of high gasoline prices. The IRS made a similar mid-year adjustment in 2005 when it increased the business standard mileage rate after Hurricane Katrina.
At this time, it is unclear if the IRS will make a similar mid-year adjustment in 2011. IRS officials generally have declined to make any predictions. If the IRS does make a mid-year change, it will likely do so in late June, so the higher rate can apply to the last six months of 2011.
Actual expense method
Rather than rely on a mid-year adjustment from the IRS, which might not come, it's a good idea to compare the actual vehicle costs versus the business standard mileage rate. Taxpayers who use the actual expense method must keep track of all costs related to the vehicle during the year. The cost of operating a vehicle includes these expenses:
Gasoline
Repair and maintenance costs
Cleaning
Tires
Depreciation
Lease payments (if the taxpayer leases the vehicle)
Interest on a vehicle loan
Insurance
Personal property taxes on the vehicle
"Doing the math" this year in weighing whether to take the actual expense method not only should factor in the cost of gasoline but also what depreciation or expensing deductions you will be gaining by using the actual expense method. Enhanced bonus depreciation and enhanced "section 179" expensing for 2011 can increase your deduction for a newly-purchased vehicle in its first year tremendously if the actual expense method is elected.
Certain other costs are deductible whether you take the actual expense method or the standard mileage rate. This group includes parking charges, garage fees and tolls. Expenses incurred for the personal use of your vehicle are generally not deductible. An allocation must be made when the vehicle is used partly for personal purposes
Switching methods
Once actual depreciation in excess of straight-line has been claimed on a vehicle, the standard mileage rate cannot be used for the vehicle in any future year. Absent that prohibition (which usually is triggered if depreciation is taken), a business can switch between the standard mileage rate and actual expense methods from year to year. Businesses that switch methods now cannot make change methods effective in mid-year; you must apply one method retroactively from January 1.
Recordkeeping
The actual expense method requires taxpayers to substantiate every expense. This recordkeeping requirement can be challenging. For example, taxpayers who fill-up often at the gas pump need to keep a record of every purchase. The same is true for tune-ups and other maintenance and repair activity. One way to simplify recordkeeping is to charge all vehicle related expenses to one credit card.
Our office will keep you posted of developments. If you have any questions about the actual expense method or the business standard mileage rate, please contact our office.
Two methods
Taxpayers can calculate the amount of a deductible vehicle expense using one of two methods:
Standard mileage rate
Actual expense method
Under the standard mileage rate, taxpayers calculate the amount of the allowable deduction by multiplying all business miles driven during the year by the standard mileage rate. One of the chief attractions of the standard mileage rate is its ease of use. Taxpayers do not have to substantiate expense amounts; however, they must substantiate business purpose and other items. There are also limitations on use of the business standard mileage rate.
The standard mileage rate for 2011 for business use of a car (van, pickup or panel truck) is 51 cents-per-mile. The IRS calculates the standard mileage rate on an annual study of the fixed and variable costs of operating an automobile. The IRS set the standard mileage rate for 2011 in late 2010 when gasoline prices were lower than today. It is a flat amount, whether or not your vehicle is fuel efficient, operates on premium grade fuel, is brand new or ten years old, or is subject to high repair bills.
During past spikes in gasoline prices, the IRS has made a mid-year change to the standard mileage rate for business use of a vehicle. In 2008, the IRS increased the business standard mileage rate from 50.5 cents-per-mile to 58.5 cents-per-mile for last six months of 2008 because of high gasoline prices. The IRS made a similar mid-year adjustment in 2005 when it increased the business standard mileage rate after Hurricane Katrina.
At this time, it is unclear if the IRS will make a similar mid-year adjustment in 2011. IRS officials generally have declined to make any predictions. If the IRS does make a mid-year change, it will likely do so in late June, so the higher rate can apply to the last six months of 2011.
Actual expense method
Rather than rely on a mid-year adjustment from the IRS, which might not come, it's a good idea to compare the actual vehicle costs versus the business standard mileage rate. Taxpayers who use the actual expense method must keep track of all costs related to the vehicle during the year. The cost of operating a vehicle includes these expenses:
Gasoline
Repair and maintenance costs
Cleaning
Tires
Depreciation
Lease payments (if the taxpayer leases the vehicle)
Interest on a vehicle loan
Insurance
Personal property taxes on the vehicle
"Doing the math" this year in weighing whether to take the actual expense method not only should factor in the cost of gasoline but also what depreciation or expensing deductions you will be gaining by using the actual expense method. Enhanced bonus depreciation and enhanced "section 179" expensing for 2011 can increase your deduction for a newly-purchased vehicle in its first year tremendously if the actual expense method is elected.
