Debt Forgiveness Income (DFI) or Debt Discharge Income (DDI)
7-22-10

When a borrower receives a reduction from its outstanding loan, this borrower will have some debt forgiveness income (DFI).  The general rule is that DFI must be included in gross income for federal income tax purposes.

However, special relief breaks (not to be recognized as income) apply when DFI is recognized by a bankrupt or insolvent individual.  The amount to be excluded from income for an insolvent individual is up to the extent of his or her insolvency amount immediately before the debt forgiveness.  Thus, any DFI in excess of the amount of insolvency must be included in income.

Who is paying taxes?
9-1-09

Did you know the top 1% of the U.S. income earners paid about 38% of the nation's taxes?  Moreover, the top 10%, including the top 1%, paid about 70% of the nation's taxes.  Surprisingly, the bottom 50% of income earners only paid about 3% of the nation's taxes.

New sales tax deduction for vehicle purchases 
4-20-09

Taxpayers who buy a new car or several other types of motor vehicles this year may be entitled to a special tax deduction when they file their 2009 federal tax returns next year. The tax break is part of the American Recovery and Reinvestment Act of 2009.

Here are seven things you should know about this new deduction:

1.       State and local sales taxes paid on up to $49,500 of the purchase price of qualifying vehicles are deductible.

2.       Qualified motor vehicles generally include new (not used) cars, light trucks, motor homes and motorcycles.

3.       Purchases must occur after Feb. 16, 2009, and before Jan. 1, 2010.

4.       This is an above-the-line deduction and can be taken regardless of whether or not you itemize other deductions on your tax return.

5.       Taxpayers will claim this deduction when filing their 2009 federal income tax return next year.

6.       The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.

NJ net operating loss extended to 20 years
11-26-08

On November 24, 2008, New Jersey Gov. Jon S. Corzine signed legislation that extends from seven to 20 years the number of tax years in which corporation business taxpayers can deduct from taxable income net operating losses sustained in previous tax years. The change is applicable to net operating losses realized in privilege periods ending after June 30, 2009.

Deduction up to $250,000 and 50% bonus depreciation
7-3-08

Businesses can expense up to $250,000 (increased from $125,000) of the eligible fixed assets (equipment, fixtures and other fixed assets subject to Section 1245 depreciation recapture) under Section 179.  The full $250,000 can be claimed until $800,000 (increased from $510,000) of assets are put in to use in the 2008 tax year.  Purchases more than $800,000, a dollar-for-dollar reduction will apply until $1,050,000.

As for the bonus depreciation, companies can write off 50% of the cost of new assets placed in service in 2008.  Also, the maximum write-off of a new car for business is $10,960 for the first year, nearly $8,000 more than in 2007.

Tax planning for appreciated home
6-30-08

As you may know that there is a Section 121 gain exclusion if a taxpayer sells an appreciated home: up to $250,000 for a single taxpayer or $500,000 for a joint taxpayer.  However, did you know that a taxpayer can convert his or her home to a rental property in order to qualify a Section 1031 exchange (defer any capital gain tax by exchanging to another rental property)?  Yes, you can.  The key point here is to rent the appreciate home for about two years in order to quality for the Section 1031.  

In this tax strategy, you can also take out the tax-free proceeds during the Section 1031 exchange up to $250,000 for a single taxpayer or $500,000 for a joint taxpayer if a taxpayer lived two years out of the five-year period as required by Section 121.  Furthermore, a taxpayer can avoid the capital gain tax entirely if he or she bequests the appreciated home to a heir because the home tax basis becomes the market value at the time of death, thanks to the IRS basis step-up rule.

Taxpayers will be able to access their tax returns
5-19-08

IRS will unveil a secure Internet portal by the end of the year.  It will let filers view and print out three years of tax returns and other account information.

Late S corporation elections (Rev. Proc. 2007-62). 
10-9-07

Payroll tax deposit for single-member LLC
9-27-07

Starting in 2009, one-owner limited liability companies must deposit payroll taxes under the entity's name and tax identification number, instead of using the owner's Social Security number.

Mid-sized corporations need to e-file
8-29-07

Selling your home
8-27-07

During summer months many people sell their home and move to a new location.  Many of those individuals will make a profit on the sale and still will not have to pay a single dime of additional income tax to the IRS.  

Generally, you have made a profit if the selling price of your home is greater than the price you paid to purchase the home.  That profit, considered a capital gain, is subject to income tax.  However, under certain circumstances the law allows you to exclude all or part of that gain from your income – that is, you may not have to pay tax on the profit. 

This exclusion—up to $250,000 for individuals and $500,000 for married taxpayers filing joint returns—is not a once in a lifetime event.  The exclusion may be claimed each time that you sell your main home, but generally no more often than once every two years.

To qualify, you must meet both the ownership and use tests.

• Ownership Test: You must have owned the home for at least 2 years in the 5-year period ending on the date of the sale.
• Use Test: You must have lived in the home as your main home at least 2 years during the 5-year period ending on the date of the sale.

If you and your spouse file a joint return and both meet the use test, you normally will be able to claim the exclusion for married couples even if the ownership test is met by only one of you.

If you do not meet these tests, you may still be allowed to exclude a reduced amount of the gain realized on the sale of your home.  But you must have sold the home for other specific reasons such as serious health issues, a change in your place of employment, or certain unforeseen circumstances such as a divorce or legal separation, natural or man-made disasters resulting in a casualty to your home, or an involuntary conversion of your home. 

If you are entitled to exclude the entire gain from the sale of your home, you do not need to report the gain on your federal tax return. However, if you are not entitled to exclude the entire amount of the gain, use Schedule D, Capital Gains and Losses, and Form 1040 to report the total gain, the portion that can be excluded, and the portion that is subject to capital gains tax.

For more details and information see IRS Publication 523, Selling Your Home, available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Link:

• Link Publication 523, Selling Your Home

Deductible moving expenses
8-22-07

Did you recently move to another city for a new job or because your old job is now at a new location?  A tax break may be coming your way.

How far you moved and the amount of time you spend on the job will have a major impact on whether you qualify for the tax break.  Moves that are only short hops and jobs that are short-term or part-time generally do not qualify. However, if you can satisfy the distance and time tests then job-related moving expenses that you incur may be tax deductible.

You will meet the distance test if your new workplace is at least 50 miles further from your former home than your previous workplace was from that home.  For example, if your old job was 5 miles from your former home, your new job must be at least 55 miles from that home.

The time test requires you work full-time for at least 39 weeks during the 12 months immediately after your move. If you are self-employed, the time test requires you to work full-time for at least 39 weeks during the first 12 months and for a total of at least 78 weeks during the first 24 months after your move.  You can deduct your moving expenses on your tax return even though you have not met the time test by the date your return is due if you expect to meet the 39-week or the 78-week test as required. 

Members of the armed forces do not have to meet these tests if the move was due to a permanent change of station.

Reasonable moving expenses are deductible and include the costs of moving your household goods and personal effects to your new home. You can also deduct the expenses of traveling to your new home, including lodging costs.

Meals eaten while in transit between your old and new homes are not deductible as moving expenses.  No part of the purchase price of your new home may be deducted as a moving expense.  You cannot claim a moving expense deduction for expenses covered by reimbursements excluded from income.

Additional information on moving expenses, including an extensive list of deductible and non-deductible expenses, can be found in Publication 521, Moving Expenses, on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Education tax credits and deductions
8-13-07

It is Back-to-School time and maybe time for a tax break, too.  Whether you are paying for a college education or a teacher buying items for your classroom, education credits and deductions can help lower your tax bill.

The Hope Credit, Lifetime Learning Credit or the Tuition and Fees Deduction may help offset the cost of higher education for you, your spouse and your dependents.

The amount of these credits and deductions are based on the qualified education expenses, such as college or vocational school tuition and enrollment fees, that you paid during the year and may be limited by your modified adjusted gross income.  Room and board, insurance or personal living expenses are not considered qualified education expenses.

The Hope Credit, which is up to a $1,650 tax credit per student per year, is available for only the first two years of college or vocational school.  The Lifetime Learning Credit, which is up to a $2,000 tax credit per tax return, applies to undergraduate, graduate and professional degree courses and there is no limit to the number of years you can take this credit.

The Tuition and Fees Deduction, which is up to a $4,000 deduction from your income, applies to undergraduate, graduate and professional degree courses.  This deduction may be beneficial as the modified adjusted gross income limits are higher than the thresholds for the Hope and Lifetime Learning Credits.

Are you paying Student Loan interest?  You may be able to deduct up to $2,500 from your income per tax return.  Student Loan interest may be deducted even while your student is in school if you are paying the interest immediately rather than deferring the payments.

You cannot claim the Hope Credit, Lifetime Learning Credit and the Tuition and Fees Deduction for the same student in the same year.  You will want to choose the credit or deduction that provides the greatest benefit. However, you can claim the Student Interest Loan deduction and one of these other benefits simultaneously.
 
Students and parents of students are not the only ones who can claim a Back-to-School tax benefit.

As summer comes to an end, many teachers and other eligible educators are preparing for the start of the new school year. That preparation could include purchasing items for the classroom from personal funds. Be sure to keep your receipts. These out-of-pocket classroom expenses can be deductible.

