25 May 2011

Cost Segregation

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WHAT IS COST SEGREGATION?
Cost Segregation is a strategic tax savings tool that allows companies and individuals, who have constructed, purchased, expanded, or remodeled any kind of real estate to increase cash flow by accelerating depreciation deductions and deferring federal and state income taxes.In general, it is easy to identify furniture, fixtures, and equipment (FF&E) that are depreciated over 5 or 7 years for tax purposes. However, a Cost Segregation Study goes far beyond that by dissecting construction costs that are usually depreciated over 27 ½ or 39 years. The primary goal of a Cost Segregation Study is to identify all construction-related costs that can be depreciated over 5, 7 and 15 years. For example, 20% to 50% of the total electrical costs in most buildings can qualify as personal property (depreciated over 5 or 7 years). Reducing tax lives results in accelerated depreciation deductions, a reduced tax liability, and increased cash flow.
WHAT ARE THE BENEFITS OF A COST SEGREGATION STUDY?

  • Generates immediate increase in cash flow through accelerated depreciation deductions.
  • Reduces income taxes and can also reduce real estate property taxes.
  • Provides an easy opportunity to claim ‘catch up’ depreciation on previously misclassified assets.
  • Provides an independent third-party analysis that will withstand IRS review.
WHEN SHOULD A COST SEGREGATION STUDY BE CONDUCTED?
The ideal time for a Cost Segregation Study can vary depending on a client’s tax situation. At KBKG, our team of engineers and tax experts work together with clients and their accountants to recommend the best tax planning solution to fit their needs.A free preliminary analysis can help determine the right timing and strategy for any investor.

  • Post-purchase, Remodel, or Construction: “Look-back” Studies: A Study can be completed anytime after the purchase, remodel, or construction of a property. In fact, current Internal Revenue Service procedures make it easy to go back and claim missed depreciation on assets acquired as far back as 1987 without amending prior tax returns.
  • Year Placed in Service: The optimum time for a Study for new owners, is during the year a building is constructed, purchased, or remodeled. This allows an owner to immediately optimize tax savings and accurately classify assets before the building even begins to depreciate.
  • Pre-construction: For investors who are in the planning phases of construction or remodeling, the best time to consider a Cost Segregation Study is before the infrastructure of the building is set. KBKG’s Pre-Construction Consulting allows the project’s accountant and construction contractor to accurately track items that qualify for accelerated depreciation and ultimately saves time and money.

 

WHAT KIND OF REAL ESTATE QUALIFIES?
Any structure used for business or as rental property, is eligible for the benefits of Cost Segregation. The graph below represents the percentages of project-related construction costs that could be reclassified from either 27.5 or 39-year real property to 5, 7, or 15-year property.

Other projects benefiting from Cost Segregation are shopping malls, airports, sports facilities, driving ranges, resorts, health care facilities, industrial buildings, auto service centers and more.

Any leasehold improvements can also qualify for a Cost Segregation Study. These interior build- outs generally produce a proportionally higher ratio of qualifying property. Therefore a Cost Segregation Study that analyzes the costs of leasehold improvements can be even more beneficial.

WHO CAN CONDUCT A COST SEGREGATION STUDY?
The following qualifications are needed to ensure an investor obtains the optimum tax savings allowable by law:

  • Engineering, construction, and tax expertise: to accurately evaluate, identify and classify assets to appropriate categories.
  • Knowledge of changing tax laws: to ensure taxpayers optimize savings within the proper application of current laws.
  • Knowledge of prior court cases and rulings pertaining to individual assets: to determine what is personal property. According to the IRS’s Chief Counsel Guidance in 1999, the IRS recognizes that there is “No Bright Line Test” for identifying personal property. As rulings in various court cases have proven, different circumstances for the exact same type of asset can change how the asset is depreciated for tax purposes. Therefore, a specialist needs to evaluate the construction method, use, and application of laws pertaining to each asset.
  • Compliance with the IRS Audit Techniques Guide: to ensure an accurate study that withstands IRS scrutiny in the event of an audit. The IRS Audit Techniques Guide, issued in 2004, outlines the criteria of a quality Cost Segregation Study and provides direction to IRS field agents when reviewing a report that does not employ the methods suggested. KBKG not only meets, but exceeds this criteria.
  • Proactive identification of other opportunities: to recognize additional areas of tax savings. An independent third party who specializes in Cost Segregation Studies and other Real Estate Tax services can determine if an investor can benefit from other studies such as: Fixed Asset Studies, Abandonment Studies, and more.

