• Carroll
• Cook
• DuPage
• Jo Daviess
• Ogle
• Stephenson
• Winnebago
Monday, August 30, 2010
IRS Posts Q&A’s About When Exempt Orgs Lose Status For Failure To File Returns
Automatic revocation occurs when an exempt organization that is required to file an annual return (e.g., Form 990, 990-EZ, or 990-PF) or submit an annual electronic notice (Form 990-N, or e-Postcard) does not do so for three consecutive years. If the organization is loses its exempt status it cannot receive tax deductible charitable contributions and will not be listed in Publication 78. All 16 questions and answered that were updated August 26, can be viewed on the IRS website at http://www.irs.gov/pub/irs-tege/autorevfaqs_082610.pdf.
IRS Will Correct Erroneous HIRE Act Failure To Deposit Penalty Assessments
IRS SBSE Payroll E-mail, 8/27/10
E-mail from an IRS spokesperson reveals that IRS is currently correcting a problem with how the first quarter HIRE Act credit was applied to the second quarter Form 941,Employer's Quarterly Federal Tax Return. The problem is generating erroneous penalty notices.
Background. Under Code Sec. 3111(d), as amended by the Hiring Incentives to Restore Employment (HIRE) Act (P.L. 111-147), qualified employers are exempted from paying the employer 6.2% share of Social Security (i.e., OASDI) employment taxes on wages paid in 2010 to a newly hired qualified individual. The payroll tax relief applies only for wages paid to qualified individuals after Mar. 18, 2010 and before Jan. 1, 2011.
A qualified individual is one who:
1. begins employment with the employer after Feb. 3, 2010 and before Jan. 1, 2011;
2. certifies by signed affidavit, under penalties of perjury, that he or she hasn't been employed for more than 40 hours during the 60-day period ending on the date employment begins with the qualified employer (use Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit;
3. does not replace another employee of the employer (unless that other employee left voluntarily or for cause); and
4. is not related to the qualified employer in a way that would disqualify the individual for the work opportunity tax credit (WOTC) under Code Sec. 51(i)(1). (Code Sec. 3111(d)(3))
The payroll tax exemption doesn't apply for wages paid during the first calendar quarter of 2010, more narrowly, it doesn't apply for wages paid from March 19 through March 31. Instead, the amount by which the qualified employer's OASDI tax for wages paid during the first calendar quarter of 2010 would have been reduced if the payroll tax exemption had been in effect for the first quarter is treated as a payment against the employer's OASDI tax for the second calendar quarter of 2010. (Code Sec. 3111(d)(5))
Calculation problem and a fix. An IRS spokesperson says there was a problem with how the credit for first quarter wages paid from March 19 through March 31 (Form 941, line 12e) was applied when computing the Failure to Deposit Penalty on the second quarter Form 941. The calculation problem caused IRS to send out erroneous CP 207 and CP 276B notices to some taxpayers. The IRS proposes a federal tax deposit penalty on CP 207. A CP 276B notice asks taxpayers to review their records to determine if they are paying their current payroll taxes on time.
The IRS spokesperson says IRS has corrected the error and plans to revise any erroneous penalty assessments by September 6th.
In May, IRS issued a revised Form 941 (Employer's Quarterly Federal Tax Return) for the second quarter of 2010 to reflect the payroll tax exemption for hiring unemployed workers.
Form 941 Rev. April 2010 (Employer's Quarterly Federal Tax Return) can be viewed at http://www.irs.gov/pub/irs-pdf/f941.pdf.
Instructions to Form 941 Rev. April 2010 (Employer's Quarterly Federal Tax Return) can be viewed at http://www.irs.gov/pub/irs-pdf/i941.pdf.
Research References: For the HIRE Act's payroll tax exemption, see FTC 2d/FIN ¶ H-4687.1; United States Tax Reporter ¶ 31,114; TaxDesk ¶ 541,002.1.
E-mail from an IRS spokesperson reveals that IRS is currently correcting a problem with how the first quarter HIRE Act credit was applied to the second quarter Form 941,Employer's Quarterly Federal Tax Return. The problem is generating erroneous penalty notices.
Background. Under Code Sec. 3111(d), as amended by the Hiring Incentives to Restore Employment (HIRE) Act (P.L. 111-147), qualified employers are exempted from paying the employer 6.2% share of Social Security (i.e., OASDI) employment taxes on wages paid in 2010 to a newly hired qualified individual. The payroll tax relief applies only for wages paid to qualified individuals after Mar. 18, 2010 and before Jan. 1, 2011.
A qualified individual is one who:
1. begins employment with the employer after Feb. 3, 2010 and before Jan. 1, 2011;
2. certifies by signed affidavit, under penalties of perjury, that he or she hasn't been employed for more than 40 hours during the 60-day period ending on the date employment begins with the qualified employer (use Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit;
3. does not replace another employee of the employer (unless that other employee left voluntarily or for cause); and
4. is not related to the qualified employer in a way that would disqualify the individual for the work opportunity tax credit (WOTC) under Code Sec. 51(i)(1). (Code Sec. 3111(d)(3))
The payroll tax exemption doesn't apply for wages paid during the first calendar quarter of 2010, more narrowly, it doesn't apply for wages paid from March 19 through March 31. Instead, the amount by which the qualified employer's OASDI tax for wages paid during the first calendar quarter of 2010 would have been reduced if the payroll tax exemption had been in effect for the first quarter is treated as a payment against the employer's OASDI tax for the second calendar quarter of 2010. (Code Sec. 3111(d)(5))
Calculation problem and a fix. An IRS spokesperson says there was a problem with how the credit for first quarter wages paid from March 19 through March 31 (Form 941, line 12e) was applied when computing the Failure to Deposit Penalty on the second quarter Form 941. The calculation problem caused IRS to send out erroneous CP 207 and CP 276B notices to some taxpayers. The IRS proposes a federal tax deposit penalty on CP 207. A CP 276B notice asks taxpayers to review their records to determine if they are paying their current payroll taxes on time.
The IRS spokesperson says IRS has corrected the error and plans to revise any erroneous penalty assessments by September 6th.
In May, IRS issued a revised Form 941 (Employer's Quarterly Federal Tax Return) for the second quarter of 2010 to reflect the payroll tax exemption for hiring unemployed workers.
Form 941 Rev. April 2010 (Employer's Quarterly Federal Tax Return) can be viewed at http://www.irs.gov/pub/irs-pdf/f941.pdf.
Instructions to Form 941 Rev. April 2010 (Employer's Quarterly Federal Tax Return) can be viewed at http://www.irs.gov/pub/irs-pdf/i941.pdf.
Research References: For the HIRE Act's payroll tax exemption, see FTC 2d/FIN ¶ H-4687.1; United States Tax Reporter ¶ 31,114; TaxDesk ¶ 541,002.1.
President’s Economic Recovery Advisory Board (PERAB) Issues Draft Report On Options For Changes In The Current Tax System
The Board’s objective was to consider tax or policy changes that would achieve three broad goals: Simplify the tax system, improve taxpayer compliance with existing tax laws, and recommend strategies to reform the corporate tax system. It was to avoid any option that would raise taxes on families with incomes less than $250,000 per year and not to recommend any major reform of the Code nor adoption of a VAT in lieu of the current income tax system. In addition, it didn’t evaluate strategies for reducing the federal deficit. The report says information was gathered after months of input from business leaders, policy makers, academics, individual citizens, labor leaders, and others. Any recommendations of the Board do not represent Administration policy. The report can be viewed at http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report_for_final_vote.pdf.
Friday, August 27, 2010
Pre Order the Tax Calendar for Small Businesses and Self-Employed
The 2011 Tax Calendar is available for pre-order. If you order now, the English version of the 2011 Tax Calendar will be shipped by early November. The Tax Calendar for Small Businesses and Self-Employed (Pub 1518, Catalog Number 12350Z) is a 12-month wall calendar. It is filled with useful information on general business taxes, IRS and SSA customer assistance, electronic filing and paying options, retirement plans, business publications and forms, and common tax filing dates. Each page highlights different tax issues and tips that may be relevant to small business owners with room on each month to add notes, state tax dates, or business appointments. Copies can be ordered online or from the IRS by calling (800) 829-3676.
Disability Payments To Firefighter Under Union's Contract With City Weren't Excludable
The Tax Court has held that payments made by a city to a firefighter injured in the line of duty had to be included in his gross income. The payments, which were made under a collective bargaining agreement, weren't made under a workmen's compensation act as compensation for personal injuries or sickness, and so weren't excludable under Code Sec. 104(a)(1).
Background. Payments qualifying as workers' compensation are excludable from gross income unless the compensation offsets previously deducted medical expenses. Not only must an injury or illness be job-related, but also the statute (under which payment is made) must restrict the benefit to injuries or sickness related to the job. Thus, amounts that are received (1) under a workers' compensation act (such as the Longshore and Harbor Workers Compensation Act, 33 USC 901), or under a statute “in the nature of a workers' compensation act,” (2) as compensation for personal injuries or sickness, (3) where the personal injuries or sickness were related to the employee's occupation, are excluded from the employee's income. (Code Sec. 104(a)(1), Reg. § 1.104-1(b))
In Rev Rul 81-47, 1981-1 CB 55, IRS concluded that a collective bargaining agreement that was adopted and approved by a local (county) legislature and incorporated by reference into the local legislative code qualified as a statute in the nature of a worker's compensation act. The collective bargaining agreement involved had been entered into pursuant to a county statute which provided that all collective bargaining agreements entered into by the county had to be approved by “legislative acts” of the county council and incorporated by reference in the county code. Accordingly, IRS ruled that payments made to disabled county safety officials (e.g., firefighters and police officers) under the terms of the collective bargaining agreement were excludable under Code Sec. 104(a)(1).
In Rev Rul 83-77, 1983-1 CB 37, IRS held that a collective bargaining agreement, even if it was consistent with a municipal code, wasn't itself a statute. Accordingly, IRS ruled that payments made to a police officer, who was injured in the line of duty and was determined to be unable to perform regular police duties, weren't excludable from his gross income.
Facts. John T. Bayse, who worked as a firefighter for Cleveland, Ohio, was injured in the line of duty while responding to an automobile accident. For purposes of his firefighting duties, he was deemed to have suffered a “hazardous duty injury.” From the day of the accident through his retirement from the fire department (with the exception of 2 days when he attempted to resume work), he was on hazardous duty injury status and was paid pursuant to the terms of a collective bargaining agreement between Cleveland and the union, Cleveland Fire Fighters, Local 93. Under the terms of the collective bargaining agreement, he eventually applied for and was granted a disability retirement pension.
On audit of Bayse's return, IRS determined that the disability payments received from the City of Cleveland had to be included in his gross income because they weren't received under a workmen's compensation act as compensation for personal injuries or sickness under Code Sec. 104(a)(1).
Not workers' compensation. The Tax Court concluded that the payments Bayse received while on hazardous duty injury status had to be included in his gross income because the disability payments weren't received under a worker's compensation act or a statute in the nature of a worker's compensation act.
The Court reasoned that the collective bargaining agreement entered into between the City of Cleveland and the union was a labor contract which did not rise to the force and effect of law. When the language of a collective bargaining agreement is by legislative act incorporated by reference or otherwise into a municipal code, and so enacted into law, it meets the requirements of Code Sec. 104(a)(1). But mere approval by the mayor or the city council of a collective bargaining agreement negotiated by a city and a union doesn't meets the requirements, without explicit incorporation into the city's code.
The Court concluded that although this collective bargaining agreement was presumably ratified by the Cleveland City council, even such ratification wouldn't convert the collective bargaining agreement into legislation because (1) the collective bargaining agreement was modifiable under its own terms, and (2) unlike the county statute in Rev Rul 81-47, there was no showing that the State of Ohio had a statute that required the collective bargaining agreement to be incorporated into the Cleveland City Code.
Research References: For the exclusion for workers' compensation payments, see FTC 2d/FIN ¶ H-1351; United States Tax Reporter ¶ 1044.01; TaxDesk ¶ 133,049.
Background. Payments qualifying as workers' compensation are excludable from gross income unless the compensation offsets previously deducted medical expenses. Not only must an injury or illness be job-related, but also the statute (under which payment is made) must restrict the benefit to injuries or sickness related to the job. Thus, amounts that are received (1) under a workers' compensation act (such as the Longshore and Harbor Workers Compensation Act, 33 USC 901), or under a statute “in the nature of a workers' compensation act,” (2) as compensation for personal injuries or sickness, (3) where the personal injuries or sickness were related to the employee's occupation, are excluded from the employee's income. (Code Sec. 104(a)(1), Reg. § 1.104-1(b))
In Rev Rul 81-47, 1981-1 CB 55, IRS concluded that a collective bargaining agreement that was adopted and approved by a local (county) legislature and incorporated by reference into the local legislative code qualified as a statute in the nature of a worker's compensation act. The collective bargaining agreement involved had been entered into pursuant to a county statute which provided that all collective bargaining agreements entered into by the county had to be approved by “legislative acts” of the county council and incorporated by reference in the county code. Accordingly, IRS ruled that payments made to disabled county safety officials (e.g., firefighters and police officers) under the terms of the collective bargaining agreement were excludable under Code Sec. 104(a)(1).
In Rev Rul 83-77, 1983-1 CB 37, IRS held that a collective bargaining agreement, even if it was consistent with a municipal code, wasn't itself a statute. Accordingly, IRS ruled that payments made to a police officer, who was injured in the line of duty and was determined to be unable to perform regular police duties, weren't excludable from his gross income.
Facts. John T. Bayse, who worked as a firefighter for Cleveland, Ohio, was injured in the line of duty while responding to an automobile accident. For purposes of his firefighting duties, he was deemed to have suffered a “hazardous duty injury.” From the day of the accident through his retirement from the fire department (with the exception of 2 days when he attempted to resume work), he was on hazardous duty injury status and was paid pursuant to the terms of a collective bargaining agreement between Cleveland and the union, Cleveland Fire Fighters, Local 93. Under the terms of the collective bargaining agreement, he eventually applied for and was granted a disability retirement pension.
On audit of Bayse's return, IRS determined that the disability payments received from the City of Cleveland had to be included in his gross income because they weren't received under a workmen's compensation act as compensation for personal injuries or sickness under Code Sec. 104(a)(1).
Not workers' compensation. The Tax Court concluded that the payments Bayse received while on hazardous duty injury status had to be included in his gross income because the disability payments weren't received under a worker's compensation act or a statute in the nature of a worker's compensation act.
The Court reasoned that the collective bargaining agreement entered into between the City of Cleveland and the union was a labor contract which did not rise to the force and effect of law. When the language of a collective bargaining agreement is by legislative act incorporated by reference or otherwise into a municipal code, and so enacted into law, it meets the requirements of Code Sec. 104(a)(1). But mere approval by the mayor or the city council of a collective bargaining agreement negotiated by a city and a union doesn't meets the requirements, without explicit incorporation into the city's code.
The Court concluded that although this collective bargaining agreement was presumably ratified by the Cleveland City council, even such ratification wouldn't convert the collective bargaining agreement into legislation because (1) the collective bargaining agreement was modifiable under its own terms, and (2) unlike the county statute in Rev Rul 81-47, there was no showing that the State of Ohio had a statute that required the collective bargaining agreement to be incorporated into the Cleveland City Code.
Research References: For the exclusion for workers' compensation payments, see FTC 2d/FIN ¶ H-1351; United States Tax Reporter ¶ 1044.01; TaxDesk ¶ 133,049.
IRS Is Off To A Good Start In Processing Build America Bond Subsidies
IRS's initial subsidy payments for the Build America Bond, a new type of bond created by the American Recovery and Reinvestment Act of 2009, were processed in a highly commendable manner, the Treasury Inspector General for Tax Administration (TIGTA) said in a new audit. Under this bond program, the federal government partially offsets the state and local governments' cost of paying bond interest. As described by TIGTA, proceeds from these bonds are intended to provide state and local governments with funding for capital projects. The audit found that, “generally, all complete requests for payment of the Build America Bond federal subsidies were processed accurately, timely, and without indications of fraudulent or erroneous disbursement.” The total amount of federal subsidy payments was more than $110 million for the 80 bond issuances requesting payment by the time of the TIGTA review of the data. The audit can be found at http://treas.gov/tigta/auditreports/2010reports/201011083fr.pdf.
Taxpayers With Possible Code Sec. 956 Inclusions Should Consider Implications Of New Law
Author: Remy Farag, J.D., LL.M., RIA editorial staff
Taxpayers with structures that planned for a Code Sec. 956 inclusion from lower-tier controlled foreign corporations (CFCs) that anticipated not paying significant residual U.S. tax should quickly assess how the enactment of the "Education Jobs and Medicaid Assistance Act" (P.L. 111-226) affects their tax positions.
