Quality Financial Services for closely held businesses, business owners and individuals

Recent Updates

Tax Relief Unemployment Insurance Reauthorization and Job Creation Act of 2010.
On December 17, 2010 President Obama signed the 2010 Tax Relief Act into law. The Act extends the Bush-era tax cuts for two years—retaining favorable long-term capital gain and qualified dividend tax rates and includes a two-year AMT patch. New tax breaks include 100% first-year write offs for qualifying property and a payroll/self-employment tax cut of 2% for employees and self-employed individuals. The Act extends many expiring tax breaks for both businesses and individuals—including: (this list is not all inclusive)

• Continuation of the current income tax rates for individuals of 10%, 15%, 25%, 28%, 33%, and 35% through 2012.
• Marriage penalty relief
• Repeal of the itemized deduction limitation and personal exemption phase-out.
• Treatment of mortgage insurance premiums as deductible qualified residence interest for one year
• 100% bonus depreciation for property acquired after Sept 8, 2010 and before Jan 1, 2012
• Sec. 179 expensing increase from $25,000 to $125,000 for years beginning in 2012
• American opportunity tax credit (AOTC)/Hope scholarship (max $2,500 per student) extended for two years through 2012.
• Qualified tuition deduction—above the line is reinstated and extended through 2011.
• Above-the-line student loan interest deduction for two additional years through 2012.
• Educator's $250 above-the-line expense deduction retroactively reinstated and extended through 2011.
• The $1,000 child tax credit is extended, allowed to be used against regular income tax as well as AMT for two years through 2012.
• Credit for energy efficient improvements to existing homes is extended for one year through December 31, 2011.
• Provision that taxpayers age 70 1/2 or older may make tax-free distributions to charities from their IRA accounts is retroactively reinstated and extended through 2011.

New provisions include a 2% employee payroll tax cut (for 2011 only).

Warning to all Owners of Rental Property: read carefully

Small Business Jobs Act
The Small Business Jobs Act was signed into law on Sept 27, 2010. The Act intended to stimulate the economy and create jobs by providing resources to small businesses. The Act extended several SBA loan provisions as well as created some tax cuts for small businesses. One of the Acts' provisions that has not received much press is the provision included in the Small Business Job Act bill requiring the owners of rental properties to issue 1099's for all payments of $600 or more to any service provider —yes, that includes plumbers, painters, landscapers, oh no—accountants, etc. These 1099's are to be issued in 2012—for all payments made from January 1, 2011-December 31, 2011 and annually thereafter. You must begin to track all of these expenses NOW!

IRS Proposes Discontinuing Paper Coupons for Payments
On August 19, 2010 the IRS issued proposed regulations to eliminate paper coupons for the payment of employment tax deposits, corporate income taxes, estimated tax payments and many other taxes. Taxpayers will now be required to use the Electronic Federal Tax Payment System (EFTPS) to make deposits. The intention is to switch the payment process to a fully electronic system and eliminate payments via paper coupons entirely. Exceptions will continue for businesses making minimal deposits of withheld income and FICA taxes. Businesses that qualify for the exception can make their payments with their tax returns. Employers with a deposit liability of less than $2,500 for a return period can remit employment taxes with their quarterly or annual return. This will become effective for payments made on or after the date of the final regulations, but no earlier than January 1, 2011.

Information on EFTPS including how to enroll can be found at www.eftps.gov or by calling the EFTPS Customer Service at 1-800-555-4477.

Patient Protection and Affordable Care Act
On March 23, 2010 President Obama signed the Patient Protection and Affordable Care Act. This act includes the Small Business Health Care Tax Credit for certain small employers that provide health care coverage to their employees. To be eligible, the employer must have fewer than 25 full-time employees with an average wage of less than $50,000 per employee and pay health insurance premiums under a qualifying arrangement for said employees. Business owners and their families do not qualify. The credit is non-refundable, but as a general business credit it may be carried back (not this year) one year and forward twenty years. An employer may take both the credit and the deduction for the health insurance premiums paid—however the deduction must be reduced by the amount of the credit.

Some additional provisions of the Patient Protection Act include:

• Beginning in 2011 requires employers to report the amount of health care premiums paid on behalf of their employees on their W-2's. (not taxable—information only)
• Implemented a 10% excise tax on indoor tanning services
• Provides a one-time $250 rebate to assist Medicare Part D recipients who have reached their plan coverage cap.
• Raises the age up to which parents can include their children on their health insurance through age 26
• Increases the adoption credit for 2010 and 2011 to $13,170, and makes this credit refundable.
• Starting in 2012 requires all businesses to report all payments of $600 or more for goods as well as services, to both persons and corporations on Form 1099. (A much debated provision which many groups—including the AICPA are trying to have overturned).

IRS has released the mileage rates for 2011:

Kiddie Tax
A child under the age of 18 (or under age 24 if a full time student) is subject to "kiddie tax" when his unearned income exceeds $1,900 for 2010 and 2011.

Health Savings Accounts
Taxpayers may now contribute the maximum full year's limit to a new (first year) health savings account (no longer prorated). Contribution limits for 2010 and 2011 are $3,050 for single and $6,150 for a family plan. The additional catch-up for age 55 and over is $1,000.

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