Tax Law Articles

No special use recapture on transfer of farmland to limited liability company or lease of farmland

In four identical private rulings, IRS has concluded that neither trusts’ transfers of farmland to limited liability companies (LLCs) in exchange for interests in the LLCs, nor the LLCs’ lease of the farmland to a partnership, will trigger recapture of special use valuation.

PLR 201129016, PLR 201129018, PLR 201129019, PLR 201129020

Beliveau Law Group: Massachusetts | Florida | New Hampshire

The attorneys at the Beliveau Law Group provides legal services for estate planning (wills and trusts), Medicaid (planning and applications), probate (estate and trust administration), business law (formation and operation), real estate (residential and commercial), taxation (federal and state), and civil litigation (in connection with these practice areas). The law firm has offices and attorneys in Naples, Florida; Boca Raton, Florida; Danvers, Massachusetts; Waltham, Massachusetts; Quincy, Massachusetts; Manchester, New Hampshire and Salem, New Hampshire.

Noncompete covenant connected with any stock acquisition is Sec. 197 intangible

The First Court of Appeals in Recovery Group, Inc., (CA 1 7/26/2011) 108 AFTR 2d ¶ 2011-5114, confirmed the Tax Court when it determined that a covenant not to compete, entered into in connection with the acquisition of a portion of the stock of a corporation that is engaged in a trade or business, is considered a “section 197 intangible,” within the meaning of I.R.C. § 197(d)(1)(E), regardless of whether the portion of stock acquired constitutes at least a “substantial portion” of such corporation’s total stock.

Beliveau Law Group: Massachusetts | Florida | New Hampshire

Tax Court approves valuation of homes and paintings

The Tax Court in Estate of Mitchell, TC Memo 2011-94, rejected IRS’s deficiency determinations and found that an estate properly determined the fair market value of the decedent’s real property and two paintings he had owned.

Beliveau Law Group: Massachusetts | Florida | New Hampshire

Chief Counsel Notice formally reverses litigation position on two-year window for equitable innocent spouse relief

A new Chief Counsel Notice (CCN), cc-2011-017 “Change in Litigating Position on the Two-Year Deadline to Request Section 6015(f) Equitable Relief”, formally reverses IRS’s litigation stance on the issue of whether an individual may request equitable relief under Code Sec. 6015(f) more than two years after IRS first acted to collect the liability from the individual. The CCN explains why IRS reversed course, and how litigators should apply IRS’s new position, namely that it will consider a request for equitable relief if it was filed with IRS during the Code Sec. 6502 period of limitation on collection or, for any credit or refund of tax, within the Code Sec. 6511 period of limitation. [Read more...]

IRS Reminds Taxpayers that the Aug. 31 Deadline Is Fast Approaching for the Second Special Voluntary Disclosure Initiative of Offshore Accounts

IRS has warned U.S. taxpayers hiding income in undisclosed offshore accounts that they are running out of time to take advantage of the soon-to-expire 2011 Offshore Voluntary Disclosure Initiative (OVDI), which will expire on Aug. 31, 2011.

The IRS reminded taxpayers that the 2011 Offshore Voluntary Disclosure Initiative (OVDI) will expire on Aug. 31, 2011. Taxpayers who come forward voluntarily get a better deal than those who wait for the IRS to find their undisclosed accounts and income. New foreign account reporting requirements are being phased in over the next few years, making it ever tougher to hide income offshore. As importantly, the IRS continues its focus on banks and bankers worldwide that assist U.S. taxpayers with hiding assets overseas.

Beliveau Law Group: Massachusetts | Florida | New Hampshire

IRS revises Notice 2011-53

IRS has revised Notice 2011-53 which provides the phased implementation of the Foreign Account Tax Compliance Act (FATCA) rules that expand the information reporting requirements imposed on foreign financial institutions (FFIs) and impose withholding, documentation, and reporting requirements with respect to certain payments made to specified foreign entities. The revised Notice provides that a withholding agent’s Code Sec. 1472(a) withholding obligations for payment to a non-financial foreign entity with respect to amounts described in Code Sec. 1473(1)(A)(i) (U.S.-source FDAP payments), will begin on Jan. 1, 2014.

