Temporary Payroll Tax Cut Continuation Act of 2011

What did our disfunctional Congress do before leaving town for Christmas?

At the eleventh hour, Congress approved a two-month extension of the employee-side payroll tax cut in the Temporary Payroll Tax Cut Continuation Act of 2011. The two-month extension, for January and February 2012, is intended to give lawmakers additional time to negotiate a full-year extension of the payroll tax cut through the end of 2012.

OASDI tax rate. Social Security's Old-Age, Survivors, and Disability Insurance (OASDI) program and Medicare's Hospital Insurance (HI) program are financed primarily by employment taxes. Prior to 2011, the OASDI tax rate was 6.2 percent for employees and employers, each; and the OASDI tax rate for self-employment income was 12.4 percent.

OASDI limits the amount of earnings subject to taxation for a given year. This limit changes each year with changes in the national average wage index. For 2011, the OASDI wage base was $106,800. The OASDI wage base is $110,100 for 2012. There is no limitation on HI-taxable earnings.

2011 temporary reduction. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reduced, for wages and salaries paid in 2011 and self-employment income in 2011, the OASDI tax by two percentage points, applied to the portion of the tax paid by the employee and the self-employed individual (4.2 percent and 10.4 percent, respectively). The employee-side payroll tax cut under the 2010 Tax Relief Act was scheduled to expire after December 31, 2011.

Two-month extension. On December 23, 2011, Congress approved and President Obama signed a two-month extension of the employee-side payroll tax cut. The Temporary Payroll Tax Cut Continuation Act of 2011 extends the two percentage point employee-side payroll tax cut through the end of February 2012.

Recapture. Shortly after President Obama signed the Temporary Payroll Tax Cut Continuation Act, the IRS explained that the new law includes a recapture provision, which applies to individuals who receive more than $18,350 during the two-month extension period. The OASDI wage base for 2012 is $110,100, and $18,350 represents two-months of the full-year amount. The recapture tax would be payable in 2013 when the employee files his or her income tax return for the 2012 tax year. The House Ways and Means Committee reported that the recapture provision will only apply if the payroll tax reduction is not extended for the remainder of 2012.

Implementation. The IRS instructed employers to implement the reduced payroll tax rate as soon as possible in 2012 but no later than January 31, 2012. For any Social Security tax over-withheld during January, employers should make an offsetting adjustment in employees’ pay as soon as possible but no later than March 31, 2012, the IRS advised.

NYS Tax Law Changes for 2012

Condensed summary of NYS law changes as provided by our friends at CCH.

New York Gov. Andrew M. Cuomo has signed legislation containing new credit provisions and modifications to the corporate franchise and personal income tax rates, including a restructuring of the individual income tax brackets. The legislation also contains property tax provisions, which are reported separately.

Individual Income Tax Changes

Under the legislation, for joint filers in taxable years beginning after 2011 and before 2015, taxpayers with New York taxable income of $40,000 to $150,000 will be taxed at 6.45% (previously, 6.85%); taxpayers with New York taxable income of $150,000 to $300,000 will be taxed at 6.65% (previously, 6.85%); taxpayers with New York taxable income of $300,000 to $2 million will be taxed at 6.85% (previously, 7.85% to 8.97%); and taxpayers with New York taxable income over $2 million will be taxed at 8.82% (previously, 8.97%).

For taxpayers with other filing statuses, the top 8.82% rate will apply to head of household filers with New York taxable income over $1.5 million and to single filers with New York taxable income over $1 million. The legislation also provides for a cost of living adjustment to the brackets and the standard deduction.

The Department of Taxation and Finance has announced that it is developing new withholding tables that will be effective on January 1, 2012.

Metropolitan Commuter Transportation Mobility Tax

Metropolitan commuter transportation mobility tax (MCTMT) provisions are amended to exclude certain small businesses from the tax. Specifically, the legislation modifies the definition of "employer" to provide that payroll expense must exceed $312,500 (previously, $2,500) in any calendar quarter. The definition is also amended to exclude eligible educational institutions.

In addition, the MCTMT, previously imposed on employers at the rate of 0.34%, is imposed at the following rates: 0.11% for employers with payroll expense no greater than $375,000 in any calendar quarter; 0.23% for employers with payroll expense no greater than $437,500 in any calendar quarter; and 0.34% for employers with payroll expense exceeding $437,500 in any calendar quarter. For self-employed individuals, tax at the rate of 0.34% applies if earnings attributable to the Metropolitan Commuter Transportation District exceed $50,000 (previously, $10,000) for the tax year.

