IRS Announces 2011 Standard Mileage Rates

The Internal Revenue Service issued the 2011 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2011, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

51 cents per mile for business miles driven

19 cents per mile driven for medical or moving purposes

14 cents per mile driven in service of charitable organizations

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

1099 Reporting Reminder for 2011

There have been a few failed attempts at legislation to change the new 1099 reporting requirements.  The new reporting requirements were passed as part of the two healthcare bills in 2010.

The summary reminder that follows was developed by Janet Graves, CPA and Matt Curbeau, CPA.  Janet is a manger and Matt is an experienced staff in our tax practice .  

Future 1099 Requirements – will you be prepared?


Effective January 1, 2012 businesses will be required to issue Forms 1099 for virtually all payments made to vendors of $600 or more, unless the payee is a tax-exempt recipient. Items which will be subject to the new reporting requirements include merchandise, equipment, inventory and raw materials.

Under the new law, businesses will be required to collect and enter into their accounting systems taxpayer identification numbers from corporate payees, providers of merchandise, equipment, etc. If a correct TIN is not provided, the businesses will also be required to make backup withholding from payments.

The reporting requirements by businesses can be eliminated if payments are made via a credit or debit card. The IRS has stated that the reporting requirements will fall on the credit card companies.

Beginning with payment made in 2011, most landlords will be required to comply with current 1099 reporting requirements.  In the past, landlords were not considered to be in a trade or business (which is a requirement to need to issue 1099's) for purposes of 1099 reporting.  Beginning on January 1, 2011 for 1099 reporting purposes, landlords will be considered to be in a trade or business and will therefore need to prepare and file form 1099 for applicable payments.

What is the next step?

Businesses that have purchases in excess of the $600 limit should start evaluating their current accounting system to ensure that it can track and report non-credit card payments by vendor and reviewing vendor information to be sure that correct TIN’s are on hand for reporting.

Team DKB will keep you updated as further guidance on the new law becomes available.

Last Minute Tax Advice...Last Minute Legislation!

I typed in "last minute tax planning tips" into a Google search.  The page hits filled the first search results page with that exact phrase and kept on going.

We are spending significant time in November and December 2010 working with clients to determine year end tax planning strategies.  As with many things in life, taxes are about timing...timing of recognition of income and deduction of expenses.  The timing of these items can have a significant impact on a business's or individual's tax liabilities.  For example, moving the sale of a security from one year to the next can have an impact on the resulting tax due.  We plan event like this to minimize our client's tax liabilities.

All the web posts and new articles about last minute tax planning tips makes me feel like we are behind in serving our clients.  However, we am still not certain in many cases what to tell clients to do.  We make informed and educated guesses on what the the tax law might look like in 2011 and after.  In many cases we do not know what the law will be for 2010.  All of this happening and unresolved on December 3, 2010.

Karl Rove's article in the Wall Street Journal( Karl Rove: Nancy Pelosi's Unwelcome Christmas Gift) may really be directed as a criticism of Speaker Pelosi.  It provides a lengthy summary of the many unresolved tax issues for 2010, 2011 and after.  I found that part more interesting.

CPA's like rules.  We work hard to understand them, properly implement them and help our clients to pay the lowest tax liability allowed under the law.  What are the rules?  I don't exactly know.  Do you?

I am starting to get the feeling like we are not the ones who are behind.

Grandfathered Health Plans

Reversing course, the IRS amended regulations issued earlier the year to allow certain changes in coverage without the loss of grandfathered status under the Patient Protection and Affordable Care Act.  All group health plans may switch insurance companies and preserve their grandfathered status. The change is not retroactive.  The amendment applies to group health insurance changes which become effective on or after November 15, 2010.  Changes prior to this time will likely result in loss of grandfathered status.

This change can allow employers to maintain a group health plan's grandfathered status and avoid new requirements such as discrimination testing for group health plan (which was previously not required).  Many employers change insurance coverage for group health plans from year to year due to changes in premium costs and benefit levels.  Without this change in regulation, very few group health plans would have been able to maintain grandfathered status.

Comment on their report card..."Doesn't play well with others"

GOP Decision to Cancel White House Meeting Brings Talk of Gamesmanship - FoxNews.com

A significant meeting today between Congressional leaders and the President is postponed until November 30, 2010. Is this just business as usual? What's being held up by the inability of these leaders to meet? Just a few small things...