Certain other costs are deductible whether you take the actual expense method or the standard mileage rate. This group includes parking charges, garage fees and tolls. Expenses incurred for the personal use of your vehicle are generally not deductible. An allocation must be made when the vehicle is used partly for personal purposes
Switching methods
Once actual depreciation in excess of straight-line has been claimed on a vehicle, the standard mileage rate cannot be used for the vehicle in any future year. Absent that prohibition (which usually is triggered if depreciation is taken), a business can switch between the standard mileage rate and actual expense methods from year to year. Businesses that switch methods now cannot make change methods effective in mid-year; you must apply one method retroactively from January 1.
Recordkeeping
The actual expense method requires taxpayers to substantiate every expense. This recordkeeping requirement can be challenging. For example, taxpayers who fill-up often at the gas pump need to keep a record of every purchase. The same is true for tune-ups and other maintenance and repair activity. One way to simplify recordkeeping is to charge all vehicle related expenses to one credit card.
Our office will keep you posted of developments. If you have any questions about the actual expense method or the business standard mileage rate, please contact our office.
IRS streamlined offer-in-compromise program aims to cut red tape
The IRS's streamlined offer-in-compromise (OIC) program is intended to speed up the processing of OICs for qualified taxpayers. Having started in 2010, the streamlined OIC program is relatively new. The IRS recently issued instructions to its examiners, urging them to process streamlined OICs as expeditiously as possible. One recent survey estimates that one in 15 taxpayers is now in arrears on tax payments to the IRS to at least some degree. Because of continuing fallout from the economic downturn, however, the IRS has tried to speed up its compromise process to the advantage of both hard-pressed taxpayers and its collection numbers.
OIC program
The IRS OIC program on its face can appear very attractive to taxpayers with unpaid liabilities. An OIC is an agreement between a taxpayer and the IRS that settles the taxpayer's tax liabilities for less than the full amount owed. Keep in mind that taxpayers do not automatically qualify for an OIC. The IRS has cautioned that, absent special circumstances, if you have the ability to fully pay your tax liability in a lump sum or via an installment agreement, an OIC will not be accepted.
The IRS may accept an offer in compromise based on three grounds:
Doubt as to collectibility
Doubt as to liability
Effective tax administration
The decision whether to accept or reject an OIC is entirely within the discretion of the IRS. Sometimes, but very rarely, an OIC will be deemed accepted because the IRS failed to reject it within 24 months of receiving the offer.
Streamlined OICs
The low acceptance rate of OICs has some lawmakers in Congress and taxpayer groups upset. One of the most vocal critics has been National Taxpayer Advocate Nina Olson who has urged the IRS to bring more taxpayers into the OIC program. Partly in response to this criticism, the IRS launched the streamlined OIC in 2010. The streamlined OIC program is intended to cut through much of the red tape that surrounds OICs. The IRS promised, among other things, to process streamlined OICs more quickly.
In February 2011, the IRS announced some changes to streamlined OICs. Streamlined OICs may be offered to taxpayers with total household incomes of $100,000 or less and who have a total tax liability of less than $50,000. Taxpayers who do not meet these requirements may apply for a traditional OIC.
Procedures
The streamlined procedures do not necessarily mean that the IRS will accept more OICs; merely that it will process the offers it receives more quickly. Since the streamlined OIC program is relatively new, the IRS has not yet reported how many streamlined offers it has accepted.
Before accepting or rejecting a streamlined OIC, IRS examiners must verify that the information provided by the taxpayer is correct. The IRS instructed examiners reviewing streamlined OICs to verify taxpayer information through internal research. Examiners will verify ownership of items such as real estate, motor vehicles and other property.
Examiners also will be able to communicate directly with taxpayers or their representatives. The IRS instructed examiners to contact taxpayers or their representatives by telephone whenever possible; rather than sending written notices. Three phone attempts should be made over two business days to contact the taxpayer or his/her representative. If the examiner reaches the taxpayer's voicemail, the examiners should request a call-back within two business days.
The streamlined OIC program is not for everyone. Indeed, the acceptance rate for all OICs (just about 13,000 in fiscal year (FY) 2010) means that relatively few taxpayers will make an offer that the IRS will accept. Nonetheless, the OIC program is one tool that may be used by taxpayers with unpaid liabilities. If you have any questions about the IRS's streamlined OIC or traditional OIC, please contact our office.
OIC program
The IRS OIC program on its face can appear very attractive to taxpayers with unpaid liabilities. An OIC is an agreement between a taxpayer and the IRS that settles the taxpayer's tax liabilities for less than the full amount owed. Keep in mind that taxpayers do not automatically qualify for an OIC. The IRS has cautioned that, absent special circumstances, if you have the ability to fully pay your tax liability in a lump sum or via an installment agreement, an OIC will not be accepted.