Background. A Code Sec. 951(a)(1)(B) inclusion is generally the income inclusion of a U.S. shareholder of a CFC arising from the CFC's investment in U.S. property. Under current law, a U.S. company's deemed paid taxes from a Code Sec. 951(a)(1)(B) from a lower-tier CFC comes directly from the CFC to the U.S. company without affecting the earnings and taxes of upper tier CFCs). This is often referred to as the Code Sec. 956 hopscotch rule. As an example, this provision is often applicable to financing transactions where U.S. borrowers have their foreign subsidiaries act as guarantors to secure financing and some (or all) of the CFC's pledged assets includes U.S. property.
New Code Sec. 960(c). Under the new law, Code Sec. 960 is modified to provide a new rule for determining the deemed paid foreign income tax associated with a Code Sec. 951(a)(1)(B) inclusion. For acquisitions of U.S. property afterDecember 31, 2010, the new law prevents taxpayers from maximizing their foreign tax credits by selectively repatriating income from high-taxed foreign subsidiaries while continuing to defer U.S. tax on income of low-taxed foreign subsidiaries. If there is an amount included in the gross income of a domestic corporation under Code Sec. 951(a)(1)(B) attributable to the earnings and profits of a foreign corporation which is a member of a qualified group with respect to the domestic corporation, then the amount of any foreign income tax deemed to have been paid during the tax year by the domestic corporation under Code Sec. 902 by reason of Code Sec. 960(a) with respect to such gross income inclusion can't exceed the amount of foreign taxes that would be deemed paid if cash in an amount equal to the amount of the inclusion in gross income were distributed as a series of distributions (determined without regard to any foreign tax which would be imposed on an actual distribution) through the chain of ownership which begins with the foreign corporation and ends with the domestic corporation.
It should be noted that taxpayers may still be able to take advantage of the Code Sec. 956 hopscotch rule after December 31, 2010, with respect to their Code Sec. 951(a)(1)(B) inclusions if the U.S. property was acquired by the CFC prior to January 1, 2011, although the Joint Committee on Taxation's report advises that this provision is likely subject to certain limitations.
Taxpayers with structures that planned for a Code Sec. 956 inclusion from lower-tier controlled foreign corporations (CFCs) that anticipated not paying significant residual U.S. tax should quickly assess how the enactment of the "Education Jobs and Medicaid Assistance Act" (P.L. 111-226) affects their tax positions.
Background. A Code Sec. 951(a)(1)(B) inclusion is generally the income inclusion of a U.S. shareholder of a CFC arising from the CFC's investment in U.S. property. Under current law, a U.S. company's deemed paid taxes from a Code Sec. 951(a)(1)(B) from a lower-tier CFC comes directly from the CFC to the U.S. company without affecting the earnings and taxes of upper tier CFCs). This is often referred to as the Code Sec. 956 hopscotch rule. As an example, this provision is often applicable to financing transactions where U.S. borrowers have their foreign subsidiaries act as guarantors to secure financing and some (or all) of the CFC's pledged assets includes U.S. property.
New Code Sec. 960(c). Under the new law, Code Sec. 960 is modified to provide a new rule for determining the deemed paid foreign income tax associated with a Code Sec. 951(a)(1)(B) inclusion. For acquisitions of U.S. property afterDecember 31, 2010, the new law prevents taxpayers from maximizing their foreign tax credits by selectively repatriating income from high-taxed foreign subsidiaries while continuing to defer U.S. tax on income of low-taxed foreign subsidiaries. If there is an amount included in the gross income of a domestic corporation under Code Sec. 951(a)(1)(B) attributable to the earnings and profits of a foreign corporation which is a member of a qualified group with respect to the domestic corporation, then the amount of any foreign income tax deemed to have been paid during the tax year by the domestic corporation under Code Sec. 902 by reason of Code Sec. 960(a) with respect to such gross income inclusion can't exceed the amount of foreign taxes that would be deemed paid if cash in an amount equal to the amount of the inclusion in gross income were distributed as a series of distributions (determined without regard to any foreign tax which would be imposed on an actual distribution) through the chain of ownership which begins with the foreign corporation and ends with the domestic corporation.
It should be noted that taxpayers may still be able to take advantage of the Code Sec. 956 hopscotch rule after December 31, 2010, with respect to their Code Sec. 951(a)(1)(B) inclusions if the U.S. property was acquired by the CFC prior to January 1, 2011, although the Joint Committee on Taxation's report advises that this provision is likely subject to certain limitations.
IRS Seeks New Issues for the Industry Issue Resolution Program
WASHINGTON — The Internal Revenue Service is encouraging business taxpayers, associations and other interested parties to submit to the Industry Issue Resolution (IIR) program tax issues for resolution involving a controversy, a dispute or an unnecessary burden on business taxpayers.
The objective of the IIR program is to resolve business tax issues common to significant numbers of taxpayers through new and improved guidance. In past years, issues have been submitted by associations and others representing both small and large business taxpayers, resulting in tax guidance that helps thousands of taxpayers.
Recent submissions accepted into the IIR program include:
• Network assets in the telecommunications industry (unit of property)
• Asset class determination under Revenue Procedure 87-56 for wireless telecommunication assets
• Vendor mark down allowances in calculation of inventory under the retail inventory method
• Network assets in the utilities industry (unit of property)
Guidance issued as a result of the IIR program includes:
• Technical terminations of publicly traded partnerships - procedures for requesting relief, delegation of authority for granting relief, and a sample closing agreement documenting the conditions under which relief is granted. (Industry Director Communication LMSB-04-0210-006)
• Auto Last In First Out - for automobile wholesalers, manufacturers and dealers regarding the proper treatment of the dollar-value, LIFO inventory method for pooling purposes of crossover vehicles, which have characteristics of trucks and cars. (Revenue Procedure 2008-33)
For each issue selected, an IIR team of IRS and Treasury personnel gather relevant facts from taxpayers or other interested parties affected by the issue. The goal is to recommend guidance to resolve the issue. This benefits both taxpayers and the IRS by saving time and expense that would otherwise be expended on resolving the issue through audits.
IIR project selections are based on the criteria set forth in Revenue Procedure 2003-36. For each issue selected, a multi-functional team of IRS, Chief Counsel, and Treasury personnel will be assembled. The teams will gather and analyze the relevant facts from industry groups and taxpayers for each issue and recommend guidance.
Requests for guidance on tax issues under the IIR program can be submitted at any time to IIR@irs.gov. Submissions received are reviewed semi-annually with selections next being made from issues submitted by September 30, 2010.
The objective of the IIR program is to resolve business tax issues common to significant numbers of taxpayers through new and improved guidance. In past years, issues have been submitted by associations and others representing both small and large business taxpayers, resulting in tax guidance that helps thousands of taxpayers.
Recent submissions accepted into the IIR program include:
• Network assets in the telecommunications industry (unit of property)
• Asset class determination under Revenue Procedure 87-56 for wireless telecommunication assets
• Vendor mark down allowances in calculation of inventory under the retail inventory method
• Network assets in the utilities industry (unit of property)
Guidance issued as a result of the IIR program includes:
• Technical terminations of publicly traded partnerships - procedures for requesting relief, delegation of authority for granting relief, and a sample closing agreement documenting the conditions under which relief is granted. (Industry Director Communication LMSB-04-0210-006)
• Auto Last In First Out - for automobile wholesalers, manufacturers and dealers regarding the proper treatment of the dollar-value, LIFO inventory method for pooling purposes of crossover vehicles, which have characteristics of trucks and cars. (Revenue Procedure 2008-33)
For each issue selected, an IIR team of IRS and Treasury personnel gather relevant facts from taxpayers or other interested parties affected by the issue. The goal is to recommend guidance to resolve the issue. This benefits both taxpayers and the IRS by saving time and expense that would otherwise be expended on resolving the issue through audits.
IIR project selections are based on the criteria set forth in Revenue Procedure 2003-36. For each issue selected, a multi-functional team of IRS, Chief Counsel, and Treasury personnel will be assembled. The teams will gather and analyze the relevant facts from industry groups and taxpayers for each issue and recommend guidance.
Requests for guidance on tax issues under the IIR program can be submitted at any time to IIR@irs.gov. Submissions received are reviewed semi-annually with selections next being made from issues submitted by September 30, 2010.
Six Facts about the American Opportunity Tax Credit
There is still time left to take advantage of the American Opportunity Tax Credit, a credit that will help many parents and college students offset the cost of college. This tax credit is part of the American Recovery and Reinvestment Act of 2009 and is available through December 31, 2010. It can be claimed by eligible taxpayers for college expenses paid in 2009 and 2010.
Here are six important facts the IRS wants you to know about the American Opportunity Tax Credit:
1. This credit, which expands and renames the existing Hope Credit, can be claimed for qualified tuition and related expenses that you pay for higher education in 2009 and 2010. Qualified tuition and related expenses include tuition, related fees, books and other required course materials.
2. The credit is equal to 100 percent of the first $2,000 spent per student each year and 25 percent of the next $2,000. Therefore, the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualifying expenses for an eligible student.
3. The full credit is generally available to eligible taxpayers who make less than $80,000 or $160,000 for married couples filing a joint return. The credit is gradually reduced, however, for taxpayers with incomes above these levels.
4. Forty percent of the credit is refundable, so even those who owe no tax can get up to $1,000 of the credit for each eligible student as cash back.
5. The credit can be claimed for qualified expenses paid for any of the first four years of post-secondary education.
6. You cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction and should consider which is more beneficial for you.
Complete details on the American Opportunity Tax Credit and other key tax provisions of the Recovery Act are available at IRS.gov/recovery.
Thursday, August 26, 2010
PCI Compliance in QuickBooks
Every business using QuickBooks should at the very minimum perform the steps here to ensure basic compliance with PCI DSS (Payment Card Industry Data Security Standards) with respect to storing credit card numbers in QuickBooks. Keep in mind that these steps are just the QuickBooks part, so make sure you do this.
To enable Customer Credit Card Protection in QuickBooks:
1. Enable Customer Credit Card Protection.
a. Select Customer Credit Card Protection from the Company Menu. The button in the window will either show Enable Protection (which means protection is NOT enabled) or Disable Protection (which means the protection IS enabled).
2. Ensure that all users of QuickBooks store credit cards only in the Credit Card No. field on the Payment Info tab of customer records.
3. Do not store sensitive authentication data such as card-validation codes (the three-digit number near the signature panel), personal identification numbers (PIN) or magnetic strip data.
4. Limit access to credit card data by assigning or removing permission for users to view full customer credit card numbers.
5. Set complex passwords and change them every 90 days for all users with access to credit card data.
6. Keep QuickBooks updated by turning on automatic updates.
To enable Customer Credit Card Protection in QuickBooks:
1. Enable Customer Credit Card Protection.
a. Select Customer Credit Card Protection from the Company Menu. The button in the window will either show Enable Protection (which means protection is NOT enabled) or Disable Protection (which means the protection IS enabled).
2. Ensure that all users of QuickBooks store credit cards only in the Credit Card No. field on the Payment Info tab of customer records.
3. Do not store sensitive authentication data such as card-validation codes (the three-digit number near the signature panel), personal identification numbers (PIN) or magnetic strip data.
4. Limit access to credit card data by assigning or removing permission for users to view full customer credit card numbers.
5. Set complex passwords and change them every 90 days for all users with access to credit card data.
6. Keep QuickBooks updated by turning on automatic updates.
IRS Warns of Limits on Mortgage Deductions
Washington, D.C. - The Internal Revenue Service is cautioning taxpayers about restrictions on home mortgage interest deductions. "The IRS reminds taxpayers that interest deductions on home mortgages are limited, including limitations for home acquisition and home equity indebtedness," said IRS Headliner Volume 299. "There is one limit for loans used to buy, build, or substantially improve a residence - called home acquisition debt. There is another limit for loans secured by a qualified residence but used for other purposes - called home equity debt. Internal Revenue Code Section 163(h)(3) provides guidance for the limitations on the home mortgage interest deduction."
"The law allows taxpayers to deduct interest on two categories of indebtedness secured by the residences. Acquisition indebtedness is used to acquire, construct or substantially improve a residence, and cannot exceed $1,000,000. Home equity indebtedness is any [other] debt, and cannot exceed $100,000."
"The law allows taxpayers to deduct interest on two categories of indebtedness secured by the residences. Acquisition indebtedness is used to acquire, construct or substantially improve a residence, and cannot exceed $1,000,000. Home equity indebtedness is any [other] debt, and cannot exceed $100,000."
1099 Rules Seen as a Major Burden: New reporting requirements look likely to hit small biz hardest
from: Accounting Today, Aug. 16 - Sept. 12
written by: Roger Russell
Although its just one of many new taxes in the health care reform law, and its effective date is more than a year away, the new Form 1099 reporting requirements are suddenly on everyone's radar screen.
The requirements, included in Section 9006 of the Patient Protection and affordable Care Act, will require the tracking of payments for goods as well as services, and for payments to corporations as well as individuals. All businesses, tax-exempt organizations, and federal, state and local government entities will be required to issue Forms 1099 to vendors from whom they make purchases totaling $600 or more during a calendar year.
National Taxpayer Advocate Nina Olson cited the new requirements as one of her main concerns during the fiscal year ahead, saying that the burdens "may turn out to be disproportionate as compared with any resulting improvement in tax compliance."
During 2011, her office will study the impact of the new reporting requirement more closely and, depending on what the study finds, may propose administrative or legislative recommendations to modify the provision or suggest that Congress consider less burdensome tax gap proposals.
"This will add an untold number of 1099s to the mix, and it's going to be a record-keeping burden for the purchaser," said Benson Goldstein, senior technical manager at the American Institute of CPAs. "What if they have multiple locations, and the purchaser is buying from many different vendors? There's a lot to be worked out, but it will be a very burdensome task not only for the business community, but also for the IRS."
"It starts with the fact that Form 1099 was focused on reporting compensation for personal services, rather than goods," said Robert Kerr, senior director of government relations for the National Association of Enrolled Agents. "But when push came to shove, it scored higher as a 'pay for' to include goods as well."
"It's extremely intrusive on businesses, particularly small businesses," Kerr explained. "For example, if you run a small shop and pick up doughnuts for the office every Friday, eventually you will reach the $600 threshold, so do you ask for the vendor's Taxpayer Identification Number on the day you get the first doughnut, or on the day you have reached the $600 mark? And what if you go to two doughnut stores -- they could be owned by two different franchisees. Is it a reasonable exercise for small business to keep track of which Dunkin' Donuts they buy from?"
Moreover, he noted, it is the responsibility of the owner to determine whether the business will reach the $600 threshold for a particular vendor. "They might just stop buying doughnuts because the paperwork is too burdensome," he said.
IRS Commissioner Doug Shulman has acknowledged the burden the provisions impose, and plans to use IRS administrative authority to exempt business transactions that use credit or debit cards. "These transactions will already be covered by reporting requirements on payment card processors," he said. The IRS is also looking for other ways to reduce the burden.
Outright repeal, or at least the elimination of funding for regulation of the provision, remains a possibility, as there is currently a bill pending before the Ways and Means Committee designed to do just that. H.R. 5141, the Small Business Paperwork Mandate Elimination Act, proposed by Dan Lungren, R-Calif., would repeal the provision in its entirety. It currently has 91 bipartisan co-sponsors.
However, it is unlikely to be taken up before the November elections.
Some Relief, But Not Much
Under a revenue offset provision in the Housing and Economic Recovery Act of 2008, aggregate dollar amounts of credit and debit card transactions must be reported beginning in 2011.
This will help to exempt some transactions from the reporting requirement, but still leaves an excessive burden in place, according to Marty Davidoff, of Dayton, N.J.-based E. Martin Davidoff & Associates. "Not all small businesses accept credit cards," he noted. "On the other side of the transaction, it's getting harder for small businesses to use credit cards because banks have been lowering their limits."
Potential downstream issues will arise when the IRS starts trying to match documents and issuing CP 2000s (Notice of Underreported Income), Kerr said. "At the end of the year you might have a stack of 1099s, but also income from those that didn't provide 1099s. How is the IRS supposed to make any sense out of the 1099s by comparing them with the income you report on your 1120S?"
Meanwhile, preparers are not necessarily the same people who prepare 1099s, noted John Ams, executive vice president of the National Society of Accountants. "A typical small preparer may not be equipped to prepare 1099s, but that's what his client will expect. They will have to hire people for a three-week period during tax season to get those out, at the same time they're preparing taxes."
"This is an example of someone who thought they had a good idea but didn't think through all the implications," he said.
Impact on Small Business
Olson noted in her report that the provision might negatively impact small businesses that lack the capacity to track customer purchases, since small businesses seeking to minimize recordkeeping burden "will have an incentive to use large vendors that can produce these reports for them."
The consequences will be drastic, agreed Paul Cinquemeni, director of government relations for the National Association of Tax Professionals: "The large corporations can issue 1099s to everyone as a matter of course, but the small will have a great deal of additional accounting. They're looking to ameliorate the tax gap and get their arms around unreported income, but its a real concern about what it will do to small businesses."