• Action on the Bush Tax cuts that are set to expire on December 31, 2010. That's right. They are going to meet for the first time 30 days before these tax cuts expire to work out a deal. Really?

• Action on tax extenders package. This includes the what seems like the every year extension of the alternative minimum tax exemption increase and popular tax credits like the research and experimentation credit. Failure to pass the extenders package will have a significant impact on middle class tax liabilities when they discover the increase in their alternative minimum tax liabilities.

It appears that most action on tax planning is going to have to wait until you have had your turkey dinner and started your holiday shopping. I am sure you will be excited to be spending additional time with your accountants in the holiday season.

Is there potential relief for all those 1099's?

The United States Senate Committee on Finance: Newsroom - Chairman's News

It looks like someone in Congress might actually understand that issuing millions of 1099's might not really improve compliance. The problem is who will be required to issue 1099's? Who will be considered a small business? How do you gather all the data needed to comply with whatever new filing requirements may be adopted? Does this really just avoid killing more trees?

More to come...

2010 year end tax planning

The Holidays are fast approaching and you know what that means …..

Time for Year-End Tax Planning

Tax planning for year-end 2010 brings with it many new challenges. With the anticipation of tax legislation that may be put to a vote in Congress before year’s end, recent changes in legislation and tax laws and the complicated context of effective dates for many tax planning incentives, it is important to stay on top of the game!

New legislation that has been passed includes the Patient Protection and Affordable Care (PPAC) Act. This was designed to effectuate fundamental reforms to the U.S health care system. The PPAC brings with it tax credits for employers providing health insurance to their employees, certain medical care tax benefits to children under the age of 27 and small employers cafeteria plans.

Congress also passed the Hiring Incentives Restore Employment (HIRE) Act which provides tax breaks for businesses to encourage hiring and imposes a number of potential burdens with respect to reporting and disclosure of foreign assets. The Small Business Act of 2010 was also passed by Congress and was designed to increase lending to small businesses and create incentives for small business investment.

As new laws take over others are set to expire. Unless Congress acts to extend favorable tax benefits provided under the Jobs and Growth Tax Relief Reconciliation Act of 2003, 2010 will offer some unique opportunities which will not be available next year.

This is the sales pitch...

DKB can help whip away the confusion of the changing tax scene.  With the significant changes in the tax law that have happened in 2010 and the expected changes that will happen in 2011 and after, planning is a must.  Don't miss opportunities that might not be there on January 1, 2011. 

White House Gives In On Bush Tax Cuts

White House Gives In On Bush Tax Cuts

This story in the Huffington Post is the first indication of what might happen with the expiring
Bush tax cuts. It looks like they may not be expiring. Who would have thought this would happen 6 months ago?

An indication from the President that current ordinary income and capital gains tax rates might be extended will lend some greater clarity to individual taxpayers 2010 year end planning issues. We have spent time wrestling with the idea of accelerating capital gains into 2010 to take advantage of the 15% long term capital gains rates. The wrestling may be over?

Small Business Health Care Tax Credit

The IRS has published questions and answers to help taxpayers to understand if they are eligible to claim the Small Employer Health Care Tax Credit.

Small employers that provide health care coverage to their employees and that meet certain requirements (“qualified employers”) generally are eligible for a federal income tax credit for health insurance premiums they pay for certain employees. In order to be a qualified employer, (1) the employer must have fewer than 25 full-time equivalent employees (“FTEs”) for the tax year, (2) the average annual wages of its employees for the year must be less than $50,000 per FTE, and (3) the employer must pay the premiums under a “qualifying arrangement”.

IRS Q&A's are at http://www.irs.gov/newsroom/article/0,,id=220839,00.html.  The IRS has also posted a video that provides a high level summary of the new credit at http://www.youtube.com/watch?v=85i1kzIG57k.

New Law Allows In-Plan Rollovers to Designated Roth Accounts

New Law Allows In-Plan Rollovers to Designated Roth Accounts

The IRS provides some initial guidance on "in plan" rollovers to designated Roth accounts in this item. New law provisions included in the Small Business Jobs Act of 2010 provided for this new planning opportunity. The new law provides plan participant with an opportunity to complete a Roth conversion within a 401(k), 403(b) or 457 plan. The plan needs to include an option for Roth accounts. Any amounts rolled over are treated as a taxable distribution that is included in taxable income.