As an educator, you may be able to deduct up to $250 for expenses paid for the purchase of books, computer equipment and classroom supplies. If you and your spouse are filing a joint return and both are eligible educators, the maximum deduction is $500.

To find out more about the deduction for educator expenses, including who qualifies for this deduction, check out the IRS Web site at IRS.gov. In the search field, type in the key words “educator expenses.” 

Additional information on the Hope and Lifetime Learning Credits, Tuition and Fees Deduction and Student Loan Interest Deduction is available in Publication 970, Tax Benefits for Education, found on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

New rules for charitable contributions
8-9-07

Did you make a cash contribution to your favorite charity? Have you recently spent a weekend cleaning stuff out of your garage or basement and then donated the items to a local charity?

Charitable contributions can be tax deductible, but you must have the proper records to support your deduction.  Due to the Pension Protection Act of 2006 the rules on recordkeeping for charitable contributions became a little more strict beginning in January 2007.

To deduct a charitable cash donation, regardless of the amount, you must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Acceptable bank records would include canceled checks or bank or credit union statements containing the name of the charity, the date and the amount of the contribution.

Under the previous rules, records such as personal bank registers, diaries or notes made around the time of the donation could often be used as evidence of cash donations. Personal records like this are no longer sufficient.

Here are some additional tips to help you deduct your charitable contributions on your 2007 federal tax return.

• Charitable contributions are deductible only if you itemize deductions using Form 1040.
• Contributions must be made to a qualified organization.
• Used clothing and household items such as furniture, linens and appliances must be in good condition.
• Vehicle donations are subject to special rules.
• To deduct charitable contributions of items valued at $250 or more you must have a written acknowledgment from the qualified organization.
• To deduct charitable contributions of items valued at $500 or more you must complete a  Form 8283, Noncash Charitable Contributions, and attach the form to your return.

More information is available on the IRS Web site at IRS.gov. A good resource is IRS Publication 526, Charitable Contributions, found on the web site or by calling 800-TAX-FORM (800-829-3676).

Links:

• Form 8283, Noncash Charitable Contributions
• Publication 526, Charitable Contributions

Installment agreement with IRS
8-2-07

The vast majority of Americans get a tax refund from the IRS each spring, but what do you do if you are one of those who have received a tax bill?  What do you do if you owe money to the IRS and can’t pay?

The IRS encourages you to pay the full amount of your tax liability on time.  If you get a bill for late taxes you are expected to promptly pay the tax owed including any additional penalties and interest.  It is often in your best interest to get a loan to pay the bill in full rather than to make installment payments to the IRS.  You can also pay the bill with your credit card.  The interest rate on a credit card or bank loan may be lower than the combination of interest and penalties imposed by the Internal Revenue Code.

You can pay the balance owed by credit card, electronic funds transfer, check, money order, cashier’s check, or cash.  To pay by credit card contact either Official Payments Corporation at 800-2PAYTAX (also www.officialpayments.com) or Link2Gov at 888-729-1040 (also www.pay1040.com).   To pay using electronic funds transfer you can take advantage of the Electronic Federal Tax Payment System (EFTPS) by calling 800-555-4477 or 800-945-8400 (also www.eftps.gov).

An installment agreement may be requested if you cannot pay the liability in full.  This is an agreement between you and the IRS for the collection of the amount due in monthly installment payments.  To be eligible for an installment agreement you must first file all returns that are required and be current with estimated tax payments.  If you are an employer you must be current with your federal tax deposits.

If you owe $25,000 or less in combined tax, penalties, and interest, you can request an installment agreement using the web-based application, Online Payment Agreement (OPA), found on the Internet at IRS.gov.  Or, you can complete and mail an IRS Form 9465, Installment Agreement Request, along with your bill in the envelope that you have received from the IRS.  The IRS will inform you within 30 days whether your request is approved, denied, or if additional information is needed. 

You may still qualify for an installment agreement if you owe more than $25,000, but a Form 433F, Collection Information Statement, may need to be completed.

If an agreement is approved, a one-time user fee will be charged.  The user fee for a new agreement is $105 or $52 for agreements where payments are deducted directly from your bank account.  For eligible individuals with incomes at or below certain levels, a reduced fee of $43 will be charged.

For more information about installment agreements and other payment options visit the IRS Web site at IRS.gov.  IRS Publications 594 and 966 also provide additional information regarding your payment options.  These publications and Form 9465 can be obtained on the IRS.gov Web site or by calling 800-TAX-FORM (800-829-3676).

Links:

• 2006 Form 433-F, Collection Information Statement
• IRS Publication 594, What You Should Know About The IRS Collection Process
• IRS Publication 966, Electronic Choices to Pay All Your Federal Taxes

Sec. 1031 does not apply to a second home
7-9-07

Not all property qualifies for tax-deferred exchange treatment.  Gain on a personal vacation home is taxed, the Tax Court says, nixing a taxpayer's attempt to defer gain on a personally used second home by swapping it for another house.  Only business or investment property qualifies for a tax-deferred swap.  

New limits on deducting SUVs in 2008
7-3-07

Limits on deducting SUVs are coming to close a tax loophole.  Only those weighting over 14,000 pounds can be expenses after 2007.  Currently, up to $25,000 of the cost of SUVs with loaded vehicle weights between 6,000 and 14,000 pounds can be expenses.  The balance of the cost is depreciated over six years.  In 2008, an SUV in that weight range, the first year write off will be limited to only $2,960.

Keeping tax records
4-16-07

You can avoid headaches at tax time by keeping track of your receipts and other records throughout the year. Good record-keeping will help you remember the various transactions you made during the year, which in turn may make filing your return a less taxing experience.

Records help you document the deductions you’ve claimed on your return. You’ll need this documentation should the IRS select your return for examination. Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property — should be kept longer.

In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your federal tax return:

• Bills
• Credit card and other receipts
• Invoices
• Mileage logs
• Canceled, imaged or substitute checks or any other proof of payment
• Any other records to support deductions or credits you claim on your return.

Good record-keeping throughout the year saves you time and effort at tax time when organizing and completing your return. If you hire a paid professional to complete your return, the records you have kept will assist the preparer in quickly and accurately completing your return.

For more information on what kinds of records to keep, see IRS Publication 552, Recordkeeping for Individuals, which is available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Sale of your home
4-3-07

If you have a gain from the sale or exchange of your main home, you may be able to exclude from income all or part of the gain.

This exclusion, up to $250,000 for individuals and $500,000 for married taxpayers filing joint returns, is allowed each time that you sell your main home, but generally no more frequently than once every two years.

To qualify for this exclusion of gain, you must meet ownership and use tests.

• Ownership Test: During the 5-year period ending on the date of the sale, you must have owned the home for at least 2 years.
• Use Test: During the 5-year period ending on the date of the sale, you must have lived in the home as your main home at least 2 years.

If you and your spouse file a joint return for the year of the sale, you can exclude the gain if either of you qualify for the exclusion. But both of you would have to meet the use test to claim the $500,000 maximum amount.

If you do not meet the ownership and use tests, you may be allowed to exclude a reduced maximum amount of the gain realized on the sale of your home if you sold your home because of health reasons, a change in place of employment, or certain unforeseen circumstances.  Unforeseen circumstances include, for example, divorce or legal separation, natural or man-made disasters resulting in a casualty to your home, or an involuntary conversion of your home. 

If you can exclude all the gain from the sale of your home, you do not report the gain on your federal tax return. If you cannot exclude all the gain from the sale of your home, use Schedule D, Capital Gains and Losses, of the Form 1040 to report it.

For more details and information see IRS Publication 523, Selling your Home, available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Home Office Deduction
3-16-07

If you use a portion of your home for business purposes, you may be able to take a home office deduction whether you are self-employed or an employee. Expenses that you may be able to deduct for business use of the home may include the business portion of real estate taxes, mortgage interest, rent, utilities, insurance, depreciation, painting and repairs.

You can claim this deduction for the business use of a part of your home only if you use that part of your home regularly and exclusively:

• As your principal place of business for any trade or business
• As a place to meet or deal with your patients, clients or customers in the normal course of your trade or business

Generally, the amount you can deduct depends on the percentage of your home that you used for business. Your deduction will be limited if your gross income from your business is less than your total business expenses.  If you use a separate structure not attached to your home for an exclusive and regular part of your business, you can deduct expenses related to it.

If you are self-employed, use Form 8829 to figure your home office deduction and report those deductions on line 30 of Schedule C, Form 1040. There are special rules for qualified daycare providers and for persons storing business inventory or product samples.

If you are an employee, you have additional requirements to meet. The regular and exclusive business use must be for the convenience of your employer.  For more information see IRS Publication 587, Business Use of Your Home, available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Donate appreciated property
8-15-06

If you donate appreciated capital gain property to charity, the amount of your deduction is the value of the property, rather that its original cost, and you are never taxed on the amount of appreciation.  In the case of most property donations, an annual deduction limit of 30% of AGI (adjusted gross income) applies.

NJ raised the corp. minimum taxes
7-12-06

For calendar year 2006 and thereafter, the minimum business corporation tax (currently, $500) is based on New Jersey gross receipts as follows:

-- if gross receipts are less than $100,000, the minimum tax is $500;

-- if gross receipts are $100,000 or more but less than $250,000, the minimum tax is $750;

-- if gross receipts are $250,000 or more but less than $500,000, the minimum tax is $1,000;

-- if gross receipts are $500,000 or more but less than $1,000,000, the minimum tax is $1,500; and

-- if gross receipts are $1 million or more, the minimum tax is $2,000.