The MCTMT amendments applicable to employers take effect for the quarter beginning on April 1, 2012.

Corporate Franchise Tax on Manufacturers

The legislation provides a 50% rate reduction under the corporate franchise tax for eligible qualified New York manufacturers, for taxable years beginning after 2011 and before 2015.

The Commissioner of Taxation and Finance is required to establish guidelines and criteria specifying the requirements for a manufacturer to be classified as an eligible qualified New York manufacturer. The criteria may include factors such as regional unemployment, the economic impact that manufacturing has on the surrounding community, population decline within the region, and median income within the region.

Credits

The legislation creates the Youth Works Tax Credit Program, under which credits are available for employing at-risk youths in part-time and full-time positions. Qualified employers are entitled to a credit of $500 (full-time) or $250 (part-time) per month for up to six months for each qualified employee. Employers are also entitled to $1,000 (full-time) or $500 (part-time) for each qualified employee who is retained for an additional six months. Qualified employees must start their employment on or after January 1, 2012, and no later than July 1, 2012. Up to $25 million in tax credits may be allocated under this program.

The legislation also creates the Empire State Jobs Retention Program, which provides credits to targeted businesses harmed by a natural disaster. Participants in the program must (1) be located in a county in which an emergency has been declared by the governor on or after January 1, 2011, (2) demonstrate substantial physical damage and economic harm resulting from the event leading to the emergency declaration, and (3) retain at least 100 full-time equivalent jobs in the county. The credit equals 6.85% of the wages of retained jobs.

3% Federal Withholding Relief?http://www.cchgroup.com/wordpress/index.php/tax-headlines/federal-tax-headlines/ways-and-means-approves-3-percent-withholding-tax-repeal/

Special IRS Audits Target Wealthy Elite - Forbes

A great article about new examination practices by the IRS to audit "wealthy" taxpayers. The strategy behind this program is to examine the totality of the taxpayer's reported income and expense items on their tax returns. Further, the objective is to examine the taxpayer's "financial life" and determine if items are being properly reported on tax returns. This is in contrast to past practices where the IRS may have only reviewed selected issues on a taxpayers return. The IRS perceives that there has been abuse by this group of taxpayers with respect to offshore and unreported income. There also has been a number of publicized tax shelter cases where the IRS has previaled in its challenges of these shelters.

Are you ready for an examination like this?

Special IRS Audits Target Wealthy Elite - Forbes

IRS Reminders on Charitable Giving

Healthy list of reminders from the IRS about claiming tax deductions related to charitable giving.  Remember it is not always as easy as just writing the check to the charity.

IRS Summertime tax tips

President Obama's Jobs Bill

It's worth a post on our blog to provide a link to what is included in the President's Jobs Bill.  It is hard to invest much time on analysis expecting that so much will change if it becomes law...ever.

Good old bonus depreciation could be back for another year.  Punishment is handed out to corporate jet owners and owners of carried interests.

Much more to come on this subject.

CCH tax briefing

2011 Year End Tax Planning Opportunities - Capital Equipment

I know.  Summer just finished with the passing of Labor Day.  It's too early to think about year end tax planning.  Not so much...

Some business sectors of the economy are becoming stronger.  Encouraged businesses may be making decisions to buy additional capital equipment.  Planning opportunities remain related to bonus depreciation and Section 179 expenses deductions for 2011.

To encourage economic stimulus and job creation, Congress has enacted the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Tax Relief Act of 2010). The Tax Relief Act of 2010 provides significantly increased incentives for business investment in capital and equipment, including a temporary extension of bonus depreciation, a bonus depreciation allowance of 100 percent of the cost of qualified property placed in service after September 8, 2010 and before January 1, 2012, and temporary increases in the deductible amount and investment limitation under Code Sec. 179 for tax years beginning in 2012.

The Tax Relief Act of 2010 extends the 50-percent first-year bonus depreciation allowance for two years to apply to qualifying property in service in the tax year through 2012 (through 2013 for certain longer-lived and transportation property). In addition, the provision expands the first-year bonus depreciation deduction to 100 percent of the cost of qualified property placed in service after September 8, 2010 and before January 1, 2012 (before January 1, 2013 for certain longer-lived and transportation property).

Under the extension provisions, a corporation also is permitted to increase the minimum tax credit limitation by the bonus depreciation amount with respect to certain property placed in service after December 31, 2010 and before January 1, 2013 (January 1, 2014 in the case of longer-lived and transportation property).