WHAT IS INVOLVED IN A KBKG STUDY?
A quality Cost Segregation Study evaluates all information including available records, inspections, and interviews, and presents the findings in a clear, well-documented format. Our process for conducting a detailed Study includes:

  • A review of all cost detail for the property including but not limited to: the general contractor’s application for payment, construction invoices, change orders, depreciation schedules, and appraisals.
  • An inspection of the facility to fully understand its use and condition, as well as to gather information that further supports the classification of capitalized costs into their appropriate class lives.
  • Photographs are taken of qualifying construction components and included in our report.
  • A review of all blueprints (if available) and the performance of quantity take-offs and cost estimates for personal property not segregated in other cost information.
  • A reconciliation of all construction costs and estimates of the actual amounts incurred by tax life. This step includes adjusting estimates to account for location, time, and physical condition. We also perform an allocation of soft costs to any direct cost in each category to maximize your total benefits.
  • Preparation of a report: Our report complies with the IRS standards stipulated in the Audit Techniques Guide for Cost Segregation Studies.
25 May 2011

Don’t Fall Prey to the 2011 Dirty Dozen Tax Scams

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IR-2011-39, April 7, 2011

WASHINGTON –– Hiding income in offshore accounts, identity theft, return preparer fraud, and filing false or misleading tax forms top the annual list of “dirty dozen” tax scams in 2011, the Internal Revenue Service announced today.

“The Dirty Dozen represents the worst of the worst tax scams,” IRS Commissioner Doug Shulman said. “Don’t fall prey to these tax scams. They may look tempting, but these fraudulent deals end up hurting people who participate in them.”

The IRS works with the Justice Department to pursue and shut down perpetrators of these and other illegal scams. Promoters frequently end up facing heavy fines and imprisonment. Meanwhile, taxpayers who wittingly or unwittingly get involved with these schemes must repay all taxes due plus interest and penalties.

Following is the Dirty Dozen for 2011:

Hiding Income Offshore

The IRS aggressively pursues taxpayers involved in abusive offshore transactions as well as the promoters, professionals and others who facilitate or enable these schemes. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through the use of nominee entities. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or insurance plans.

In early February, the IRS announced a special voluntary disclosure initiative designed to bring offshore money back into the U.S. tax system and help people with undisclosed income from hidden offshore accounts get current with their taxes. The new voluntary disclosure initiative will be available through Aug. 31, 2011. The IRS decision to open a second special disclosure initiative follows continuing interest from taxpayers with foreign accounts. In response to numerous requests, information about this initiative is available on IRS.gov in eight different languages, including: Chinese, Farsi, German, Hindi, Korean, Russian, Spanish, and Vietnamese.

Identity Theft and Phishing

Identity theft occurs when someone uses an unsuspecting individual’s name, Social Security number, credit card number or other personal information without permission to commit fraud or other crimes. For example, a criminal can use someone else’s information to run up bills on that person’s credit card, empty that person’s bank account or take out a loan in that person’s name. And when it comes to taxes, a criminal with someone else’s personal information can file a fraudulent tax return and collect a refund.

Phishing is one tactic used by scam artists to trick unsuspecting victims into revealing personal or financial information online. Phishing involves the use of phony e-mail or websites — even social media. A scammer may pose as an institution such as the IRS. IRS impersonation schemes flourish during tax season. Spyware, which can be loaded onto an unsuspecting taxpayer’s computer by opening an e-mail attachment or clicking on a link, is another tool identity thieves use to steal personal information.

Identity theft is a major problem that affects many people each year. That’s why it’s important that taxpayers protect their personal information. Anyone who believes his or her personal information has been stolen and used for tax purposes should immediately contact the IRS Identity Protection Specialized Unit at 1-800-908-4490. A suspicious e-mail or an “IRS” Web address that does not begin with http://www.irs.gov should be forwarded to the IRS at phishing@irs.gov.

Return Preparer Fraud

While most return preparers are professionals who provide honest and excellent service to their clients, some make basic errors or engage in fraud and other illegal activities.

Dishonest return preparers can cause big trouble for taxpayers who fall victim to their ploys. These fraudsters derive benefit by skimming a portion of their clients’ refunds, charging inflated fees for return preparation services and attracting new clients by making false promises. Taxpayers should choose carefully when hiring a tax preparer. Federal courts have issued hundreds of injunctions ordering individuals to cease preparing returns, and the Department of Justice has pending complaints against dozens of others.