Mark, Where Do I Find Section 179?

Ed, right after section 178 and just before section 180...duh!

Seriously, if you want to enjoy some enhanced tax benefits in 2010 and 2011 TeamDKB can help you to figure this out.

Generally, section 179 permits a business that satisfies limitations on annual investment to elect to deduct (or “expense”) the cost of qualifying property rather than depreciate the cost over time. For tax years beginning in 2010 and 2011, the 2010 Jobs Act amendments permit taxpayers to expense up to $500,000 of the cost of qualifying property under Code Sec. 179, reduced by the amount by which the qualified investment exceeds $2,000,000.

Qualifying property includes depreciable tangible personal property purchased for use in the active conduct of a trade or business. Off the shelf computer software placed in service in tax years beginning before 2011 is treated as qualifying property. 

The 2010 Jobs Act incentive provisions also temporarily expand the definition of qualifying property to include certain real property used in business, specifically, qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property.  Up to $250,000 of the cost of qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property ("qualified real property") may be applied to the Code Sec. 179 limit for tax years beginning in 2010 and 2011. However, any amount expensed with respect to qualified real property that is disallowed under the income limitation may be carried forward only to 2011 but not to later years. Taxpayers are permitted to elect to exclude real property from the definition of section 179 property.

What's in the Small Business Jobs Act of 2010 for you?

President Obama pulled out his pens on September 27, 2010 and signed into law the Small Business Jobs Act of 2010 (the Act).  It is scored as providing $12 billion of tax incentives.  Let's see what you might get.

Extension of Bonus Depreciation

Bonus depreciation is extended until December 31, 2010.  Originally scheduled to expire on December 31, 2009 provisions allowing for the expensing of 50% of qualifying asset purchases have been added back to the law.  Essentially the extension is retroactive to qualifying assets purchased after January 1, 2010.  When will bonus become permanent?

Asset expensing under IRC section 179

Under current law the maximum deduction for tax years beginning in 2010 is $250,000.  This dollar limit is reduced by the amount of additions in excess of $800,000.  The Act increases the maximum deduction to $500,000 and the investment limit to $2 million for tax years beginning in 2010 and 2011.

The Act also temporarily expands the definition of qualifying property to include qualified real property.  Qualified real property is defined as qualified leasehold improvements, qualified restaurant property and qualified retail improvement property.  Taxpayers are limited to expensing $250,000 on these types of improvements.

S corporation built in gains

S corporation that were previously C corporations can be subject to a tax on built in gains.  Previous law applied the built in gains tax for a period of 10 years and for some taxpayers 7 years after a C corporation made an S corporation election.

The holding period to avoid built in gains has been shortened to 5 years under the Act for any tax year beginning in 2011, if the fifth year in the recognition period precedes the tax year beginning in 2011.

Presumably this provides a new window for many S corporations to sell assets with built in gains and avoid the built in gains tax.

Cell phones

The law removes cell phones and similar communication devices from the definition of listed property.  Listed property is subject to limitations on the depreciation deductions.  Now cell phone will no longer be subject to those limitations.  If a tree falls in the woods and no one is there to hear it does it make a noise?

Extended Carryback of General Business Credits and AMT offset of credits

The new law extends the carryback period for eligible small business credits to five years. Eligible small business credits are the sum of the general business credits determined for the tax year with respect to an eligible small business. The extended carryback provision is effective for credits determined in the taxpayer’s first tax year beginning after December 31, 2009.  Also under the new law, an eligible small business credit may offset both regular and AMT liability.

Qualified Small Business Stock

The Act temporarily increases the excludable gain on the sale of qualified small business stock from 50% to 75%.  This is effective for stock acquired after February 17, 2009 and before January 1, 2011.  Pretty short planning window for anyone to take advantage of this.

Start up expenses

Taxpayers have been able to currently deduct $5,000 of trade or business start up expenses that are normally required to be capitalized.  The Act increases the expensing limit to $10,000 for 2010.  It also increases the phase out limitation on this expensing option to $60,000 of start up expenses.