The IRS may accept an offer in compromise based on three grounds:
Doubt as to collectibility
Doubt as to liability
Effective tax administration
The decision whether to accept or reject an OIC is entirely within the discretion of the IRS. Sometimes, but very rarely, an OIC will be deemed accepted because the IRS failed to reject it within 24 months of receiving the offer.
Streamlined OICs
The low acceptance rate of OICs has some lawmakers in Congress and taxpayer groups upset. One of the most vocal critics has been National Taxpayer Advocate Nina Olson who has urged the IRS to bring more taxpayers into the OIC program. Partly in response to this criticism, the IRS launched the streamlined OIC in 2010. The streamlined OIC program is intended to cut through much of the red tape that surrounds OICs. The IRS promised, among other things, to process streamlined OICs more quickly.
In February 2011, the IRS announced some changes to streamlined OICs. Streamlined OICs may be offered to taxpayers with total household incomes of $100,000 or less and who have a total tax liability of less than $50,000. Taxpayers who do not meet these requirements may apply for a traditional OIC.
Procedures
The streamlined procedures do not necessarily mean that the IRS will accept more OICs; merely that it will process the offers it receives more quickly. Since the streamlined OIC program is relatively new, the IRS has not yet reported how many streamlined offers it has accepted.
Before accepting or rejecting a streamlined OIC, IRS examiners must verify that the information provided by the taxpayer is correct. The IRS instructed examiners reviewing streamlined OICs to verify taxpayer information through internal research. Examiners will verify ownership of items such as real estate, motor vehicles and other property.
Examiners also will be able to communicate directly with taxpayers or their representatives. The IRS instructed examiners to contact taxpayers or their representatives by telephone whenever possible; rather than sending written notices. Three phone attempts should be made over two business days to contact the taxpayer or his/her representative. If the examiner reaches the taxpayer's voicemail, the examiners should request a call-back within two business days.
The streamlined OIC program is not for everyone. Indeed, the acceptance rate for all OICs (just about 13,000 in fiscal year (FY) 2010) means that relatively few taxpayers will make an offer that the IRS will accept. Nonetheless, the OIC program is one tool that may be used by taxpayers with unpaid liabilities. If you have any questions about the IRS's streamlined OIC or traditional OIC, please contact our office.
Wednesday, June 22, 2011
New broker-reporting rules: burden to brokers a boon to taxpayers?
As a result of recent changes in the law, many brokerage customers will begin seeing something new when they gaze upon their 1099-B forms early next year. In the past, of course, brokers were required to report to their clients, and the IRS, those amounts reflecting the gross proceeds of any securities sales taking place during the preceding calendar year.
In keeping with a broader move toward greater information reporting requirements, however, new tax legislation now makes it incumbent upon brokers to provide their clients, and the IRS, with their adjusted basis in the lots of securities they purchase after certain dates, as well. While an onerous new requirement for the brokerage houses, this development ought to simplify the lives of many ordinary taxpayers by relieving them of the often difficult matter of calculation their stock bases.
When calculating gain, or loss, on the sale of stock, all taxpayers must employ a very simple formula. By the terms of this calculus, gain equals amount realized (how much was received in the sale) less adjusted basis (generally, how much was paid to acquire the securities plus commissions). By requiring brokers to provide their clients with both variables in the formula, Congress has lifted a heavy load from the shoulders of many.
FIFO
The new requirements also specify that, if a customer sells some amount of shares less than her entire holding in a given stock, the broker must report the customer's adjusted basis using the "first in, first out" method, unless the broker receives instructions from the customer directing otherwise. The difference in tax consequences can be significant.
Example. On January 16, 2011, Laura buys 100 shares of Big Co. common stock for $100 a share. After the purchase, Big Co. stock goes on a tear, quickly rising in price to $200 a share, on April 11, 2011. Believing the best is still ahead for Big Co., Laura buys another 100 shares of Big Co. common on that date, at that price. However, rather than continuing its meteoric rise, the price of Big Co. stock rapidly plummets to $150, on May 8, 2011. At this point, Laura, tired of seeing her money evaporate, sells 100 of her Big Co. shares.
Since Laura paid $100 a share for the first lot of Big Co. stock that she purchased (first in), her basis in those shares is $100 (plus any brokerage commissions). Her basis in the second lot, however, is $200 per share (plus any commissions). Unless Laura directs her broker to use an alternate method, the broker will use the first in stock basis of $100 per share in its reporting of this first out sale. Laura, accordingly, will be required to report a short-term capital gain of $50 per share (less brokerage commissions). Had she instructed her broker to use the "last in, first out" method, she would, instead, see a short-term capital loss of $50 (plus commissions).