To increase confidence in the tax system and improve compliance with the tax law, the IRS is implementing a number of requirements for paid tax preparers, including registration with the IRS and a preparer tax identification number (PTIN), as well as competency tests and ongoing continuing professional education.

The new regulations require paid tax preparers (including attorneys, CPAs, and enrolled agents) to apply for a Preparer Tax Identification Number (PTIN) before preparing any federal tax returns in 2011.

Higher standards for the tax preparer community will result in greater compliance with tax laws, increase confidence in the tax system and ultimately lead to a better experience for taxpayers.

Filing False or Misleading Forms

IRS personnel are seeing various instances in which scam artists file false or misleading returns to claim refunds to which they are not entitled. In one variation of this scheme, a taxpayer seeks a refund by fabricating an information return and falsely claiming the corresponding amount as withholding. Phony information returns, such as a Form 1099 Original Issue Discount (OID), which claims false withholding credits, are usually used to legitimize erroneous refund claims. One version of the scheme is based on the bogus theory that the federal government maintains secret accounts for its citizens and that taxpayers can gain access to funds in those accounts by issuing 1099-OID forms to their creditors, including the IRS.

The IRS continues to see instances in which people file false or fraudulent tax returns to try to obtain improper tax refunds. The IRS takes refund fraud seriously, has programs to aggressively combat it and stops the vast majority of incorrect refunds.

Because scammers often use information from family or friends in filing false or fraudulent returns, beware of requests for such data. Don’t fall prey to people who encourage you to claim deductions or credits you are not entitled to or willingly allow others to use your information to file false returns. If you are a party to such schemes, you could be liable for financial penalties or even face criminal prosecution.

Frivolous Arguments

Promoters of frivolous schemes encourage people to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list of frivolous legal positions that taxpayers should avoid. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or IRS guidance.

Nontaxable Social Security Benefits with Exaggerated Withholding Credit

The IRS has identified returns where taxpayers report nontaxable Social Security Benefits with excessive withholding. This tactic results in no income reported to the IRS on the tax return. Often both the withholding amount and the reported income are incorrect. Taxpayers should avoid making these mistakes. Filings of this type of return may result in a $5,000 penalty.

Abuse of Charitable Organizations and Deductions

The IRS continues to observe the misuse of tax-exempt organizations. Abuse includes arrangements to improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or income from donated property. The IRS also continues to investigate various schemes involving the donation of non-cash assets including situations where several organizations claim the full value for both the receipt and distribution of the same non-cash contribution. Often these donations are highly overvalued or the organization receiving the donation promises that the donor can repurchase the items later at a price set by the donor. The Pension Protection Act of 2006 imposed increased penalties for inaccurate appraisals and set new definitions of qualified appraisals and qualified appraisers for taxpayers claiming charitable contributions.

Abusive Retirement Plans

The IRS continues to find abuses in retirement plan arrangements, including Roth Individual Retirement Arrangements (IRAs). The IRS is looking for transactions that taxpayers use to avoid the limits on contributions to IRAs, as well as transactions that are not properly reported as early distributions. Taxpayers should be wary of advisers who encourage them to shift appreciated assets at less than fair market value into IRAs or companies owned by their IRAs to circumvent annual contribution limits. Other variations have included the use of limited liability companies to engage in activity that is considered prohibited.

Disguised Corporate Ownership

Corporations and other entities are formed and operated in certain states for the purpose of disguising the ownership of the business or financial activity by means such as improperly using a third party to request an employer identification number.

Such entities can be used to facilitate underreporting of income, fictitious deductions, non-filing of tax returns, participating in listed transactions, money laundering, financial crimes and even terrorist financing. The IRS is working with state authorities to identify these entities and to bring the owners of these entities into compliance with the law.

Zero Wages

Filing a phony wage-or-income-related informational return to replace a legitimate information return has been used as an illegal method to lower the amount of taxes owed. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer may also submit a statement rebutting wages and taxes reported by a payer to the IRS.

Sometimes, fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any of the variations of this scheme. Filings of this type of return may result in a $5,000 penalty.

Misuse of Trusts

For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. While there are many legitimate, valid uses of trusts in tax and estate planning, some highly questionable transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the tax benefits promised and are used primarily as a means to avoid income tax liability and hide assets from creditors, including the IRS.

IRS personnel have recently seen an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering a trust arrangement.

Fuel Tax Credit Scams

The IRS receives claims for the fuel tax credit that are excessive. Some taxpayers, such as farmers who use fuel for off-highway business purposes, may be eligible for the fuel tax credit. But other individuals are claiming the tax credit for nontaxable uses of fuel when their occupations or income levels make the claim unreasonable. Fraud involving the fuel tax credit is considered a frivolous tax claim and can result in a penalty of $5,000.