"It exponentially increases the number of of 1099s to file," said Bob Rys, tax counsel at the National Federation of Independent Businesses, "and the auditing and other information necessary to collect from other businesses. It puts a tremendous new paperwork burden on the small business owner."
written by: Roger Russell
Although its just one of many new taxes in the health care reform law, and its effective date is more than a year away, the new Form 1099 reporting requirements are suddenly on everyone's radar screen.
The requirements, included in Section 9006 of the Patient Protection and affordable Care Act, will require the tracking of payments for goods as well as services, and for payments to corporations as well as individuals. All businesses, tax-exempt organizations, and federal, state and local government entities will be required to issue Forms 1099 to vendors from whom they make purchases totaling $600 or more during a calendar year.
National Taxpayer Advocate Nina Olson cited the new requirements as one of her main concerns during the fiscal year ahead, saying that the burdens "may turn out to be disproportionate as compared with any resulting improvement in tax compliance."
During 2011, her office will study the impact of the new reporting requirement more closely and, depending on what the study finds, may propose administrative or legislative recommendations to modify the provision or suggest that Congress consider less burdensome tax gap proposals.
"This will add an untold number of 1099s to the mix, and it's going to be a record-keeping burden for the purchaser," said Benson Goldstein, senior technical manager at the American Institute of CPAs. "What if they have multiple locations, and the purchaser is buying from many different vendors? There's a lot to be worked out, but it will be a very burdensome task not only for the business community, but also for the IRS."
"It starts with the fact that Form 1099 was focused on reporting compensation for personal services, rather than goods," said Robert Kerr, senior director of government relations for the National Association of Enrolled Agents. "But when push came to shove, it scored higher as a 'pay for' to include goods as well."
"It's extremely intrusive on businesses, particularly small businesses," Kerr explained. "For example, if you run a small shop and pick up doughnuts for the office every Friday, eventually you will reach the $600 threshold, so do you ask for the vendor's Taxpayer Identification Number on the day you get the first doughnut, or on the day you have reached the $600 mark? And what if you go to two doughnut stores -- they could be owned by two different franchisees. Is it a reasonable exercise for small business to keep track of which Dunkin' Donuts they buy from?"
Moreover, he noted, it is the responsibility of the owner to determine whether the business will reach the $600 threshold for a particular vendor. "They might just stop buying doughnuts because the paperwork is too burdensome," he said.
IRS Commissioner Doug Shulman has acknowledged the burden the provisions impose, and plans to use IRS administrative authority to exempt business transactions that use credit or debit cards. "These transactions will already be covered by reporting requirements on payment card processors," he said. The IRS is also looking for other ways to reduce the burden.
Outright repeal, or at least the elimination of funding for regulation of the provision, remains a possibility, as there is currently a bill pending before the Ways and Means Committee designed to do just that. H.R. 5141, the Small Business Paperwork Mandate Elimination Act, proposed by Dan Lungren, R-Calif., would repeal the provision in its entirety. It currently has 91 bipartisan co-sponsors.
However, it is unlikely to be taken up before the November elections.
Some Relief, But Not Much
Under a revenue offset provision in the Housing and Economic Recovery Act of 2008, aggregate dollar amounts of credit and debit card transactions must be reported beginning in 2011.
This will help to exempt some transactions from the reporting requirement, but still leaves an excessive burden in place, according to Marty Davidoff, of Dayton, N.J.-based E. Martin Davidoff & Associates. "Not all small businesses accept credit cards," he noted. "On the other side of the transaction, it's getting harder for small businesses to use credit cards because banks have been lowering their limits."
Potential downstream issues will arise when the IRS starts trying to match documents and issuing CP 2000s (Notice of Underreported Income), Kerr said. "At the end of the year you might have a stack of 1099s, but also income from those that didn't provide 1099s. How is the IRS supposed to make any sense out of the 1099s by comparing them with the income you report on your 1120S?"
Meanwhile, preparers are not necessarily the same people who prepare 1099s, noted John Ams, executive vice president of the National Society of Accountants. "A typical small preparer may not be equipped to prepare 1099s, but that's what his client will expect. They will have to hire people for a three-week period during tax season to get those out, at the same time they're preparing taxes."
"This is an example of someone who thought they had a good idea but didn't think through all the implications," he said.
Impact on Small Business
Olson noted in her report that the provision might negatively impact small businesses that lack the capacity to track customer purchases, since small businesses seeking to minimize recordkeeping burden "will have an incentive to use large vendors that can produce these reports for them."
The consequences will be drastic, agreed Paul Cinquemeni, director of government relations for the National Association of Tax Professionals: "The large corporations can issue 1099s to everyone as a matter of course, but the small will have a great deal of additional accounting. They're looking to ameliorate the tax gap and get their arms around unreported income, but its a real concern about what it will do to small businesses."
"It exponentially increases the number of of 1099s to file," said Bob Rys, tax counsel at the National Federation of Independent Businesses, "and the auditing and other information necessary to collect from other businesses. It puts a tremendous new paperwork burden on the small business owner."
Wednesday, August 25, 2010
Wall Street Reform Bill: What it Means to You
If you are like most Americans, reading a summary of the Wall Street Reform and Consumer Protection Act might better serve as an alternative to sleeping pills. So what does the bill mean to you?
1. Limited Use of Debit/Credit Cards. You may start seeing minimum charge amounts for debit and credit cards. Visa and MasterCard rules are being loosened up to allow retailers to reject unprofitable transactions. Often using your debit card for a $1.00 can of soda can cost the retailer more to process the transaction that the purchase is worth.
2. Home Mortgages Will Change. Most pre-payment penalties will be eliminated. Complex mortgage products will need to pass through the new Consumer Protection Bureau. Lenders are required to ensure that borrowers can pay the loans that they sell and the bill prohibits lenders from steering borrowers to more expensive loan options. Refinancing fees will also be reduced.
3. Access to Your Credit Score. You'll be able to see your credit "score" free if you are refused for a mortgage. Currently you have the right to see your credit report free once per year, but until now you had to pay to see your credit score.
4. Beware Car Loans. Read your loans carefully as car lenders are exempt from oversight by the Consumer Protection Bureau.
5. Higher limits on Deposit Insurance. Effectively immediately, the FDIC has permanently raised the limit from $100,000 on insured individual deposits to $250,000.
6. No more $30 fee for a $2.00 overdraft. You'll need to "opt-in" to expensive bank overdraft programs. Banks can no longer automatically charge you high fees for overdrafts. You will probably start seeing letters from your bank disclosing how overdraft fees are calculated and asking for your permission (opt-in) to their overdraft policy.
7. Lower Prices? The Federal Reserve will try to ensure that fees charged to merchants by credit and debit card companies are reasonable and in proportion to the cost of processing the transaction. Because of this, you may see more discounts for cash payments OR even lower prices as merchants pass their credit card expense savings back to you.
8. Emergency Mortgage Relief. The bill provides for $1 billion in bridge loans to qualified unemployed homeowners with reasonable prospects for re-employment to help cover mortgage payments until the homeowner is re-employed.
9. New Bank Fees? You will need to review your bank's fee structure. Because banks will be losing some current revenue streams, expect banks to start looking for fees elsewhere. Be on the lookout for new fees, such as charges for checking accounts or online banking.
10. No More Nasty Letters Required. If the "Act" is correct, you'll no longer have to send nasty letters to your representatives regarding taxpayer bailouts. If institutions gamble and fail, they can no longer look to us to make them whole.
1. Limited Use of Debit/Credit Cards. You may start seeing minimum charge amounts for debit and credit cards. Visa and MasterCard rules are being loosened up to allow retailers to reject unprofitable transactions. Often using your debit card for a $1.00 can of soda can cost the retailer more to process the transaction that the purchase is worth.
2. Home Mortgages Will Change. Most pre-payment penalties will be eliminated. Complex mortgage products will need to pass through the new Consumer Protection Bureau. Lenders are required to ensure that borrowers can pay the loans that they sell and the bill prohibits lenders from steering borrowers to more expensive loan options. Refinancing fees will also be reduced.
3. Access to Your Credit Score. You'll be able to see your credit "score" free if you are refused for a mortgage. Currently you have the right to see your credit report free once per year, but until now you had to pay to see your credit score.
4. Beware Car Loans. Read your loans carefully as car lenders are exempt from oversight by the Consumer Protection Bureau.
5. Higher limits on Deposit Insurance. Effectively immediately, the FDIC has permanently raised the limit from $100,000 on insured individual deposits to $250,000.
6. No more $30 fee for a $2.00 overdraft. You'll need to "opt-in" to expensive bank overdraft programs. Banks can no longer automatically charge you high fees for overdrafts. You will probably start seeing letters from your bank disclosing how overdraft fees are calculated and asking for your permission (opt-in) to their overdraft policy.
7. Lower Prices? The Federal Reserve will try to ensure that fees charged to merchants by credit and debit card companies are reasonable and in proportion to the cost of processing the transaction. Because of this, you may see more discounts for cash payments OR even lower prices as merchants pass their credit card expense savings back to you.
8. Emergency Mortgage Relief. The bill provides for $1 billion in bridge loans to qualified unemployed homeowners with reasonable prospects for re-employment to help cover mortgage payments until the homeowner is re-employed.
9. New Bank Fees? You will need to review your bank's fee structure. Because banks will be losing some current revenue streams, expect banks to start looking for fees elsewhere. Be on the lookout for new fees, such as charges for checking accounts or online banking.
10. No More Nasty Letters Required. If the "Act" is correct, you'll no longer have to send nasty letters to your representatives regarding taxpayer bailouts. If institutions gamble and fail, they can no longer look to us to make them whole.
Pending Legislation - Be Prepared!
Many tax provisions in 2009 have expired and will catch taxpayers by surprise if legislation is not passed to extend the laws into 2010. Here are some tips while we are in limbo:
Tip 1: Keep Sales Tax Receipts for Major Purchases. In 2009 you could opt to deduct either state income taxes OR the state and local general sales taxes paid as an itemized deduction on your Federal Tax Return. This option goes away without an extension. So if you purchase a large item like an automobile make sure to keep the receipt ... just in case.
Tip 2: Teachers, Document Your Expenses. The $250 out-of-pocket expense deduction on your taxes is not currently in 2010 without a law change, but don't assume it will not occur. Continue to save your receipts.
Tip 3: Save Energy Efficient Purchase Documents. Many of the credits available for purchasing energy efficient improvements for your home have also expired. But again, save the receipts as many of these provisions may also be extended through 2010.
Tip 4: Don't Plan on Property Tax Standard Deduction. Many taxpayers who did not itemize last year were able to receive an increased Standard Deduction up to $1,000 for Property Tax payments. This provision has not yet been extended into 2010.
Tip 5: Hold off on that Direct IRA Contribution to Charity. The tax-free distribution directly from individual retirement accounts (IRAs) to qualified charities for seniors has not yet been extended through 2010.
Most experts agree that these provisions will be extended into 2010, but until they are all we can do is be prepared.
Tip 1: Keep Sales Tax Receipts for Major Purchases. In 2009 you could opt to deduct either state income taxes OR the state and local general sales taxes paid as an itemized deduction on your Federal Tax Return. This option goes away without an extension. So if you purchase a large item like an automobile make sure to keep the receipt ... just in case.
Tip 2: Teachers, Document Your Expenses. The $250 out-of-pocket expense deduction on your taxes is not currently in 2010 without a law change, but don't assume it will not occur. Continue to save your receipts.
Tip 3: Save Energy Efficient Purchase Documents. Many of the credits available for purchasing energy efficient improvements for your home have also expired. But again, save the receipts as many of these provisions may also be extended through 2010.
Tip 4: Don't Plan on Property Tax Standard Deduction. Many taxpayers who did not itemize last year were able to receive an increased Standard Deduction up to $1,000 for Property Tax payments. This provision has not yet been extended into 2010.
Tip 5: Hold off on that Direct IRA Contribution to Charity. The tax-free distribution directly from individual retirement accounts (IRAs) to qualified charities for seniors has not yet been extended through 2010.
Most experts agree that these provisions will be extended into 2010, but until they are all we can do is be prepared.
Wall Street Reform Becomes Law
Recap of the Major Provisions
On Wednesday, July 21, 2010, President Obama signed into la the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Here are some of the key measures:
* No More "Too Big to Fail" Bailouts. The federal government will now have the power to seize and liquidate failing financial firms while limiting taxpayer financial exposure. Large financial institutions also face stricter capital, leverage, and liquidity requirements.
* New Consumer Protection Bureau. The bill establishes a new Consumer Protection Bureau with the task of monitoring mortgages, credit cards, and other loan products.
* New Financial Stability Oversight Council. The Council is designed to serve as an "advanced warning system" to expose risks that might threaten the economy.
* Oversight of Derivatives. Derivative trades must now pass through clearing houses or swap repositories to increase market transparency and allow better oversignt.
* The "Volker" Rules. These rules are designed to limit big, insured banks' activities in speculative derivatives and stock investments. The rules also require big banks to sell off much of their interest in hedge funds and private equity.
* Reduced Fees on Debit/Credit Cards. The law will curb the fees retailers are required to pay banks and credit unions on debit and credit card transactions.
* Oversight of Credit Reporting Agencies. New rules require more objective review and accountability for ratings from the firms that rate financial products.
Many of these rules will take years to implement, and there is divided opinion over the effectiveness of the bill. It will be years before we will understand the full effect of this historic bill's passage.
On Wednesday, July 21, 2010, President Obama signed into la the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Here are some of the key measures:
* No More "Too Big to Fail" Bailouts. The federal government will now have the power to seize and liquidate failing financial firms while limiting taxpayer financial exposure. Large financial institutions also face stricter capital, leverage, and liquidity requirements.
* New Consumer Protection Bureau. The bill establishes a new Consumer Protection Bureau with the task of monitoring mortgages, credit cards, and other loan products.
* New Financial Stability Oversight Council. The Council is designed to serve as an "advanced warning system" to expose risks that might threaten the economy.
* Oversight of Derivatives. Derivative trades must now pass through clearing houses or swap repositories to increase market transparency and allow better oversignt.
* The "Volker" Rules. These rules are designed to limit big, insured banks' activities in speculative derivatives and stock investments. The rules also require big banks to sell off much of their interest in hedge funds and private equity.
* Reduced Fees on Debit/Credit Cards. The law will curb the fees retailers are required to pay banks and credit unions on debit and credit card transactions.
* Oversight of Credit Reporting Agencies. New rules require more objective review and accountability for ratings from the firms that rate financial products.
Many of these rules will take years to implement, and there is divided opinion over the effectiveness of the bill. It will be years before we will understand the full effect of this historic bill's passage.
Eight Things to Know If You Receive an IRS Notice
Did you receive a notice from the IRS this year? Every year the IRS sends millions of letters and notices to taxpayers but that doesn’t mean you need to worry. Here are eight things every taxpayer should know about IRS notices – just in case one shows up in your mailbox.
1. Don’t panic. Many of these letters can be dealt with simply and painlessly.
2. There are number of reasons the IRS sends notices to taxpayers. The notice may request payment of taxes, notify you of a change to your account or request additional information. The notice you receive normally covers a very specific issue about your account or tax return.
3. Each letter and notice offers specific instructions on what you need to do to satisfy the inquiry.
4. If you receive a correction notice, you should review the correspondence and compare it with the information on your return.
5. If you agree with the correction to your account, usually no reply is necessary unless a payment is due.
6. If you do not agree with the correction the IRS made, it is important that you respond as requested. Write to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.
7. Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call, to help us respond to your inquiry.
8. It’s important that you keep copies of any correspondence with your records.
For more information about IRS notices and bills, see Publication 594, The IRS Collection Process. Information about penalties and interest charges is available in Publication 17, Your Federal Income Tax for Individuals. Both publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
1. Don’t panic. Many of these letters can be dealt with simply and painlessly.
2. There are number of reasons the IRS sends notices to taxpayers. The notice may request payment of taxes, notify you of a change to your account or request additional information. The notice you receive normally covers a very specific issue about your account or tax return.
3. Each letter and notice offers specific instructions on what you need to do to satisfy the inquiry.
4. If you receive a correction notice, you should review the correspondence and compare it with the information on your return.
5. If you agree with the correction to your account, usually no reply is necessary unless a payment is due.
6. If you do not agree with the correction the IRS made, it is important that you respond as requested. Write to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.
7. Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call, to help us respond to your inquiry.
8. It’s important that you keep copies of any correspondence with your records.
For more information about IRS notices and bills, see Publication 594, The IRS Collection Process. Information about penalties and interest charges is available in Publication 17, Your Federal Income Tax for Individuals. Both publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Monday, August 23, 2010
Ten Tips for Taxpayers Making Charitable Donations
Did you make a donation to a charity this year? If so, you may be able to take a deduction for it on your 2010 tax return.
Here are the top 10 things the IRS wants every taxpayer to know before deducting charitable donations.