In addition to the bonus depreciation changes, the Tax Relief Act of 2010 increases the deduction and investment limits under Code Sec. 179. Generally, Code Sec. 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, taxpayers are permitted 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. However, after 2011, the expense deduction limit of $500,000 was set to drop to $25,000. Similarly, the phase-out amount was scheduled to be reduced to $200,000.

To address this concern, the Tax Relief Act of 2010 increased the maximum amount a taxpayer may expense under Code Sec. 179 for tax years beginning in 2012 to $125,000 of the cost of qualifying property placed in service in the tax year, reduced, but not below zero, by the amount by which the cost of qualifying property placed in service in the tax year exceeds $500,000. These amounts are to be indexed for inflation. However, for tax years beginning in 2013 and thereafter, the maximum expense deduction permitted drops to $25,000 of the cost of qualifying property placed in service for the taxable year, with a maximum phase-out limit of $200,000, not indexed for inflation.

Tax planning action may be needed now to purchase and place qualifying equipment in service before the end of 2011.

More Off Shore Tax News

Just when you thought your Swiss bank account was a secret.  Apparently Switzerland is considering the disclosure of bank account information to the IRS.

Swiss to deliver some bank account data

The IRS has placed increasing emphasis on off shore and international tax compliance as part of its efforts to reduce the tax gap.

Buying a house in the U.S.? The IRS wants to know

That's if you are a Canadian resident.  It is interesting how a weak dollar promotes foreign citizens to consider purchasing real property in the US (can you say "do I have a deal for you?").  This is a great article about the income tax compliance issues for Canadian citizens who believe US real estate is a good investment.  It's not all roses...

http://www.financialpost.com/personal-finance/Buying+house+wants+know/5138905/story.html

The States' Battle for Revenue

The States' battle for sales tax revenue continues.  I wonder if a more productive process to determine who must collect a particular states sales tax could be developed with a little leadership from Washington.

http://www.latimes.com/business/la-fi-amazon-war-20110713,0,2902994.story

IRS Changes in Business Standard Mileage Rate

The IRS has announced a mid-year adjustment to the 2011 optional standard mileage rates. Effective July 1, 2011, the business standard mileage rate increases from 51 cents-per-mile to 55.5 cents-per-mile for the second half of 2011. The medical/moving standard mileage rate also increases by 4.5 cents-per-mile for the second half of 2011 but the charitable standard mileage rate remains unchanged at 14 cents-per-mile. The IRS took the unusual step of adjusting the rates mid-year because of higher gasoline prices.

Businesses generally can deduct the entire cost of operating a vehicle for business purposes. Alternatively, they can use the business standard mileage rate, subject to some exceptions. The deduction is calculated by multiplying the standard mileage rate by the number of business miles traveled. Self-employed individuals also may use the standard rate as can employees whose employers do not reimburse, or only partially reimburse, them for business miles driven.

In late 2010, the IRS set the 2011 business standard mileage rate at 51 cents-per-mile for 2011 and the medical/moving rate at 19 cents-per-mile. The charitable rate is set by Congress and remained at 14 cents-per-mile for 2011. The IRS uses a formula to calculate the rates. The formula takes into account gasoline prices and other costs associated with operating a vehicle.

Since the start of 2011, gasoline prices have risen in most parts of the country. In May 2011, a bipartisan group of lawmakers in Congress asked the IRS to consider a mid-year increase in the mileage rates to help offset higher gasoline prices. The IRS took similar action in 2005 after Hurricane Katrina and in 2008 when gasoline prices also climbed very high.

On June 23, 2011, the IRS announced an increase in the mileage rates for the second half of 2011. The business standard mileage rate is 55.5 cents-per-mile for business miles driven on or after July 1, 2011 and on or before December 31, 2011. The medical/moving rate is 23.5 cents-per-mile for miles driven on or after July 1, 2011 and on or before December 31, 2011. The charitable rate, because it is determined by Congress and not the IRS, is unchanged for the second half of 2011.

The Tax Side of Same Sex Marriage

New York State has adopted new laws (pending the Governors signature) that legalizes same sex unions in New York State.

What will be the impact of this event on income tax filing for same sex couples? Will they be considered to be married for tax filing purposes and receive the same tax benefits that other married couples receive?

While New York State may consider same sex unions as a marriage, the federal government has not passed similar rules. Thus these couples are not considered to be married when filing with the IRS.

Tax simplification????

Real Estate Income Tax Issues Update

We delivered a webinar related to updates of real estate income tax issues on May 18, 2011.  Click on the link and you can listen to a replay of the webinar.  You can get an update on important income tax issues that impact real estate developers, owners and lessors.

Please contact Mike Cooke or Mark Blood if you have questions.

