2012 IRS Forms Waiting for Approval

Although filing season has technically started with the IRS and state governments, there are still many forms that are not ready for filing yet due to the tax changes included in the American Taxpayer Relief Act (ATRA) enacted on January 2, 2013.

For instance, education credit Form 8863 will not be e-fileable until February 14th. Once this form is final, that will enable the majority of taxpayers that have been on hold to be able to file their tax returns. Some other forms like Form 8903 Domestic Production Activities Deduction and Form 8582 Passive Activity Loss Limitations are among a list of forms that may not be accepted by the IRS until the first week of March.

For a complete list of forms waiting on final approval from the IRS please visit http://www.irs.gov/uac/Newsroom/List-of-IRS-forms-that-1040-filers-can-begin-filing-in-late-February-or-into-March-2013.

We will continually check with the IRS to determine when these forms have been updated.

2013 Tax Updates & TYS News

2013 Tax Updates

As you may be aware, there were numerous tax changes that were accepted into law for 2012 and 2013 this past week.  For details on these tax updates, please visit our website at http://www.tysllp.com/newsletters/2013taxupdates/.

Our New York Office Has Moved

Effective January 1, 2013 our New York office address is:

615 Cross Keys Office Park
Fairport, NY 14450
T: (585) 678-9015
F: (585) 678-9384

Office Closure

Our offices will be closed on Thursday, January 10, 2013 and Friday, January 11, 2013.  We will resume normal business hours on Monday, January 14, 2013.

 

S Corporation Medical Insurance Premiums

If you own more than 2% of an S Corporation then you need to be aware of the following.  

Health and accident insurance premiums paid by your corporation on your behalf must be reported as income on your annual Form W-2.  If the insurance premiums are not included in the W-2 then the IRS will not allow the corporation to deduct them.  The Shareholder, in most cases, is allowed to have an equal deduction on their individual tax returns.  At the end of the day, there is no impact other than the additional headache of getting the amounts reported correctly on the W-2.

One thing to be aware of is that amounts added to the W-2 should not be subject to any payroll taxes.

If this affects you and you would like additional information on how to report company paid health insurance premiums, or if you are a greater than two percent S corporation shareholder receiving this taxable income and would like information about what this means to you, please contact us at info@tysllp.com.

EFT Rules Now In Place

Beginning January 1, 2011, all employers must use electronic funds transfer (EFT) to make all federal tax deposits. These deposits include employment taxes, excise tax and corporate income tax. Forms 8109-B, Federal tax Deposit Coupon, cannot be used after December 31, 2010.

IRS Releases 2011 Standard Mileage Rates

The IRS released in early December the standard mileage rates for use in 2011. The optional standard mileage rates can be used by taxpayers to calculate the deductible costs of operating an automobile. For business use of an automobile after Dec. 31, 2010 is 51 cents a mile; for medical or moving expenses, 19 cents a mile; and for services to charitable organizations, 14 cents a mile. For tax year 2010, the rates were 50 cents, 16.5 cents and 14 cents, respectively. Rather than using the standard mileage rates, taxpayers may instead use their actual costs, if they maintain adequate records and can substantiate their expenses. IRS Revenue Procedure 2010-51 prohibits a taxpayer from using the business standard mileage rate to compute the deductible expenses of five or more automobiles a taxpayer owns or leases and uses simultaneously.

SMALL BUSINESS JOBS ACT OF 2010

Looks like the folks in Washington are finally agreeing on something. Yesterday, September 23, the House passed the Small Business Jobs Act of 2010 (H.R. 5297). It is expected to be signed by the President soon.