1. Charitable contributions must be made to qualified organizations to be deductible. You can ask any organization whether it is a qualified organization and most will be able to tell you. You can also check IRS Publication 78, Cumulative List of Organizations, which lists most qualified organizations. IRS Publication 78 is available at IRS.gov.
2. Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.
3. You generally can deduct your cash contributions and the fair market value of most property you donate to a qualified organization. Special rules apply to several types of donated property, including clothing or household items, cars and boats.
4. If your contribution entitles you to receive merchandise, goods, or services in return – such as admission to a charity banquet or sporting event – you can deduct only the amount that exceeds the fair market value of the benefit received.
5. Be sure to keep good records of any contribution you make, regardless of the amount. For any contribution made in cash, you must maintain a record of the contribution such as a bank record – including a cancelled check or a bank or credit card statement – a written record from the charity containing the date and amount of the contribution and the name of the organization, or a payroll deduction record.
6. Only contributions actually made during the tax year are deductible. For example, if you pledged $500 in September but paid the charity only $200 by Dec. 31, your deduction would be $200.
7. Include credit card charges and payments by check in the year they are given to the charity, even though you may not pay the credit card bill or have your bank account debited until the next year.
8. For any contribution of $250 or more, you must have written acknowledgment from the organization to substantiate your donation. This written proof must include the amount of cash and a description and good faith estimate of value of any property you contributed, and whether the organization provided any goods or services in exchange for the gift.
9. To deduct charitable contributions of items valued at $500 or more you must complete a Form 8283, Noncash Charitable Contributions, and attached the form to your return.
10. An appraisal generally must be obtained if you claim a deduction for a contribution of noncash property worth more than $5,000. In that case, you must also fill out Section B of Form 8283 and attach the form to your return.
For more information see IRS Publication 526, Charitable Contributions, and for information on determining value, refer to Publication 561, Determining the Value of Donated Property. These publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Here are the top 10 things the IRS wants every taxpayer to know before deducting charitable donations.
1. Charitable contributions must be made to qualified organizations to be deductible. You can ask any organization whether it is a qualified organization and most will be able to tell you. You can also check IRS Publication 78, Cumulative List of Organizations, which lists most qualified organizations. IRS Publication 78 is available at IRS.gov.
2. Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.
3. You generally can deduct your cash contributions and the fair market value of most property you donate to a qualified organization. Special rules apply to several types of donated property, including clothing or household items, cars and boats.
4. If your contribution entitles you to receive merchandise, goods, or services in return – such as admission to a charity banquet or sporting event – you can deduct only the amount that exceeds the fair market value of the benefit received.
5. Be sure to keep good records of any contribution you make, regardless of the amount. For any contribution made in cash, you must maintain a record of the contribution such as a bank record – including a cancelled check or a bank or credit card statement – a written record from the charity containing the date and amount of the contribution and the name of the organization, or a payroll deduction record.
6. Only contributions actually made during the tax year are deductible. For example, if you pledged $500 in September but paid the charity only $200 by Dec. 31, your deduction would be $200.
7. Include credit card charges and payments by check in the year they are given to the charity, even though you may not pay the credit card bill or have your bank account debited until the next year.
8. For any contribution of $250 or more, you must have written acknowledgment from the organization to substantiate your donation. This written proof must include the amount of cash and a description and good faith estimate of value of any property you contributed, and whether the organization provided any goods or services in exchange for the gift.
9. To deduct charitable contributions of items valued at $500 or more you must complete a Form 8283, Noncash Charitable Contributions, and attached the form to your return.
10. An appraisal generally must be obtained if you claim a deduction for a contribution of noncash property worth more than $5,000. In that case, you must also fill out Section B of Form 8283 and attach the form to your return.
For more information see IRS Publication 526, Charitable Contributions, and for information on determining value, refer to Publication 561, Determining the Value of Donated Property. These publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Friday, August 20, 2010
What You Need to Know About IRS Tax-Exempt Organization Workshops
IRS Exempt Organizations is offering one-day workshops for small and mid-size tax exempt organizations. The workshops are presented by experienced IRS Exempt Organizations specialists that will explain what 501(c)(3) organizations must do to keep their tax-exempt status and comply with tax obligations. These one-day introductory workshops are designed for administrators or volunteers who are responsible for an organization's tax compliance.
Here are five things you need to know about the 2010 IRS Workshops for Small and Mid-Size 501(c)(3) Organizations.
1. The 2010 workshops will be held in September, October and December in Michigan, Ohio, Vermont, North Carolina and Arizona. Additional workshops will be held in 2011.
2. Pre-registration is required.
Location Workshop Hosted By
Southfield, MI September 22 - 23 Lawrence Technological University
Cincinnati, OH October 5 – 7 Internal Revenue Service
South Royalton, VT October 12 Vermont Law School
Raleigh, NC October 20 Institute for Nonprofits at
NC State University
Wilmington, NC October 21 QENO at University of
North Carolina-Wilmington
Phoenix, AZ December 7 - 9 Internal Revenue Service
3. The one-day workshop is designed for representatives of organizations that are new – five years old or less - and for people who are new to tax compliance issues of 501(c)(3) organizations.
4. Each one-day workshop will cover the following topics:
• Tax-Exempt Status - Benefits and responsibilities of tax-exempt status under 501(c)(3). Actions that may jeopardize tax-exempt status of an organization.
• Unrelated Business Income - The definition of unrelated business income, common examples, common exceptions and filing requirements. Includes a discussion of charitable gaming.
• Employment Issues - Classification of workers and filing requirements for employees and independent contractors.
• Form 990 Series - An overview of the Forms 990, 990-EZ, and 990-N (e-Postcard), including tips for recordkeeping and answers to frequently asked questions.
• Required Disclosures - Overview of disclosures tax-exempt organizations are required to make.
5. For more information about the workshops and how to register visit www.irs.gov/eo and click on Calendar of Events.
Here are five things you need to know about the 2010 IRS Workshops for Small and Mid-Size 501(c)(3) Organizations.
1. The 2010 workshops will be held in September, October and December in Michigan, Ohio, Vermont, North Carolina and Arizona. Additional workshops will be held in 2011.
2. Pre-registration is required.
Location Workshop Hosted By
Southfield, MI September 22 - 23 Lawrence Technological University
Cincinnati, OH October 5 – 7 Internal Revenue Service
South Royalton, VT October 12 Vermont Law School
Raleigh, NC October 20 Institute for Nonprofits at
NC State University
Wilmington, NC October 21 QENO at University of
North Carolina-Wilmington
Phoenix, AZ December 7 - 9 Internal Revenue Service
3. The one-day workshop is designed for representatives of organizations that are new – five years old or less - and for people who are new to tax compliance issues of 501(c)(3) organizations.
4. Each one-day workshop will cover the following topics:
• Tax-Exempt Status - Benefits and responsibilities of tax-exempt status under 501(c)(3). Actions that may jeopardize tax-exempt status of an organization.
• Unrelated Business Income - The definition of unrelated business income, common examples, common exceptions and filing requirements. Includes a discussion of charitable gaming.
• Employment Issues - Classification of workers and filing requirements for employees and independent contractors.
• Form 990 Series - An overview of the Forms 990, 990-EZ, and 990-N (e-Postcard), including tips for recordkeeping and answers to frequently asked questions.
• Required Disclosures - Overview of disclosures tax-exempt organizations are required to make.
5. For more information about the workshops and how to register visit www.irs.gov/eo and click on Calendar of Events.
Interest Rates Remain the Same For The Fourth Quarter Of 2010
The Internal Revenue Service today announced that interest rates for the calendar quarter beginning October 1, 2010, will remain the same. The rates will be:
• four (4) percent for overpayments [three (3) percent in the case of a corporation];
• four (4) percent for underpayments;
• six (6) percent for large corporate underpayments; and
• one and one-half (1.5) percent for the portion of a corporate overpayment exceeding $10,000.
Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.
The interest rates announced today are computed from the federal short-term rate during July 2010 to take effect August 1, 2010, based on daily compounding.
Revenue Ruling 2010-21, announcing the rates of interest, is attached and will appear in Internal Revenue Bulletin No. 2010-39, dated September 27, 2010.
• four (4) percent for overpayments [three (3) percent in the case of a corporation];
• four (4) percent for underpayments;
• six (6) percent for large corporate underpayments; and
• one and one-half (1.5) percent for the portion of a corporate overpayment exceeding $10,000.
Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.
The interest rates announced today are computed from the federal short-term rate during July 2010 to take effect August 1, 2010, based on daily compounding.
Revenue Ruling 2010-21, announcing the rates of interest, is attached and will appear in Internal Revenue Bulletin No. 2010-39, dated September 27, 2010.
IRS Announces New Return Preparer Application System and User Fee; IRS Also Releases Proposed Regulations to Amend Circular 230 Rules
The Internal Revenue Service today announced that a new online application system for compensated tax return preparers is expected to go live in mid-September. The IRS has proposed to require all individuals who receive compensation for preparing all or substantially all of a federal tax return or claim for refund after Dec. 31, 2010, to have a Preparer Tax Identification Number (PTIN).
Under the proposed regulations, compensated tax return preparers will need to obtain, or reapply for, a PTIN and pay a user fee using this new comprehensive system, which is part of a series of steps planned to increase oversight of federal tax return preparation. Tax return preparers will be creating PTIN accounts with the IRS when they use the new system.
“This is an important first step because it lays the groundwork in our efforts to ensure the quality and integrity of professional tax return preparation, which most taxpayers rely on in one form or another,” said IRS Commissioner Doug Shulman.
Compensated tax return preparers would pay a $64.25 user fee the first year for a PTIN based on two underlying costs. The IRS proposes to collect $50 per user to pay for outreach, technology, and compliance efforts associated with the new program. And the third-party vendor will receive $14.25 per user to operate the online system and provide customer support.
Under the proposed regulations, compensated tax return preparers will be required to renew their PTINs annually and pay the associated user fee. The amount of the fee may change in future years as the actual program costs are periodically reevaluated.
Under the proposed regulations, the requirement to sign up on the new system will apply to all compensated tax return preparers of federal tax returns regardless of whether they currently possess a PTIN. Tax return preparers who already have a PTIN generally will be reassigned the same number. Any individual who plans to prepare all or substantially all of a tax return for compensation must obtain a PTIN even if the individual is not subject to the testing and continuing education requirements that will be required under Circular 230, according to the IRS’ proposed regulation. Access to the online application system will be through the Tax Professionals page of IRS.gov.
The IRS previously announced its portion of the total annual fee in proposed regulations (REG-139343-08) and interested parties have until Aug. 23, 2010, to submit comments on the regulations. A hearing on the proposed regulations is scheduled for Aug. 24, 2010. The launch of the new online application system and proposed user fees are dependent on the publication of final regulations on user fees and final regulations of the requirement to obtain a PTIN.
Proposed Regulations Released Related to Circular 230
The IRS also today released proposed regulations that would amend Treasury Circular 230, the rules governing practice before the IRS. The proposed regulations generally would extend current regulations that apply to attorneys, certified public accountants and other specified tax professionals to all tax return preparers, including currently unenrolled tax return preparers.
The proposed regulations (REG-138637-07) would clarify the definition of practice, establish a new registered tax return preparer designation and the eligibility requirements for becoming a registered tax return preparer, repropose standards with respect to the preparation of tax returns, revise rules regarding continuing education providers, and amend multiple other sections of Circular 230.
Tax professionals and other interested parties have until Oct. 7, 2010, to submit comments regarding the proposed regulations.
Existing PTIN Application Process to Suspend Operations
In preparation for the launch of the comprehensive new PTIN system, the IRS will cease issuing PTINs effective Aug. 22 using Form W-7P, Application for Preparer Tax Identification Number, and through e-services – Online Tools for Tax Professionals. If you apply for a PTIN before Aug. 22, 2010, you will have to reapply once the new online PTIN application system begins.
Under the proposed regulations, compensated tax return preparers will need to obtain, or reapply for, a PTIN and pay a user fee using this new comprehensive system, which is part of a series of steps planned to increase oversight of federal tax return preparation. Tax return preparers will be creating PTIN accounts with the IRS when they use the new system.
“This is an important first step because it lays the groundwork in our efforts to ensure the quality and integrity of professional tax return preparation, which most taxpayers rely on in one form or another,” said IRS Commissioner Doug Shulman.
Compensated tax return preparers would pay a $64.25 user fee the first year for a PTIN based on two underlying costs. The IRS proposes to collect $50 per user to pay for outreach, technology, and compliance efforts associated with the new program. And the third-party vendor will receive $14.25 per user to operate the online system and provide customer support.
Under the proposed regulations, compensated tax return preparers will be required to renew their PTINs annually and pay the associated user fee. The amount of the fee may change in future years as the actual program costs are periodically reevaluated.
Under the proposed regulations, the requirement to sign up on the new system will apply to all compensated tax return preparers of federal tax returns regardless of whether they currently possess a PTIN. Tax return preparers who already have a PTIN generally will be reassigned the same number. Any individual who plans to prepare all or substantially all of a tax return for compensation must obtain a PTIN even if the individual is not subject to the testing and continuing education requirements that will be required under Circular 230, according to the IRS’ proposed regulation. Access to the online application system will be through the Tax Professionals page of IRS.gov.
The IRS previously announced its portion of the total annual fee in proposed regulations (REG-139343-08) and interested parties have until Aug. 23, 2010, to submit comments on the regulations. A hearing on the proposed regulations is scheduled for Aug. 24, 2010. The launch of the new online application system and proposed user fees are dependent on the publication of final regulations on user fees and final regulations of the requirement to obtain a PTIN.
Proposed Regulations Released Related to Circular 230
The IRS also today released proposed regulations that would amend Treasury Circular 230, the rules governing practice before the IRS. The proposed regulations generally would extend current regulations that apply to attorneys, certified public accountants and other specified tax professionals to all tax return preparers, including currently unenrolled tax return preparers.
The proposed regulations (REG-138637-07) would clarify the definition of practice, establish a new registered tax return preparer designation and the eligibility requirements for becoming a registered tax return preparer, repropose standards with respect to the preparation of tax returns, revise rules regarding continuing education providers, and amend multiple other sections of Circular 230.
Tax professionals and other interested parties have until Oct. 7, 2010, to submit comments regarding the proposed regulations.
Existing PTIN Application Process to Suspend Operations
In preparation for the launch of the comprehensive new PTIN system, the IRS will cease issuing PTINs effective Aug. 22 using Form W-7P, Application for Preparer Tax Identification Number, and through e-services – Online Tools for Tax Professionals. If you apply for a PTIN before Aug. 22, 2010, you will have to reapply once the new online PTIN application system begins.
Proposed Regulations Expand the Use of Electronic Payment System and Discontinue Paper Coupons Next Year
Consistent with a Financial Management Service initiative announced in April of this year, the IRS today issued proposed regulations to significantly increase the number of electronic transactions between taxpayers and the federal government.
The proposed regulations (REG 153340-09) would eliminate the rules for making federal tax deposits by paper coupon because the paper coupon system will no longer be maintained by the Treasury Department after Dec. 31, 2010. The proposed regulations generally maintain existing rules for depositing federal taxes through the Electronic Federal Tax Payment System (EFTPS).
Using EFTPS to make federal tax deposits provides substantial benefits to both taxpayers and the government. EFTPS users can make tax payments 24 hours a day, seven days a week from home or the office.
Deposits can be made online with a computer or by telephone. EFTPS also significantly reduces payment-related errors that could result in a penalty. The system helps taxpayers schedule dates to make payments even when they are out of town or on vacation when a payment is due. EFTPS business users can schedule payments up to 120 days in advance of the desired payment date.
Information on EFTPS, including how to enroll, can be found at www.eftps.gov or by calling EFTPS Customer Service at 1-800-555-4477.
Some businesses paying a minimal amount of tax may make their payments with the related tax return, instead of using EFTPS. More details regarding taxes required to be deposited using EFTPS, dollar thresholds and other specific requirements are in the proposed regulations.
Additional Information:
• Publication 4132, which explains the process of enrolling and paying via the Internet
• Publication 966, The Secure Way to Pay Your Federal Taxes for Businesses and Individuals
• Publication 4169, Tax Professional Guide to Electronic Federal Tax Payment System
• Publication 4320, EFTPS Toolkit, which contains PDF(s) and descriptions of EFTPS educational materials and their intended target audience, and is for use by tax professionals and financial institutions to assist in educating their clients on the benefits of EFTPS.
• Publication 4275, Express Enrollment for New Businesses
• Electronic Payment Options Home Page
The proposed regulations (REG 153340-09) would eliminate the rules for making federal tax deposits by paper coupon because the paper coupon system will no longer be maintained by the Treasury Department after Dec. 31, 2010. The proposed regulations generally maintain existing rules for depositing federal taxes through the Electronic Federal Tax Payment System (EFTPS).
Using EFTPS to make federal tax deposits provides substantial benefits to both taxpayers and the government. EFTPS users can make tax payments 24 hours a day, seven days a week from home or the office.