DKB webinars

U.S. Business Has High Tax Rates but Pays Less - NYTimes.com

Great article in the New York Times about the impact of corporate income tax rates on American businesses. I cannot imgine a reduction in corporate income taxes rates without an adjustment of the taxable income base. The federal budget cannot afford any further loss of revenue. There are a number of credible arguments that reductions in corporate income tax rates could have a signficiant impact on bringing high quality jobs (manufacturing!) back to the United States.

It will be interesting to see how the states might react to a broading of the taxable income base. Will they reduce rates or use federal changes as an opportunity to collect more revenues?

I think the article is correct that nothing will happen before the 2012 elections. Neither party has the desire to be portrayed in the press as having provided a tax break to large corporations.

U.S. Business Has High Tax Rates but Pays Less - NYTimes.com

Gas prices: Obama urges repeal of oil company subsidies - latimes.com

I understand that income taxes assessed on oil companies are not directly assessed on American consumers. However, it seems like a relatively simple conclusion that gas prices will likely increase if oil and gas producers are forced pay additional income taxes to the federal and state governments. They are corporations that are working hard to produce earnings for their shareholders. Additional income taxes would seem like a reason for oil and gas producers to further raise prices to support their earnings and stock valuation. Am I missing something here?

Gas prices: Obama urges repeal of oil company subsidies - latimes.com

CCH, a Wolters Kluwer business | Congress Repeals Expanded 1099 Reporting Requirements

It took a while to repeal the 1099 reporting requirements that accompanied the health care legislation. Looks like it has been repealed for now...until the politicians think it is a good idea a few years from now. CCH, a Wolters Kluwer business Congress Repeals Expanded 1099 Reporting Requirements

IRS Targets Wealthy With More Audits - FoxNews.com

More news on IRS enforcement actions. IRS Targets Wealthy With More Audits - FoxNews.com

Eight Tips for Deducting Charitable Contributions

I have to give the IRS appropriate credit. The IRS has followed through on their pledge to better educate taxpayers on opportunities available under the law. This summary of tips for properly deducting charitable contributions is a part of this effort and a great reminder about how taxpayers can properly claim charitable contributions.

Eight Tips for Deducting Charitable Contributions

Silver unveils plan to up "millionaires tax" threshold to $1 million a year - NYPOST.com

Looks like NYS is getting closer to a real millionaires tax.

Silver unveils plan to up "millionaires tax" threshold to $1 million a year - NYPOST.com

Check out the TeamDKB Tax Update Webinar

Click on the link title above to listen to our latest federal and state tax update webinar.

Comments and questions are welcome.

Wal-Mart Looks To Poach Amazon's California Affiliates - WSJ.com

Actions on the part of many states continue to reach beyond their physical borders to collect sales and use tax. This has led to concepts like "economic nexus" and "click through nexus". The article below details the impact this is having in the market place. Amazon has threaten to end its affiliate program with web sites in California because California is threatening to require Amazon to collect its sales tax.

Walmart being ever opportunistic has jumped in and offered relationships with Amazon's disenfranchised affiliates. Why? Because Walmart is already required to collect California's sales tax due to the fact that it already has stores in California.

Wal-Mart Looks To Poach Amazon's California Affiliates - WSJ.com

Tax Cut for Businesses May Cost States Money - NYTimes.com

Many states compute tax taxable income based on federal taxable income. The link below outlines how federal law changes that allow for accelerated depreciation of assets may impact state tax collections. Accelerated depreciation deductions will reduce state taxable income and therefore reduce state tax collections. All at a time of intense budget pressures as has been seen in Wisconsin.

Never fear for NYS. NYS "decoupled" from these accelerated depreciation rules a number of years ago. Essentially this means that accelerated depreciation deductions allowed for federal purposes are not allowed when computing NYS taxable income.

Tax Cut for Businesses May Cost States Money - NYTimes.com

Financial Planning Check Up

Great reminders and outline for financial planning from the personal tax professionals at TeamDKB.  Dennis Stein, Pam Duffy and Janet Graves are a great resource for our clients for all personal financial planning needs.  Tax season is a great time to think about opportunities to improve your overall financial health.  Click below to get a better view of how they can help you.  Don't hesitate to call them with questions.

New York Public Employee Unions Skip Usual Ad Blitz - NYTimes.com

What does this have to do with taxes?

Public employee unions are trying to identify revenue sources to continue to fund their compensation and benefits. They have suggested that New York's 8.97% income tax bracket be extended beyond its scheduled expiration in December 2011. The rate would revert back to 7.85% beginning January 1, 2012.