How to Report Suspected Tax Fraud Activity

Suspected tax fraud can be reported to the IRS using Form 3949-A, Information Referral. The completed form or a letter detailing the alleged fraudulent activity should be addressed to the Internal Revenue Service, Fresno, CA, 93888. The mailing should include specific information about who is being reported, the activity being reported, how the activity became known, when the alleged violation took place, the amount of money involved and any other information that might be helpful in an investigation. The identity of the person filing the report can be kept confidential.

Whistleblowers also may provide allegations of fraud to the IRS and may be eligible for a reward by filing Form 211, Application for Award for Original Information, and following the procedures outlined in Notice 2008-4, Claims Submitted to the IRS Whistleblower Office under Section 7623.

25 May 2011

SE Health Insurance Deduction and Medicare B

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From: TaxHelp@hal1.ausc.irs.gov

Sent: Friday, February 04, 2011 12:31 PM

 To: Tim Hilger

Subject: IRS Email Tax Law Assistance NOTE: Thank you for your inquiry. Our response to your tax law question appears below.

I hope this information has been helpful. If you have a follow‐up question or another general tax law question, please return to our web site at: www.irs.gov.

Your Question Was: Instructions to form 1040 say that Medicare Part B premiums count towards the self‐employed health insurance deduction on line 29. This contradicts FSA 3042 and Pub. 535. Which is correct?

The Answer To Your Question Is: Thank you for your inquiry regarding Medicare Part B premiums and the Self‐Employed Health Insurance Deduction. Your inquiry states that the instructions for Form 1040 contradict FSA 3041 and Publication 535, and asks which is correct.

We apologize for the delay in responding. The instructions for 2010 Form 1040, line 29, state that you may be able to deduct the amount you paid for health insurance for yourself, your spouse, and your dependents. Effective March 30, 2010, the insurance can also cover your child who was under age 27 at the end of 2010, even if the child was not your dependent. One of the following statements must be true. You were self‐employed and had a net profit for the year. You used one of the optional methods to figure your net earnings from self‐employment on Schedule SE. You received wages in 2010 from an S corporation in which you were a more‐than‐2% shareholder. Health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W‐2. The insurance plan must be established under your business. Your personal services must have been a material income‐producing factor in the business. If you are a more‐than‐2% shareholder in an S corporation, the plan must be established by the S corporation. A plan is established by the S corporation if (a) the S corporation makes premium payments for the policy in 2010 or (b) you make the premium payments and furnish proof of payment to the S corporation and then the S corporation reimburses you for the premium payments in 2010. You can deduct the premiums only if the S corporation reports the premiums paid or reimbursed as wages in box 1 of your Form W‐2 in 2010 and you also report premium payments or reimbursements as wages on Form 1040, line 7. But if you were also eligible to participate in any subsidized health plan maintained by your or your spouse’s employer for any month or part of a month in 2010, amounts paid for health  insurance coverage that month cannot be used to figure the deduction.

In addition, effective March 30, 2010, if you were eligible for any month or part of a month to participate in any subsidized health plan maintained by the employer of either your dependent or your child who was under age 27 at the end of 2010, do not use amounts paid for coverage that month to figure the deduction.

Medicare Part B premiums can be used to figure the deduction. Amounts paid for health

insurance coverage from retirement plan distributions that were nontaxable because you are a retired public safety officer cannot be used to figure the deduction.

Publication 535 is targeted to be updated for 2010 in March 2011. We hope this information

helps you. We apologize for the confusion and inconvenience. If you have any other questions, please contact us again. Thank you for using this service.

IRS forms and publications may be accessed on our web site at the following address:

www.irs.gov or ordered through our toll‐free forms line at: 800‐829‐3676 Expect delivery

within 10 business days.