Deposits can be made online with a computer or by telephone. EFTPS also significantly reduces payment-related errors that could result in a penalty. The system helps taxpayers schedule dates to make payments even when they are out of town or on vacation when a payment is due. EFTPS business users can schedule payments up to 120 days in advance of the desired payment date.
Information on EFTPS, including how to enroll, can be found at www.eftps.gov or by calling EFTPS Customer Service at 1-800-555-4477.
Some businesses paying a minimal amount of tax may make their payments with the related tax return, instead of using EFTPS. More details regarding taxes required to be deposited using EFTPS, dollar thresholds and other specific requirements are in the proposed regulations.
Additional Information:
• Publication 4132, which explains the process of enrolling and paying via the Internet
• Publication 966, The Secure Way to Pay Your Federal Taxes for Businesses and Individuals
• Publication 4169, Tax Professional Guide to Electronic Federal Tax Payment System
• Publication 4320, EFTPS Toolkit, which contains PDF(s) and descriptions of EFTPS educational materials and their intended target audience, and is for use by tax professionals and financial institutions to assist in educating their clients on the benefits of EFTPS.
• Publication 4275, Express Enrollment for New Businesses
• Electronic Payment Options Home Page
Employee vs. Independent Contractor – Seven Tips for Business Owners
As a small business owner you may hire people as independent contractors or as employees. There are rules that will help you determine how to classify the people you hire. This will affect how much you pay in taxes, whether you need to withhold from your workers paychecks and what tax documents you need to file.
Here are seven things every business owner should know about hiring people as independent contractors versus hiring them as employees.
1. The IRS uses three characteristics to determine the relationship between businesses and workers:
• Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.
• Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker's job.
• Type of Relationship factor relates to how the workers and the business owner perceive their relationship.
2. If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.
3. If you can direct or control only the result of the work done -- and not the means and methods of accomplishing the result -- then your workers are probably independent contractors.
4. Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms.
5. Workers can avoid higher tax bills and lost benefits if they know their proper status.
6. Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS.
7. You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee at IRS.gov by selecting the Small Business link. Additional resources include IRS Publication 15-A, Employer's Supplemental Tax Guide, Publication 1779, Independent Contractor or Employee, and Publication 1976, Do You Qualify for Relief under Section 530? These publications and Form SS-8 are available on the IRS website or by calling the IRS at 800-829-3676 (800-TAX-FORM).
Here are seven things every business owner should know about hiring people as independent contractors versus hiring them as employees.
1. The IRS uses three characteristics to determine the relationship between businesses and workers:
• Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.
• Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker's job.
• Type of Relationship factor relates to how the workers and the business owner perceive their relationship.
2. If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.
3. If you can direct or control only the result of the work done -- and not the means and methods of accomplishing the result -- then your workers are probably independent contractors.
4. Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms.
5. Workers can avoid higher tax bills and lost benefits if they know their proper status.
6. Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS.
7. You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee at IRS.gov by selecting the Small Business link. Additional resources include IRS Publication 15-A, Employer's Supplemental Tax Guide, Publication 1779, Independent Contractor or Employee, and Publication 1976, Do You Qualify for Relief under Section 530? These publications and Form SS-8 are available on the IRS website or by calling the IRS at 800-829-3676 (800-TAX-FORM).
Wednesday, August 18, 2010
Five Reasons to Visit IRS.gov this Summer
Did you know the IRS is making it easier to get answers to your tax questions? The IRS Web site – IRS.gov makes it easy to get an answer to a tax question, anytime during the year. The site is available 24 hours a day 7 days a week. Whether you need a form or have tax questions, IRS.gov has a wealth of information. IRS.gov is accessible all day, every day.
Here are five reasons to visit IRS.gov this summer.
1. Get the latest information on new tax law changes. Several new laws have been enacted and there are provisons that affect almost every taxpayer.
2. Calculate the right amount of withholding allowances on your W-4. The IRS Withholding Calculator will help you ensure that you don’t have too much or too little income tax withheld from your pay.
3. Search for charities. Search Publication 78, Cumulative List of Organizations, to find out if an organization is exempt from federal taxation and, if so, how much of your contributions to that organization are tax deductible.
4. Get information about careers at the IRS. No matter what your professional specialty, the IRS can offer you a variety of full-time career or seasonal job opportunities.
5. Get tax forms and publications. You can view, download and order tax forms and publications any hour of the day or night.
Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.
Here are five reasons to visit IRS.gov this summer.
1. Get the latest information on new tax law changes. Several new laws have been enacted and there are provisons that affect almost every taxpayer.
2. Calculate the right amount of withholding allowances on your W-4. The IRS Withholding Calculator will help you ensure that you don’t have too much or too little income tax withheld from your pay.
3. Search for charities. Search Publication 78, Cumulative List of Organizations, to find out if an organization is exempt from federal taxation and, if so, how much of your contributions to that organization are tax deductible.
4. Get information about careers at the IRS. No matter what your professional specialty, the IRS can offer you a variety of full-time career or seasonal job opportunities.
5. Get tax forms and publications. You can view, download and order tax forms and publications any hour of the day or night.
Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.
Monday, August 16, 2010
Keeping Good Records Reduces Stress at Tax Time
You may not be thinking about your tax return right now, but summer is a great time to start planning for next year and to make sure your records are organized. Maintaining good records now can make filing your return a lot easier and it will help you remember transactions you made during the year.
Here are a few things the IRS wants you to know about recordkeeping.
Keeping well-organized records also ensures you can answer questions if your return is selected for examination or prepare a response if you receive an IRS notice. In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, you should keep any and all documents that may have an impact on your federal tax return.
Individual taxpayers should usually keep the following records supporting items on their tax returns for at least three years:
• Bills
• Credit card and other receipts
• Invoices
• Mileage logs
• Canceled, imaged or substitute checks or any other proof of payment
• Any other records to support deductions or credits you claim on your return
You should normally keep records relating to property until at least three years after you sell or otherwise dispose of the property. Examples include:
• A home purchase or improvement
• Stocks and other investments
• Individual Retirement Arrangement transactions
• Rental property records
If you are a small business owner, you must keep all your employment tax records for at least four years after the tax becomes due or is paid, whichever is later. Examples of important documents business owners should keep Include:
• Gross receipts: Cash register tapes, bank deposit slips, receipt books, invoices, credit card charge slips and Forms 1099-MISC
• Proof of purchases: Canceled checks, cash register tape receipts, credit card sales slips and invoices
• Expense documents: Canceled checks, cash register tapes, account statements, credit card sales slips, invoices and petty cash slips for small cash payments
• Documents to verify your assets: Purchase and sales invoices, real estate closing statements and canceled checks
For more information about recordkeeping, check out IRS Publications 552, Recordkeeping for Individuals, 583, Starting a Business and Keeping Records, and Publication 463, Travel, Entertainment, Gift, and Car Expenses. These publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Here are a few things the IRS wants you to know about recordkeeping.
Keeping well-organized records also ensures you can answer questions if your return is selected for examination or prepare a response if you receive an IRS notice. In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, you should keep any and all documents that may have an impact on your federal tax return.
Individual taxpayers should usually keep the following records supporting items on their tax returns for at least three years:
• Bills
• Credit card and other receipts
• Invoices
• Mileage logs
• Canceled, imaged or substitute checks or any other proof of payment
• Any other records to support deductions or credits you claim on your return
You should normally keep records relating to property until at least three years after you sell or otherwise dispose of the property. Examples include:
• A home purchase or improvement
• Stocks and other investments
• Individual Retirement Arrangement transactions
• Rental property records
If you are a small business owner, you must keep all your employment tax records for at least four years after the tax becomes due or is paid, whichever is later. Examples of important documents business owners should keep Include:
• Gross receipts: Cash register tapes, bank deposit slips, receipt books, invoices, credit card charge slips and Forms 1099-MISC
• Proof of purchases: Canceled checks, cash register tape receipts, credit card sales slips and invoices
• Expense documents: Canceled checks, cash register tapes, account statements, credit card sales slips, invoices and petty cash slips for small cash payments
• Documents to verify your assets: Purchase and sales invoices, real estate closing statements and canceled checks
For more information about recordkeeping, check out IRS Publications 552, Recordkeeping for Individuals, 583, Starting a Business and Keeping Records, and Publication 463, Travel, Entertainment, Gift, and Car Expenses. These publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Friday, August 13, 2010
Financial Tips for August 2010
Prepare a Post-Mortem Letter
Review or prepare a post-mortem letter to your spouse spelling out the location of your assets and property (assets of a deceased are often lost because a spouse may not be aware of them or know their location), the names of all your advisors, and any other information your spouse should know to minimize his or her burden in the stressful period after your death.
Get Your Social Security Statement of Benefits
Request a Personal Earnings and Benefit Estimate Statement from the Social Security Administration. This statement summarizes your Social Security earnings history and provides an estimate of the benefits to which you are entitled. It is important to verify that you have been credited for all of your earnings. You can also use this statement in your retirement planning. We can help you with this statement; just give us a call.
Review Your Budget vs Actuals for July
Compare July income and expenditures with your budget. Make adjustments as appropriate to your August expenditures. Make sure you invest your planned savings amount for July.
Estimate Your Tax Liability
Total up your taxable income, capital gains, and deductions through this date. This information can be used to plan your estimated tax payments, and perhaps avoid or minimize any underpayment penalties.
Review or prepare a post-mortem letter to your spouse spelling out the location of your assets and property (assets of a deceased are often lost because a spouse may not be aware of them or know their location), the names of all your advisors, and any other information your spouse should know to minimize his or her burden in the stressful period after your death.
Get Your Social Security Statement of Benefits
Request a Personal Earnings and Benefit Estimate Statement from the Social Security Administration. This statement summarizes your Social Security earnings history and provides an estimate of the benefits to which you are entitled. It is important to verify that you have been credited for all of your earnings. You can also use this statement in your retirement planning. We can help you with this statement; just give us a call.
Review Your Budget vs Actuals for July
Compare July income and expenditures with your budget. Make adjustments as appropriate to your August expenditures. Make sure you invest your planned savings amount for July.
Estimate Your Tax Liability
Total up your taxable income, capital gains, and deductions through this date. This information can be used to plan your estimated tax payments, and perhaps avoid or minimize any underpayment penalties.
Banish Security Fears: Use QuickBooks's Protection Tools
If there's one application that you don't want compromised by a security breach, it's the one that contains all of your financial information. Recognizing that, Intuit has built a number of security features into QuickBooks that are designed to safeguard your debits and credits.
Tip: QuickBooks integrates with Microsoft Internet Explorer for some of its work. We'll discuss some of its safety tools, but you may want to check with us to see if your larger system is well-protected against malware, viruses, etc.
Set-Up Preferences
Fortunately, QuickBooks is open for integration with many outside applications that complement QuickBooks's native capabilities and extend its usefulness. But you should make sure that your system is set up to accommodate the features you want to use.
To do this, click Edit | Preferences | Integrated Applications. Then click on the tab labeled Company Preferences. Here you'll be able to indicate that:
• no applications should be allowed access, and
• you should be notified if an application's certificate has expired.
This window also displays a list of applications that are currently integrated with QuickBooks. Highlight one, then click Remove if you want to break the link.
QuickBooks lets you specify who gets in, and what they can do.
Check the top box if this outside application should be allowed in, and make decisions about the other options here. If you have any questions, give us a call and we'll make sure your choices suit your business.
Broaden Your Horizons
QuickBooks relies on the Internet for many of its functions, which makes the program much more versatile. You can use this Web connection to update your copy of QuickBooks, receive payroll updates, download financial institution transactions, and access myriad business resources.
If your copy of QuickBooks is not yet integrated with Internet Explorer, click on the Help menu, then Internet Connection Setup. Work through the wizard to specify the correct connection to use.
To make sure your QuickBooks/Internet Explorer integration is working securely, specify the correct Internet connection.
Click on Edit | Preferences again, then click Service Connection. Under the My Preferences tab, you'll be asked to decide whether:
• data downloaded from your financial institution - or information previously downloaded - should be processed immediately or saved to a file, or
• Internet Explorer should remain open after you've completed a Web-based task (only applicable if QuickBooks has opened IE).
Check or uncheck the appropriate boxes.
Click the Company Preferences tab. Here, you'll tell QuickBooks whether it should automatically connect to Web services (other than Payroll or Online Banking; these have their own passwords) or if a password will be required. You'll also specify whether service updates from Intuit should be automatically downloaded.
In the window, you can specify your preferences for password requirements and background downloading of service updates.
To ensure that you'll be able to see all QuickBooks-related content on the Web, open Internet Explorer. Click the Tools menu, then Internet Options. Click the Security tab, and make sure the level is set to Medium, as suggested by Intuit.
Internal Security
Of course, QuickBooks offers internal tools to prevent unauthorized employees from reaching sensitive information. To access these, click Company | Set Up Users and Passwords | Set Up Users. You must be the Administrator to enter this are.
The window that opens gives you several options. You can add, edit, delete, or view a user. Click the Add User button, and assign a user name and password on the next screen. Click Next, and in the next window, choose whether to give the individual access to all areas of QuickBooks, or just a subset (the External Accountant option lets your accounting professional enter most areas of the program).
Choose Selective Access and click Next in the window.
QuickBooks lets you specify which areas and functions individual users can access.
On each page in this wizard, you can assign no, full, or selective access to tasks for each employee. Other functional areas include Payroll and Employees, Time Tracking, and Sensitive Accounting Activities. When you're done, click Finish.
Keep It Safe
Remember, too, that Intuit employs high-level encryption that secures your sensitive financial information. And it of course recommends that you back up frequently to further protect your data.
If this all seems like too much poking around in QuickBooks, give us a call and we'll help you make the right security choices.
Tip: QuickBooks integrates with Microsoft Internet Explorer for some of its work. We'll discuss some of its safety tools, but you may want to check with us to see if your larger system is well-protected against malware, viruses, etc.
Set-Up Preferences
Fortunately, QuickBooks is open for integration with many outside applications that complement QuickBooks's native capabilities and extend its usefulness. But you should make sure that your system is set up to accommodate the features you want to use.
To do this, click Edit | Preferences | Integrated Applications. Then click on the tab labeled Company Preferences. Here you'll be able to indicate that:
• no applications should be allowed access, and
• you should be notified if an application's certificate has expired.
This window also displays a list of applications that are currently integrated with QuickBooks. Highlight one, then click Remove if you want to break the link.
QuickBooks lets you specify who gets in, and what they can do.
Check the top box if this outside application should be allowed in, and make decisions about the other options here. If you have any questions, give us a call and we'll make sure your choices suit your business.
Broaden Your Horizons
QuickBooks relies on the Internet for many of its functions, which makes the program much more versatile. You can use this Web connection to update your copy of QuickBooks, receive payroll updates, download financial institution transactions, and access myriad business resources.
If your copy of QuickBooks is not yet integrated with Internet Explorer, click on the Help menu, then Internet Connection Setup. Work through the wizard to specify the correct connection to use.
To make sure your QuickBooks/Internet Explorer integration is working securely, specify the correct Internet connection.
Click on Edit | Preferences again, then click Service Connection. Under the My Preferences tab, you'll be asked to decide whether:
• data downloaded from your financial institution - or information previously downloaded - should be processed immediately or saved to a file, or
• Internet Explorer should remain open after you've completed a Web-based task (only applicable if QuickBooks has opened IE).
Check or uncheck the appropriate boxes.
Click the Company Preferences tab. Here, you'll tell QuickBooks whether it should automatically connect to Web services (other than Payroll or Online Banking; these have their own passwords) or if a password will be required. You'll also specify whether service updates from Intuit should be automatically downloaded.
In the window, you can specify your preferences for password requirements and background downloading of service updates.
To ensure that you'll be able to see all QuickBooks-related content on the Web, open Internet Explorer. Click the Tools menu, then Internet Options. Click the Security tab, and make sure the level is set to Medium, as suggested by Intuit.
Internal Security
Of course, QuickBooks offers internal tools to prevent unauthorized employees from reaching sensitive information. To access these, click Company | Set Up Users and Passwords | Set Up Users. You must be the Administrator to enter this are.
The window that opens gives you several options. You can add, edit, delete, or view a user. Click the Add User button, and assign a user name and password on the next screen. Click Next, and in the next window, choose whether to give the individual access to all areas of QuickBooks, or just a subset (the External Accountant option lets your accounting professional enter most areas of the program).
Choose Selective Access and click Next in the window.
QuickBooks lets you specify which areas and functions individual users can access.
On each page in this wizard, you can assign no, full, or selective access to tasks for each employee. Other functional areas include Payroll and Employees, Time Tracking, and Sensitive Accounting Activities. When you're done, click Finish.
Keep It Safe
Remember, too, that Intuit employs high-level encryption that secures your sensitive financial information. And it of course recommends that you back up frequently to further protect your data.
If this all seems like too much poking around in QuickBooks, give us a call and we'll help you make the right security choices.