Domestic manufacturing tax deduction
7-12-06

Those companies involved with manufacturing activities can take a 3% tax deduction of qualified production activities income (QPAI) or taxable income, whichever is less, subject to 50% of W-2 wages paid.  QPAI is determined by reducing the domestically produced gross receipts (DPGR) by the cost of goods sold allocable to  DPGR, other deductions and expenses directly allocable to DPGR, and a ratable portion of other expenses indirectly allocable to DPGR.  A company can claim the deduction using an IRS form 8903.

IRC section 199 was enacted as part of the American Jobs Creation Act of 2004 to help grow U.S. manufacturing jobs.

Buying U.S. real property from foreigners
7-3-06

If you buy a U.S. real property from a foreign owner, you should be aware that you need to withhold a 10% of sale proceed unless the sale proceed is less than $300,000.  If you, as a purchaser, do not withhold and pay the amount to the IRS, you may be liable for the 10% withholding amount.  For more information, visit www.irs.gov/businesses/small/international/article/0,,id=105000,00.html.

When will you get the tax refund?
4-14-06

Are you expecting a tax refund from the Internal Revenue Service this year? If you file a complete and accurate paper tax return, your refund should be issued in about six to eight weeks from the date the IRS receives your return. If you file your return electronically, your refund should be issued in about half that time — even faster when you choose direct deposit.

You can check on the status of your refund seven days after you e-filed your return or four to six weeks after mailing your return. There are several ways to check the status of your refund.  To use these applications, you will need the first Social Security number shown on the return, your filing status and the amount of the refund.

• Where's My Refund: The fastest, easiest way to find out about your current year refund is access IRS.gov and click on the “Where’s My Refund” link available from the home page
• Refund Hotline:  Call the IRS Refund Hotline at 1-800-829–1954
• TeleTax:  Call IRS TeleTax System at 1-800-829-4477. TeleTax’s refund information is updated each weekend -- if you do not get a date for your refund, wait until the next week before calling back

In some circumstances, you may not receive your refund as quickly as you expected. Refund delays can be caused by a variety of reasons. For example, a name and Social Security number listed on the tax return may not match the IRS records. You may have failed to sign the return or to include a necessary attachment, such as Form W-2, Wage and Tax Statement. Or you may have made math errors that require extra time for the IRS to correct.

Companies with payroll must have the workers' compensation insurance coverage
3-10-06

Recently, many states are sending notices to some companies with payroll to provide the workers' compensation insurance policy.  Any company with payroll must purchase the insurance coverage for their employee(s).  An exemption to this rule for the State of New York is when a company's employee is consisted of only one or two officers who own the company 100%.  There is a stiff penalty if a company does not have the workers' compensation insurance coverage for its employee(s).  

PAYING OR RECEIVING ALIMONY?

2-27-06

If you were recently divorced and are paying or receiving alimony under a divorce decree or agreement, you need to consider the tax implication for your 2005 federal income tax return.  Here are the general guidelines:

• Alimony payments received from your spouse or former spouse are taxable to you in the year you receive them. Because no taxes are withheld from alimony payments, you may need to make estimated tax payments or increase the amount withheld from your paycheck.
• Alimony payments you make under a divorce or separation instrument are deductible if certain requirements are met. Any payments not required by such a decree or agreement do not qualify as deductible alimony payments.
• Child support is never deductible. If your divorce decree or other written instrument or agreement calls for alimony and child support, and you pay less than the total required, the payments apply first to child support. Any remaining amount is then considered alimony.

If you paid or received alimony you must use Form 1040. You cannot use Form 1040A or Form 1040EZ. If you received alimony, you must give the person who paid the alimony your social security number or you may have to pay a $50 penalty.

Should I file a tax return?
1-7-06

You must file a tax return if your income is above a certain level.  The amount varies depending on filing status, age and the type of income you receive. 

For example a married couple, under age 65, generally is not required to file until their joint income reaches $16,400. However self-employed individuals generally must file a tax return if their net income from self employment exceeds $400.

See below for the filing requirements this year of filing the 2005 tax returns.

Even if you do not have to file, you should file to get money back if Federal Income Tax was withheld from your pay, or you qualify for any of these credits:

¡¤        Earned Income Tax Credit. The Earned Income Tax Credit is a federal income tax credit for eligible low-income workers. The credit reduces the amount of tax an individual owes, and may be returned in the form of a refund.

¡¤        Additional Child Tax Credit. This credit may be available to you if you have three or more qualifying children or if you have earned income that exceeds $10,750. The Additional Child Tax Credit may give you a refund even if you do not owe any tax.

¡¤          Health Coverage Tax Credit.  Limited to certain individuals who are receiving certain Trade Adjustment Assistance, Alternative Trade Adjustment Assistance, or pension benefit payments from the Pension Benefit Guaranty Corporation.

No penalty withdrawals of retirement plans
12-5-05

There is a 10% penalty on early withdrawals from IRAs and employer-sponsored retirement plans before age 59 1/2.  However, this 10% penalty doesn't apply the following situations:

• Distribution due to the disability of a participant
• Distribution less than or equal to deductible medical expenses
• Distribution to unemployed participant for health insurance premiums
• Distribution to qualified education expenses of the participant or spouse, or their children or grandchildren
• Distribution for the first-time purchase of a principal residence by the participant or spouse, or their children or grandchildren (up to lifetime limit of $10,000)
• Distribution upon conversion from traditional to Roth IRA
• Distribution to another qualified retirement plan though rollover

Repealing the AMT
11-8-05

In the spring of this year, legislation was introduced in the U.S. House (H.R. 1186) and in the Senate (S. 1103) that would repeal both the individual and corporate AMT (Alternative Minimum Tax).  In May, the Senate Subcommittee on Taxation and Internal Revenue Service Oversight held a hearing to discuss the individual AMT.  In July, President Bush's Advisory Panel on Federal Tax Reform recommended abolishing the AMT for individuals and possibly repealing the corporate AMT.

Buyer of real estate from foreign person
10-19-05

When a foreign person sells or exchanges U.S. real property, gain is realized and must be reported on a U.S. tax return.  However, it is the buyer who must withhold and remit to the IRS 10 percent of the gross purchase price paid to the foreign person for the property.  It is also the responsibility of the buyer to determine if the seller is a foreign person.  If the seller is a foreign person, and the buyer does not withhold or pay the 10 percent tax, the buyer is liable for the unpaid tax.

Standard mileage rates increased
9-12-05

The IRS has announced an increase in the optional standard mileage rates used by employees, self-employed individuals, and other taxpayers for the last four months of 2005. The rate has been increased to 48.5 cents per mile for all business miles driven between September 1 and December 31, 2005. This represents an increase of eight cents from the 40.5-cent rate in effect for the first eight months of 2005, as provided under Rev. Proc. 2004-64, I.R.B. 2004-49, 898. The increased four-month rate used for computing deductible medical or moving expenses is 22 cents per mile. The 14 cents-per-mile rate used for providing services to charitable organizations is set by statute and did not change.

Standard deduction amount increased (8-30-05)

The standard deduction for taxpayers who do not itemize deductions on Schedule A of Form 1040 is, in most cases, higher for 2005 than it was for 2004. The amount depends on your filing status, whether you are 65 or older or blind, and whether an exemption can be claimed for you by another taxpayer.

The basic standard deduction amounts for 2005 are:

• Head of household ?$7,300
• Married taxpayers filing jointly and qualifying widow(er)s ?$10,000
• Married taxpayers filing separately ?$5,000
• Single ?$5,000

The standard deduction amount for an individual who may be claimed as a dependent by another taxpayer may not exceed the greater of $800 or the sum of $250 and the individual's earned income.

Revised procedures on nonresident alien withholding
8-18-05

The IRS has revised procedures that nonresident aliens must follow to claim an exemption from withholding tax under the provisions of specific U.S. tax treaties. IRS Publication 519, U.S. Tax Guide for Aliens, contains the specific requirements by country that must be adhered to by nonresident aliens. A nonresident alien who is claiming exemption from U.S. tax must file Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual.

Ordinary tax deduction for investment theft losses
7-21-05

If a taxpayer has investment theft losses, 26 USC Section 165 (c)(2) allows an accelerated deduction of the full unrecoverable loss amount immediately against ordinary income, rather than the limited $3,000 annual capital loss deduction.

A taxpayer may qualify for a Section 165 deduction if:

• The losses were caused by theft, as defined by the statutes of the State in which the transaction took place.
• The loss (or a portion of it) is unrecoverable.
• The loss was in a taxable account. (Losses in IRAs, 401Ks and pension or profit-sharing plans DO NOT qualify.)
• The deduction is then taken in the year of discovery.

Vehicle donation to charities
6-6-05

The IRS has issued interim guidance on the deductibility and substantiation requirements relating to charitable contributions of qualifying vehicles. Generally, the deduction for donated vehicles is limited, with certain exceptions, to the actual sale price of the vehicle when it is sold by the charity. This guidance adds another exception to this rule, allowing the donor to claim a fair market value (FMV) deduction in cases where the charity either gives or sells the vehicle at a low price to a needy individual, provided this transfer furthers the charity's purpose of helping a poor person in need of a means of transportation.