By the way...its not really a "millionaire's tax". The 8.97% rate is generally applied to taxable income in excess of $500,000.

New York Public Employee Unions Skip Usual Ad Blitz - NYTimes.com

Second Special Voluntary Disclosure Initiative Opens; Those Hiding Assets Offshore Face Aug. 31 deadline

The first program like this was sold to be a taxpayer's only opportunity to come in from the cold and disclose offshore assets and income and face lesser penalties and interest. The IRS provides support for "just give me one more chance" with a second voluntary disclosure initiative for unreported off shore assets and income.

The new program allows taxpayers to make disclosure of unreported income. Penalty reduction is available under the program provided taxpayers meet the August 31, 2011 filing deadline.

Second Special Voluntary Disclosure Initiative Opens; Those Hiding Assets Offshore Face Aug. 31 deadline

Punxsutawney Phil predicts early spring...and a late tax season?

"Groundhog Punxsutawney Phil emerged from his hovel Wednesday and saw his shadow, which -- according to tradition -- means that spring will come early this year." (CNN reports).  However, Phil doesn't know anything about taxes or tax season.

Spring may be early, but tax season looks like it might be late.  While TeamDKB is off to a great start to the 2011 busy season, there are many external factors that may mean a late tax season.

First, the April 15, 2011 due date has been extended to April 18, 2011 due to April 15 falling on a Saturday and Monday holiday.  We try to complete client work well in advance of the extended due date.  However, we will always have clients who "use the extra few days".  I would encourage you to assemble your tax data early to make sure you enjoy a beautiful spring weekend starting on April 15.

The IRS has delayed final release of a variety of tax forms.  Much of this delay was caused by Congress's late action on 2010 tax legislation.  Final action on 2010 legislation was not completed until December 17, 2010.  This has caused delays in electronic filing submissions due to IRS system modification requirements.  We have completed many 2010 tax returns and are not able to file them for clients because the IRS is not ready to accept them.

The IRS has granted 1099 filing extensions to many banks and brokerage firms.  Typically, 1099's are due to recipients by January 31.  Extensions have been granted so banks and brokerage firms can properly complete the forms.  Past tax seasons have been marked with amended form 1099's due to the updates of data supplied to these firms that was not available prior to the January 31 due date.  This IRS has agreed with these firms that "getting it right the first time" is better than "I'll fix it later".  Extended due dates vary from February 15th to 28th.

Even with these delays we are working hard to have an early Spring...just like Phil.

Dad can I have $20 for.......?

My son Mike's favorite line..."Dad can I have $20 for (fill in the blank). The IRS has stepped up to tell me that the flow of money does not go only in one direction and that I might actually get some tax savings from having such a great son (I have a great daughter too, but she pays her own expenses). Click on the link to see the IRS's summary of tax benefits for parents.

Ten Tax Benefits for Parents

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

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

Another attempt by Congress to "undo what they did". The Senate Finance Committee Chairman and Senate Majority leader have introduced another bill to repeal certain of the new form 1099 reporting requirements. This is at least the third attempt at a bill to pull back on the signficantly expanded form 1099 reporting requirements.

With the federal governments push to create employment, there is a general feeling that placing additional reporting burdens on small and medium sized businesses will not promote employment creation. Maybe this time when they click on the "undo" button it will work...

Business Tax-Time Problems Grow From Past Mistakes - ABC News

Business Tax-Time Problems Grow From Past Mistakes - ABC News

This article is a good review for businesses to get ready for tax season. Simple topics to think about as you prepare your businesses records for tax return preparation. Some items mentioned in this article are worth repeating.

Use your software to help, not hurt. Many client will provide us with a back up of their accounting system such as Quickbooks. They believe with the back up they have provided us with "everything we need" to properly prepare a tax return. Often we find that people do not know how to properly use applications like Quickbooks. Further they may not spend enough time making sure entries made in Quickbooks are posted to the proper accounts.

Pay attention to what you are paying. If expenses are not properly tracked in your accounting system, we may not find the missing items or properly reclassify items posted in error. It is important that all business related income and expenses are entered into your accounting sytem.

Pay now or pay more later. Often fixing the mess is more time consuming and expensive than doing it right the first time. Asking questions during the year as transactions are being posted is generally a better path to properly completing your books and records for your tax return.

Changing Corporate Tax Is a Tricky Balancing Act - NYTimes.com

Changing Corporate Tax Is a Tricky Balancing Act - NYTimes.com

I would like to have seen this idea get more press. Real action about reform of the federal tax system for corporations could yield significant economic benefits.