The Beliveau Law Group: Massachusetts | Florida | New Hampshire

The attorneys at The Beliveau Law Group provides legal services for estate planning (wills and trusts), Medicaid (planning and applications), probate (estate and trust administration), business law (formation and operation), real estate (residential and commercial), taxation (federal and state), and civil litigation (in connection with these practice areas). The law firm has offices and attorneys in Naples, Florida; Boca Raton, Florida; Danvers, Massachusetts; Waltham, Massachusetts; Quincy, Massachusetts; Manchester, New Hampshire and Salem, New Hampshire.

IRS reissues guidance on processing tax payment extension requests based on undue hardship

IRS’s Small Business/Self-Employed (SB/SE) Division has reissued interim guidance for directors on the procedures for processing Form 1127, Applications for Extension of Time for Payment of Tax Due to Undue Hardship.

Reissuance of Procedures for Processing Form 1127 Applications for Extension of Time for Payment of Tax Due to Undue Hardship

The Beliveau Law Group: Massachusetts | Florida | New Hampshire

IRS has issued an Attorneys Audit Technique Guide for auditors reviewing attorney returns

IRS recently released a comprehensive Attorneys Audit Technique Guide (ATG) for auditors to use in reviewing returns of attorneys. It pinpoints the problem areas that IRS agents are instructed to probe for, explains in detail how attorney audits should be conducted, and lists the types of documents that should be requested and examined.

Attorneys Audit Technique Guide

The Beliveau Law Group: Massachusetts | Florida | New Hampshire

In PLR 201128017, certain contracts issued by life insurance company to investment account owners are annuity contracts

In PLR 201128017,IRS has privately ruled that contracts offered by a life insurance company to certain investment account owners that obligate the company to pay a benefit if a customer’s account falls below a specified value, are annuity contracts under Code Sec. 72. Accordingly, any such benefits paid to the customers will be considered “amounts received as an annuity,” and the fees paid by the customers for the contracts will be factored into their investment in the contracts for Code Sec. 72(b) purposes.

The Beliveau Law Group: Massachusetts | Florida | New Hampshire

Tax Court reaffirms that it has jurisdiction to hear whistleblower claims denied by the IRS

In Kasper, the tax court reaffirmed its decision in Cooper v. Commissioner, 135 T.C. 70 (2010), each Whistleblower Office letter that denies a whistleblower claim is a determination within the meaning of sec. 7623(b)(4), I.R.C. The Tax Court has jurisdiction to review the matter, because it is a final administrative decision.

The Beliveau Law Group: Massachusetts | Florida | New Hampshire

Warrants issued to shareholder not treated as “exercised” for Sec. 382 purposes

In PLR 1126002 IRS has privately ruled that warrants issued from a parent corporation to a shareholder as part of an exchange for the shareholder’s stock in the parent won’t be treated as exercised on the date of the exchange under Code Sec. 382(l)(3)(A)(iv) and Reg. § 1.382-4(d)(2). The shareholder also won’t be treated as owning any stock in the parent for purposes of Reg. § 1.382-3(j)(3)’s cash issuance exception immediately before the parent’s subsequent issuance and sale of common stock to independent investors in order to raise capital.

Source: Federal Tax Updates on Checkpoint Newsstand tab 7/13/2011

The Beliveau Law Group: Massachusetts | Florida | New Hampshire

IRS issues proposed regulations regarding Ex Parte Communications Between Appeals and Other Internal Revenue Service Employees

Notice 2011-62 provides a proposed revenue procedure that will update Rev. Proc. 2000-43, 2000-2 C.B. 404, which provides guidance regarding ex parte communications between Appeals and other Internal Revenue Service functions.

The Beliveau Law Group: Massachusetts | Florida | New Hampshire

Are you keeping an eye on your company’s cash?

Do you regularly monitor your company’s cash accounts? You should. Even if you leave the job to your bookkeeper or accountant, you should stay aware of where the cash is going and how the spending is approved. Along with inventory “shrinkage,” theft or improper expenditures of cash are among the chief sources of loss for small companies.

Periodically, you hear about a huge loss caused by an employee who’s been quietly embezzling cash for years. But many smaller cases are never noticed. And it’s not always employees at fault. In fact, the vast majority of employees are scrupulously honest and loyal. Outsiders can be stealing your cash too, by submitting false or inflated invoices that are paid without proper review. [Read more...]

What to do with your 401(k) savings when you change jobs

If you change jobs you may have an important decision to make – what to do with your 401(k) plan. You’ll have several choices. Unfortunately, the easiest choice is the worst choice: that is, to take a distribution from the old plan and put it in the bank. It may be tempting, because who couldn’t use some extra cash. But if you do, you’ll owe taxes on the balance and usually a 10% penalty as well. You’ll lose the benefits of future tax-deferred growth on your savings. And if you spend the money, you’ll have to start from scratch in saving for retirement. Instead, consider three options.

Ask your new employer whether you can roll your balance into the new company’s plan. If you can, arrange a direct transfer between plans. You may have to complete a probationary period before you can join your new company’s plan.
Explore whether you can leave your balance in the old plan, at least for a while. That removes the pressure for an immediate decision.
Roll over your balance into an individual retirement account (IRA). This avoids immediate taxes and lets your savings continue to grow tax-deferred. It also gives you maximum flexibility for future investments. You even have the flexibility to later convert into a Roth IRA. Be sure to ask for a “trustee-to-trustee” transfer to avoid any short-term tax risk. [Read more...]

IRS increases mileage rates

The IRS has increased the standard mileage rates to be used for computing the deductible costs of operating a vehicle for business or for driving for medical or moving reasons. The new rates will apply to driving from July 1, 2011, through December 31, 2011.

The revised rates are 55.5¢ per mile for business driving and 23.5¢ for medical and moving driving. The rate for charitable driving is fixed by law and remains at 14¢ per mile.

The rates for the first half of 2011 (January 1 through June 30, 2011) are unchanged: 51¢ per mile for business driving and 19¢ per mile for driving for medical or moving reasons.

Take time to check your withholding for 2011

Have you taken the time to check your income tax withholding for 2011? It’s true that there were no major changes in tax rates or deductions for this year. However, there are still several reasons why you might want to adjust your withholding.

For example, if you’ve bought a house for the first time, the deductible mortgage interest could cut your taxable income. That means you might need less tax withheld from your paycheck every month. Or if you refinanced last year, your interest deduction could be lower and you might want more dollars withheld. [Read more...]

Animal lovers win court case

If you provide care for stray or feral animals in your home for an IRS-approved charity, you may be able to take a tax deduction for your out-of-pocket expenses. A recent U.S. Tax Court judge ruled that a taxpayer who fostered feral and stray cats in her home could deduct amounts she spent for food, veterinarian bills, litter, and other unreimbursed expenses incurred to help the charity in its mission.

An important requirement for such expenses to be deductible: the taxpayer must keep records of the expenses, and if they exceed $250, the charity must provide a contemporaneous written acknowledgment of the expenses as a charitable donation. The Humane Society hopes to get the word out on this case, stating that thousands of members do volunteer work such as this and spend their own money to support the mission of local animal shelters and rescue groups.

Are unemployment benefits taxable?

Unemployment compensation can provide a welcome buffer while you’re transitioning to a new job. But with the help comes a tax effect, because the benefits provided under federal or state laws are usually includable in your income in the year you receive them.

As a result, depending on the amount of unemployment benefits you expect to receive, you may want to complete Form W-4V, Voluntary Withholding Request, to have federal income tax withheld from your benefits. The withholding rate is generally 10%. You can also ask the unemployment office to withhold state income tax. [Read more...]

Make the right pricing decision

In business, making pricing decisions is always tough – and even more so when the economy is slow and sales are slipping. It’s tempting to cut prices hoping to generate higher sales volume. But sometimes that just produces lower margins on a low volume. What do you do if you’re being squeezed by cost increases? Can you increase prices in a slow economy? How do you respond if your customers complain? Can you justify holding prices steady if your competitors cut their prices?

There are no easy answers, but running through a three-step process can help you make the right decision. [Read more...]

Employment tax penalties abated even though not first-time offense

In Custom Stair, the Court determined that Custom Stairs’ failure to make the deposits, in the context of the cascading penalties encountered here, was due in significant part to Hurricane Ivan, the 2008 economic collapse, and the practical fact of the cascading penalties themselves. [Read more...]

Tax Court ruling holds CEO could deduct legal fees incurred in defending against suit by disgruntled investor

In Ramig, TC Memo 2011-147, the Tax Court has concluded that a chief executive officer (CEO), who was also a board member and minority shareholder, could deduct legal fees in defending against charges that he made misrepresentations to an investor in the company. The legal fees were deductible under Code Sec. 162 as the ordinary and necessary expenses of his business of rendering services to his company as an employee. The IRS argued that the suit
was against Ramig personally, not as CEO of the company, and that the expenses of defending the suit were therefore unrelated to the conduct of a trade or business.