Corporate officer liable for unpaid taxes
6-3-05

In a New York personal income tax case, a corporation's chief financial officer was found to be a person under a duty to collect and pay over withheld taxes, despite his claim that the board of directors and the executive committee severely restricted his authority to pay the taxes. Because his failure to pay over the taxes was willful, he was liable for a penalty equal to the unpaid amount. The officer was a trusted executive charged with the preparation of financial and cash flow statements. As a member of the board, he condoned its actions (including its decision not to pay taxes) and had to bear responsibility for them.

NYC - sales tax rate reduced from 8.625% to 8.375%
6-1-05

Starting from today, June 1, 2005, the sales tax rate for the City of New York has been reduced.  For the office announcement, visit: http://www.tax.state.ny.us/pdf/notices/n05_8.pdf.

Pay no capital gains tax - 1031 exchange
5-24-05

The best kept secret of not paying capital gains tax at the time of sale but rather deferring it to later using a 1031 exchange has been consistently used by a few real estate investors.  A 1031 exchange refers to IRS Code Section 1031.  This code permits investors to sell an investment or business property and defer the capital gains tax due on the sale by reinvesting the proceeds into another investment or business property within a specified time frame.  A new property should be identified within 45 days and purchased within 180 days following the sale of the first property.

Even though some investors heard about this benefit but could not apply it easily because of having a problem of finding a "qualified intermediary".  Our firm recently identified such an intermediary which is a reputable company doing the 1031 exchange over 30 years.  The fees for using such an intermediary came down a lot nowadays.  The total fees for completing the 1031 exchange may cost less than $2,000 to $3,000, depending upon the size of deal.

Sales tax deduction
2-26-05

The American Jobs Creation Act of 2004 authorized the sales tax deduction as an option for those who itemize deductions, letting them choose between deductions for state and local income or sales taxes. Taxpayers will indicate by a checkbox on line 5 of Schedule A which type of tax they’re claiming. The law provides this choice for Tax Years 2004 and 2005 only.

SUV deduction is now $25,000 for the first year
11-18-04

In 2004, Section 179 expensing allows a total first-year deduction of $102,000 for qualifying business property.  Business owners bought SUVs to take a tax deduction up to that amount in the first year of placement.  However, Congress recently enacted a law to change the deduction only up to $25,000 for SUVs in the first year of placement.

Pay taxes via the Internet
9-29-04

Up until now, the Electronic Federal Tax Payment System, (EFTPS), has been a service that businesses and individuals can use to pay all their federal taxes electronically, 24 hours a day, 7 days a week, via the phone or personal computer (PC) software. Now taxpayers can pay via the Internet.

If you are not a current user of EFTPS, visit the EFTPS website for information on enrollment, or call 1-800-945-8400 or 1-800-555-4477. Once enrolled it takes 2-4 weeks to validate the information.

Proposed rules on no FICA tax for students
6-7-04

The IRS proposes clarifying the student exception to the FICA (Social Security and Medicare) taxes for students employed by a school, college, or university where the student is pursuing a course of study. The proposed regulations clarify that whether the organization is a school, college, or university depends on the organization’s primary function. They also clarify that whether employees are students for this purpose requires examining the individual’s employment relationship with the employer to determine if employment or education is predominant in the relationship.

Avoid gift and estate taxes
2-2-04

Do you want to avoid the gift and estate taxes?

You and your spouse can each gift up to $11,000 to an unlimited number of individuals each year.  This allows a gift of $22,000 to each of your children per year without any of the gift being subject to the gift and estate taxes.  There is no tax return to be filed if your gift amount falls within this range.  Currently, there are no gift and estate taxes if one's life-time giving amount is up to $1.0 million and $1.5 million, respectively (more than that, the giver must pay either gift or estate taxes)

For your information, if you give someone money or property during your life, you may be subject to gift tax. The money and property you own when you die (your estate) may be subject to estate tax.

Tax saving idea: hire your child
11-26-03

If you operate your own business, a sole proprietorship or husband and wife partnership, you should consider employing your own child under 18 years old.  Any wages paid under this situation are exempt from Social Security, Medicare and federal unemployment taxes.  In addition, your child can avoid the federal income tax for the amount of self exemption and standard deduction, which is $7,750 for 2003.  Even if the wage amount goes over this $7,750, the tax rate would probably be 10% or 15%.

The child also can use the wage to contribute up to $3,000 in an IRA and take the further tax deduction.  You do not need to worry about the kiddie tax here because it is applicable to unearned income such as interest or investment income, not the wage income.

IRS provides help to combat money laundering
10-6-03

Money laundering, the process of moving illicit funds to disguise their
ownership or origin, is a 3 trillion dollar a year business.  "Laundered"
money helps conceal criminal activity such as terrorism, drug trafficking,
or illegal tax avoidance.

IRS's Taxpayer Education and Communication (TEC) office has created a team
of Anti-Money Laundering (AML) specialists to combat money laundering.
This new team will provide education on the registration, reporting, and
record keeping provisions of the Bank Secrecy Act (BSA) and Internal
Revenue Code Section 6050I.

If you are doing business in the money services industry and know who deal with
suspicious or large cash transactions, or who have foreign bank accounts
or you would like more information about the Bank Secrecy Act, you can
contact the TEC AML specialist in the New York, Alex Basden, at (212) 719-6764.

Bonus depreciation allowance
9-22-03

The Treasury Department and the IRS have issued temporary regulations
providing detailed rules on the additional first-year or "bonus"
depreciation allowance.
 
As a result of recent amendments to the Internal Revenue Code, taxpayers
may deduct an additional 30 or 50 percent first-year depreciation
allowance for certain depreciable property. This depreciation allowance is
in addition to the amount of depreciation otherwise allowable in the first
year.
 
In general, the regulations provide the requirements that must be met for
depreciable property to qualify for the additional first-year depreciation
deduction. Further, the regulations instruct taxpayers how to calculate
the additional first-year depreciation deduction and the amount of
depreciation otherwise allowable for the property.
 
The regulations are effective for property that is acquired by a taxpayer
after September 10, 2001 (for purposes of the additional 30 percent
first-year depreciation allowance), or acquired after May 5, 2003 (for
purposes of the additional 50 percent first-year depreciation allowance),
and placed in service before January 1, 2005 (or, in the case of certain
property, placed in service before January 1, 2006.)

2003 Tax Act
9-15-03

On 5/28/03, President Bush signed the Jobs and Growth Tax Relief Reconciliation Act of 2003. 

The Act reduces the rates for capital gains and dividends to 5% and 15% through 2007, and then to 0% and 15% in 2008, effective for capital gains starting 5/6/03 and for dividends starting 1/1/03. 

The Act also:

• Accelerates the child credit increase
• Marriage penalty relief
• Expansion of the 15% income tax bracket for married couples
• Expansion of the 10% tax bracket for 2003 and 2004
• Increases the alternative minimum tax exemption for the same period
• Authorizes a 50% additional depreciation deduction for 2003-2005
• Increases the Section 179 expensing amount to $100,000

Deductible tuition expense
9-2-03

An above-the-line deduction is allowed for qualified tuition and related fees associated with higher education of the taxpayer, taxpayer's spouse, or dependent (IRC Sec. 222).  Eligible tuition and fees are defined by cross-reference to IRC Sec. 25A, meaning that the eligible tuition for this deduction is the same as tuition for the Hope and Lifetime Learning credits.

The maximum tuition allowable for the deduction is $3,000 for the year 2003.  In 2004, the allowable deduction increases to $4,000, with a lower $2,000 limit applicable to taxpayers with greater modified adjustable gross income (AGI).  The $3,000 deduction is permitted for single and head of household filers whose modified AGI does not exceed $65,000, and for joint filers whose modified AGI does not exceed $130,000.

Modified AGI is adjusted gross income computed without regard to the higher education expense deduction and increased by the exclusions from gross income for foreign earned income and U.S. possessions income.  The same AGI limits apply for the $4,000 limit applicable in 2004 and 2005, except that a lower tier $2,000 deduction is permitted as modified AGI for single and head of household filers increases to $80,000, and as joint modified AGI increases to $160,000.

Student loan interest deduction
8-25-03

NYC offers tax amnesty to businesses
8-15-03

The New York City Department of Finance is offering an amnesty period for New York City business and excise taxes from October 20, 2003 through January 23, 2004.

Under the amnesty program, the Department of Finance will waive penalties and reduce interest for qualifying taxpayers. The amnesty, which is generally available for tax years or periods ending on or before December 31, 2001, includes the General Corporation Tax, the Unincorporated Business Tax, the Commercial Rent Tax and several other taxes.

The amnesty does not include real estate, personal income or sales and use taxes.  For more information visit:  New York City Tax Amnesty 2003 website

2003 business travel per diem rate
6-30-03

The IRS has released the domestic per diem rates for fiscal year 2003. The rates, which are set each year by the General Services Administration (GSA), are used by businesses to reimburse employees for business travel expenses. The standard per diem rate for fiscal year 2003 remains at $85 (i.e., $55 for lodging and $30 for meals and incidentals) for use in areas of the country that are not listed as designated destinations. Thirteen additional designated destinations have been added to the list for fiscal year 2003. The rates, lists of designated destinations, and other information are available on the GSA's website at www.policyworks.gov/perdiem.

