Tax Credit Helps Pay for Higher Education Expenses

The IRS provides the following information about the new credit for higher education... The American Recovery and Reinvestment Act was passed in early 2009 and created the American Opportunity Credit. This educational tax credit – which expanded the existing Hope credit – helps parents and students pay for college and college-related expenses. Here are the top nine things the Internal Revenue Service wants you to know about this valuable credit and how you can benefit from it when you file your 2009 taxes. 1. The credit can be claimed for tuition and certain fees paid for higher education in 2009 and 2010. 2. The American Opportunity Credit can be claimed for expenses paid for any of the first four years of post-secondary education. 3. The credit is worth up to $2,500 and is based on a percentage of the cost of qualified tuition and related expenses paid during the taxable year for each eligible student. This is a $700 increase from the Hope Credit. 4. The term "qualified tuition and related expenses" has been expanded to include expenditures for required course materials. For this purpose, the term "course materials" means books, supplies and equipment required for a course of study. 5. Taxpayers will receive a tax credit based on 100 percent of the first $2,000 of tuition, fees and course materials paid during the taxable year, plus 25 percent of the next $2,000 of tuition, fees and course materials paid during the taxable year. 6. Forty percent of the credit is refundable, so even those who owe no tax can get up to $1,000 of the credit for each eligible student as cash back. 7. To be eligible for the full credit, your modified adjusted gross income must be $80,000 or less -- $160,000 or less for joint filers. 8. The credit begins to decrease for individuals with incomes above $80,000 or $160,000 for joint filers and is not available for individuals who make more than $90,000 or $180,000 for joint filers. 9. The credit is claimed using Form 8863, Education Credits, (American Opportunity, Hope, and Lifetime Learning Credits), and is attached to Form 1040 or 1040A. For more information about the American Opportunity Tax Credit visit the IRS Web site at IRS.gov/recovery.

10 Questions if Current Health Care Legislation is Passed

The attorneys at Litter law firm give their suggested Top 10 questions employers should ask if the current health care bill is finalized. Here's a summary of their Top 10 Questions: 1. Do we have to provide health care benefits to our employees?

Answer: Yes, if you want to avoid paying a penalty.

2. Do we have to pay a penalty if our employees decide to drop out of the employer sponsored plan?

Answer: Yes, in certain circumstances.

3. Can we provide our employee’s health insurance through the health insurance exchange?

Answer: Initially, smaller employers would be able to offer health insurance through the exchange once the exchange becomes operational in 2013 under the House bill and in 2014 under the Senate bill. Larger employers may eventually be able to do so as well.

4. Do we have to change our benefit plan?

Answer: Yes, if it does not comply with certain new requirements.

5. What is a “Cadillac” plan?

Answer: If you offer a high-premium health insurance plan to your workers, you may be subject to a new excise tax on these so-called “Cadillac” plans.

To help pay for the cost of expanding health care coverage, the Senate bill would, beginning in 2013, impose a 40% excise tax on employment-based health plans whose premiums exceed $8,500 for singles and $23,000 for family plans, indexed for inflation plus 1%.

6. Will health insurance plans be taxed?

Answer: Yes, both the House and Senate bills would impose a new premium tax on group health plans to fund comparative effectiveness research. Annual fees on health insurers and device manufacturers may also be passed on to employers.

7. What is a medical loss ratio and why should employers care?

Answer: A medical loss ratio is the percentage of health insurance premium revenues that must be spent on clinical services and quality.

8. Can we change our retiree health benefits?

Answer: The House bill significantly restricts the ability of employers to change retiree health benefits, while the Senate bill does not.

9. What happens to Flexible Spending Accounts?

Answer: Employers who offer flexible spending accounts (FSAs) and workers who utilize them would face new contribution limits under both the House and Senate bills.

10. Will this reduce our health care costs?

Answer:The ultimate question for employers is whether or not the current health care legislation will, in fact, bend the cost-curve or, in other words, reduce employers’ ever-increasing health care costs. For employers grappling with the impact of rising health care costs in the competitive global economy, the answer is far from certain.

For more information on each question, you may visit the full article. (via CPA Trendlines)

New Year’s Resolutions for Small Business

WebCPA offers 10 tips for small businesses as we head into the new year.

1. Pay your employees first, they are your highest priority and don’t forget the IRS – keep current with payroll taxes.
2. Pay attention to the credit worthiness of your customers so you are confident your will get your money. Remember a sale is not a sale until you have been paid.
3. Limit the amount of business you do with any one customer so you aren’t left penniless if they run into trouble and are unable to pay.
4. Bad business is worse than no business. Customers who fail to pay their bills on time should not be your customer any longer.
5. If a customer becomes undependable, change the terms to COD (cash on delivery). That way you can keep the customer and avoid the uncertainly of payment.
6. Keep an accurate and complete audit trail. Don’t do business on a handshake when the future of your company could be at stake.
7. Keep management accounts and use financial reporting. Plan how you will pay your expenses, rather than paying bills based on how much is in your checking account at that moment.
8. Cash flow counts. Focus on shortening terms with your customers and structure the pricing to coincide with those terms. If you wait 90 days to be paid that means you are financing your customer’s business. Or, if you give extended terms, get paid more.
9. Think about establishing a lending relationship when you don’t need financing; that’s the best time to ask for money. Then follow the financial reporting requirements. Make it easy for the financial institution to lend you money.
10. Explore alternative lenders. You will probably be surprised to learn what’s out there. It can take time to find financing sources. Do your homework and get all of your questions answered ahead of time – before a crisis hits.

National Association of Women in Construction (NAWIC)

We would like to invite you the next NAWIC meeting. Our next meeting will be on Thursday, January 21, 2010 in San Ramon at 5:30pm. Our speaker for this meeting will be Alice Powers from Lewis, