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...
Wednesday, September 08, 2010
Thursday, September 02, 2010
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...
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...
Wednesday, August 25, 2010
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?
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?
Tuesday, August 24, 2010
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 .
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 .
Thursday, August 19, 2010
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!
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!
Monday, August 16, 2010
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 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.
Tuesday, August 10, 2010
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?
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?
Monday, August 09, 2010
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.
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.
Friday, August 06, 2010
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
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
Thursday, April 22, 2010
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:
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...
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.
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...
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