Section 179 deduction
6-16-03

Normally, if a taxpayer buys property (equipment) for business, the property is depreciated (expensed) over many years.  However, the provisions of Internal Revenue Code Section 179 allow a taxpayer to deduct the total cost of property in the year of purchase.

Eligible property includes:

• Machinery and equipment
• Furniture and fixtures
• Most storage facilities
• Single-purpose agricultural or horticultural structures

Ineligible property includes:

• Buildings and their structural components
• Income-producing property (investment or rental property)
• Property held by an estate or trust
• Property acquired by gift or inheritance
• Property used in a passive activity
• Property purchased from related parties
• Property used outside of the United States

A taxpayer can deduct up to $25,000 under the section 179 deduction.

Bush tax proposals
2-13-03

President George W. Bush’s plan to stimulate the economy through new and accelerated tax breaks will benefit almost everyone who pays taxes, although some groups will see much more effect than others. The plan is designed to have both direct and predictable effects--lowering the taxes due--as well as indirect effects, such as bolstering stock prices and increasing business spending, which are more difficult to verify in advance.

The Bush plan is multifaceted. For individuals, it calls for eliminating taxes on shareholder dividends, increasing the child credit from $600 to $1,000, expanding the bottom 10-percent bracket, lowering tax rates for those brackets above 15 percent, and giving special relief to married taxpayers through an expanded 15-percent bracket and an increased standard deduction. For small businesses, it offers an increase in the amount of equipment purchases that can be immediately written off, rather than depreciated, from $25,000 to $75,000.

Bush also is proposing to extend unemployment benefits for an additional 13 weeks and to set up Personal Re-Employment Accounts of up to $3,000 that unemployed workers could draw on to pay for job training, child care, transportation and other costs associated with finding a new job.

Consider SEP for self-employed business
1-20-03

Now the deadline of setting up many retirement plans are expired as of December 31, 2002.  However, taxpayers still have time to set up a SEP (Simplified Employee Pension) plan until the date of actual filings of their business return or individual tax return, whichever is earlier.  The significant benefits of SEP are:

-fully tax deductible
-contributing up to the smaller of $30,000 or 15% of compensation (or earned income)
-no need to file the retirement plan tax returns
-easy to set up
-earnings are tax deferred until retirement
-contributions are managed in an IRA account

IRS offers free online filings for certain taxpayers
1-13-03

Many taxpayers, from those with low incomes to members of the military, will be able to file federal tax returns through online for free under a new IRS program launched on last Thursday.

Taxpayers making less than $30,000 who resides in six selected states and active military are eligible to file their tax returns through the Internet.

This IRS initiative which was developed with tax preparation software companies is to help the IRS to achieve 80% of tax filings to be done online by 2007.

IRS makes changes to taxpayer identification number
12-21-02

Resident and non-resident aliens applying for an Individual Taxpayer Identification Number must soon use a newly revised Form W-7.  The new application forms will request additional information. The applications are now available in both English and Spanish on <http://www.irs.gov/>.

The English language version, Form W-7, and the Spanish language version, Form W-7 (SP) are also available at IRS offices.  Along with their application, applicants must also resubmit documents proving their alien status and their identity. Individuals can submit their application at an IRS Taxpayer Assistance Center (TAC), mail the documentation to:

Internal Revenue Service
Philadelphia Service Center, ITIN Unit
P. O. Box 447
Bensalem, PA 19020

Or process the application through an IRS authorized acceptance agent.  

The IRS issues the nine-digit numbers to individuals who must have a U.S. taxpayer identification number but who aren't eligible for a social security number.  ITINs are for tax purposes only and don't affect immigration status, authorize work in the U.S. or provide eligibility for social security benefits or the Earned Income Credit.

Free online filings
12-9-02

Under an agreement between the IRS and Free File Alliance, LLC, up to 78 million taxpayers will be offered free online return preparation and filing services by tax software companies (Treasury Department News Release PO-3587, 10-30-02, Notice of IRS's Intent to Enter into an Agreement with Free File Alliance, LLC). Additionally, the IRS will provide links to these free services through irs.gov and firstgov.gov for taxpayers.

Tax deduction for car donation
11-18-02

Revenue Ruling 2002-67 clarifies that a taxpayer may donate a car to a charity's authorized agent and get a supporting receipt from that agent.  The taxpayer may rely on an established used car pricing guide, such as, The Blue Book, to determine the fair market value of the donated vehicle.  For details, go to the Revenue Ruling at  http://www.irs.gov/pub/irs-drop/rr-02-67.pdf.

State "use" taxes
10-22-02

Use taxes ?i.e., taxes imposed by states in place of sales taxes ?are often overlooked. Be sure your business is not hit with an unpleasant surprise in the form of unexpected enforcement of use tax liability.

Here is how use taxes work:

Example: XYZ Co., located in State A, purchases equipment from a Web-based company located in State B. XYZ does not pay any sales tax on the transaction. XYZ Co. may be liable for a use tax, payable to State A, depending on the laws of State A. Had sales tax been paid on the purchase, use tax would not be owed.

TIP: When making out-of-state purchases, keep receipts showing that sales tax was paid. If no sales tax is paid on an out-of-state purchase, be sure to stay informed as to whether use tax is owed to your state on the purchase.

Note: There may be exemptions from use tax liability under certain circumstances.

New IRS audit priorities
10-3-02

Efforts are underway at the IRS to focus its audit resources on key areas of non-compliance, such as offshore credit card users; high-risk, high-income taxpayers; abusive schemes and promoter investigations; and unreported income. These efforts will center first on promoters and then
on participants involved in the various schemes.

The IRS will tackle long-standing tax problems with a full scope of tools and techniques ranging from summons enforcement, injunctions and criminal investigation of promoters to civil audits of participants. Get all the facts at http://www.irs.gov/pub/irs-news/fs-02-12.pdf.

TIN (Tax Identification Number) applicant can use P.O. box
10-3-02

In a recent Service Center Advice (SCA 200231013), IRS said that a Service Center could not reject a properly prepared Form W-7 (application for a Social Security Number) because the applicant listed a Post Office Box number, instead of a street address.

IRS interest rates stay the same
9-17-02

IRS recently announced that interest rates on overpayments and underpayments will remain the same for the quarter beginning October 1, 2002. The rates will remain at 6% for overpayments (5% for corporations), 6% for underpayments, and 8% for large corporate underpayments. The interest rate for that part of a corporate overpayment exceeding $10,000 will be 3.5%. (IR-2002-95; Rev. Rul. 2002-59)  

Tax deduction of $2,000 for buying certain cars
9-13-02

The IRS has certified the first hybrid gas-electric automobile as being eligible for the clean-burning fuel deduction.  Purchasers of a new Toyota Prius for model years 2001, 2002 and 2003 will be able to claim a deduction of $2,000 for the year that the vehicle was first put into use.  Get more details at http://www.irs.gov/pub/irs-news/ir-02-93.pdf.  

In addition, the IRS has certified two more hybrid gas-electric automobiles as being eligible for the clean-burning fuel deduction.  Purchasers of a new Honda insight for model years 2000, 2001 and 2002 and purchasers of a Honda Civic Hybrid for model year 2003 will be able to claim a deduction of $2,000 for the year that the vehicle was first put into use.  Get the details at http://www.irs.gov/pub/irs-news/ir-02-97.pdf

Tax bill proposes investor tax breaks
9-1-02

An anonymous Congressional staff member said tax proposals being considered by House Republicans include higher capital loss deductions, indexing the current $3,000 capital loss deduction for inflation, speeding up the phase-in of 2001 TRA’s 401(k) breaks, and raising the age when mandatory withdrawals must begin for 401(k) plans.

Minimum tax for NJ corp. rises to $500
8-15-02

The Business Tax Reform Act of New Jersey increases the minimum tax from $200 annually to $500 for tax year 2002 and thereafter $2,000. S corporations, professional corporations and pass-through entities are exempt from the increased taxes.

Justice Department filed suit against KPMG
7-17-02

The Justice Department recently filed suit against KPMG and BDO Seidman to force the firms to disclose information about all tax shelters marketed to clients since 1998. Justice claims the firms have not provided all the documents requested by the IRS in connection with a recent tax-shelter probe. The tax code provides that all tax shelters must be registered with the IRS.

Supreme court agrees with IRS in restaurant tips
7-2-02

In a case that the restaurant industry argued with the IRS over underreported tips. The restaurant industry argued that the IRS cannot assess taxes on the restaurant's employers without proving that the restaurant’s employees actually underreported tips. The appellate courts were split on the issue, so the U.S. Supreme Court agreed to hear a case. It recently announced its decision in favor of the IRS that the restaurant owners will be also responsible for underreported tips by their employees.

House voted retirement savings permanent
7-2-02

The U.S. taxpayers must report to IRS by filing the "Report of Foreign Bank and Financial Accounts" (Form TDF 90-22.1) by June 30, 2002. This form is required to be filed by U.S. citizens and residents who have financial interest in or signature of authority over any financial accounts, including bank, securities, or other types of financial accounts in a foreign country, if the total amount exceeds $10,000 at any time during 2001. There will be penalties for non-filing of the Form 90-22.1.