You wonder if the manufacturing and business environment in the United States would be improved if corporation tax rates were reduced. For many corporations their income tax expense (tax provision) is one of the more significant income statement line items that impact their earnings.

Past press has criticized Google and other multinational corporations about planning they have engaged in to source their earnings to tax favorable countries. These corporations have done this to control their tax expense, improve their earnings and thus improve the valuation of their stock.

You wonder how much the economic environment in the United States could change if our corporation tax rates were reduced and corporations could determine how to source their earnings to the United States by growing their businesses in the United States. Making the US corporation tax structure more competitive with the rest of the world might just help.

Michelle Malkin » Kill the Obamacare 1099 tax mandate

Michelle Malkin » Kill the Obamacare 1099 tax mandate

Hopefully Congress will actually pull this off. Repeal of the new 1099 reporting requirements would be helpful to many businesses. The additional effort needed to comply with these rules is very significant.

The federal budget cost of the two healthcare bills was computed (scored) assuming additional federal tax would be collected based on the added compliance associated with filing of additional 1099's. I don't know how this was computed. I do know accountants and CPA's would certainly be spending more time to respond to IRS computer generated notices.

I agree. Let's get rid of the new 1099 reporting requirements.

Illinois's Record Income-Tax Increase Divides Businesses and Investors - Bloomberg

Illinois's Record Income-Tax Increase Divides Businesses and Investors - Bloomberg

Illinois lawmakers have been hotly criticized for recently passed income tax increases. This action points to the struggles that all states are having with their budgets...it's not just Illinois. What does this mean to you?

I think you can expect that the bond market will continue to struggle. Downward pressure on valuations, upward pressure on yields and increased future borrowing costs for states and other governmental entities. You need to assess how this impact your asset allocation and tax strategies associated with owning tax exempt bonds.

Taxpayers who have tax overpayments and are asking for refunds should expect to wait for their money. As with prior years, the states have used refunds due to taxpayers as a convenient borrowing source. Taxpayers should expect that a number of states will announce (or maybe not announce) delays in processing and paying refunds to businesses and individuals.

Taxpayers should expect more inquiries from states related to deductions and credits claimed on their tax returns. Examining returns that claim tax benefits allows the states to potentially reduce refunds claimed. Additionally, it allows states to delay when those refunds are paid.

IRS fact sheet on tax benefits for self employed and smalll business

The IRS published a fact sheet on updated tax benefits for self employed and small business (FS-2011-2).  I pasted it below.  It provides a solid summary of some new tax benefits under laws passed in 2010.

Tax Changes for Small Businesses


During 2010, new laws such as the Affordable Care Act and the Small Business Jobs Act of 2010, created or expanded deductions and credits that small businesses and self-employed individuals should consider when completing their tax returns and making business decisions in 2011.



Health Insurance Deduction Reduces Self Employment Tax

With the enactment of the Small Business Jobs Act of 2010, self-employed taxpayers who pay their own health insurance costs can now reduce their net earnings from self-employment by these costs. Previously, the self-employed health insurance deduction was allowed only for income tax purposes. For tax year 2010, self-employed taxpayers can also reduce their net earnings from self employment subject to SE taxes on Schedule SE by the amount of self-employed health insurance deduction claimed on line 29 on Form 1040.



Taxpayers can claim the self-employed health insurance deduction if the insurance plan is established under their business and if any of the following are true:



They were self-employed and had a net profit for the year,



They used one of the optional methods to figure net earnings from self-employment on Schedule SE, or



They received wages from an S corporation in which the taxpayer was a more-than-2-percent shareholder.



During tax year 2008, the most recent year for which data is available, the self-employed health insurance deduction was claimed on 3.6 million tax returns, reducing taxpayers' adjusted gross incomes by $21 billion.



Small Business Health Care Tax Credit

In general, the Small Business Health Care Tax Credit is available to small employers that pay at least half of the premiums for single health insurance coverage for their employees. It is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers.



Small businesses can claim the credit for 2010 through 2013 and for any two years after that. For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small businesses and 25 percent of premiums paid by eligible tax-exempt organizations. Beginning in 2014, the maximum tax credit will increase to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible tax-exempt organizations.



The maximum credit goes to smaller employers — those with 10 or fewer full-time equivalent (FTE) employees — paying annual average wages of $25,000 or less. The credit is completely phased out for employers that have 25 or more FTEs or that pay average wages of $50,000 or more per year. Because the eligibility rules are based in part on the number of FTEs, not the number of employees, employers that use part-time workers may qualify even if they employ more than 25 individuals.