Other useful toll‐free numbers include:

800‐829‐1040 IRS Tax Help Line for Individuals

800‐829‐4933 Business and Specialty Tax Help Line

800‐829‐1954 Refund Hotline

866‐562‐5227 Disaster Relief Toll‐Free Number, Monday through Friday, 7 am to 10:00 pm

local time

We are interested in your opinion and providing the best possible service to you. Please take

a moment to answer our survey at: http://www.irs.gov/help/page/0,,id=13155,00.html

25 May 2011

President Obama request $ 13.3 billion to fund IRS in FY 2012

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President Obama request $ 13.3 billion to fund IRS in FY 2012 [Fact Sheet 2011-9, February 2011]:  The Obama administration in its fiscal year 2112 budget proposal requested $13.3 billion for IRS. This is a $1.1 billion increase from the FY 2010 budget. The funding request “reflects a continued commitment to balance taxpayer service with fair enforcement of the tax laws,” the agency said, adding that it “will also continue to invest in its service program, with particular emphasis on online services.” IRS has emphasized several aspects of the budget request: enforcement, the tax return preparer initiative, taxpayer service, the Business Systems Modernization program, meeting the requirements of the Patient Protection and Affordable Care Act, and the administration of the health coverage tax credit. The budget proposal includes $339 million in new IRS enforcement initiatives, which is expected to raise $1.3 billion in annual revenue at full performance in FY 2014, the agency said. The proposed funding would strengthen enforcement efforts regarding offshore tax evasion, information reporting requirements enacted in 2008 to validate income reported by businesses by reconciling their income with payment card receipts and third party transactions, and improving tax debt collection coverage and processes. The budget request contains $17 million to increase oversight of tax return preparers. “This initiative will help ensure uniform and high ethical standards of conduct for tax return preparers by enforcing preparer compliance with IRS rules, increasing preparer examinations and pursuing preparers engaged in fraudulent activities,” the agency said. Taxpayer service would be bolstered by funding to increase taxpayer access to telephone assistance, strengthen compliance and address increased demand for electronic services. The request includes $33 million to improve IRS’s website and provide new online services. The modernization request would fund continued implementation of the core taxpayer account database known as the Customer Account Data Engine 2 (CADE 2) and the expansion of Modernized e-File (MeF). According to IRS, the MeF budget request would enable it to add a final batch of 125 forms and schedules to the MeF system and “expand the reach of MeF to all of the e-File population, nearly 100 million individual filers.” The funding request reflects the cost for administering the tax provisions included in the PPACA. This funding would be used for the administration of various provisions of the act (some of which are not yet in effect), such as the small employer health care tax credit, the premium assistance tax credit and the individual coverage requirement. More than 80% of the PPACA request is devoted to information technology and other infrastructure, IRS noted. Finally, $18 million is included in the budget proposal to administer the health coverage tax credit created in trade legislation enacted in 2002. The credit pays 80% of a qualified health plan premium for eligible trade-affected workers, and Pension Benefit Guaranty Corporation payees and their families. The Fact Sheet can be viewed on the IRS website at http://www.irs.gov/newsroom/article/0,,id=235959,00.html.

25 May 2011

2011 Pending Tax Changes in Three Great Waves

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In just four months, on January 1, 2011, the largest tax hikes in the history of America will take effect.

They will hit families and small businesses in three great waves.

On January 1, 2011, here’s what happens… (read it to the end, so you see all three waves)…

     
First Wave:


Expiration of 2001 and 2003 Tax Relief

In 2001 and 2003, the GOP Congress enacted several tax cuts for investors, small business owners, and families.

These will all expire on January 1, 2011.


Personal income tax rates will rise.

The top income tax rate will rise from 35 to 39.6 percent (this is also the rate at which two-thirds of small business profits are taxed).  
     
The lowest rate will rise from 10 to 15 percent.  
     
All the rates in between will also rise.  
     

Itemized deductions and personal exemptions will again phase out, which has the same mathematical effect as higher marginal tax rates.  


The full list of marginal rate hikes is below:

  • The 10% bracket rises to an expanded 15%
  •  
  • The 25% bracket rises to 28%
  •  
  • The 28% bracket rises to 31%
  •  
  • The 33% bracket rises to 36%
  •  
  • The 35% bracket rises to 39.6%

 
Higher taxes on marriage and family.  

The “marriage penalty” (narrower tax brackets for married couples) will return from the first dollar of income.  

The child tax credit will be cut in half from $1000 to $500 per child.  

The standard deduction will no longer be doubled for married couples relative to the single level.  

The dependent care and adoption tax credits will be cut.

The return of the Death Tax.

This year only, there is no death tax.  (It’s a quirk!) For those dying on or after January 1, 2011, there is a 55 percent
top death tax rate on estates over $1 million.  A person leaving behind two homes, a business, a retirement
account, could easily pass along a death tax bill to their loved ones.  Think of the farmers who don’t make much money, but their land, which they purchased years ago with after-tax dollars, is now worth a lot of money.  Their children will have to sell the farm, which may be their livelihood, just to pay the estate tax if they don’t have the cash sitting around to pay the tax.  Think about your own family’s assets.  Maybe your family owns real estate, or a business that doesn’t make much money, but the building and equipment are worth $1 million.  Upon their death, you can inherit the $1 million business tax free, but if they own a home, stock, cash worth $500K on top of the $1 million business, then you will owe the government $275,000 cash!  That’s 55% of the value of the assets over $1 million!  Do you have that kind of cash sitting around waiting to pay the estate tax?