The Beliveau Law Group: Massachusetts | Florida | New Hampshire

IRS is redesigning Form 3800, General Business Credit

On its website, IRS has posted drafts of the 2011 Form 3800, General Business Credit, and its instructions. They reveal that IRS is in the process of redesigning Form 3800, General Business Credit, for the 2011 tax year. [Read more...]

Mark S. Gardner, TC Memo 2011-137

The Tax Court decided in Memorandum 2011-137 that a self-employed contractor who regularly retained the properties he built or improved for their rental income was considered an investor. [Read more...]

PLR 201119003

In PLR 201119003, the Internal Revenue Service ruled that certain purchases and sales between a Marital (QTIP) Trust and the surviving spouse’s step-children pursuant to a valid, arm’s-length settlement agreement will not trigger gifts among the parties and will not result in a disposition of the life estate in the QTIP trust under section 2019 of the Internal Revenue Code.

The Beliveau Law Group: Massachusetts | Florida | New Hampshire

Interim Guidance for Conducting Trust Fund Recovery Penalty Investigations in Cases Involving a Third-Party Payer

The IRS Small Business/Self-Employed (SB/SE) Division has issued an internal memorandum SBSE-05-0711-044 which provides interim guidance concerning Internal Revenue Code (IRC) § 6672 and its application to Trust Fund Recovery Penalty (TFRP) investigations in cases involving third-party payer arrangements. [Read more...]

Statute of Limitations is tolled if excess Roth IRA contributions are not reported on return

The Tax Court’s decision in Paschall, (2011) 137 TC No. 2 held that the statute of limitations for assessing the excise tax on excess contributions to a Roth IRA remains open where a taxpayer fails to report the contributions on his return. The excess contributions in the case were caused by an attempt to use a so-called “Roth restructure” transaction to disguise excess contributions to the taxpayer’s Roth IRA. The taxpayer also was held liable for additions to tax under Code Sec. 6651(a)(1).

The Beliveau Law Group: Massachusetts | Florida | New Hampshire

Tax Court has held in Baral that payments made to caregivers qualifies for medical deduction

The Tax Court has held in Estate of Lillian Baral, (2011) 137 TC No. 1 that payments made to caregivers for providing physician-ordered assistance and supervision to a patient suffering from dementia qualified as long-term care services under Code Sec. 7702B(c) and were thus deductible amounts paid for medical care under Code Sec. 213(d)(1)(C).

The Beliveau Law Group: Massachusetts | Florida | New Hampshire

Domestication of foreign corporation ruled a tax-free reorganization

In PLR 201126023 the IRS has ruled that (1) the domestication of a foreign corporation would be considered a reorganization under Code Sec. 368(a)(1)(F); (2) such domesticated company could elect to be considered an S corporation on the date it became domesticated; and (2) the trusts that wholly-own the domesticated corporation were eligible to elect to be treated as electing small business trusts (ESBTs).

Source: International Tax Updates on Checkpoint Newsstand

The Beliveau Law Group: Massachusetts | Florida | New Hampshire

IRS issues private letter ruling on disclaimer executed by an estate

In PLR 201125009, IRS has privately ruled that a disclaimer made by a decedent’s estate of her deceased husband’s retirement benefits (including benefits that would have been payable under a disclaimer trust set up by his will) was a qualified disclaimer under Code Sec. 2518 of those benefits that were not yet accepted. As a result, the disclaimed benefits passed outright to the couple’s children.

Margaret L. Cross-Beliveau, Esq., LL.M.

The Beliveau Law Group: Massachusetts | Florida | New Hampshire

FUTA surtax no longer in effect starting July 1, 2011

Beginning July 1, the 0.2% federal unemployment tax (FUTA) surtax is no longer in effect. The surtax was part of the 6.2% gross unemployment tax rate that employers pay on the first $7,000 of wages paid annually to each employee (6% permanent tax rate, 0.2% temporary surtax). The surtax had been in effect in every year since 1976, when it was enacted by Congress on a temporary basis. The FUTA tax rate, before consideration of state unemployment tax credits, is 6.0%, effective July 1, 2011. [Read more...]