Self-employment income

A self-employed individual can take a deduction for health insurance costs paid for the individual and his or her immediate family for income tax purposes. However, in determining the self-employment income subject to self-employment taxes, the self-employed individual cannot deduct any health insurance costs. Under the Act, the deduction for income tax purposes for the cost of health insurance is allowed in calculating net earnings from self-employment for purposes of self-employment taxes. The provision only applies to the self-employed taxpayer’s first tax year beginning after December 31, 2009.

Retirement savings

The Act allows certain IRC section 457 plans to allow participants to contribute deferred amount to designated Roth accounts.  The Act also authorizes 401(k), 403(b) and 457 plans to allow participants to roll over pre-tax account balances to designated Roth account within the plan.  The rollover will be taxable much like an IRA to Roth IRA conversion.

1099 information reporting for Rental Property Expense Payments

The new law requires individuals receiving rental income from real property to file information returns with the IRS and to service providers reporting payments of $600 or more during the year for rental property expenses.  This change is effective for payments made after December 31, 2010.

Other stuff

There are many additional provisions in the Act that address foreign income and sourcing issues that potentially impact foreign tax credits.  Some changes also apply to bio fuel producer tax credits.

More to come...

Expect after election day to see action on rate changes related to expiring Bush tax cuts and tax extenders like past year's alternative minimum tax "patches"

Senate Passes Small Business Tax Relief

Senate Passes Small Business Tax Relief

It will be interesting to see how this bill is reconciled with the House version. Many business changes in the bill are retroactive to January 1, 2010 including increased asset expensing under IRC section 179 and extension of bonus depreciation.

Some provisions would also increase the burden on taxpayers to report payments on form 1099. Congress and the IRS apparently believe that more third party reporting will lead to increased taxpayer compliance.

Taxpayers should follow this closely as year end tax planning begins. More to come...

Path to converting traditional IRAs to Roths full of 'ifs'

Path to converting traditional IRAs to Roths full of 'ifs'

Discussion of the pro's and con's of Regular IRA to Roth IRA conversions for the balance of 2010 is heating up. This article provides additional thoughts and insight into the tax aspects of a 2010 conversion.

Talking Out of All Sides of His Mouth?

Obama Against a Compromise on Extension of Bush Tax Cuts - NYTimes.com

President Obama is going back to Ohio. He says that the Bush tax cuts should be allowed to expire for the wealthiest Americans (those married couples making over $250,000 per year). This would allow the top federal tax bracket for these wealthy individuals to climb to 39.6% from the current 35%.

At the same time, he intends to propose that businesses be allowed more aggressive capital asset expensing options. Essentially, many businesses would be allowed to write off 100% of the cost of certain assets in the year placed in service under proposals he intends to outline today in Cleveland. Essentially, this represents an extension of bonus depreciation rules that have allowed for accelerated depreciation deductions in prior years.

He also intends to outline proposals extending the research and experimentation tax credit for many businesses. The research and experimentation credit has expired for 2010. The research and experimentation credit has been labeled by the administration as the cornerstone of restoring the United States' competitive stance in the world. Unfortunately, Congress and past administrations have not made the credit permanent in the law. This means the credit has frequently expired and requires legislative action to put it back into law after each expiration. That does not sound like the cornerstone of anything.

Many believe the credit would have been reinstated retroactive to January 1, 2010 under an "extenders" package that may be passed by Congress before the end of 2010 in any event. President Obama just beat Congress to the microphone.

Aren't these proposals tax cuts? Many small business people who make more than $250,000 will benefit from 100% bonus depreciation and research and experimentation tax credits.

So...do we have a tax rate increase that might be offset by additional deductions and credits? Same as it ever was...

Taxpayers' Boxing Match with the States

At the beginning of a boxing match announcers will often discuss the "tale of the tape"  This usually outlines which boxer has a longer reach (longer arms) and therefore may have an advantage in the bout.  States are extending their reach in an effort to create an advantage in the bout and to raise revenues.

Many states are beginning to push harder on the concept of "economic nexus".  Generally states can only tax businesses that have nexus in their state.  This typically means that a taxpayer has property located in or employees that work within a state. 

In our "virtual business world" physical presence is often not needed to derive sales or earning from a particular state.  Therefore, states are pushing the concept of economic nexus and redefining the terms "doing business" and "active solicitation". The Tax Adviser has a great article outlining some states' efforts in this regard.