Eligible small businesses will first use Form 8941 to figure the credit and then include the amount of the credit as part of the general business credit on its income tax return.



The IRS has developed a page on IRS.gov devoted to this credit with answers to frequently asked questions and with explanations of the credit through various tax scenarios.



General Business Credit for Employers

The general business credits of eligible small businesses in 2010 are not subject to alternative minimum tax The new law allows general business credits to offset both regular income tax and alternative minimum tax of eligible small businesses as described in Section 2012 of the Small Business Jobs Act. The provision is effective for any general business credits determined in the first taxable year beginning after December 31, 2009, and to any carryback of such credits. For a list of the general business credits, see Form 3800.



Small Businesses Can Benefit from Higher Expensing / Depreciation Limits

For tax years beginning in 2010 and 2011, small businesses can expense up to $500,000 of the first $2 million of certain business property placed in service during the year.



In general, businesses can choose to treat the cost of certain property as an expense and deduct it in the year the property is placed in service instead of depreciating it over several years. This property is frequently referred to as section 179 property, after the relevant section in the Internal Revenue Code.



Section 179 property is property that you acquire by purchase for use in the active conduct of your trade or business, including:



Tangible personal property.



Other tangible property (except buildings and their structural components) used as:



1. An integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services;



2. A research facility used in connection with any of the activities in (1) above; or



3. A facility used in connection with any of the activities in (1) above for the bulk storage of fungible commodities.





Single purpose agricultural (livestock) or horticultural structures.



Storage facilities (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum.



Off-the-shelf computer software.



Section 179 property generally does not include land, investment property ( section 212 property), property used mainly outside the United States, property used mainly to furnish lodging and air conditioning or heating units.



The Small Business Jobs Act (SBJA) of 2010 increases the IRC section 179 limitations on expensing of depreciable business assets for tax years beginning in 2010 and 2011 and expands temporarily the definition of section 179 property, for tax years beginning in 2010 and 2011, to include certain qualified real property a taxpayer elects to treat as section 179 property. Qualified real property means qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property.



The $500,000 amount provided under the new law is reduced, but not below zero, if the cost of all section 179 property placed in service by the taxpayer during the tax year exceeds $2 million.



For tax years beginning in 2012, the maximum amount is $125,000; before enactment of the 2010 tax relief legislation, it was set at $25,000.



Depreciation limits on business vehicles. The total depreciation deduction (including the section 179 expense deduction and the 50 or 100 percent bonus depreciation) you can take for a passenger automobile (that is not a truck or a van) you use in your business and first placed in service in 2010 is increased to $11,060. The maximum deduction you can take for a truck or van you use in your business and first placed in service in 2010 is increased to $11,160. If you do not take any bonus depreciation for the passenger automobile, truck, or van you use in your business and first placed in service in 2010, the maximum deduction you can take for a passenger automobile is $3,060 and for a truck or van is $3,160.



50 or 100 Percent Bonus Depreciation

Generally, businesses can take a special depreciation allowance to recover part of the cost of qualified property placed in service during the tax year. The allowance applies only for the first year you place the property in service.



Businesses that acquire and place qualified property into service after Sept. 8, 2010 can now claim a depreciation allowance of 100 percent of the cost of the property. The property must be placed in service before Jan. 1, 2012 (Jan. 14, 2013 in the case of certain longer-lived and transportation property). Businesses that acquire qualified property during 2010 on or before Sept. 8, 2010 can claim a depreciation allowance of 50 percent of the cost of the property. The property must be placed in service before Jan. 1, 2013 (Jan. 1, 2014 in the case of certain longer production period property and for certain aircraft.)



The allowance is an additional deduction you can take after any section 179 deduction and before you figure regular depreciation under MACRS for the year you place the property in service. The types of property that can be depreciated are described in IRS Publication 946, How to Depreciate Property. http://www.irs.gov/publications/p946/index.html



Small Businesses to Use EFTPS for Deposits Beginning in 2011

The paper coupon system for Federal Tax Deposits will no longer be maintained by the Treasury Department after Dec. 31, 2010. Most businesses must now make deposits and pay 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 attached regulations.

2010 Tax Relief Act: Benefits for Businesses

Business planning for 2011 and beyond just got more certain with passage of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (H.R. 4853). The multi-billion dollar new law extends, renews or enhances a large number of business tax incentives. This letter highlights the key business tax incentives in the new law. As always, please contact our office for more details.