A critical business question: Should you incorporate or not?

One of the first decisions you face as a new business owner is whether or not to incorporate the business. The biggest advantage of incorporating is limitation of your liability. Your responsibility for debts and other liabilities incurred by a corporation is generally limited to the assets of the business. Your personal assets are not usually at risk, although there can be exceptions to this general rule. The trade-off is that there is a cost to incorporate and, in some cases, tax consequences.

Should you incorporate?

You might not need to incorporate. Depending on the size and type of your business, liability may not be an issue or can be covered by insurance. If so, you could join millions of other business owners and operate as an unincorporated sole proprietor.

If you do decide to incorporate, you’ll face a choice of corporate forms. All offer limitation of your liability, but there are differences in tax and other issues. [Read more...]

Summertime tax tips

Summertime fun can be made even more enjoyable by adding tax savings. Here are some tax-saving ideas to consider.

• If you have summer travel plans and the primary purpose of your trip is business, you can deduct all the travel costs to and from your business destination and all other business-related costs even if you add on a few extra days for pleasure. You can’t deduct costs related to the pleasure portion. Including a spouse or friend on your trip is permissible, but you can’t deduct the additional costs for that person.

• If you itemize your deductions, you can deduct the mortgage interest and property taxes paid for your vacation home. A boat or RV can qualify as a vacation home if it has sleeping quarters, cooking facilities, and a bathroom. If a retreat also serves as rental property, you can control your tax deductions by changing the number of days you use it for vacation. [Read more...]

Look into the benefits of a solo 401(k)

Have you heard about solo 401(k) plans? The traditional type of 401(k) retirement plan is now available for self-employed individuals. And it lets you save more than other types of plans.

In the past, 401(k) plans were typically offered by larger corporations. Employees could make pre-tax contributions by payroll deduction. The company would then usually match a percentage of those contributions. Investments grew tax-free until withdrawn at retirement. One advantage of a 401(k) plan is the relatively large amount you can contribute each year – $16,500 in 2011 with an extra $5,500 catch-up if you’re 50 years old or older. [Read more...]

In Comm. v. Simmons, Court approves charitable deduction for donation of conservation easements on building facades

In Comm. v. Simmons, (CA DC 6/21/2011) 107 AFTR 2d ¶ 2011-966, the Court of Appeals for the District of Columbia Circuit, affirming the Tax Court, has held that a taxpayer was entitled to charitable contribution deductions for her donation of conservation easements on the facades of two buildings located in a historic district. The Court rejected IRS’s contention that her contribution wasn’t exclusively for conservation purposes, as required by Code Sec. 170(h)(1)(C), and that she failed to obtain qualified appraisals under Reg. § 1.170A-13(c)(3)(ii).

The Beliveau Law Group: Massachusetts | Florida | New Hampshire

Court of Appeals for the District of Columbia issues ruling in Intermountain Insurance Service of Vail, LLC, Thomas A. Davies, TMP, (CA DC 6/21/2011) 107 AFTR 2d 2011-964

In Intermountain, the Court of Appeals for the District of Columbia has reversed the Tax Court and upheld the regulations for Code section 6501(d)(1)(A) that treat a basis overstatement as triggering the 6 year limitations period for when a taxpayer omits from gross income an amount that is greater than 25% of the amount of gross income stated in the return.

In upholding the regulations, the DC Court of Appeals joins the Court of Appeals for the Federal Circuit and the Courts of Appeals for the Seventh and Tenth Circuits. The Fourth and Fifth Courts of Appeals have struck down the regulations.

Margaret L. Cross-Beliveau, Esq., LL.M.

The Beliveau Law Group: Massachusetts | Florida | New Hampshire

Fourth Circuit upholds IRS regulation on time limit for equitable spousal relief requests

The Fourth Circuit reversed the Tax Court and joins with the Third and Seventh Circuits upholding Reg. 1.6015-5(b)(1), which proves that a spouse must request equitable relief under Code Sec. 6015(f) no later than two years from the first collection activity against the spouse in Jones v. Comm., (CA 4 6/13/2001) 107 AFTR 2d 2011-930

IRS Commissioner Doug Shulman has directed the IRS to review the two-year period regulation noting that the courts are at odds over the two-year rule.

Margaret L. Cross-Beliveau, Esq., LL.M.