Foreign bank accounts must be reported by June 30
6-24-02

The U.S. taxpayers must report to IRS by filing the "Report of Foreign Bank and Financial Accounts" (Form TDF 90-22.1) by June 30, 2002. This form is required to be filed by U.S. citizens and residents who have financial interest in or signature of authority over any financial accounts, including bank, securities, or other types of financial accounts in a foreign country, if the total amount exceeds $10,000 at any time during 2001. There will be penalties for non-filing of the Form 90-22.1.

Senate rejects estate tax repeal
6-17-02

The U.S. Senate blocked a proposal to permanently repeal estate taxes. Congress approved a phaseout of the estate tax last year, and President Bush had been pushed to passage of a permanent repeal of estate taxes.

House passes estate tax repeal
6-10-02

Last week, the House passed a bill making repeal of the estate tax permanent, 256 to 171. Under the Tax Relief Act of 2001, the estate tax repeal was to be phased out by 2010. Under the 2001 TRA, however, all of the new law’s amendments, including estate tax repeal, would have expired after 2010. The House bill, the "The Permanent Death Tax Repeal Act Of 2001" (H.R. 2143) would remove the sunset provision of the 2001 TRA, thus allowing for permanent estate tax repeal.

IRS publication on 2002 tax act
6-10-02

IRS recently issued new Publication 3991, "Highlights of the Job Creation and Worker Assistance Act of 2002." The Publication contains a useful summary of the 2002 Act, which may serve to clarify some provisions. Click here to read the entire article.

Anti-tax-shelter bill introduced
5-16-02

Senate Finance Committee Chair Max Baucus (D-Mont.) and ranking member Charles E. Grassley (R-Iowa) introduced the Tax Shelter Transparency Act last week. The bill, designed to expose tax avoidance schemes and penalize participants, incorporates many of Treasury’s recommendations to the Committee. The bill would require "adequate disclosure of transactions which have a potential for tax avoidance and evasion." Briefly, the legislation would split shelter transactions into categories — Reportable Listed Transactions, Reportable Avoidance Transactions, and Other Transactions. It would target taxpayers, shelter promoters, and tax advisers, and would levy a strict-liability, flat penalty of $200,000 per large taxpayer ($100,000 for small taxpayers) who fail to disclose RLT transactions, and commensurate penalties for failure to disclose RAT transactions. Shelter promoters would also be hit with penalties for failure to provide lists of participants.

Successful anti-tax shelter project
5-7-02

Under IRS’s 120-day Tax Shelter Disclosure Initiative, taxpayers were asked to reveal questionable transactions and the names of tax shelter promoters to the IRS; in return for the disclosures, IRS agreed to waive certain penalties. IRS says that so far, 577 taxpayers have taken advantage of the program; the disclosures relate to 947 tax returns, and involve more than $16 billion in claimed losses or deductions. Additional disclosures are still coming in. IRS also received leads to the names of abusive tax shelter promoters. IRS is working with the taxpayers on the tax issues involved, and is also pursuing the tax shelter promoters.

Upcoming high court decision on tips
5-1-02

The U.S. Supreme Court has heard arguments as to whether IRS can make an assessment of an employer's share of FICA taxes based on an estimate of the employees' unreported tips. The taxpayer is America’s oldest Italian restaurant, San Francisco’s Ristorante Fior D'Italia. The Supreme Court’s decision could affect all restaurants — and other businesses — in which employees receive tips.

Take an advantage of IRA
3-27-02

A taxpayer should consider open up an IRA (Individual Retirement Account) in order to reduce the tax payment or increase a tax refund. Generally speaking, when a taxpayer and his or her spouse can contribute to an IRA for $4,000 ($2,000 each), or $6,000 ($3,000 each) for 2002, with the tax bracket of approximately 20%, they can save $800 (=$4,000 x 20%) of taxes. This means that the taxpayers only contributed $3,200 of their own money and the government contributed $800 for them. Initially, the taxpayers earned 25% (=$800 / $4,000). Well, you have to pay taxes on these amounts probably at the lower tax rates when you and your spouse retire but it is much better to have $800 than lost forever. In addition, the earnings on yearly contribution of $800 for next 20 or more years can be substantial.

S Corp. shareholder's services and wages
3-19-02

If an S Corporation shareholder is also a corporate officer for that corporation and performs significant services, any payments for such services, no matter how described, constitutes "wages." The payment amounts are subject to FICA (Social Security Taxes) and FUTA (unemployment) taxes and income tax withholding.

Senate proposes permanent repeal of estate tax
2-20-02

Last year, through the 2001 Economic Growth and Tax Relief Reconciliation Act, the estate tax exemption amount increases until 2009 and the estate tax is to expire for one year in 2010. A Senate amendment to a recent bill asks for the repeal of the estate tax become permanent. The one year repeal in 2010 will not become permanent unless a specific legislation passes by the both houses.

Avoid unexpected tax on loans to your corporation
2-12-02

You probably know you can be taxed on money you take out of your corporation. But not all corporate owners know they can be can be taxed on money put into the corporation, if it's a loan.

Stockholders who lend to their corporations are expected to charge interest on the loan at the market rate. Those who charge less, or nothing, can be taxed as if they charged at a rate periodically determined by IRS under a federal law. Specifically, the difference between that rate and the lesser (or zero) rate actually charged by the stockholder is taxable to the stockholder as interest income-and the corporation is allowed a corresponding deduction. This "below market loan" rule is triggered once the total loan balance goes over $10,000. Paying your corporation's bills, without getting reimbursement, also counts as a loan.

IRS agents are alerted to such loans by the corporation's tax return, which asks about "Loans from stockholders."

TIP: Review any loans or expense advances to your corporation. Consider whether the outstanding balance should be reduced to $10,000 or less.

TIP: You may want to convert all or part of the loan to a capital contribution or purchase of stock. Consider seeking professional advice on how your business should be capitalized.

TIP: You might decide to regularize the transaction by fixing an interest rate and payment schedule. Your tax advisor can suggest an acceptable interest rate that will stop IRS from taxing you at a higher rate later should interest rates rise while the debt is outstanding.

Note: Loans to unincorporated businesses normally aren't subject to this below-market-loan rule.

No more benefit of stock option for tax?
2-7-02

Two senators who are currently investigating the collapse of Enron will introduce a bill to stop deducting the cost of stock options for the tax purpose while they are not reflected on the financial statements. Thus, this legislation will curtail the off-balance-sheet liability somewhat. Currently, companies are allowed to deduct the cost of stock option for the tax purpose without reflecting it on the financial statements.

Status of tax stimulus package
1-29-02

The Senate continues to debate its version of the economic stimulus plan. But even if the House and Senate bills go to conference, the likelihood that a stimulus package will pass becomes slimmer as time passes and momentum diminishes. In fact, Federal Reserve Board Chairman Alan Greenspan recently expressed doubts about the continued necessity for a stimulus package, in light of recent indicators showing a strengthening economy.

Delay paying tuition until 2002
12-28-01

Finally, paying tuition becomes a tax deductible item starting from January 1, 2002. A new federal rule allows families earning less and equal than $130,000 to deduct up to $3,000. This deduction is not included in itemized deductions. For single, the earnings limit is $65,000 or less.

Tax free gift increases to $11,000 in 2002
12-12-01

The IRS confirmed the tax free gift amount will increase from $10,000 to $11,000 in year 2002. This means that you and you spouse can give $22,000 to a child to avoid your high tax bracket, if this applies to you. Donors may give this amount each year without any limitation.

Selling home and tax issues
11-27-01

If you sell your main home, you will probably be able to exclude all or part of any profit you make on the sale for federal income tax purposes. This means that, if you qualify, you will not have to pay tax on the profit, up to the limit discussed below. To qualify, you must meet the "ownership" and "use" tests described here.

Amount of Exclusion

You can exclude the entire profit on the sale of your main home up to:

• $250,000, or
• $500,000, if all of the following apply: (1) you are married and file jointly for the year, (2) either you or your spouse meets the ownership test, (3) both you and your spouse meet the use test, and (4) neither you nor your spouse excluded gain from the sale of another home in the two-year period before sale.

Ownership and Use Tests

You can claim the exclusion if, during the five-year period ending on the date of sale, you have:

• Owned the home for at least two years (the ownership test), and
• Lived in the home as your main home for at least two years (the "use" test).

The two years of ownership and use during the five-year period don't have to be continuous. You meet the tests if you can show that you owned and lived in the property as your main home for either 24 full months or 730 days during the five-year period. Short temporary absences, such as vacations, are counted as periods of use, even if you rent out the property during that time.

Caution: Loss on sale of your home is not deductible.

Standard mileage rates for 2002
11-16-01

The standard mileage rates used to calculate deductible automobile costs for business, charitable, medical or moving expense for 2002 have been issued. (IR-2001-106, Rev. Proc. 2001-54). The new rates are as follows: 36.5 cents per mile for business purposes (an increase of 2 cents over the 2001 rate), 14 cents per mile for providing services to a charitable organization, and 13 cents per mile for medical or moving expenses (an increase of one cent over the 2001 rate).

Mailings during anthrax disruptions
11-16-01

Due to the anthrax-related shut-down of the United States Postal Service facility serving the U.S. Tax Court, the last delivery of U.S.P.S. mail to the court was on October 19, 2001. It is not known when U.S.P.S. service will resume. However, as long as mail sent to the Tax Court bears a legible U.S.P.S. postmark within the applicable deadline, it will be considered timely even if received after the due date.