Bonus Depreciation

The new law provides for 100 bonus depreciation. The 100 percent bonus depreciation rate applies to qualified property (does not include previously used and depreciated property) acquired after September 8, 2010 and before January 1, 2012 and placed in service before January 1, 2012 (or before January 1, 2013 for certain longer-lived and transportation property). Moreover, certain corporations may be able to elect to accelerate any alternative minimum tax (AMT) credit in lieu of bonus depreciation.

Code Section 179 Expense

Earlier this year, the Small Business Jobs Act enhanced Code Sec. 179 expensing for 2010 and 2011 dollar and investment limits. For these years, the Code Sec. 179 dollar limit is $500,000 and the investment limit is $2 million. Also, special rules apply to qualified real property. Taxpayers can elect up to $250,000 of the $500,000 dollar limit for qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property.

The Tax Relief Act renews a 15-year recovery period for qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property for 2010 and 2011.

Payroll tax cut. The new law reduces an employee’s share of Social Security taxes (the OASDI portion) from 6.2 percent to 4.2 percent up to the taxable maximum amount of $106,800 for calendar year 2011. The new law does not reduce the employer’s share, which remains at 6.2 percent for 2011. Self-employed individuals, including independent contractors with which a business may contract, are also entitled to a 2 percentage point reduction in payroll taxes, from 12.4 percent to 10.4 percent.

The IRS has instructed employers to start using new withholding tables and reducing the amount of Social Security tax withheld as soon as possible in 2011 but no later than January 31, 2011. The IRS also instructed employers to make any offsetting adjustments in an employee’s pay for Social Security over-withheld during January as soon as possible but no later than March 31, 2011.

The new law does not extend payroll tax forgiveness for qualified new hires. This incentive was part of the Hiring Incentives to Restore Employment (HIRE) Act of 2010 and will expire, as scheduled, after 2010. Under the HIRE Act, qualified employers do not have to pay their share of OASDI for a covered employee’s employment from the day after March 18, 2010 through December 31, 2010. The HIRE Act also provides for a worker retention credit, which qualified employers may be able to claim if the covered employee works a certain number of weeks and meets other requirements.

Tax brackets. Businesses owners, such as sole proprietors, who are taxed at the individual tax rates will benefit from an extension of reduced individual tax rates. The new law extends for two years (2011 and 2012) the current individual tax rates of 10, 15, 25, 28, 33, and 35 percent). Absent the new law, all of the rates would have risen with the top two rates increasing from 33 and 35 percent to 36 and 39.6 percent respectively.

Estate tax. Under the new law, the federal estate tax will again apply to the estates of decedents dying after December 31, 2009 and before January 1, 2013. The new law sets a maximum estate tax rate of 35 percent with a $5 million exclusion ($10 million for married couples). Additionally, executors of estates of individuals who died in 2010 can elect out of the estate tax (and apply modified carryover basis rules) or can elect to have the estate tax apply.

Research tax credit. In recent years, Congress has come close to making the Code Sec. 41 research tax credit permanent but the cost of a permanent credit has been prohibitive. The new law renews the credit, which expired at the end of 2009, for 2010 and 2011.

Work Opportunity Tax Credit. The Work Opportunity Tax Credit (WOTC) rewards employers that hire economically-disadvantaged individuals and individuals from groups with historically high rates of unemployment. The WOTC was scheduled to expire after

August 31, 2011. The new law extends the WOTC through the end of 2011. However, the new law does not extend two groups that were added to the credit in 2009 (unemployed veterans and disconnected youth).

Energy. Recent laws have used the Tax Code to encourage the development and production of alternative fuels, such as energy from wind and biomass. Many of these incentives are temporary. The new law extends, renews or enhances some of the incentives, including:

1. Grants for certain alternative energy property in lieu of tax credits

2. Tax credits for biodiesel and renewable diesel fuel

3. Tax credit for refined coal facilities

4. Percentage depletion for oil and gas from marginal wells

5. Special tax incentives for builders of energy-efficient homes

6. And more

Business tax extenders. A package of business tax incentives, known as extenders because they regularly expire and are regularly extended, is renewed by the new law. They include:

1. Differential wage credit

2. New Markets Tax Credit (with modifications)

3. Brownfields remediation

4. Tax treatment of certain dividends of RICs and certain investments of RICs

5. Active financing exception/look-through treatment for CFCs

6. Tax incentives for empowerment zones and the District of Columbia

7. Indian employment credit

8. Railroad track maintenance credit

9. Mine rescue training credit

10. Code Sec. 199 deduction for Puerto Rico

11. Five-year write-off of farm machinery

12. Accelerated depreciation for business property on an Indian reservation

13. And more