Here are some of the key provisions:

• §179 expanded: For tax years beginning in 2010 and 2011, expense limit is increased to $500,000 and phaseout threshold increased to $2 million;
• §179 for (some) real estate: For tax years beginning in 2010 and 2011, taxpayers can elect to treat certain real estate as §179-eligible. Qualifying real estate includes:
• Qualified leasehold improvements;
• Qualified restaurant property; and
• Qualified retail improvement property.
• Bonus depreciation extended: Available for property purchased through December 31, 2010;
• Luxury auto depreciation increased: As a result of the extension of bonus depreciation, first-year depreciation of automobiles is bumped up $8,000;
• Deduction for start-up expenditures increased: Under IRC §195, increased from $5,000 to $10,000 for taxable years beginning in 2010 (only);
• Exclusion for small business stock: For purchases made after the date of enactment and before January 1, 2011, the exclusion for small business stock under IRC §1202 is increased to 100%;
• Five-year carryback for general business credits: Effective for credits determined in the taxpayer’s first taxable year beginning after December 31, 2009 (one year only), the carryback period for an “eligible small business” is increased from one to five years. In addition, the credit is not subject to the AMT limitation;
• Built-in gain period shortened to five years: For taxable years beginning in 2011 (only), the recognition period for the BIG tax is shortened to five years;
• Deduction for health insurance for SECA purposes: For 2010 (only), the deduction for self-employed health insurance is also a deduction for purposes of the SE tax;
• Cell phones removed from listed property: Permanent and effective for tax years ending after 2009;
• Information reporting required for rental property: Effective for payments made after December 31, 2010, rental real estate is treated as a trade or business for information reporting purposes. IRS to prescribe de minimis exceptions;
• Higher information return penalties: Penalties under IRC §6721 are substantially increased beginning in 2011;
• §457 plans can include Roth accounts: For tax years beginning after December 31, 2010; and
• Rollovers from elective deferral plans to in-plan Roth accounts allowed: Effective on the date of enactment. Will allow a two-year deferral (2011 and 2012) for rollovers done in 2010.

Now let's see what else happens by the end of the year.

Tax Exempt Organizations

I thought this might be of interest for those of you with tax exempt organizations. There have been some significant changes to the Form 990. If you haven't looked into the changes I would recommend doing that sooner rather than later. It may take longer to prepare the return this year. The IRS posted a list of FAQs (updated 4/5/10) to www.irs.gov/charities/article/0,,id=96581,00.html on the annual reporting requirements for exempt organizations. The applicable return (Form 990 or Form 990-EZ, the short form return) is due on the 15th day of the 5th month after the end of the organization's tax year. This is May 15th for calendar year organizations. Organizations with gross receipts and assets below certain thresholds at the end of their tax year can file Form 990-EZ. In addition, certain church-affiliated organizations and governmental organizations are not required to file an annual return. Organizations whose annual gross receipts are normally less than $25,000 are not required to file an annual return, but may be required to file an annual electronic notice (e-Postcard).

Free Webinars on California Withholding

The California Franchise Tax Board if offering free webinars about employer's withholding requirements, including changes that became effective in January of this year. To view descriptions, times, and register for a free webinar, click here.

Accelerated California Estimated Taxes Required

In an effort the keep cash coming into the state coffers, the legislature included in the most recent budget a provision requiring taxpayers who make estimated tax payments to pay more upfront. This applies to both individual and corporate taxpayers. Taxpayers may be required to make estimated tax payments if their withholding will not cover their tax liability. For federal tax purposes, the payments must be paid in four equal quarterly installments. Starting in 2009 with the state's fiscal challenges, California began to require a higher percentage of the payments in earlier quarters. Starting in 2010, it is accelerating required payments even more, to the following schedule:

Quarter	% due
1st quarter	30%
2nd quarter	40%
3rd quarter	0%
4th quarter	30%

If you are required to make estimated tax payments, be sure to reference these new requirements.

Accelerated Deduction for Haiti Relief

On Friday, the President signed into law a special provision allowing taxpayers to deduct on their 2009 tax returns charitable contributions made to provide relief in Haiti. Today's IRS announcement provides guidance on the deduction, including the following requirements for a 2009 deduction:

• Only cash contributions qualify. This includes contributions made by text message, check, credit card or debit card.
• The contribution must be made after Jan. 11, 2010, and before March 1, 2010.
• The contributions must be made specifically for the relief of victims in areas affected by the Jan. 12 earthquake in Haiti.
• Taxpayers have the option of deducting these contributions on either their 2009 or 2010 returns, but not both.
• To get a tax benefit, taxpayers must itemize their deductions on Schedule A. Those who claim the standard deduction, including all short-form filers, are not eligible.