Life insurance benefits are tax free
11-12-01

The death benefit from life insurance is tax exempt. Thus, life insurance is one of the best assets when considering conserving an estate. Life insurance proceeds (benefits) on an estate owner become liquid immediately upon the owner's death. Therefore, it could be used to pay estate taxes, preventing a forced sale of other estate assets.

House approves a economic stimulus plan
11-9-01

The House narrowly passed the Economic Security and Recovery Act of 2001 (HR 3090), calling for nearly $100 billion in tax breaks next year. The vote was 216 to 214, mostly along party lines. The bill would put money in taxpayers pockets to spend and encourage businesses to invest more in their companies and create more jobs. The bill now goes to the Senate, where it faces opposition.

IRS's concern over S corp. distributions
10-24-01

Distributions from an S corporation are not subject to self-employment tax (so called Social Security and Medicare taxes). Thus, owners of S corp. try to take the net income of S corp. through distributions, instead of wages (through payroll and also known as W-2 income). This way, the owners can avoid the self-employment tax which is levied at 15.3%.

The IRS is fully aware of this abuse by S corp. shareholder(s) whose compensation is unreasonably low or none. The IRS can look for this abuse by reviewing Forms 1120S by locating companies with large distributions with low or no wage compensation. Especially those companies with providing services by their owners are at higher risk if compensation is not adequate for their services.

The reasonable compensation is good for the shareholder(s) for the future. The self-employment tax is for the future benefit of social security. Therefore, avoiding totally by not paying any self-employment tax is not a good retirement planning.

Crime to carry $10,000 or more in cash
10-18-01

The House approved legislation by 412 to 1 to make it a crime to "secretly" carry $10,000 or more in cash across U.S. borders.

Tax liabilities from merger
10-9-01

IIn Eddie Cordes, Inc., TCM, the Tax Court ruled that the surviving corporation of a corporate merger was liable as a transferee at law for the merged corporation’s tax liability. The merger agreement said the taxpayer assumed all liabilities of the merged corporation, so transferee liability arose from contractual obligations under the merger agreement and by operation of Oklahoma law. The taxpayer/transferee argued that its liability was limited to the value of the assets received in the merger, but did not meet its burden of establishing what that value was.

IRS help line for victims of terrorism
10-4-01

IRS has a toll-free number devoted to questions by taxpayers who cannot meet federal tax obligations due to the September 11 attacks. The number, 1-866-562-5227, is accessible Monday through Friday from 7:00 a.m. to 10:00 p.m.

Tax relief for those affected by terrorism
9-18-01

IRS and Treasury provide tax relief for taxpayers who cannot pay federal taxes because of the terrorist attacks; relief is also extended to other taxpayers affected by the attacks—regardless of location—including relief workers. More...

Tax deadlines postponed
9-18-01

Any federal tax due date that falls between September 10, 2001 and September 24, 2001 has now been postponed by the IRS to September 24, 2001. The postponement applies to the filing of returns, claims for refund, and other tax documents, as well as to tax payments (including estimated tax) and the filing of elections. Note that the postponement does not apply to federal tax deposits.

Tax credits vs. deductions
9-13-01

Many taxpayers are uncertain as to the difference between a tax credit and a tax deduction. Basically, a credit reduces your tax while a deduction only reduces the income that is subject to tax. The credit generally puts more money back in your pocket than a deduction of an equal amount.

Deductions are generally more valuable to high-bracket taxpayers than to low-bracket taxpayers. On the other hand, credits are more valuable to low-bracket taxpayers, since they make up a larger portion of the tax owed.

Example: Taxpayers in the 35% tax bracket would save $350 in taxes if they made a $1,000 charitable contribution (a deduction), while taxpayers in the 15% bracket would save only $150. (This assumes that their itemized deductions are more than the standard deduction, thus making it worthwhile to itemize deductions—a pre-requisite for benefiting from most deductions.) If instead they have a $1,000 credit, both taxpayers would save $1,000.

No Internet tax
9-6-01

A U.S. House of Representatives panel voted earlier this month to bar states from taxing Internet access and extend a ban on other Internet-specific taxes for five years.

40,000 tax returns lost
9-5-01

The results of a preliminary IRS inquiry show that about 40,000 tax-due returns, extension requests, and estimated tax payments were lost by the Mellon Bank, which operated the IRS's Pittsburgh Processing Center post office box. Treasury is now investigating, and estimates that it may take six months before all the details are known.

If an IRS agent calls, get it in writing
8-29-01

IRS agents are required to notify you in writing if your tax return is to be examined. It seems, however, that some Agents are telephoning taxpayers selected for audit prior to sending a written notice. If you receive this type of call from an Agent, do not get into any discussion with the caller because:

• You have no way of knowing if the caller is really an IRS Agent;
• You may inadvertently divulge information that the Agent is not entitled to; or
• You may make an offhand comment that might be misinterpreted by the Agent, causing him or her to adopt a position that will take considerable time and effort to overcome.

TIP: If someone claiming to be an IRS Agent calls, saying that your return has been selected for audit (or for any other reason), ask for written notification. If you receive it, talk to your tax advisor before proceeding further.

You will receive a check from IRS
5-17-01

Under new tax law signed by President Bush on June 7, the Treasury will send checks to most taxpayers this year as an advance payment of a 2001 tax credit.

The IRS will compute the amount for each taxpayer based on the 2000 tax return and send a letter describing the payment amount and the week taxpayers can expect the check. The IRS will also mail letters of explanation to taxpayers who are not eligible for the advance payment.

Taxpayers will figure the credit on the 2001 tax return. Those who did not get all their credit as an advance payment will claim the difference as a nonrefundable credit on the 2001 return. Taxpayers should keep the letter from the IRS with their other tax records for 2001. Detailed information about the advance payment is available on the IRS web site at http://www.irs.gov/ind_info/apinfo/index.html.

Joint return
5-17-01

A joint return may be filed by a husband and wife even though one spouse has no income or deductions, but only if they are not legally separated and neither is a nonresident alien at any time during the year.

Automatic extensions by phone or computer
4-4-01

People who need more time to complete their forms will find it easy to extend their filing deadline -- they don't need an excuse, or even a stamp. Automatic four-month extensions are now available by phone or by computer, as well as through the paper Form 4868. Those getting extensions may also pay any projected tax due electronically, although payment is not required to obtain an extension. Taxpayers must make their requests by the normal filing deadline. The IRS expects eight million extension requests this year. The IRS will open a special toll-free phone line for extension requests on April 1. The number is 1-888-796-1074. For more information, visit the IRS web site at http://ftp.fedworld.gov/pub/irs-news/ir-01-37.pdf.

Senate passed education tax benefits
3-29-01

The Senate Finance Committee approved to expand a law benefiting many workers whose employers provide education aids. The current law is to expire December 31 and allows $5,250 a year of employer reimbursements for undergraduate courses. However, the new law would extend permanently and also applies to both undergraduate and graduate school. Another provision is to increase the contribution limits from $500 to $2,000 on the education individual-retirement accounts.

What is an S corporation?
3-22-01

An S corporation is a term used by the IRS. It is a corporation but when it comes to do the tax, the corporation is treated differently so that virtually no corporation taxes are paid to either the U.S. government or to the state tax authorities. Therefore, it is legally a corporation which can enjoy all of legal protections of a corporation versus an individual business (sole proprietorship). Is it better to have an S corporation rather that a regular corporation (so called a C corporation)? Absolutely! Why do you want to pay corporation taxes which they can go up to about 40% to 50%? Most of small business are qualified for the election of S corporation. Yes, you have to file an election with the IRS and states before March 15 to be effective for the year of filing. More information, visit our General Information on Accounting, Tax, and Financial (click Entity - S Corporation).

Bush tax cut is expected by July
3-6-01

House Speaker Dennis Hastert is working very hard to pass the tax cut plan by July. The slowing economy and the budget surplus are the key driving force behind the plan.

Individual audit hit lowest
3-5-01

IRS executives are concerned about steep declines in the percent of individual income tax returns audited by the IRS. Recently, the percentage decreased to less than 1% of all individual income tax returns filed. In 2000, the IRS audited only about one-half of one percent. IRS Commissioner Charles Rossotti wants to reverse this trend by increase the budget for audit.

Election to amortize start-up costs
2-14-01

Start-up costs are business expenses spent before the start of your business (actual date of operations). These start-up costs cannot be deducted 100% in the year of expenditure. According to the tax law, you must capitalize them. Once capitalized, these expenses are not deducted until you sell your business. If you want to expense them, you need to elect and attach the election statement to the initial business tax return. Start-up costs are (1) travel expenses for arranging products, (2) consulting fees, (3) salaries, and (4) survey expenses for market study, potential clients and employees. Incorporation and acquisition expenses are organizational costs. The similar law applies for these expenses as start-up costs.

IRA is a good tax saving strategy
2-9-01

It is highly recommended that a taxpayer open up an IRA with a bank or financial institution, such as Fidelity or Charles Schwap. The reason is when you put away (just like a saving account) $2,000, it works as if the part of it is contributed by the government. When you put money into the IRA, you are entitled to deduct $2,000 from your income. For example, if decided to open up an IRA account and your tax rate (federal, state and/or city tax divided by total taxable income) is 20%, you will save of $400 ($2,000 x 20%) instead of paying taxes. You actually have to put up $1,600 of your own money. Of course you will pay tax on $2,000 plus earnings (from interest income or stocks) when you retire and withdraw the money. But you will be amazed to find out how much $2,000 will grow over 10, 20 or 30 years later. Can you believe the government actually help you out with $400 and let it grow over so many years? Later, all they want is $400 after so many years of inflation. Now tell me if this is not a great way to save money for your retirement! More information on IRA.