Higher tax rates on savers and investors.

The capital gains tax will rise from 15 percent this year to 20 percent in 2011.  

The dividends tax will rise from 15 percent this year to 39.6 percent in 2011.  

These rates will rise another 3.8 percent in 2013.


Second Wave:

Obama care

There are over twenty new or higher taxes in Obama care. Several will first go into effect on January 1, 2011.  They include:

The “Medicine Cabinet Tax”

Thanks to Obama care, Americans will no longer be able to use health savings account (HSA), flexible spending account (FSA), or health reimbursement (HRA) pre-tax dollars to purchase non-prescription, over-the-counter medicines (except insulin).

The “Special Needs Kids Tax”

This provision of Obama care imposes a cap on flexible spending accounts (FSAs) of $2500 (Currently, there is no federal government limit). There is one group of FSA owners for whom this new cap will be particularly cruel and onerous: parents of special needs children.  

There are thousands of families with special needs children in the United States , and many of them use FSAs to pay for special needs education.

Tuition rates at one leading school that teaches special needs children in Washington , D.C. ( National Child Research Center ) can easily exceed $14,000 per year.

Under tax rules, FSA dollars cannot be used to pay for this type of special needs education.

The HSA (Health Savings Account) Withdrawal Tax Hike.

This provision of Obama care increases the additional tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent.

Third Wave:

The Alternative Minimum Tax (AMT) and Employer Tax Hikes

When Americans prepare to file their tax returns in January of 2011, they’ll be in for a nasty surprise-the AMT won’t be held harmless, and many tax relief provisions will have expired.

The major items include:

The AMT will ensnare over 28 million families, up from 4 million last year.

According to the left-leaning Tax Policy Center , Congress’ failure to index the AMT will lead to an explosion of AMT taxpaying families-rising from 4 million last year to 28.5 million.  These families will have to calculate their tax burdens twice, and pay taxes at the higher level.  The AMT was created in 1969 to ensnare a handful of taxpayers.

Small business expensing will be slashed and 50% expensing will disappear.

Small businesses can normally expense (rather than slowly-deduct, or “depreciate”) equipment purchases up to $250,000.  

This will be cut all the way down to $25,000.  Larger businesses can currently expense half of their purchases of equipment.  

In January of 2011, all of it will have to be “depreciated.”

Taxes will be raised on all types of businesses.

There are literally scores of tax hikes on business that will take place.  The biggest is the loss of the “research and experimentation tax credit,” but there are many, many others. Combining high marginal tax rates with the loss of this tax relief will cost jobs.

Tax Benefits for Education and Teaching Reduced.

The deduction for tuition and fees will not be available.

Tax credits for education will be limited.  

Teachers will no longer be able to deduct classroom expenses.

Coverdell Education Savings Accounts will be cut.

Employer-provided educational assistance is curtailed.  

The student loan interest deduction will be disallowed for hundreds of thousands of families.

Charitable Contributions from IRAs no longer allowed.

Under current law, a retired person with an IRA can contribute up to $100,000 per year directly to a charity from their IRA.  

This contribution also counts toward an annual “required minimum distribution.”  This ability will no longer be there.

PDF  Version  Read more: <http://www.atr.org/six-months-untilbr-largest-tax-hikes-a5171>;; http://www.atr.org/six-months-untilbr-largest-tax-hikes-a5171##ixzz0sY8waPq1

And worse yet?

Now, your insurance will be INCOME on your W2’s!

One of the surprises we’ll find come next year, is what follows – – a little “surprise” that 99% of us had no idea was included in the “new and improved” healthcare legislation . . . the dupes, er, dopes, who backed this administration will be astonished!

Starting in 2011, (next year folks), your W-2 tax form sent by your employer will be increased to show the value of whatever health insurance you are given by the company. It does not matter if that’s a private concern or governmental body of some sort.  

If you’re retired?  So what… your gross will go up by the amount of insurance you get.

You will be required to pay taxes on a large sum of money that you have never seen.  Take your tax form you just finished and see what $15,000 or $20,000 additional gross does to your tax debt.  That’s what you’ll pay next year.  