Basic Hints to Help New Small Businesses
Folks starting a small business are often challenged by their new tax filing requirements. It can be overwhelming to learn about federal tax responsibilities.
The following is a list of basic tips to avoid potential problems:
• Classify workers properly as employees or independent contractors as determined by law, not the choice of the worker or business owner.
• Deposit federal employment taxes, called trust fund taxes, according to the appropriate schedule.
• Start making estimated quarterly payments to cover your own income tax and Social Security self-employment tax liability.
• Keep good records to protect your personal and financial investment and to make tax filing easier.
• Consider a tax professional to help you with Schedule C.
• File and pay your taxes electronically. It's fast, easy, and secure.
• Protect financial and tax records to ensure business continuity in the event of a disaster.
As always, we're here to help sort out your tax responsibilities. Give us a call today if you're starting a new business.
The following is a list of basic tips to avoid potential problems:
• Classify workers properly as employees or independent contractors as determined by law, not the choice of the worker or business owner.
• Deposit federal employment taxes, called trust fund taxes, according to the appropriate schedule.
• Start making estimated quarterly payments to cover your own income tax and Social Security self-employment tax liability.
• Keep good records to protect your personal and financial investment and to make tax filing easier.
• Consider a tax professional to help you with Schedule C.
• File and pay your taxes electronically. It's fast, easy, and secure.
• Protect financial and tax records to ensure business continuity in the event of a disaster.
As always, we're here to help sort out your tax responsibilities. Give us a call today if you're starting a new business.
What to Do If You Haven't Filed Your 2009 Return
The failure to file a federal tax return can be costly - whether you end up owing more or missing out on a refund.
There are several reasons taxpayers don't file their taxes. Perhaps they didn't know they were required to file. Maybe they just kept putting it off and simply forgot.
Whatever the reason, it's best to file the return as soon as possible. If you need help, even with a late return, we are ready to assist you.
Here are some things to consider:
• Failure to File Penalty. If you owe taxes, a delay in filing may result in a "failure to file" penalty, also known as the "late filing" penalty, and interest charges. The longer you delay, the more these charges grow.
• Losing Your Refund. There is no penalty for failure to file if you are due a refund. However, you cannot obtain a refund without filing a tax return. If you wait too long to file, you may risk losing the refund altogether. The deadline for claiming refunds is three years after the original due date.
• Earned Income Tax Credit. Individuals who are entitled to the Earned Income Tax Credit must file their return to claim the credit even if they are not otherwise required to file.
Whether you must file a tax return depends on a number of factors, including your filing status, age, and gross income.
Please call us for more information on how to file a tax return for a prior year.
There are several reasons taxpayers don't file their taxes. Perhaps they didn't know they were required to file. Maybe they just kept putting it off and simply forgot.
Whatever the reason, it's best to file the return as soon as possible. If you need help, even with a late return, we are ready to assist you.
Here are some things to consider:
• Failure to File Penalty. If you owe taxes, a delay in filing may result in a "failure to file" penalty, also known as the "late filing" penalty, and interest charges. The longer you delay, the more these charges grow.
• Losing Your Refund. There is no penalty for failure to file if you are due a refund. However, you cannot obtain a refund without filing a tax return. If you wait too long to file, you may risk losing the refund altogether. The deadline for claiming refunds is three years after the original due date.
• Earned Income Tax Credit. Individuals who are entitled to the Earned Income Tax Credit must file their return to claim the credit even if they are not otherwise required to file.
Whether you must file a tax return depends on a number of factors, including your filing status, age, and gross income.
Please call us for more information on how to file a tax return for a prior year.
Paying Off Debt the Smart Way
Being in debt isn't necessarily a terrible thing. Between mortgages, car loans, credit cards, and student loans - most people are in debt. Being debt-free is a great goal, but you should focus on the management of debt, not just getting rid of it. It's likely to be there for most of your life - and, handled wisely, it won't be an albatross around your neck.
You don't need to shell out your hard-earned money for exorbitant interest rates, or always feel like you're on the verge of bankruptcy. You can pay off debt the smart way, while at the same time saving money to pay it off faster.
Know Where You Are
First, assess the depth of your debt. Write it down, using pencil and paper, a spreadsheet like Microsoft Excel, or a bookkeeping program like Quicken. Include every financial situation where a company has given you something in advance of payment, including your mortgage, car payment(s), credit cards, tax liens, student loans, and payments on electronics or other household items through a store.
Record the day the debt began and when it will end (if possible), the interest rate you're paying, and what your payments typically are. Add it all up, painful as that might be. Try not to be discouraged! Remember, you're going to break this down into manageable chunks while finding extra money to help pay it down.
Identify High-Cost Debt
Yes, some debts are more expensive than others. Unless you're getting payday loans (which you shouldn't be), the worst offenders are probably your credit cards. Here's how to deal with them.
• Don't use them. Don't cut them up, but put them in a drawer and only access them in an emergency.
• Identify the card with the highest interest and pay off as much as you can every month. Pay minimums on the others. When that one's paid off, work on the card with the next highest rate.
• Don't close existing cards or open any new ones. It won't help your credit rating.
• Pay on time, absolutely every time. One late payment these days can lower your FICO score.
• Go over your credit-card statements with a fine-tooth comb. Are you still being charged for that travel club you've never used? Look for line items you don't need.
• Call your credit card companies and ask them nicely if they would lower your interest rates. It does work sometimes!
Save, Save, Save
Do whatever you can to retire debt. Consider taking a second job and using that income only for higher payments on your financial obligations. Substitute free family activities for high-cost ones. Sell high-value items that you can live without.
Do Away with Unnecessary Items to Reduce Debt Load
Do you really need the 800-channel cable option or that dish on your roof? You'll be surprised at what you don't miss. How about magazine subscriptions? They're not terribly expensive, but every penny counts. It's nice to have a library of books, but consider visiting the public library or half-price bookstores until your debt is under control.
Never, Ever Miss a Payment
Not only are you retiring debt, but you're also building a stellar credit rating. If you ever move or buy another car, you'll want to get the lowest rate possible. A blemish-free payment record will help with that. Besides, credit card companies can be quick to raise interest rates because of one late payment. A completely missed one is even more serious.
Do Not Increase Debt Load
If you don't have the cash for it, you probably don't need it. You'll feel better about what you do have if you know it's owned free and clear.
Shop Wisely, and Use the Savings to Pay Down Your Debt
If your family is large enough to warrant it, invest $30 or $40 and join a store like Sam's or Costco. And use it. Shop there first, then at the grocery store. Change brands if you have to and swallow your pride. Use coupons religiously. Calculate the money you're saving and slap it on your debt.
Each of these steps, taken alone, probably doesn't seem like much. But if you adopt as many as you can, you'll watch your debt decrease every month.
You don't need to shell out your hard-earned money for exorbitant interest rates, or always feel like you're on the verge of bankruptcy. You can pay off debt the smart way, while at the same time saving money to pay it off faster.
Know Where You Are
First, assess the depth of your debt. Write it down, using pencil and paper, a spreadsheet like Microsoft Excel, or a bookkeeping program like Quicken. Include every financial situation where a company has given you something in advance of payment, including your mortgage, car payment(s), credit cards, tax liens, student loans, and payments on electronics or other household items through a store.
Record the day the debt began and when it will end (if possible), the interest rate you're paying, and what your payments typically are. Add it all up, painful as that might be. Try not to be discouraged! Remember, you're going to break this down into manageable chunks while finding extra money to help pay it down.
Identify High-Cost Debt
Yes, some debts are more expensive than others. Unless you're getting payday loans (which you shouldn't be), the worst offenders are probably your credit cards. Here's how to deal with them.
• Don't use them. Don't cut them up, but put them in a drawer and only access them in an emergency.
• Identify the card with the highest interest and pay off as much as you can every month. Pay minimums on the others. When that one's paid off, work on the card with the next highest rate.
• Don't close existing cards or open any new ones. It won't help your credit rating.
• Pay on time, absolutely every time. One late payment these days can lower your FICO score.
• Go over your credit-card statements with a fine-tooth comb. Are you still being charged for that travel club you've never used? Look for line items you don't need.
• Call your credit card companies and ask them nicely if they would lower your interest rates. It does work sometimes!
Save, Save, Save
Do whatever you can to retire debt. Consider taking a second job and using that income only for higher payments on your financial obligations. Substitute free family activities for high-cost ones. Sell high-value items that you can live without.
Do Away with Unnecessary Items to Reduce Debt Load
Do you really need the 800-channel cable option or that dish on your roof? You'll be surprised at what you don't miss. How about magazine subscriptions? They're not terribly expensive, but every penny counts. It's nice to have a library of books, but consider visiting the public library or half-price bookstores until your debt is under control.
Never, Ever Miss a Payment
Not only are you retiring debt, but you're also building a stellar credit rating. If you ever move or buy another car, you'll want to get the lowest rate possible. A blemish-free payment record will help with that. Besides, credit card companies can be quick to raise interest rates because of one late payment. A completely missed one is even more serious.
Do Not Increase Debt Load
If you don't have the cash for it, you probably don't need it. You'll feel better about what you do have if you know it's owned free and clear.
Shop Wisely, and Use the Savings to Pay Down Your Debt
If your family is large enough to warrant it, invest $30 or $40 and join a store like Sam's or Costco. And use it. Shop there first, then at the grocery store. Change brands if you have to and swallow your pride. Use coupons religiously. Calculate the money you're saving and slap it on your debt.
Each of these steps, taken alone, probably doesn't seem like much. But if you adopt as many as you can, you'll watch your debt decrease every month.
Credit Reports: What You Should Know
How do lenders determine who is approved for a credit card, mortgage, or car loan? Why are some individuals flooded with credit card offers while others get turned down routinely? Because creditors keep their evaluation standards secret, it is difficult to know just how to improve your credit rating. It is important, however, to understand the factors and to review your credit report periodically for any irregularities, omissions, or errors. Reviewing your credit report annually can help you protect your credit rating from fraud and ensure its accuracy.
Credit Evaluation Factors
Many factors determine your credit. Here are some of the major factors considered:
• Age
• Residence
• "Authorized user" payment history
• Checking and savings accounts
• Bankruptcy
• Charge-offs (Forgiven debt)
• Child support
• Closed accounts and inactive accounts
• Jobs
• Payment history
• Recent loans
• Collection accounts and charge-offs
• Cosigning an account
• Credit limits
• Credit reports
• Debt/income ratios
• Department store accounts
• Payment history/late payments
• Finance company credit cards
• Income/income per dependent
• Mortgages
• Revolving credit
• Name/alias
• Number of credit accounts
• Fraud
• Inquiries
These factors may be used, and weighted, in determining credit decisions. Credit reports contain much of this information.
Obtaining Your Credit Reports
Credit reports are records of consumers' bill-paying habits. They are collected, stored, and sold by credit bureaus.
Credit reports are also called credit records, credit files, and credit histories. Under federal law, you are allowed access to free credit reports. There are three major credit bureaus and thousands of smaller ones where you can obtain a credit report.
These credit bureaus offer free credit reports, as well as monthly credit reports and services for a fee.
•Experian Credit Bureau: 888-397-3742 (cost: free or $14.95 monthly)
•Equifax Credit Bureau: 800-685-1111
•Trans Union: 877-322-8228 (cost: $11.95 monthly)
If you have been denied credit, you can request that the credit bureau involved provide you with a free copy of your credit report - but you must request it promptly. Otherwise each of the bureaus will provide you a copy of the report for a fee. You can request a copy from their websites (see links above) or toll-free numbers (also listed above).
Disputing Errors in Your Credit File
The Fair Credit Reporting Act (FCRA) protects consumers in the case of inaccurate or incomplete information in credit files. The FCRA requires credit bureaus to investigate and correct any errors in your file.
Tip: If you find any incorrect or incomplete information in your file, write to the credit bureau and ask them to investigate the information. Under the FCRA, they have about thirty days to contact the creditor and find out whether the information is correct. If not, it will be deleted.
Be aware that credit bureaus are not obligated to include all of your credit accounts in your report. If, for example, the credit union that holds your credit card account is not a paying subscriber of the credit bureau, the bureau is not obligated to add that reference to your file. Some may do so, however, for a small fee.
Fair Credit Reporting Act (FCRA)
This federal law was passed in 1970 to give consumers easier access to, and more information about, their credit files. The FCRA gives you the right to find out the information in your credit file, to dispute information you believe inaccurate or incomplete, and to find out who has seen your credit report in the past six months.
Understanding Your Credit Report
Credit reports contain symbols and codes that are abstract to the average consumer. Every credit bureau report also includes a key that explains each code. Some of these keys decipher the information, but others just cause more confusion.
Read your report carefully, making a note of anything you do not understand. The credit bureau is required by law to provide trained personnel to explain it to you. If accounts are identified by code number, or if there is a creditor listed on the report that you do not recognize, ask the credit bureau to supply you with the name and location of the creditor so you can ascertain if you do indeed hold an account with that creditor.
If the report includes accounts that you do not believe are yours, it is extremely important to find out why they are listed on your report. It is possible they are the accounts of a relative or someone with a name similar to yours. Less likely, but more importantly, someone may have used your credit information to apply for credit in your name. This type of fraud can cause a great deal of damage to your credit report, so investigate the unknown account as thoroughly as possible.
We recommend an annual review of your credit report. It is vital that you understand every piece of information on your credit report so that you can identify possible errors or omissions.
If you have any questions about how to obtain your credit report or how to interpret what's in your report, give us a call.
Credit Evaluation Factors
Many factors determine your credit. Here are some of the major factors considered:
• Age
• Residence
• "Authorized user" payment history
• Checking and savings accounts
• Bankruptcy
• Charge-offs (Forgiven debt)
• Child support
• Closed accounts and inactive accounts
• Jobs
• Payment history
• Recent loans
• Collection accounts and charge-offs
• Cosigning an account
• Credit limits
• Credit reports
• Debt/income ratios
• Department store accounts
• Payment history/late payments
• Finance company credit cards
• Income/income per dependent
• Mortgages
• Revolving credit
• Name/alias
• Number of credit accounts
• Fraud
• Inquiries
These factors may be used, and weighted, in determining credit decisions. Credit reports contain much of this information.
Obtaining Your Credit Reports
Credit reports are records of consumers' bill-paying habits. They are collected, stored, and sold by credit bureaus.
Credit reports are also called credit records, credit files, and credit histories. Under federal law, you are allowed access to free credit reports. There are three major credit bureaus and thousands of smaller ones where you can obtain a credit report.
These credit bureaus offer free credit reports, as well as monthly credit reports and services for a fee.
•Experian Credit Bureau: 888-397-3742 (cost: free or $14.95 monthly)
•Equifax Credit Bureau: 800-685-1111
•Trans Union: 877-322-8228 (cost: $11.95 monthly)
If you have been denied credit, you can request that the credit bureau involved provide you with a free copy of your credit report - but you must request it promptly. Otherwise each of the bureaus will provide you a copy of the report for a fee. You can request a copy from their websites (see links above) or toll-free numbers (also listed above).
Disputing Errors in Your Credit File
The Fair Credit Reporting Act (FCRA) protects consumers in the case of inaccurate or incomplete information in credit files. The FCRA requires credit bureaus to investigate and correct any errors in your file.
Tip: If you find any incorrect or incomplete information in your file, write to the credit bureau and ask them to investigate the information. Under the FCRA, they have about thirty days to contact the creditor and find out whether the information is correct. If not, it will be deleted.
Be aware that credit bureaus are not obligated to include all of your credit accounts in your report. If, for example, the credit union that holds your credit card account is not a paying subscriber of the credit bureau, the bureau is not obligated to add that reference to your file. Some may do so, however, for a small fee.
Fair Credit Reporting Act (FCRA)
This federal law was passed in 1970 to give consumers easier access to, and more information about, their credit files. The FCRA gives you the right to find out the information in your credit file, to dispute information you believe inaccurate or incomplete, and to find out who has seen your credit report in the past six months.
Understanding Your Credit Report
Credit reports contain symbols and codes that are abstract to the average consumer. Every credit bureau report also includes a key that explains each code. Some of these keys decipher the information, but others just cause more confusion.
Read your report carefully, making a note of anything you do not understand. The credit bureau is required by law to provide trained personnel to explain it to you. If accounts are identified by code number, or if there is a creditor listed on the report that you do not recognize, ask the credit bureau to supply you with the name and location of the creditor so you can ascertain if you do indeed hold an account with that creditor.
If the report includes accounts that you do not believe are yours, it is extremely important to find out why they are listed on your report. It is possible they are the accounts of a relative or someone with a name similar to yours. Less likely, but more importantly, someone may have used your credit information to apply for credit in your name. This type of fraud can cause a great deal of damage to your credit report, so investigate the unknown account as thoroughly as possible.
We recommend an annual review of your credit report. It is vital that you understand every piece of information on your credit report so that you can identify possible errors or omissions.