No social security tax for Korean expatriates
2-5-01

Effective from April 1, 2001, Korean expatriates who are assigned to a U.S. subsidiary for 5 years or less are exempted from the social security tax. The withholding rate for the social security tax is 7.65% for an employee and the matching 7.65% for an employer, a total saving of 15.3% of gross salary. In order to stop withholding of the social security tax, an expatriate should obtain a certificate from Korea and submit it to the U.S. subsidiary and stop the withholding. In addition, an expatriate can now earn working credits for the 10-year requirement from both countries while working and contributing in either Korea and the U.S., as long as contributing at least 6 quarters (12 months). In this case, the benefits will be paid by both countries. For more information, call at 02-504-1101-2 or 02-2240-1085, fax to 02-504-1458 or 02-2203-6627. Also visit www.npc.or.kr, which will be operative from April.

Simple estate tax planning
1-29-01

A simple strategy in estate tax planning is to give a donee $10,000 per year. There is no limit on the number of permissible donees. A married couple can elect to $20,000 to unlimited donees. This gift is free of estate and gift taxes, and is not counted against the applicable exclusion amount of $675,000 in 2001. This exclusion amount is a lifetime exclusion amount that a recipient can avoid paying taxes.

Tax deposit rules changed for small businesses
1-29-01

If your employment tax deposits are less than $2,500 per quarter, you can pay them with Form 941, Employer's Quarterly Federal Tax Return, at the end of each quarter. In this case, no immediate or monthly deposit is required right after the payroll is paid.

States voted to tax on Internet sales
1-12-01 

Tax-free Internet purchases came one step closer to extinction when officials from 26 states approved a proposal to simplify their states' sales tax codes, clearing one obstacle from the path to a system for collecting taxes from Internet and catalog sales.  Member states of the Streamlined Sales Tax Project voted 26 to 0 to send their proposal to state legislatures for consideration next year.

The proposal's supporters say that under current law, states stand to lose billions in tax revenue as on-line sales increase. Retailers currently do not collect sales tax on a purchase unless they have a physical presence in the state where the buyer is located. They also argue that not taxing Internet sales gives Net retailers an unfair advantage over bricks-and-mortar retailers.

Congress' three-year moratorium on new Internet taxes, another obstacle to the project, is set to expire in October 2001.

Capital-gains rate decreases 2%
1-12-01 A law enacted three years ago may complicate the filing of income taxes for some as the capital-gains rate will decrease by 2 percent this year, but will only apply to some capital assets and not others.

The rate decline is the result of a law originally passed in 1997 that will become effective early this year. The new rate will affect long-term holdings pertaining to specific assets.

Tax rate cuts proposed by Bush
1-5-01

Bush is expected to propose tax rate cuts from 15% to 39.6% to 10% to 33% .

Tax issues on mergers and acquisitions
12-28-00

A company completing a merger, acquisition or joint venture must be aware taxes are a key component of integration activities. Taxes invariably will contribute to, or detract from, the benefits promised to shareholders and Wall Street analysts. Because certain tax issues are better addressed before the transaction closes, merger-integration tax planning should actually begin before, not after, the transaction. Here are some tax considerations that typically can contribute to a transaction’s announced goals and aid in delivering the promised financial benefits. CPAs who consult with companies on merger activities should help them to Understand the business dynamics and financial issues facing the combined entity. Coordinate the development of a tax integration plan with the business integration plan. Determine the legal operating structure that will result in the most advantageous tax position by reviewing each group’s organization charts. Anticipate the impact a regulatory body’s review might have on asset dispositions to see if they can be done in a more tax-efficient manner. Negotiate tax incentives from state and local authorities as part of the consolidation of facilities, functions and personnel. Determine the amount and deductibility of acquisition-related costs. The company may not have to permanently capitalize all such costs. Consider the transaction’s international aspects, including strategic cross-border debt placement opportunities, foreign currency exposure, rationalization of any expatriate programs, additional exposure for indirect taxes (VAT or real property transfer taxes) and effective foreign tax credit planning by the new group. Reconcile and revise compensation and benefits programs of the combined entity as needed. (Inconsistent benefits packages may cause a company to lose what it sought to acquire: talent.) Interview the target company’s tax personnel and document the findings. (If tax personnel leave, the rationale for the target’s tax treatment of prior positions and issues may be lost.) Identify and address conflicting tax positions the combined entities may have taken on the same or a similar issue—before the IRS resolves them for you. Review the target company’s tax returns and provision for taxes for inconsistencies that may affect the combined entity’s overall tax reserves. Also investigate the target company’s reporting of prior transactions and the current acquisition’s impact on these transactions. Investigate whether the now combined group has inconsistent transfer-pricing practices or incompatible consolidated tax return elections as a result of the transaction. Resolve any differences. Address the additional tax compliance burdens arising because of the transaction that will remain after the businesses are integrated. (Source: Journal of Accountancy)

Break for the installment sale
12-22-00

Small businesses are happy to learn that Congress voted to repeal a law which requires no installment sales recognition for the accrued based companies. Under the 1999 law, many businesses selling operations at a profit must pay taxes on the lump sum amount at the time of initial sale, even if payments were scheduled to collect over many years under the installment plan.

Industry Issue Resolution Pilot Program
12-14-00

The Internal Revenue Service (IRS) announced the creation of the Industry Issue Resolution (IIR) Pilot Program to provide assistance to large and mid-size companies to resolve frequently disputed tax issues before the filing of corporate income tax returns.

IRS Announces 2001 Standard Mileage Rates
11-22-00

The Internal Revenue Service announced Thursday the optional standard mileage rates to use for 2001 in computing the deductible costs of operating an automobile for business, charitable, medical or moving expense purposes. The amounts for the various deductible costs for use of a car will be effective January 1, 2001. The standard mileage rate for the cost of operating a car is 34.5 cents a mile for all business miles driven. The rate for 2000 was 32.5 cents a mile. The primary reason for the mileage rate increases is due to the jump in gasoline prices.

Estate Tax Break in 2001
11-22-00

It is widely expected that the basic estate tax exclusion would increase to $2.5 million to $5 million to avoid applying this tax to many of non-rich taxpayers.

IRS To Seize Church
11-22-00

The Indianapolis Baptist Temple could become the first U.S. church taken over by the Internal Revenue Service. U.S. District Judge Sarah Evans Barker gave the IRS permission to seize the church and other buildings on its property, including a school, to satisfy the $6 million in past taxes, interest and fines it owes to the U.S. government when it failed to pay the debt by 12 PM on Nov. 15. Since 1984, the Indianapolis Baptist Church has refused to pay taxes to the U.S. government, having failed to deduct federal income and Social Security taxes from its employee's take-home pay. (NYSSCPA.ORG NEWSBRIEF)

Year End Tax Planning
11-21-00

If you have a lot of income this year and your tax bracket will be higher than the one next year, it is advisable to postpone of receiving and depositing income until next year. As an individual taxpayer, you are on a cash basis in recognizing income. This generally means that if you do not deposit a check this year but deposit it next year, you do not have to include in this year's income. At the same time, if you pay expenses up front, lets say you write a check before 12/31/00, it is consider this year's expense. Thus, you will pay less tax year 2000 by reducing income and increasing expenses.

Estimated Tax Deposits for Individual
11-21-00

If you have Form 1099 income (self employed or independent contractor income), you are required to make the estimated deposits four times a year. For example, a taxpayer earns two types of income, one from his employer (W-2 income) and one from his computer consulting services (Form 1099 income). For W-2 income, a company withholds taxes from your paycheck and deposits them to tax authorities on behalf of your name. However, Form 1099 income, you need to make necessary estimated deposits for each quarter when the income is earned. You make deposit by 3/15, 6/15, 9/15 and 1/15 after calculate your taxes to Social Security, medicare, U.S., state and city.

Medical Saving Accounts Expire at Year End
11-17-00

Medical savings accounts were created in 1996 to allow qualified self-employed and its workers to enroll in a plan whose contributions are tax deductible while income earned from the contribution in the plan is tax-free. The law allowing these accounts are about to expire as of 12/31/00 unless it is extended. Critics say these accounts favor high-income taxpayers and provide tax shelter opportunities.

Social Security Tax
For 2001, the Social Security taxes on earnings will be increased to $80,400 from $76,200. The maximum amount of the tax will be $4,984.80, increased by $260.40 from year 2000.

IRS E-File
IRS e-file is the preferred method of filing federal tax returns by the IRS. This filing season more than 35 million Americans took advantage of IRS e-file. The IRS wants Electronic Return Originators (EROs) to enjoy the new experience by filing tax returns electronically. To learn more visit http://www.irs.gov/hot/index.html.

Luxury Tax
9-27-00

The luxury tax on new cars will drop on 1/1/2001 to 4% on prices above $38,000. Current rate is 5% of amounts above $38,000.

Personal Exemption
9-27-00

This exemption will increase to $2,900 in 2001. Current exemption is $2,800.

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