Dividend Reinvestment Plans
As their name would suggest, dividend reinvestment plans (DRPs) allow investors the opportunity to reinvest all, or a portion, of any dividends received back into additional shares, or fractions of shares, of the paying corporation. While offering investors many advantages, one historical drawback to DRPs has been their tendency to obligate participants to keep track of their cost bases for many small purchases of stock, and maintain records of these purchases, sometimes over the course of many years. Going forward, however taxpayers will be able to average the basis of stock held in a DRP acquired on or after January 1, 2011.
Applicability
The types of securities covered by the legislation include virtually every conceivable financial instrument subject to a basis calculation, including stock in a corporation, which become "covered" securities when acquired after a certain date. In the case of corporate stock, for example, the applicability date is January 1, 2011, unless the stock is in a mutual fund or is acquired in connection with a dividend reinvestment program (DRP), in which case the applicable date is January 1, 2012. The applicable date for all other securities is January 1, 2013.
Short Sales
In the past, brokers reported the gross proceeds of short sales in the year in which the short position was opened. The amendments, however, require that brokers report short sales for the year in which the short sale is closed.
The Complex World of Stock Basis
There are, quite literally, as many ways to calculate one's basis in stock as there are ways to acquire that stock. Many of these calculations can be nuanced and very complex. For any questions concerning the new broker-reporting requirements, or stock basis, in general, please contact our office.
Doeren Mayhew
In keeping with a broader move toward greater information reporting requirements, however, new tax legislation now makes it incumbent upon brokers to provide their clients, and the IRS, with their adjusted basis in the lots of securities they purchase after certain dates, as well. While an onerous new requirement for the brokerage houses, this development ought to simplify the lives of many ordinary taxpayers by relieving them of the often difficult matter of calculation their stock bases.
When calculating gain, or loss, on the sale of stock, all taxpayers must employ a very simple formula. By the terms of this calculus, gain equals amount realized (how much was received in the sale) less adjusted basis (generally, how much was paid to acquire the securities plus commissions). By requiring brokers to provide their clients with both variables in the formula, Congress has lifted a heavy load from the shoulders of many.
FIFO
The new requirements also specify that, if a customer sells some amount of shares less than her entire holding in a given stock, the broker must report the customer's adjusted basis using the "first in, first out" method, unless the broker receives instructions from the customer directing otherwise. The difference in tax consequences can be significant.
Example. On January 16, 2011, Laura buys 100 shares of Big Co. common stock for $100 a share. After the purchase, Big Co. stock goes on a tear, quickly rising in price to $200 a share, on April 11, 2011. Believing the best is still ahead for Big Co., Laura buys another 100 shares of Big Co. common on that date, at that price. However, rather than continuing its meteoric rise, the price of Big Co. stock rapidly plummets to $150, on May 8, 2011. At this point, Laura, tired of seeing her money evaporate, sells 100 of her Big Co. shares.
Since Laura paid $100 a share for the first lot of Big Co. stock that she purchased (first in), her basis in those shares is $100 (plus any brokerage commissions). Her basis in the second lot, however, is $200 per share (plus any commissions). Unless Laura directs her broker to use an alternate method, the broker will use the first in stock basis of $100 per share in its reporting of this first out sale. Laura, accordingly, will be required to report a short-term capital gain of $50 per share (less brokerage commissions). Had she instructed her broker to use the "last in, first out" method, she would, instead, see a short-term capital loss of $50 (plus commissions).
Dividend Reinvestment Plans
As their name would suggest, dividend reinvestment plans (DRPs) allow investors the opportunity to reinvest all, or a portion, of any dividends received back into additional shares, or fractions of shares, of the paying corporation. While offering investors many advantages, one historical drawback to DRPs has been their tendency to obligate participants to keep track of their cost bases for many small purchases of stock, and maintain records of these purchases, sometimes over the course of many years. Going forward, however taxpayers will be able to average the basis of stock held in a DRP acquired on or after January 1, 2011.
Applicability
The types of securities covered by the legislation include virtually every conceivable financial instrument subject to a basis calculation, including stock in a corporation, which become "covered" securities when acquired after a certain date. In the case of corporate stock, for example, the applicability date is January 1, 2011, unless the stock is in a mutual fund or is acquired in connection with a dividend reinvestment program (DRP), in which case the applicable date is January 1, 2012. The applicable date for all other securities is January 1, 2013.
Short Sales
In the past, brokers reported the gross proceeds of short sales in the year in which the short position was opened. The amendments, however, require that brokers report short sales for the year in which the short sale is closed.
The Complex World of Stock Basis
There are, quite literally, as many ways to calculate one's basis in stock as there are ways to acquire that stock. Many of these calculations can be nuanced and very complex. For any questions concerning the new broker-reporting requirements, or stock basis, in general, please contact our office.
Doeren Mayhew
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