If you have any questions about how to obtain your credit report or how to interpret what's in your report, give us a call.
Planning Retirement Withdrawals
Are you thinking of retiring soon, or changing jobs? You may face a major financial decision: what to do about the funds in your retirement plan. This article will discuss partial withdrawals and full withdrawals.
Note: As you will see, the rules on retirement withdrawals are quite complex. They are offered here only for your general understanding. Please call us before taking withdrawals or making other major changes in your retirement plan.
Take a Partial Withdrawal
Partial withdrawals are withdrawals that aren't rollovers, annuities, or lump sums. Because they are partial, the amount not withdrawn continues its tax shelter (see below).
A partial withdrawal will usually leave open the option for other types of withdrawal (annuity, lump sum, rollover) of the balance left in the plan.
Note: Before retirement, partial withdrawals are fairly common with profit-sharing plans, 401(k)s, and stock bonus plans. After retirement, they are fairly common in all types of plans (though least common with defined-benefit pension plans).
Tax Planning. A partial withdrawal is taxable (and can be subject to the penalty tax on withdrawals before age 59-1/2) except to the extent it consists of after-tax contributions, such as nondeductible IRA contributions.
Example: Your retirement account totals $100,000, which includes an after-tax investment of $10,000. You withdraw $5,000. $500 of the withdrawal is tax-free ($10,000 / $100,000 x $5,000).
Note: The tax-free portion is computed differently for plan participants who have been in the plan since 5/5/86. Contact us for details.
Preserving the Tax Shelter. Your funds grow sheltered from tax while they are in the retirement plan. This means that the longer you can prolong the distribution - or the smaller the amount you must withdraw - the more your assets grow. Some people choose to defer withdrawals for as long as the law allows to maximize assets and shelter them for the next generation.
Note: The law has specific rules about how fast the money must be taken out of the plan after your death. These rules limit the ability to prolong a tax shelter.
Withdrawal Before You Reach Age 70-1/2
Until you reach 70-1/2, you do not need to take money out of your retirement account - unless your employer's plan requires it. In fact, there will usually be a 10% early-withdrawal penalty if you make withdrawals before age 59 1/2. This is on top of the regular income tax you owe - at any age - on amounts you withdraw (though there's no tax on after-tax contributions you made, as we discussed above).
Once You Reach Age 70-1/2
Once you hit 70-1/2, withdrawals must begin. Technically they can be postponed until April 1 of the year following the year you reach 70-1/2 - say April 1, 2011 if you reach 70-1/2 in 2010. But waiting until April 1 means you must withdraw for two years - 2010 and 2011 - in 2011. To avoid this income bunching and a possible higher marginal tax rate, we may suggest withdrawing in the year you reach 70-1/2. Call us to evaluate your situation.
The rules allow you to spread your withdrawals over a period substantially longer than your life expectancy. Under these rules, the taxpayer (say, an IRA owner) first determines how much he's saved as of the end of the preceding year. Then he consults a (unisex) IRS table to find the number for his age. The number corresponds to how long he may spread out the withdrawals. The owner then divides that number into the retirement asset total. The result is the minimum amount he must withdraw for the year.
Example: Joe reaches age 70-1/2 in October of this year. Retirement plan assets in his IRA totaled $600,000 at the end of last year. The IRS number for age 70 is 27.4. Joe must withdraw $21,898 ($600,000/27.4) this year.
Example: Two years from now, Joe is 72 and his IRA was $602,000 at the end of the preceding year (when Joe reached age 71). The IRS number for age 72 is 25.6. Joe must withdraw $23,516 ($602,000/25.6) when he's 72.
The number in the IRS table assumes distribution over a period based on your life expectancy, plus that of a beneficiary 10 years younger than you. If your designated beneficiary is a spouse more than 10 years younger than you, his or her actual life expectancy is used to figure the withdrawal period during your lifetime.
Caution: You can always take out money faster than required - and pay tax on these withdrawals. However, the tax code is strict about minimum withdrawals. If you fail to take out what's required, a tax penalty will take 50% of what should have been withdrawn but wasn't.
Financial Calculator: Required Minimum Distribution
The IRS requires that you withdraw at least a minimum amount - known as a Required Minimum Distribution - from your retirement accounts annually, starting the year you turn age 70-1/2. Determining how much you are required to withdraw is an important issue in retirement planning.
Please be in touch if you'd like assistance figuring out proper withdrawal amounts. Getting those numbers right can make a big difference in the quality of your retirement.
Note: As you will see, the rules on retirement withdrawals are quite complex. They are offered here only for your general understanding. Please call us before taking withdrawals or making other major changes in your retirement plan.
Take a Partial Withdrawal
Partial withdrawals are withdrawals that aren't rollovers, annuities, or lump sums. Because they are partial, the amount not withdrawn continues its tax shelter (see below).
A partial withdrawal will usually leave open the option for other types of withdrawal (annuity, lump sum, rollover) of the balance left in the plan.
Note: Before retirement, partial withdrawals are fairly common with profit-sharing plans, 401(k)s, and stock bonus plans. After retirement, they are fairly common in all types of plans (though least common with defined-benefit pension plans).
Tax Planning. A partial withdrawal is taxable (and can be subject to the penalty tax on withdrawals before age 59-1/2) except to the extent it consists of after-tax contributions, such as nondeductible IRA contributions.
Example: Your retirement account totals $100,000, which includes an after-tax investment of $10,000. You withdraw $5,000. $500 of the withdrawal is tax-free ($10,000 / $100,000 x $5,000).
Note: The tax-free portion is computed differently for plan participants who have been in the plan since 5/5/86. Contact us for details.
Preserving the Tax Shelter. Your funds grow sheltered from tax while they are in the retirement plan. This means that the longer you can prolong the distribution - or the smaller the amount you must withdraw - the more your assets grow. Some people choose to defer withdrawals for as long as the law allows to maximize assets and shelter them for the next generation.
Note: The law has specific rules about how fast the money must be taken out of the plan after your death. These rules limit the ability to prolong a tax shelter.
Withdrawal Before You Reach Age 70-1/2
Until you reach 70-1/2, you do not need to take money out of your retirement account - unless your employer's plan requires it. In fact, there will usually be a 10% early-withdrawal penalty if you make withdrawals before age 59 1/2. This is on top of the regular income tax you owe - at any age - on amounts you withdraw (though there's no tax on after-tax contributions you made, as we discussed above).
Once You Reach Age 70-1/2
Once you hit 70-1/2, withdrawals must begin. Technically they can be postponed until April 1 of the year following the year you reach 70-1/2 - say April 1, 2011 if you reach 70-1/2 in 2010. But waiting until April 1 means you must withdraw for two years - 2010 and 2011 - in 2011. To avoid this income bunching and a possible higher marginal tax rate, we may suggest withdrawing in the year you reach 70-1/2. Call us to evaluate your situation.
The rules allow you to spread your withdrawals over a period substantially longer than your life expectancy. Under these rules, the taxpayer (say, an IRA owner) first determines how much he's saved as of the end of the preceding year. Then he consults a (unisex) IRS table to find the number for his age. The number corresponds to how long he may spread out the withdrawals. The owner then divides that number into the retirement asset total. The result is the minimum amount he must withdraw for the year.
Example: Joe reaches age 70-1/2 in October of this year. Retirement plan assets in his IRA totaled $600,000 at the end of last year. The IRS number for age 70 is 27.4. Joe must withdraw $21,898 ($600,000/27.4) this year.
Example: Two years from now, Joe is 72 and his IRA was $602,000 at the end of the preceding year (when Joe reached age 71). The IRS number for age 72 is 25.6. Joe must withdraw $23,516 ($602,000/25.6) when he's 72.
The number in the IRS table assumes distribution over a period based on your life expectancy, plus that of a beneficiary 10 years younger than you. If your designated beneficiary is a spouse more than 10 years younger than you, his or her actual life expectancy is used to figure the withdrawal period during your lifetime.
Caution: You can always take out money faster than required - and pay tax on these withdrawals. However, the tax code is strict about minimum withdrawals. If you fail to take out what's required, a tax penalty will take 50% of what should have been withdrawn but wasn't.
Financial Calculator: Required Minimum Distribution
The IRS requires that you withdraw at least a minimum amount - known as a Required Minimum Distribution - from your retirement accounts annually, starting the year you turn age 70-1/2. Determining how much you are required to withdraw is an important issue in retirement planning.
Please be in touch if you'd like assistance figuring out proper withdrawal amounts. Getting those numbers right can make a big difference in the quality of your retirement.
Cash Flow - The Pulse of Your Business
Unfortunately, many small business owners do not fully understand their cash flow statement. This is shocking, given that all businesses essentially run on cash, and cash flow is the lifeblood of your business.
Some business experts even say that a healthy cash flow is more important than your business's ability to deliver its goods and services! That's hard to swallow, but consider this: if you fail to satisfy a customer and lose that customer's business, you can always work harder to please the next customer. But if you fail to have enough cash to pay your suppliers, creditors, or employees, you're out of business!
What Is Cash Flow?
Cash flow, simply defined, is the movement of money in and out of your business; these movements are called inflow and outflow. Inflows for your business primarily come from the sale of goods or services to your customers. The inflow only occurs when you make a cash sale or collect on receivables, however. Remember, it is the cash that counts! Other examples of cash inflows are borrowed funds, income derived from sales of assets, and investment income from interest.
Outflows for your business are generally the result of paying expenses. Examples of cash outflows include paying employee wages, purchasing inventory or raw materials, purchasing fixed assets, operating costs, paying back loans, and paying taxes.
Note: An accountant is the best person to help you learn how your cash flow statement works. Please contact us and we can prepare your cash flow statement and explain where the numbers come from.
Cash Flow Versus Profit
Profit and cash flow are two entirely different concepts, each with entirely different results. The concept of profit is somewhat broad and only looks at income and expenses over a certain period, say a fiscal quarter. Profit is a useful figure for calculating your taxes and reporting to the IRS.
Cash flow, on the other hand, is a more dynamic tool focusing on the day-to-day operations of a business owner. It is concerned with the movement of money in and out of a business. But more important, it is concerned with the times at which the movement of the money takes place.
Theoretically, even profitable companies can go bankrupt. It would take a lot of negligence and total disregard for cash flow, but it is possible. Consider how the difference between profit and cash flow relate to your business.
Example: If your retail business bought a $1,000 item and turned around to sell it for $2,000, then you have made a $1,000 profit. But what if the buyer of the item is slow to pay his or her bill, and six months pass before you collect on the account? Your retail business may still show a profit, but what about the bills it has to pay during that six-month period? You may not have the cash to pay the bills despite the profits you earned on the sale. Furthermore, this cash flow gap may cause you to miss other profit opportunities, damage your credit rating, and force you to take out loans and create debt. If this mistake is repeated enough times, you may go bankrupt.
Analyzing Your Cash Flow
The sooner you learn how to manage your cash flow, the better your chances for survival. Furthermore, you will be able to protect your company's short-term reputation as well as position it for long-term success.
The first step toward taking control of your company's cash flow is to analyze the components that affect the timing of your cash inflows and outflows. A thorough analysis of these components will reveal problem areas that lead to cash flow gaps in your business. Narrowing, or even closing, these gaps is the key to cash flow management.
Some of the more important components to examine are:
• Accounts receivable. Accounts receivable represent sales that have not yet been collected in the form of cash. An accounts receivable is created when you sell something to a customer in return for his or her promise to pay at a later date. The longer it takes for your customers to pay on their accounts, the more negative the effect on your cash flow.
• Credit terms. Credit terms are the time limits you set for your customers' promise to pay for their purchases. Credit terms affect the timing of your cash inflows. A simple way to improve cash flow is to get customers to pay their bills more quickly.
• Credit policy. A credit policy is the blueprint you use when deciding to extend credit to a customer. The correct credit policy - neither too strict nor too generous - is crucial for a healthy cash flow.
• Inventory. Inventory describes the extra merchandise or supplies your business keeps on hand to meet the demands of customers. An excessive amount of inventory hurts your cash flow by using up money that could be used for other cash outflows. Too many business owners buy inventory based on hopes and dreams instead of what they can realistically sell. Keep your inventory as low as possible.
• Accounts payable and cash flow. Accounts payable are amounts you owe to your suppliers that are payable some time in the near future - "near" meaning 30 to 90 days. Without payables and trade credit, you'd have to pay for all goods and services at the time you purchase them. For optimum cash flow management, examine your payables schedule.
Some cash flow gaps are created intentionally. For example, a business may purchase extra inventory to take advantage of quantity discounts, accelerate cash outflows to take advantage of significant trade discounts, or spend extra cash to expand its line of business.
For other businesses, cash flow gaps are unavoidable. Take, for example, a company that experiences seasonal fluctuations in its line of business. This business may normally have cash flow gaps during its slow season and then later fill the gaps with cash surpluses from the peak part of its season. Cash flow gaps are often filled by external financing sources. Revolving lines of credit, bank loans, and trade credit are just a few of the external financing options available that you may want to discuss with us.
Monitoring and managing your cash flow is important for the vitality of your business. The first signs of financial woe appear in your cash flow statement, giving you time to recognize a forthcoming problem and plan a strategy to deal with it. Furthermore, with periodic cash flow analysis, you can head off those unpleasant financial glitches by recognizing which aspects of your business have the potential to cause cash flow gaps.
Please call us to discuss cash flow management and analysis. We're happy to help you handle your cash surplus effectively and maintain adequate funds to cover day-to-day expenses.
Some business experts even say that a healthy cash flow is more important than your business's ability to deliver its goods and services! That's hard to swallow, but consider this: if you fail to satisfy a customer and lose that customer's business, you can always work harder to please the next customer. But if you fail to have enough cash to pay your suppliers, creditors, or employees, you're out of business!
What Is Cash Flow?
Cash flow, simply defined, is the movement of money in and out of your business; these movements are called inflow and outflow. Inflows for your business primarily come from the sale of goods or services to your customers. The inflow only occurs when you make a cash sale or collect on receivables, however. Remember, it is the cash that counts! Other examples of cash inflows are borrowed funds, income derived from sales of assets, and investment income from interest.
Outflows for your business are generally the result of paying expenses. Examples of cash outflows include paying employee wages, purchasing inventory or raw materials, purchasing fixed assets, operating costs, paying back loans, and paying taxes.
Note: An accountant is the best person to help you learn how your cash flow statement works. Please contact us and we can prepare your cash flow statement and explain where the numbers come from.
Cash Flow Versus Profit
Profit and cash flow are two entirely different concepts, each with entirely different results. The concept of profit is somewhat broad and only looks at income and expenses over a certain period, say a fiscal quarter. Profit is a useful figure for calculating your taxes and reporting to the IRS.
Cash flow, on the other hand, is a more dynamic tool focusing on the day-to-day operations of a business owner. It is concerned with the movement of money in and out of a business. But more important, it is concerned with the times at which the movement of the money takes place.
Theoretically, even profitable companies can go bankrupt. It would take a lot of negligence and total disregard for cash flow, but it is possible. Consider how the difference between profit and cash flow relate to your business.
Example: If your retail business bought a $1,000 item and turned around to sell it for $2,000, then you have made a $1,000 profit. But what if the buyer of the item is slow to pay his or her bill, and six months pass before you collect on the account? Your retail business may still show a profit, but what about the bills it has to pay during that six-month period? You may not have the cash to pay the bills despite the profits you earned on the sale. Furthermore, this cash flow gap may cause you to miss other profit opportunities, damage your credit rating, and force you to take out loans and create debt. If this mistake is repeated enough times, you may go bankrupt.
Analyzing Your Cash Flow
The sooner you learn how to manage your cash flow, the better your chances for survival. Furthermore, you will be able to protect your company's short-term reputation as well as position it for long-term success.
The first step toward taking control of your company's cash flow is to analyze the components that affect the timing of your cash inflows and outflows. A thorough analysis of these components will reveal problem areas that lead to cash flow gaps in your business. Narrowing, or even closing, these gaps is the key to cash flow management.
Some of the more important components to examine are:
• Accounts receivable. Accounts receivable represent sales that have not yet been collected in the form of cash. An accounts receivable is created when you sell something to a customer in return for his or her promise to pay at a later date. The longer it takes for your customers to pay on their accounts, the more negative the effect on your cash flow.
• Credit terms. Credit terms are the time limits you set for your customers' promise to pay for their purchases. Credit terms affect the timing of your cash inflows. A simple way to improve cash flow is to get customers to pay their bills more quickly.
• Credit policy. A credit policy is the blueprint you use when deciding to extend credit to a customer. The correct credit policy - neither too strict nor too generous - is crucial for a healthy cash flow.
• Inventory. Inventory describes the extra merchandise or supplies your business keeps on hand to meet the demands of customers. An excessive amount of inventory hurts your cash flow by using up money that could be used for other cash outflows. Too many business owners buy inventory based on hopes and dreams instead of what they can realistically sell. Keep your inventory as low as possible.