New York State recently passed legislation that intends to require that non-residents include additional income on a NYS non-resident tax return.  2010 changes to the NYS tax law change the rules related to trade or business income of non-residents and the treatment of certain S corporation income of non-residents.(Non-resident trade or business income and Non-resident income of S corporation stockholders)

Expect the states to keep pounding away...

Hold the Mayo and Add the Sales Tax

Food is frequently mentioned in the New York State Sales and Use tax laws.  Bagels have now become the newest source of controversy.  The Wall Street Journal details New York State's efforts to collect sales tax on sliced and prepared bagels http://online.wsj.com/article/SB10001424052748704340504575448033463314628.html . Essentially if the bagel is not sliced and is eaten off premises...no sales tax.  If the bagel is sliced and a topping added (pick your favorite)...subject to sales tax.  Why is a sliced or unsliced loaf of bread not subject to sales tax?  Maybe the bread bakers have a better lobby than the bagel bakers?

Some additional food topics in the law...

A block of cheese purchased in the store is not subject to sales tax.  Place the cheese on a decorative cutting board and wrap in plastic, the sale price of the cheese and cheese board are subject to sales tax. 

Is a Twix a candy or a cookie?  Cookies purchased in the store are generally not subject to sales tax.  However, if the Twix is sold and advertised as a candy, it is subject to sales tax http://www.tax.state.ny.us/pdf/advisory_opinions/sales/a93_38s.pdf.

Confused?  You should be.

Have you thought about your business processes and the application of state sales and use taxes?  Have you updated your businesses understanding of sales and use tax laws that apply to products or services you sell?

New tax deposit requirements for corporations

The IRS has issued proposed regulations that would require corporations to make deposits of employment taxes, corporation income and estimated taxes and many other taxes by electronic payment.  These proposed regulations will eliminate the use of paper coupons for many corporations to pay taxes.

The rule change will require affected corporations to make tax payments by the Electronic Federal Tax Payment System (EFTPS).  The regulations require that all subject payments made after the finalization of the regulations are required to be made by EFTPS.  However, the effective date will be no earlier than January 1, 2011.

Taxes impacted by new deposit requirements include:

1. Corporate income and corporate estimated taxes pursuant to §1.6302-1 ;
2. Unrelated business income taxes of tax-exempt organizations under section 511 pursuant to §1.6302-1 ;
3. Private foundation excise taxes under section 4940 pursuant to §1.6302-1 ;
4. Taxes withheld on nonresident aliens and foreign corporations pursuant to §1.6302-2 ;
5. Estimated taxes on certain trusts pursuant to §1.6302-3 ;
6. FICA taxes and withheld income taxes pursuant to §31.6302-1 ;
7. Railroad retirement taxes pursuant to §31.6302-2 ;
8. Nonpayroll taxes, including backup withholding pursuant to §31.6302-4 ;
9. Federal Unemployment Tax Act (FUTA) taxes pursuant to §31.6302(c)-3 ; and
10. Excise taxes reported on Form 720, Quarterly Federal Excise Tax Return, pursuant to §40.6302(c)-1 .

Not going anywhere?

Five Reasons to Visit IRS.gov this Summer

Day at the beach...vacation in the mountains...bike riding in the park...dinner with friends...or five reasons to visit IRS.gov this summer. Tough choice!

Documentation, Logs and More

I learned in one of my very first college tax courses that tax deductions are granted as a matter of legislative grace.  Better said...no expenditure is deductible unless the law says so.

The law stipulates in most cases that deductions are not allowed unless properly documented according to the Internal Revenue Code and related regulations.  Strict documentation requirements are required for expenditures related to travel and entertainment and transportation (planes, trains and automobiles)

For travel, employees/taxpayers must submit a written statement of the time, place, destination and business purpose of the trip and the amount of expenses incurred by category (e.g., travel, meals, lodging). For meals or entertainment, the employee/taxpayer must submit a written statement showing time, place and cost of the event, who was entertained, and the business purpose of the meal or entertainment (if the event follows or precedes a business discussion, additional record keeping is required). Finally, the employee must keep and turn in to the employer documentary evidence such as receipts for all lodging expenses, and for other travel and entertainment expenses over $75.

Documentation related to the business use of automobiles and aircraft is also required in order to claim tax deductions.  Taxpayers are required to maintain logs supporting the business use of their automobile or an employer provided vehicle.  The value of personal use of an employer provided vehicle is required to be included in an employee's taxable compensation.