We do not have word yet as to whether California will conform to this legislation. We'll keep you posted.

Expansion of 5-year carryback election for NOLs

On Nov. 6, 2009, President Obama signed the “Worker, Homeownership, and Business Assistance Act of 2009” (the 2009 Assistance Act) into law. The Act includes tax changes for businesses, the most significant of which are liberalized rules for certain net operating losses (NOLs). If your 2008 or 2009 tax return results in a net operating loss, you may benefit from this provision.

A net operating loss (NOL) is the excess of business deductions (computed with certain modifications) over gross income in a particular tax year. The loss can be deducted, through an NOL carryback or carryover, in another tax year in which gross income exceeds business deductions. In general, NOLs may be carried back two years and forward 20 years. The NOL is first carried back to the earliest tax year for which it's allowable as a carryback or a carryover, and is then carried to the next earliest tax year. A taxpayer may elect to forego the entire carryback period for an NOL and instead carry it forward. The 2009 Assistance Act provides an election for most taxpayers (not just small businesses) to increase the carryback period for an applicable NOL to 3, 4, or 5 years from 2 years. An applicable NOL means the taxpayer's NOL for any tax year ending after Dec. 31, 2007, and beginning before Jan. 1, 2010. This means the election may be made for a tax year beginning or ending in either 2008 or 2009. Taxpayers electing a 5-year carryback can use the NOL to offset up to 50% of the available taxable income for the 5th tax year preceding the loss year, and 100% of all taxable income in the remaining 4 carryback years. The amount of the NOL otherwise carried to tax years after the 5th preceding tax year is adjusted to take into account that the NOL could offset only 50% of the taxable income for the 5th year. In addition, the Act suspends the 90% limitation on the use of an NOL deduction for alternative minimum tax purposes, for alternative tax NOLs attributable to carrybacks for which the extended carryback is elected. We will work with our clients individually to determine whether they might benefit from this new provision.