For many, it also puts you into a new higher bracket so it’s even worse.

This is how the government is going to buy insurance for the15% that don’t have insurance and it’s only part of the tax increases.

Not believing this???  Here is a research of the summaries…..

On page 25 of 29: TITLE IX REVENUE PROVISIONS- SUBTITLE A: REVENUE OFFSET PROVISIONS-(sec. 9001,
as modified by sec. 10901) Sec.9002  “requires employers
to include in the W-2 form of each employee the aggregate cost of applicable employer sponsored group health coverage that is excludable from the employees gross income.”

Joan Pryde is the senior tax editor for the Kiplinger letters.
Go to Kiplingers and read about 13 tax changes that could affect you.  Number 3 is what is above.

25 May 2011

What to do if you don’t receive your W-2

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IRS recommends steps to take if Form W-2 is not received [IRS Tax Tip 2011-28]:  IRS has reminded taxpayers about the steps they should take if they have not received their Form W-2, Wage and Tax Statement. Employers had until Jan. 31 to send employees a 2010 Form W-2 earnings statement. The agency suggested four specific actions for taxpayers to take. First, contact the employer to inquire if and when the W-2 was mailed. After making contact, allow a reasonable amount of time for the employer to resend or to issue the W-2. Second, if the W-2 is not received by Feb. 14, contact IRS for assistance at (800) 829-1040. Third, even if the taxpayer still has not received the Form W-2, a tax return or request for an extension to file must be filed by April 18. If the Form W-2 is not received by the due date, and the taxpayer has completed the previous steps, the taxpayer may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Form 4852 should be attached to the return, with an estimate of income and withholding taxes. Finally, a taxpayer may have to file Form 1040X, Amended U.S. Individual Income Tax Return. If a missing W-2 is received after the return was filed using Form 4852 and the information is different from what was reported on the return, the return must be amended. Complete details can be found at http://www.irs.gov/newsroom/article/0,,id=106470,00.html .

25 May 2011

3.8-Percent Medicare Contribution Tax Generates Confusion, Misinformation and Questions

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Congress passed a number of revenue-raisers to fund health care reform and one revenue provision has recently generated confusion, misinformation and questions. After 2012, a new Medicare contribution tax will apply to qualified unearned income of higher income taxpayers.

Tax Changes 

The Health Care and Education Reconciliation Act (HCERA) (P.L. 111-152), through Code Sec. 1411, imposes a 3.8-percent Medicare contribution tax on qualified unearned income on higher income individuals for tax years beginning after December 31, 2012. The 3.8-percent Medicare tax is imposed on the lesser of an individual’s net investment income for the tax year or any excess of modified adjusted gross income (MAGI) in excess of $200,000 for single individual. The threshold for married couples filing joint returns is $250,000 ($125,000 in the case of a married taxpayer filing separately). 

HCERA also imposes a 0.9-percentage-point increase in the 1.45-percent Medicare payroll tax, raising it to 2.35 percent, beginning in 2013, on single individuals with earned income over $200,000 per year and married joint filers with earned income over $250,000 per year. The employer Medicare tax rate remains unchanged at 1.45 percent. 

Since passage of HCERA, confusion has arisen over the impact of the Medicare contribution tax, particularly on home sales. However, HCERA makes no changes to the existing home sale exclusion rules. Single individuals may be eligible to exclude up to $250,000 from the sale of a principal residence; married couples filing a joint return up to $500,000, generally subject to ownership and use tests. 

“Claims of a 3.8-percent home sales tax in the health care reform act are false,” Rep. Earl Blumenauer, D-Ore. said in a written statement. “Under existing law, up to $500,000 in gain from the sale of a principal residence is tax-free for married couples. The health care reform act did not change this law.” The National Association of Realtors®also reiterated on its website that the $250,000/$500,000 exclusion on the sale of a principal residence will continue to apply. Additionally, the Congressional Research Service (CRS) recently described the Medicare contribution tax in a report (“The 3.8% Medicare Contribution Tax on Unearned Income, Including Real Estate Transactions,” on September 15, 2010; TAXDAY, 2010/09/23, O.2). 

An important exception to the home sale exclusion is the sale of a second home. If taxpayers sell a second home (for example, a vacation home), they must pay taxes on the entire capital gain, Melissa Labant, CPA, technical manager, American Institute of Certified Public Accountants (AICPA), told CCH.