The IRS produced a publication that outlines documentation requirements for travel, entertainment and transportation expenses.  http://www.irs.gov/pub/irs-pdf/p463.pdf.  A handy table is included on page 26 that summarizes how to prove a variety of business expenses.

Our experience with IRS examinations is agents are expecting "substantial" compliance with documentation requirements summarized in this publication.  Taxpayers' failures to provide documentation can and will result in disallowance of deductions.  Do I need a log for my automobile expenses?  Yes, you do.

Is it time for a tune up of your documentation process for travel, entertainment and transportation?

Any tax advice contained in the body of this blog was not intended or written to be used and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

The Road Map to Transparency??

First drafts of form UTP have been release by the IRS for the 2010 tax year.

IRS Commissioner Douglas Shulman announced in January 2010 the requirement to file this new form stating...

" The IRS is taking a major step towards transparency that I want to announce today related to changes we are proposing to reporting requirements regarding business taxpayers' uncertain tax positions."

Corporations with assets exceeding $10 million will be required to file this new form.  Essentially this new form requires taxpayers to disclose uncertain tax positions on their tax return, describe the position taken and disclose the amount of tax involved in the reporting position.  Essentially, the IRS is asking taxpayers to provide an annotated road map to the issues they should review upon examination.  As you might imagine there has been a wide range of responses to this requirement from taxpayers and tax professionals...need I say more.

The new reporting requirement is currently confined to certain corporations with assets above the $10 million mark.  Partnerships and S corporations should expect that similar requirements will be imposed upon them once the IRS has worked out the wrinkles with corporations.

Are you ready?

Healthcare Reform Regulations

It has started and is not likely to end for some time...if ever.  The issuance of tax regulations to implement provisions of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 has begun.

The IRS issued temporary regulations that require group health plans to provide health insurance coverage for dependent children until age 26.  The regulations provide that plans cannot condition coverage on whether a child is a dependent for tax purposes, or whether the child is a student or resides with or receives financial support from the parent.

The regulations indicate that a plan or issuer may not define dependent for purposes of eligibility other than in terms of the relationship betwen the child and the participant.  The plan or issuer may not deny or restrict coverage for a child who has not attained age 26 based on the presence or absence of the child's financial dependency on the participant, residency with the participant, student status, employment or any combination of these factors.  In other words, the plan cannot require that the child be considered a dependent for income tax reporting purposes.  In many instances, these requirements would encourage most children age 26 or under to remain on their parents health insurance coverage.

Employers will need to review health plans beginning with their first plan year beginning after September 23, 2010.

Any tax advice contained in the body of this blogwas not intended or written to be used and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

New York State Budget News for 2010

This is a great summary outline of tax and other provisions of the recently passed New York State Budget.  This was developed by Laura Woodworth, CPA in our tax department.

The delay / deferral of business credits will have a significant impact on many taxpayers.  It is unfortunate the NYS changed the rules in the middle of the game.  Many investments in businesses were made with the cash flow from these credit in mind.
• Delay in $100 million in business tax credits

   o The government imposed a three year delay on tax credits that have already been earned under 32 different programs

   o Businesses with more than $2 million in aggregated business credits are required to defer the amounts above $2 million to 2013.

      The deferred credits will be paid back to taxpayers over 2013-2015.

   o Credits affected include:

      Empire Zone Credits

      Historic preservation benefits

      Brownfield remediation credits

• Maximum biofuel production and QETC credits

   o For members of an partnership or S corporation, the $2.5 million annual cap on the biofuel production credit will be applied at the entity level.

   o The same rule would apply for the $250,000 annual cap on the Qualified Emerging Technology Company Facilities, Operations, & Training Credit.

   o This means that the aggregate credit allowed to all the partners or shareholders in one of these entities would not be allowed to exceed the cap.

• Charitable Deductions

   o The bill includes a limit on charitable deductions for taxpayers who earn more than $10 million per year.

      Those taxpayers will have charitable contributions allowed cut in half; reducing allowable contributions from 50% to 25%.

• Hedge Fund Manager Commuter Tax

   o The proposed tax on hedge fund managers who commute into the state was repealed.

      This was in large part due to the governor of Connecticut offering relocation assistance to executives who moved to her state.