Newly Extended & Expanded Homebuyer Credit

On November 6, the President signed into law H.R. 3548, the ''Worker, Homeownership, and Business Assistance Act of 2009.'' The new law extends and generally liberalizes the tax credit for first-time homebuyers. The following is a summary of these tax provisions. Homebuyer credit basics. Before the new law was enacted, the homebuyer credit was only available for qualifying first-time home purchases after April 8, 2008, and before December 1, 2009. The top credit for homes bought in 2009 is $8,000 ($4,000 for a married individual filing separately) or 10% of the residence's purchase price, whichever is less. Only the purchase of a main home located in the U.S. qualifies. Vacation homes and rental properties are not eligible. The homebuyer credit reduces one's tax liability on a dollar-for-dollar basis, and if the credit is more than the tax you owe, the difference is paid to you as a tax refund. For homes bought after Dec. 31, 2008, the homebuyer credit is recaptured (i.e., paid back to the IRS) if a person disposes of the home (or stops using it as a principal residence) within 36 months from the date of purchase. Before the new law, the first-time homebuyer credit phased out for individual taxpayers with modified adjusted gross income (AGI) between $75,000 and $95,000 ($150,000 and $170,000 for joint filers) for the year of purchase. Revised homebuyer credit. The new law makes four important changes to the homebuyer credit: (1) Extension. The homebuyer credit is extended to apply to a principal residence bought before May 1, 2010. The homebuyer credit also applies to a principal residence bought before July 1, 2010 by a person who enters into a written binding contract before May 1, 2010, to close on the purchase of the principal residence before July 1, 2010. In general, a home is considered bought for credit purposes when the closing takes place. So the extra two-months (May and June of 2010) helps buyers who find a home they like but can't close on it before May 1, 2010. They can go to contract on the home before May 1, 2010, close on it before July 1, 2010, and get the homebuyer credit (if they otherwise qualify). Note that certain service members on qualified official extended duty service outside of the U.S. get an extra year to buy a qualifying home and get the credit; they also can avoid the recapture rules under certain circumstances. (2) Expansion of qualifying homes. The homebuyer credit may be claimed by existing homeowners who are “long-time residents.” For purchases after November 6, 2009, you can claim the homebuyer credit if you (and, if married, your spouse) maintained the same principal residence for any 5-consecutive year period during the 8-years ending on the date that you buy the subsequent principal residence. For example, if you and your spouse are empty nesters who have lived in your suburban home for the past ten years, you are potentially eligible for the credit if you “move down” and buy a smaller townhome. There's no requirement for your current home to be sold in order to qualify for a homebuyer credit on the replacement principal residence. Thus, the replacement residence can be bought to beat the new deadlines (explained above) before the old home is sold. For that matter, you can hold on to your prior principal residence in the hope of achieving a better selling price later on. The maximum allowable homebuyer credit for qualifying existing homeowners is $6,500 ($3,250 for a married individual filing separately), or 10% of the purchase price of the subsequent principal residence, whichever is less. (3) Expansion of eligible taxpayers. The homebuyer credit is available to higher income taxpayers. For purchases after November 6, 2009, the homebuyer credit phases out over much higher modified AGI levels, making the credit available to a much bigger pool of buyers. For individuals, the phaseout range is between $125,000 and $145,000, and for those filing a joint return, it's between $225,000 and $245,000. (4) Limit on home price. For purchases after Nov. 6, 2009, the homebuyer credit cannot be claimed for a home if its purchase price exceeds $800,000. It's important to note that there is no phaseout mechanism. A purchase price that exceeds the $800,000 threshold by even a single dollar will cause the loss of the entire credit. The new purchase price limitation applies whether you are buying a first-time principal residence or are a qualifying existing homeowner purchasing a replacement principal residence. Other homebuyer credit changes. The new law includes a number of new anti-abuse rules to prevent taxpayers from claiming the homebuyer credit even though they don't qualify for it. The most important of these are as follows:

• Beginning with the 2010 tax return, the homebuyer credit can't be claimed unless the taxpayer attaches to the return a properly executed copy of the settlement statement used to complete the purchase of the qualifying residence.
• For purchases after Nov. 6, 2009, the homebuyer credit can't be claimed unless the taxpayer has attained 18 years of age as of the date of purchase (a married person is treated as meeting the age requirement if he or his spouse meets the age requirement).
• For purchases after Nov. 6, 2009, the homebuyer credit can't be claimed by a taxpayer if he can be claimed as a dependent by another taxpayer for the tax year of purchase. It also can't be claimed for a home bought from a person related to the buyer or the spouse of the buyer, if married.
• Beginning with 2009 returns, the new law makes it easier for the IRS to go after questionable homebuyer credit claims without initiating a full-scale audit.

Please feel free to contact us if you think you may benefit from the homebuyer credit.

New Publication for Unemployed

The IRS has released a new publication titled "Tax Impact of Job Loss," which discusses tax issues connected to severance pay, unemployment compensation, pension plans, job search expenses and moving costs. If you or someone you know is dealing with unemployment, you may find some useful information in the publication, available online here.

Governor Signs Four Critical Bills for CPAs

Glen Thomas, who is on the statewide CalCPA Society Accounting Education Committee (AEC), has been working very hard over the past three years with fellow members for the passage of SB 819. According to the CalCPA:

After 33 years, California is no longer the problem child when it comes to CPA licensing. Sunday night, Gov. Schwarzenegger signed SB 819 into law, which will require all California CPAs licensed after 2014 to have 150 hours of college education prior to licensing. CPAs licensed prior to 2014 will be grandfathered in as substantially equivalent. California should now be considered a substantially equivalent state, likely easing mobility for California CPAs providing services in other states that have adopted the new mobility provisions consistent with the Uniform Accountancy Act. Those provisions allow out-of-state CPAs to provide temporary services in those states without notifying the board of accountancy or paying a fee. This is a really big step for California CPAs. "While some of the details of the bill remain to be worked out, the passage of this legislation is historic and at long-last puts California CPAs on a level playing field with CPAs from other states who have been considered substantially equivalent for years," says CalCPA CEO Loretta Doon. "We owe a tremendous debt of gratitude to our government relations team lead by Bruce Allen and Jeannie Tindel, and Paul Regan, our Government Relations Committee chair.” Doon also praised the multitude of members from students to seasoned partners who participated in CalCPA’s grassroots efforts. Those members met with legislators in their district offices, and in the Capitol, to discuss the importance of substantial equivalency and other key legislation. Additionally, the governor signed AB 138, which requires mandatory peer review for CPA firms. The peer review requirement will start in 2010, but firms don't have to provide their peer reviews until the 2011 renewal for firms with the last digits 1-33. The new law will use a phased in implementation over a three-year period. Also signed into law were AB 117, which requires license status disclosure for inactive CPAs, and AB 129, which reinstates a taxpayer privilege provision. Visit CalCPA's website to learn more about these important new laws that will pave the way for the future of the profession in California.

The ABCs of SBA Lending

This week, the AICPA published "The ABCs of SBA Lending", which discusses the key benefits of recent law changes, reasons to apply for an SBA loan, and the application interview process. Information is also available at the SBA website. Related posts:

• Interest-free SBA Loans
• Obama proposal for small business lending
• Treasury to focus on small business
• Funds for Small Business

Debates on Health Care Reform

For those following the developments related to the President's proposed health care reform, Slate magazine post an interesting Q&A interview with The White House's Peter Orszag. We will be watching this issue closely as it makes its way through Congress. What are your thoughts on the issue of health care reform?

Delay in penalties for mandatory e-pay

Under the new California budget that passed last fall, certain higher-income taxpayers are required to make tax payments electronically. (We posted about this in November and January.) The California Franchise Tax Board has just announced that, during 2009, it will not impose penalties for taxpayers who fail to comply with this new law. Taxpayers who meet the requirements for e-pay will first be subject to penalties starting January 1, 2010. "FTB realizes that some taxpayers and practitioners may need additional time to implement practices and procedures to comply with the requirement. Therefore, during the 2009 calendar year, taxpayers subject to the mandate who remit their payment by check instead of electronically will not be assessed an 'e-pay penalty' (1% of the amount paid)."

FAQs about the Economic Stimulus Bill

As discussed in a previous post, President Obama signed the American Recovery and Reinvestment Tax Act of 2009 into law on February 17, 2009.

Some FAQs about the federal Economic Stimulus Bill are available at:

http://www.aicpa.org/download/news/2009/FAQs_about_ARRA_2009.pdf

American Recovery and Reinvestment Act of 2009

The recently enacted “American Recovery and Reinvestment Act of 2009” (the 2009 economic stimulus act) contains a wide-ranging tax package that includes tax relief for individuals and businesses. We have posted an overview of the more widely applicable tax changes that may affect you or your business on our website under our FAQ page. To read about the American Recovery and Reinvestment Act of 2009, please visit our Newsletter Archives page at http://www.ty-llp.com/news_newsletters.html.

Patience Is Key For The 2008 Tax Year

We've gotten used to last minute tax law changes over the past several years. Most bills pass and are signed by the president in November and December each year. Tax year 2008 definitely takes the cake though! As of February 6, 2009, many individual and business federal forms for tax year 2008 have still not been released as FINAL by the IRS. Currently, many common forms are projected to be released by the IRS on February 17, 2009. We're keeping our fingers crossed here at TY that they'll be finalized sooner than later! As Congress and the president iron out details of this week's stimulus bill, some tax law changes may be retroactive and impact the 2008 tax year, causing the related tax forms to change again. For taxpayers who may benefit from the upcoming stimulus bill, it makes sense for Taxpayers to wait to file 2008 tax returns in order to take advantage of new tax breaks. Stay tuned for updates as we receive them!