• Accounts payable and cash flow. Accounts payable are amounts you owe to your suppliers that are payable some time in the near future - "near" meaning 30 to 90 days. Without payables and trade credit, you'd have to pay for all goods and services at the time you purchase them. For optimum cash flow management, examine your payables schedule.
Some cash flow gaps are created intentionally. For example, a business may purchase extra inventory to take advantage of quantity discounts, accelerate cash outflows to take advantage of significant trade discounts, or spend extra cash to expand its line of business.
For other businesses, cash flow gaps are unavoidable. Take, for example, a company that experiences seasonal fluctuations in its line of business. This business may normally have cash flow gaps during its slow season and then later fill the gaps with cash surpluses from the peak part of its season. Cash flow gaps are often filled by external financing sources. Revolving lines of credit, bank loans, and trade credit are just a few of the external financing options available that you may want to discuss with us.
Monitoring and managing your cash flow is important for the vitality of your business. The first signs of financial woe appear in your cash flow statement, giving you time to recognize a forthcoming problem and plan a strategy to deal with it. Furthermore, with periodic cash flow analysis, you can head off those unpleasant financial glitches by recognizing which aspects of your business have the potential to cause cash flow gaps.
Please call us to discuss cash flow management and analysis. We're happy to help you handle your cash surplus effectively and maintain adequate funds to cover day-to-day expenses.
Can Your One-Owner Business Continue to Use Discriminatory Health Insurance?
The new health care law enacted this year eliminates the old ability to create discriminatory health insurance plans which were used by many one-owner and husband-and-wife-owned businesses. However, existing discriminatory plans are grandfathered by the law and allowed to continue discriminate as before.
Our article, New Law Grandfathers Discriminatory Health Insurance, will help you determine if your business can continue to discriminate with its health insurance.
What Is Discriminatory Health Insurance?
One-owner businesses with employees usually avoided the Section 105 medical reimbursement plan because of its anti-discrimination rules that required coverage of all employees.
To get around covering all the employees, many one-owner businesses established a plan based on health insurance that permits certain types of discrimination.
Under such a discriminatory health insurance plan, the business covers select employees with health insurance while providing no insurance for other employees. Tax law allows a deduction for such a plan.
The Patient Protection and Affordable Care Act (2010 Health Care Act), P.L. 111-148, and the Health Care and Education Reconciliation Act of 2010 (2010 Reconciliation Act), P.L. 111-152, establish new discrimination guidelines that apply the Section 105 discrimination rules to insurance plans that are not grandfathered plans.
Protect Your Grandfathered Status
To maintain status as a discriminatory grandfathered health plan, your business health insurance coverage must include a statement to the plan participant that you, the employer, believe the benefits under the plan are grandfathered within the meaning of Section 1251 of the Patient Protection and Affordable Care Act.
You must also maintain records that document the coverage in effect on March 23, 2010, and any other documents necessary to verify, explain, or clarify the plan's status as a grandfathered health plan. Such records must be available for examination by the IRS upon request.
Our article, New Law Grandfathers Discriminatory Health Insurance, will help you determine if your business can continue to discriminate with its health insurance.
What Is Discriminatory Health Insurance?
One-owner businesses with employees usually avoided the Section 105 medical reimbursement plan because of its anti-discrimination rules that required coverage of all employees.
To get around covering all the employees, many one-owner businesses established a plan based on health insurance that permits certain types of discrimination.
Under such a discriminatory health insurance plan, the business covers select employees with health insurance while providing no insurance for other employees. Tax law allows a deduction for such a plan.
The Patient Protection and Affordable Care Act (2010 Health Care Act), P.L. 111-148, and the Health Care and Education Reconciliation Act of 2010 (2010 Reconciliation Act), P.L. 111-152, establish new discrimination guidelines that apply the Section 105 discrimination rules to insurance plans that are not grandfathered plans.
Protect Your Grandfathered Status
To maintain status as a discriminatory grandfathered health plan, your business health insurance coverage must include a statement to the plan participant that you, the employer, believe the benefits under the plan are grandfathered within the meaning of Section 1251 of the Patient Protection and Affordable Care Act.
You must also maintain records that document the coverage in effect on March 23, 2010, and any other documents necessary to verify, explain, or clarify the plan's status as a grandfathered health plan. Such records must be available for examination by the IRS upon request.
Five Tax Tips for Recently Married Taxpayers
Are you getting married this summer? If you recently got married or are planning a wedding, the last thing on your mind is taxes. However, there are some important steps you need to take to avoid stress at tax time. Here are five tips from the IRS for newlyweds to keep in mind.
1. Notify the Social Security Administration Report any name change to the Social Security Administration, so your name and Social Security Number will match when you file your next tax return. Informing the SSA of a name change is quite simple. File a Form SS-5, Application for a Social Security Card, at your local SSA office. The form is available on SSA’s website at www.socialsecurity.gov, by calling 800-772-1213 or at local offices.
2. Notify the IRS If you have a new address you should notify the IRS by sending Form 8822, Change of Address. You may download Form 8822 from IRS.gov or order it by calling 800–TAX–FORM (800–829–3676).
3. Notify the U.S.Postal Service You should also notify the U.S. Postal Service when you move so it can forward any IRS correspondence.
4. Notify Your Employer Report any name and address changes to your employer(s) to make sure you receive your Form W-2, Wage and Tax Statement, after the end of the year.
5. Check Your Withholding If both you and your spouse work, your combined income may place you in a higher tax bracket. You can use the IRS Withholding Calculator available on IRS.gov to assist you in determining the correct amount of withholding needed for your new filing status. The IRS Withholding Calculator will even provide you with a new Form W-4, Employee's Withholding Allowance Certificate, you can print out and give to your employer so they can withhold the correct amount from your pay.
1. Notify the Social Security Administration Report any name change to the Social Security Administration, so your name and Social Security Number will match when you file your next tax return. Informing the SSA of a name change is quite simple. File a Form SS-5, Application for a Social Security Card, at your local SSA office. The form is available on SSA’s website at www.socialsecurity.gov, by calling 800-772-1213 or at local offices.
2. Notify the IRS If you have a new address you should notify the IRS by sending Form 8822, Change of Address. You may download Form 8822 from IRS.gov or order it by calling 800–TAX–FORM (800–829–3676).
3. Notify the U.S.Postal Service You should also notify the U.S. Postal Service when you move so it can forward any IRS correspondence.
4. Notify Your Employer Report any name and address changes to your employer(s) to make sure you receive your Form W-2, Wage and Tax Statement, after the end of the year.
5. Check Your Withholding If both you and your spouse work, your combined income may place you in a higher tax bracket. You can use the IRS Withholding Calculator available on IRS.gov to assist you in determining the correct amount of withholding needed for your new filing status. The IRS Withholding Calculator will even provide you with a new Form W-4, Employee's Withholding Allowance Certificate, you can print out and give to your employer so they can withhold the correct amount from your pay.
Wednesday, August 11, 2010
Seven Facts about the Nonbusiness Energy Property Credit
Thinking about making some energy saving improvements to your home this summer? Taking some energy saving steps now may lead to bigger tax savings next year. The Nonbusiness Energy Property Credit, a tax credit for making energy efficient improvements to homes was increased as part of the American Recovery and Reinvestment Act of 2009.
Here are seven things the IRS wants you to know about the Nonbusiness Energy Property Credit:
1. The new law increases the credit rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 claimed for 2009 and 2010 combined.
2. The credit applies to improvements such as adding insulation, energy-efficient exterior windows and energy-efficient heating and air conditioning systems.
3. To qualify as “energy efficient” for purposes of this tax credit, products generally must meet higher standards than the standards for the credit that was available in 2007.
4. Manufacturers must certify that their products meet new standards and they must provide a written statement to the taxpayer such as with the packaging of the product or in a printable format on the manufacturers’ Website.
5. Qualifying improvements must be placed into service after December 31, 2008, and before January 1, 2011.
6. The improvements must be made to the taxpayer’s principal residence located in the United States.
7. To claim the credit, attach Form 5695, Residential Energy Credits to either the 2009 or 2010 tax return. Taxpayers must claim the credit on the tax return for the year that the improvements are made.
Homeowners who have been considering some energy efficient home improvements may find these tax credits will get them bigger tax savings next year.
For more information on this and other key tax provisions of the Recovery Act, visit IRS.gov/recovery.
Here are seven things the IRS wants you to know about the Nonbusiness Energy Property Credit:
1. The new law increases the credit rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 claimed for 2009 and 2010 combined.
2. The credit applies to improvements such as adding insulation, energy-efficient exterior windows and energy-efficient heating and air conditioning systems.
3. To qualify as “energy efficient” for purposes of this tax credit, products generally must meet higher standards than the standards for the credit that was available in 2007.
4. Manufacturers must certify that their products meet new standards and they must provide a written statement to the taxpayer such as with the packaging of the product or in a printable format on the manufacturers’ Website.
5. Qualifying improvements must be placed into service after December 31, 2008, and before January 1, 2011.
6. The improvements must be made to the taxpayer’s principal residence located in the United States.
7. To claim the credit, attach Form 5695, Residential Energy Credits to either the 2009 or 2010 tax return. Taxpayers must claim the credit on the tax return for the year that the improvements are made.
Homeowners who have been considering some energy efficient home improvements may find these tax credits will get them bigger tax savings next year.
For more information on this and other key tax provisions of the Recovery Act, visit IRS.gov/recovery.
Monday, August 9, 2010
Top 10 Things Every Taxpayer Should Know about Identity Theft
Taxpayers need to be careful to protect their personal information. Identity thieves use many methods to steal personal information and then they use the information to file a tax return and get a refund. Here are 10 things the IRS wants you to know about identity theft so you can avoid becoming the victim of an identity thief.
1. The IRS does not initiate contact with a taxpayer by e-mail.
2. If you receive a scam e-mail claiming to be from the IRS, forward it to the IRS at phishing@irs.gov.
3. Identity thieves get your personal information by many different means, including:
• Stealing your wallet or purse
• Posing as someone who needs information about you through a phone call or e-mail
• Looking through your trash for personal information
• Accessing information you provide to an unsecured Internet site.
4. If you discover a website that claims to be the IRS but does not begin with ‘www.irs.gov’, forward that link to the IRS at phishing@irs.gov.
5. To learn how to identify a secure website, visit the Federal Trade Commission at www.onguardonline.gov/tools/recognize-secure-site-using-ssl.aspx.
6. If your Social Security number is stolen, another individual may use it to get a job. That person’s employer may report income earned by them to the IRS using your Social Security number, thus making it appear that you did not report all of your income on your tax return.
7. Your identity may have been stolen if a letter from the IRS indicates more than one tax return was filed for you or the letter states you received wages from an employer you don’t know. If you receive such a letter from the IRS, leading you to believe your identity has been stolen, respond immediately to the name, address or phone number on the IRS notice.
8. If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost wallet, questionable credit card activity, or credit report, you need to provide the IRS with proof of your identity. You should submit a copy of your valid government-issued identification – such as a Social Security card, driver’s license, or passport – along with a copy of a police report and/or a completed Form 14039, Identity Theft Affidavit. As an option, you can also contact the IRS Identity Protection Specialized Unit, toll-free at 800-908-4490. You should also follow FTC guidance for reporting identity theft at www.ftc.gov/idtheft.
9. Show your Social Security card to your employer when you start a job or to your financial institution for tax reporting purposes. Do not routinely carry your card or other documents that display your Social Security number.
10. For more information about identity theft – including information about how to report identity theft, phishing and related fraudulent activity – visit the IRS Identity Theft and Your Tax Records Page, which you can find by searching “Identity Theft” on the IRS.gov home page.
1. The IRS does not initiate contact with a taxpayer by e-mail.
2. If you receive a scam e-mail claiming to be from the IRS, forward it to the IRS at phishing@irs.gov.
3. Identity thieves get your personal information by many different means, including:
• Stealing your wallet or purse
• Posing as someone who needs information about you through a phone call or e-mail
• Looking through your trash for personal information
• Accessing information you provide to an unsecured Internet site.
4. If you discover a website that claims to be the IRS but does not begin with ‘www.irs.gov’, forward that link to the IRS at phishing@irs.gov.
5. To learn how to identify a secure website, visit the Federal Trade Commission at www.onguardonline.gov/tools/recognize-secure-site-using-ssl.aspx.
6. If your Social Security number is stolen, another individual may use it to get a job. That person’s employer may report income earned by them to the IRS using your Social Security number, thus making it appear that you did not report all of your income on your tax return.
7. Your identity may have been stolen if a letter from the IRS indicates more than one tax return was filed for you or the letter states you received wages from an employer you don’t know. If you receive such a letter from the IRS, leading you to believe your identity has been stolen, respond immediately to the name, address or phone number on the IRS notice.
8. If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost wallet, questionable credit card activity, or credit report, you need to provide the IRS with proof of your identity. You should submit a copy of your valid government-issued identification – such as a Social Security card, driver’s license, or passport – along with a copy of a police report and/or a completed Form 14039, Identity Theft Affidavit. As an option, you can also contact the IRS Identity Protection Specialized Unit, toll-free at 800-908-4490. You should also follow FTC guidance for reporting identity theft at www.ftc.gov/idtheft.
9. Show your Social Security card to your employer when you start a job or to your financial institution for tax reporting purposes. Do not routinely carry your card or other documents that display your Social Security number.
10. For more information about identity theft – including information about how to report identity theft, phishing and related fraudulent activity – visit the IRS Identity Theft and Your Tax Records Page, which you can find by searching “Identity Theft” on the IRS.gov home page.
Do You Need to Amend Your Return?
If you forgot to include some income or to take a deduction on your tax return – you can correct it by amending your tax return.
In some cases, you do not need to amend your tax return. The Internal Revenue Service usually corrects math errors or requests missing forms – such as W-2s or schedules – when processing an original return. In these instances, do not amend your return.
However, you should file an amended return if any of the following were reported incorrectly:
• Your filing status
• Your dependents
• Your total income
• Your deductions or credits
You may also elect to amend your 2009 return if you are eligible to claim the first-time homebuyer credit for a qualified 2010 home purchase. The amended tax return will allow you to claim the homebuyer credit on your 2009 return without waiting until next year to claim it on the 2010 return.
Use Form 1040X, Amended U.S. Individual Income Tax Return, to correct a previously filed Form 1040, 1040A or 1040EZ. Be sure to check the box for the year of the return you are amending on the Form 1040X, Line B. If you are amending more than one tax return, prepare a 1040X for each return and mail them in separate envelopes to the appropriate IRS processing center.. The 1040X instructions list the addresses for the centers.
The newly revised Form 1040X (Rev. January 2010) now has only one column used to show the corrected figures. There is an area on the front of the form where you explain why you are filing Form 1040X.
If the changes involve other schedules or forms, attach them to the Form 1040X. For example, if you are filing a 1040X because you have a qualifying child and now want to claim the Earned Income Credit, you must attach a Schedule EIC, Earned Income Credit to show the qualifying person's name, year of birth and Social Security number.
If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X. You may cash that check while waiting for any additional refund. If you owe additional tax for 2009, you should file Form 1040X and pay the tax as soon as possible to limit interest and penalty charges. Interest is charged on any tax not paid by the due date of the original return, without regard to extensions.
Generally, to claim a refund, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.
Form 1040X and instructions are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
In some cases, you do not need to amend your tax return. The Internal Revenue Service usually corrects math errors or requests missing forms – such as W-2s or schedules – when processing an original return. In these instances, do not amend your return.
However, you should file an amended return if any of the following were reported incorrectly:
• Your filing status
• Your dependents
• Your total income
• Your deductions or credits
You may also elect to amend your 2009 return if you are eligible to claim the first-time homebuyer credit for a qualified 2010 home purchase. The amended tax return will allow you to claim the homebuyer credit on your 2009 return without waiting until next year to claim it on the 2010 return.
Use Form 1040X, Amended U.S. Individual Income Tax Return, to correct a previously filed Form 1040, 1040A or 1040EZ. Be sure to check the box for the year of the return you are amending on the Form 1040X, Line B. If you are amending more than one tax return, prepare a 1040X for each return and mail them in separate envelopes to the appropriate IRS processing center.. The 1040X instructions list the addresses for the centers.
The newly revised Form 1040X (Rev. January 2010) now has only one column used to show the corrected figures. There is an area on the front of the form where you explain why you are filing Form 1040X.
If the changes involve other schedules or forms, attach them to the Form 1040X. For example, if you are filing a 1040X because you have a qualifying child and now want to claim the Earned Income Credit, you must attach a Schedule EIC, Earned Income Credit to show the qualifying person's name, year of birth and Social Security number.
If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X. You may cash that check while waiting for any additional refund. If you owe additional tax for 2009, you should file Form 1040X and pay the tax as soon as possible to limit interest and penalty charges. Interest is charged on any tax not paid by the due date of the original return, without regard to extensions.
Generally, to claim a refund, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.
Form 1040X and instructions are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
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