• Property Tax Cap

   o Paterson proposed a cap on property taxes of 4%. This was not passed, but Paterson plans to reconvene lawmakers in October to revisit the issue.

  o Fun Fact: Local taxes in New York are 78% above the national average.

• Medicaid Funding

   o Lawmakers approved a plan to raise more than $1 billion if Congress fails to approve an increase in Medicaid financing this year.

   o This will be done through across-the-board cuts to state programs.

• Other Notable Items

   o $1.6 billion in STAR rebate checks won't be going out this year

   o Increased taxes on tobacco

   o Reinstatement of the 4% state tax on clothing under $110

   o The 1 cent/oz tax on sugary drinks was dismissed by lawmakers

   o Expanded hours on Quick Draw games and video slot machines at race tracks

   o 5% cut in school aid (about $1.4 billion)

   o Grocery stores are still not allowed to sell wine

   o SUNY and CUNY schools are not allowed to set their own tuition rates

Tax Season Hangover?

April 15 has passed.  Tax returns or extensions are filed.  The accountants are getting a much deserved rest after sleep deprived days.  I often tell people that post April 15 is like cleaning up after a big party.

Take your asprin...this is no time to have a hangover when it comes to tax compliance and planning.  Congress has been very busy with law changes and new laws will impact your tax planning for 2010 and beyond.

Patient Protection and Affordable Care Act / Health Care and Education Reconciliation Act of 2010

Seems like old news already.  This hotly debated law is now on the books.  There are a number of tax law changes in the new law.  Small business tax credits go into effect in 2010.  Qualified small employers (no more than 25 employees and average annual wages of no more than $50,000) can qualify for a tax credit equal to 35% of their contribution toward the employee's health insurance premium.

In following years, individuals and businesses may be faced with:

• Monetary penalties for individuals who fail to maintain minimum essential health coverage.
• Coverage tax credits for individuals who cannot afford minimum essential health coverage.
• Non-deductible penalties assessed on large employers (generally more than 50 employees) who fail to offer full time employees with the opportunity to enroll in minimum essential coverage.
• An increased Medicare tax base for high-income taxpayers that imposes an additional Hospital Insurance tax rate of .9% on earned income in excess of $250,000 (married filing jointly) and a 3.8% unearned income Medicare contributions tax on high income taxpayers.

Hiring Incentives to Restore Employment Act

In an effort to incentivize employers to hire, Congress passed new law that includes incentives for hiring and retaining workers.  Included in this bill is an extension of the enhanced section 179 expensing...$250,000 expensing limit phased out based on total purchases in excess of $800,000.

The main thrust of the new law is payroll tax forgiveness.  Wages paid to previously unemployed new hires for any 2010 period starting after March 18, 2010 through December 31, 2010 are not subject to the 6.2% OASDI Social Security tax.  Qualified employees must start work after February 3, 2010 and before January 1, 2011.  A qualified employee must have been unemployed for at least 60 days before his or her start date.

Employers that hire new workers who qualify for payroll tax forgiveness and keep them on the payroll for at least 52 consecutive weeks may be eligible for an additional tax credit.  The employer can claim a credit equal to the lesser of $1,000 or 6.2% of the wages paid to the employee for the 52 week period.

More to come...

Most believe the Bush tax cuts will be allowed to expire at the end of 2010.  This likely means long term capital gains and qualifying dividends will be subject to a 20% tax rate vs. the current 15%.  This change in the law happens automatically on January 1, 2011 based on law already on the books.

No much talk lately about it, but Congress still seems intent on reinstating the Estate tax.  The Estate tax expired on January 1, 2010.  It will likely be back with a retroactive effective date of January 1, 2010.

Come back.  There will be more...

Contributions to Haiti Earthquake Relief

Following is a great summary put together by DKB's Mike Tullio.  Mike is a Senior Manager in DKB's personal tax and wealth planning practice.  If you have questions contact Mike at mtullio@teamdkb.com.

On January 22, 2010 the US Government enacted a special provision allowing taxpayers making cash contributions to charitable organizations providing earthquake relief in Haiti to deduct those contributions on their 2009 tax returns as long as the contributions are made on or after January 12, 2010 and before March 1, 2010. Taxpayers should be aware that they have the option to deduct these contributions on their 2009 or 2010 tax returns, but not both. To qualify for this provision, taxpayers must


1. be able to itemize their deductions.