The Beliveau Law Group: Massachusetts | Florida | New Hampshire

Amendment to conform cafeteria plans deadline is June 30, 2011

The Patient Protection and Affordable Care Act (PPACA) redefined “medical expenses” for cafeteria plans so that an expense incurred for an over the counter medicine or drug is a reimbursable medical expense only if the medicine or drug is a prescribed drug or insulin. The PPACA became effective after December 31, 2010. Any amendment to conform a cafeteria plan to the PPACA requirements that are adopted no later than June 30, 2011 may be made retroactive for expenses incurred after December 31, 2010, or after January 15, 2011 for health FSA and HRA debit card purchases.

Margaret L. Cross-Beliveau, Esq., LL.M.

The Beliveau Law Group: Massachusetts | Florida | New Hampshire

Board of Assessors of Bridgewater vs. Bridgewater State University Foundation judgment rendered

Board of Assessor of Bridgewater vs. Bridgewater State University Foundation, No. 10-P-593, June 7, 2011, Ruling issued by Margaret L. Cross-Beliveau, Esq., LL.M.

The Massachusetts Supreme Court slip opinion was issued today in the Board of Assessor of Bridgewater vs. Bridgewater State University Foundation overturning the Appellate Tax Board’s decision to grant a tax exemption. The Appellate Tax Board concluded that the Bridgewater State University Foundation (foundation) was entitled to the exemption because the foundation allowed the Bridgewater State University (university) to use and occupy the property in accordance with the foundation’s charitable purposes which constituted occupancy of the property by the foundation within the meaning of the statute. [Read more...]

IRS raises threshold for imposing tax liens

The IRS recently announced that it will adjust its use of tax liens to collect back taxes. A federal tax lien gives the IRS a claim on a delinquent taxpayer’s property for unpaid taxes.

This change means the IRS won’t use a tax lien unless at least $10,000 in back taxes is owed; the previous threshold had been $5,000.

In addition, the IRS says it will “withdraw” more tax liens once the back taxes have been paid. A withdrawal removes the lien from the taxpayer’s credit record, whereas a lien “release” as previously used left the lien on the credit record for at least seven years. Having a tax lien on a taxpayer’s credit record can knock 100 points off the individual’s credit score. The IRS estimates that the new rules mean that “tens of thousands of people won’t be burdened by liens.”

“Tax Freedom Day” came later in 2011

“Tax Freedom Day” fell on April 12 in 2011, three days later than in 2010. According to the Tax Foundation, all the money earned by taxpayers in the first 102 days of 2011 will go to pay their federal, state, and local taxes.

Another statistic from the Tax Foundation: If the government were to collect enough taxes to fund all spending for 2011 (with no deficit), Tax Freedom Day would be May 23, 2011. That’s 41 more days of work to provide the additional $1.48 trillion of revenue needed.

Tax tips for your vacation home

Planning to rent out your vacation getaway? When it comes to taking advantage of the tax benefits, timing is an important factor. Here are two points to remember.

The fourteen-day-or-ten-percent test. The IRS applies this test to determine if you use your vacation home as a personal residence. If you stay in the home more than 14 days or 10% of the total days it’s rented in a calendar year (whichever is greater), the general rule is you’re using it as your home.

Why does it matter? Because treating a vacation home as your personal residence affects your rental deductions. You’d include all the rent you receive as income on your tax return. But related expenses are generally limited to the amount of that income, meaning you can’t offset other income with a loss. Note that time spent in your vacation home by family members and certain others can count as personal use. [Read more...]

Tax breaks can help when disaster strikes

Recent events here and abroad are reminders that disasters can occur at any time – often with staggering human and financial costs. If you’re an unlucky victim of a disaster, you may receive help from insurance and federal disaster aid. But the tax code also offers some relief. You may be able to take an itemized deduction for part of your loss. In tax terms, it’s a “casualty loss,” and it can also apply to events such as a car crash, a house fire, or theft. Here are the basics.

The loss or damage must be due to an unexpected and sudden event. Losses due to slow deterioration over the years, such as rot, rust, or insect damage, don’t qualify.
Your tax deduction won’t equal your total loss. You must subtract any insurance or other reimbursement. Then you must also deduct $100 for each loss and 10% of your adjusted gross income. [Read more...]

Consider the time value of money in making business decisions

Suppose you’re selling your business, and it’s worth $400,000. You’re offered $210,000 down and lump sums of $100,000 at the end of year one and year two. Should you take the offer?