25 May 2011

LLC’s – Partnerships – Corporations

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CaliforniaCorporate & Personal Income Tax — Estimated tax payments online.
The Franchise Tax Board (FTB) has announced that corporations, limited liability companies (LLCs), and partnerships can view their estimated tax payments online by using MyFTB Account for Businesses. Businesses must register with the FTB to access their account—to register they must select a user name and password, and provide the following information: (1) a valid email address; (2) company type and account number (for corporations: 7-digit California Corporation ID number; Limited Liability Company (LLC): 9- or 12-digit Secretary of State (SOS) ID number; partnership: 9-digit Federal Employer Identification Number (FEIN)); and (3) information from a CA tax return filed in the last five years (namely, year of the tax return, type of tax return, and net income (loss) on the tax return). Note that a business that has not filed a California tax return cannot register. Tax professionals registered with the FTB can view their clients’ accounts if they have their client’s permission and provide information from their client’s tax return. To register, tax professionals must have: (1) a valid email address; (2) their Social Security number; and (3) one of the following ID numbers: PTIN (Practitioner Tax Identification Number); EFIN (Electronic Filer Identification Number), CTEC (California Tax Education Council), California CPA (Certified Public Accountant), Enrolled Agents (PTIN or EFIN). ( FTB Announcement, 02/09/2011 .)

25 May 2011

Don’t be Scammed by Fake IRS Communications

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IRS TAX TIP 2011-38

The IRS receives thousands of reports each year from taxpayers who receive suspicious emails, phone calls, faxes or notices claiming to be from the Internal Revenue Service. Many of these scams fraudulently use the Internal Revenue Service name or logo as a lure to make the communication more authentic and enticing. The goal of these scams – known as phishing – is to trick you into revealing personal and financial information. The scammers can then use that information – like your Social Security number, bank account or credit card numbers – to commit identity theft or steal your money.

Here are five things the IRS wants you to know about phishing scams:

  1. The IRS doesn’t ask for detailed personal and financial information like PIN numbers, passwords or similar secret access information for credit card, bank or other financial accounts.
  2. The IRS does not initiate taxpayer communications through e-mail and won’t send a message about your tax account. If you receive an e-mail from someone claiming to be the IRS or directing you to an IRS site:

    • Do not reply to the message.

    • Do not open any attachments. Attachments may contain malicious code that will infect your computer.

    • Do not click on any links. If you clicked on links in a suspicious e-mail or phishing website and entered confidential information, visit the IRS website and enter the search term ‘identity theft’ for more information and resources to help.

  3. The address of the official IRS website is http://www.irs.gov. Do not be confused or misled by sites claiming to be the IRS but ending in .com, .net, .org or other designations instead of .gov. If you discover a website that claims to be the IRS but you suspect it is bogus, do not provide any personal information on the suspicious site and report it to the IRS.
  4. If you receive a phone call, fax or letter in the mail from an individual claiming to be from the IRS but you suspect they are not an IRS employee, contact the IRS at 1-800-829-1040 to determine if the IRS has a legitimate need to contact you. Report any bogus correspondence.
  5. You can help shut down these schemes and prevent others from being victimized. Details on how to report specific types of scams and what to do if you’ve been victimized are available at http://www.irs.gov, keyword “phishing.”

    Links:

    Protect your personal information! The IRS does not initiate taxpayer communications through e-mail

    Suspicious e-Mails and Identity Theft

25 May 2011

HOW DO I ADJUST MY WITHHOLDING – FROM MY PAY CHECK?

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Publication 919 How Do I Adjust My Tax Withholding? updated:  There is now a 2011 version of Publication 919, How Do I Adjust My Tax Withholding?, on the IRS website located at http://www.irs.gov/pub/irs-pdf/p919.pdf. Employees use this publication to help them determine if their federal income tax withholding is sufficient, and, if necessary, to prepare a new Form W-4 to adjust their withholding. The publication includes worksheets to help employees estimate their 2011 tax liability (Worksheets 1 and 2), and to compute withholding (Worksheet 7). The IRS advises employees to check their withholding if they had a lifestyle change (such as a marriage, divorce, birth or adoption of a child, purchase of a new home, or retirement) or significant changes in their income or itemized deductions. There is a good chance that employees are not having enough tax withheld if: (1) they have more than one job at a time; (2) their spouse also works; (3) they have income not subject to withholding, such as capital gains, rental income, interest, and dividends; or (4) they owe other taxes, such as self-employment tax or household employment taxes. Form W-4, line 6, is used to request additional withholding. Adjustments to withholding allowances are made on Form W-4, line 5. Employees must complete a new Form W-4 to adjust their withholding within 10 days of any event that decreases the number of their withholding allowances.