2. make the contribution specifically for the relief of victims in areas affected by the January 12 earthquake in  Haiti, and

3. make sure their contributions go to qualified charities (contributions to foreign organizations generally are not deductible).

Additionally, federal law requires that taxpayers keep a record of any deductible donations made. For donations made by text message, a telephone bill providing the name of the donee organization, the date of the contribution and the amount will satisfy the recordkeeping requirement.

Finally, this recent provision is not reflected in the tax organizer that you recently received. Therefore, you may want to save this information with your 2009 tax organizer as a reminder when collecting your data for the preparation of your 2009 tax returns.

The IRS provides some additional helpful guidance on this new tax break at http://www.youtube.com/watch?v=ZLPzcJcKKEE

Roth IRA conversions in 2010

There are some significant tax planning opportunities for individual taxpayers in 2010 related to Roth IRA conversions.  I "stole" this client communication (he gave me permission) on 2010 Roth planning opportunities from my partner, Dennis Stein.  Dennis heads up TeamDKB's personal tax and wealth planning practice.  If you are interested in exploring planning opportunties with Roth conversions, he is the "expert".  You can contact him at 585-697-9305 or dstein@teamdkb.com.

Dear Client,


Beginning in 2010, taxpayers will be able to convert their traditional IRA (and funds that have been rolled over from a qualified plan) to a Roth IRA, regardless of their income level or filing status. This new conversion option presents both tax planning opportunities and challenges for 2009, 2010, and 2011.

Before 2010, only individuals with modified adjusted gross incomes (AGI) of $100,000 or less could convert amounts in their traditional IRA to a Roth IRA. However, beginning in 2010, the $100,000 AGI limit is eliminated completely. This special treatment gives everyone regardless of his or her income level the opportunity to convert a traditional IRA to a Roth IRA.

It is important to understand that an IRA conversion is treated as a taxable distribution, taxed as ordinary income at your marginal tax rate. This in effect accelerates the taxable income that you would eventually pay on distributions from a traditional IRA once you retire, but does so in exchange for never taxing any future appreciation in the value of your account from what it is at the time of the conversion. You should also note that unlike a withdrawal from an IRA, a conversion does not trigger a 10 percent early withdrawal penalty.

Although conversion to a Roth IRA does trigger immediate taxable income, congress provided a special incentive in 2010 to jump-start Roth conversions. In 2010 (and 2010 only), individuals will have the choice of recognizing their conversion in 2010 or averaging it over 2011 and 2012. The latter option, which must be elected, allows you to pay taxes on the converted amount ratably over two years, instead of recognizing it all as income in one year. You will be taxed at the rates in effect for 2011 and 2012.

For some taxpayers, their tax rate may rise after 2010 even if their income does not. President Obama has proposed, and Congress is expected to enact, legislation to restore the top two pre-2001 marginal income tax rates after 2010. This means that the top two brackets will be 36 percent and 39.6 percent after 2010. Consequently, if you do not want to take the chance that your income tax rate will be higher in 2011 and 2012 than in 2010, you may want to pay the full tax on the Roth conversion in your 2010 income tax return, at 2010 tax rates.

Roth IRAs have two major advantages over traditional IRAs. First, Roth IRA distributions are tax-free if they are qualified distributions. Second, Roth IRAs are not subject to the required minimum distribution (RMD) rules that apply to traditional IRAs.

An IRA to Roth IRA conversion should be considered by individuals who:

• Can afford the tax on the converted amounts;

• Anticipate being in a higher tax bracket in the future than they are currently in; and

• Have a significant amount of time before reaching retirement to allow assets to grow tax-free and recoup dollars that may have been lost due to the conversion tax.

If you anticipate being below the $100,000 AGI level this year, consider converting to a Roth IRA right away while your traditional IRA account balance is still low because of the stock market declines. If your situation is different from what you anticipate before you file your 2009 return, you have the option to recharacterize your 2009 Roth conversion back to a traditional IRA and then converting to a Roth IRA in 2010 instead.

There are a significant number of tax and financial considerations that come into play when determining whether to convert your traditional IRA to a Roth IRA. We would appreciate the opportunity to discuss this tax planning strategy with you in further detail. Please contact our office to arrange a meeting.