Most people know that $1,000 now is worth more than $1,000 a year from now. Here’s why:

1. Inflation: In a year, a dollar will buy less than it would today.

2. Risk: Over time, the risk increases that some of the money owed you will not be paid.

3. Opportunity loss: Funds on hand could be invested and earning more money. [Read more...]

Estate taxes might not affect you, but you still need a plan

There’s good news if you’re concerned about estate taxes. For the next two years (2011 and 2012), the value of your estate that’s excluded from tax is set at $5 million. And the top rate on taxable estates is 35%.

The $5 million exemption is per person, thus a couple’s exemption is $10 million. Also notable in the law is the new portability of unused exemptions. Under prior law, couples frequently performed complex estate planning to take full advantage of the then $7 million exemption for couples. Now the law allows a deceased spouse’s estate to transfer any unused exemption to the surviving spouse without all the complex planning. [Read more...]

New law repeals expanded 1099 reporting rules

On April 14, 2011, President Obama signed legislation – the Comprehensive 1099 Taxpayer Protection and Replacement of Exchange Subsidy Overpayments Act of 2011 – repealing expanded reporting rules for businesses and landlords that had been created by laws passed in 2010.

Business reporting. The Form 1099 reporting rules were changed by the 2010 health care legislation. Under the Patient Protection and Affordable Care Act of 2010, every business, charitable organization, and governmental unit was required to file a Form 1099 for payments to any vendor or supplier of goods or services (other than a tax-exempt organization) totaling $600 or more for the year. Both the recipient and the IRS had to receive a copy of the Form 1099. These rules were scheduled to take effect for payments made after December 31, 2011. [Read more...]

Check the new rules for 2011 tax planning opportunities

Sunset was postponed last December, at least in the world of taxes. Many existing laws, which had been due to expire, or “sunset” at the end of 2010, were extended through 2012. At the same time, new rules that can impact your tax planning came into effect. With so many changes, you’ll want to make sure you understand the possibilities available to you as you undertake your tax planning for 2011. Here are some suggestions.

Business tax planning

There’s a new twist on an existing option for accelerated write-off of assets you purchase from September 9, 2010, through December 31, 2011. You can choose to expense 100% of the cost of new equipment, such as machinery, some vehicles, and computers, under expanded “bonus” depreciation rules. [Read more...]

April 18 is a major tax day

Monday, April 18, is a red letter day in the world of taxes. It is the deadline for filing certain returns and taking certain tax-related actions. Here are the major deadlines.

Filing 2010 income tax returns for individuals. If you cannot file your return by this deadline, be sure to file an extension request by April 18. The automatic extension (you don’t need to explain to the IRS why you need more time) gives you until October 17, 2011, to file your return. An extension does not, however, give you more time to pay taxes you still owe. To avoid penalty and interest charges, taxes must be paid by April 18. [Read more...]

Is it time to talk finances with your parents?

One day you may find yourself taking care of an elderly parent who is in declining physical or mental health. This can be stressful, both emotionally and financially. On the financial side, there are steps you may want to take to prepare for this situation.

Talk to your parents about their financial affairs. Parents may be reluctant to discuss their finances, but someone needs to know the names of their lawyer and accountant. Someone needs to know where their important financial papers are located. Chances are that much of the information will be in your parents’ heads, or scattered in various places around their house. [Read more...]

Filing threshold raised for nonprofit organizations

Tax-exempt organizations are required to file annual reports with the IRS. Those with gross receipts below a certain threshold amount can file an E-postcard rather than a longer version of Form 990. The IRS has just raised that threshold amount to $50,000, an increase over the previous filing threshold of $25,000.

The deadline for nonprofit filings is the 15th day of the fifth month after the organization’s year-end. For calendar-year organizations, the filing deadline for 2010 reports is May 16, 2011.

More options for tax refunds this year

Last year, you could use your tax refund to purchase U.S. Series I Savings Bonds in your name. This year, there are some new options for purchasing savings bonds with your income tax refund. You can buy savings bonds for yourself and up to two other individuals. Form 8888 is used to designate the person or persons in whose name the bonds are to be issued. The savings bonds will then be mailed to those individuals.

Up to $5,000 in bonds can be purchased in $50 increments. Also new this year: You may request a paper check for the balance of your refund if you prefer that to direct deposit.

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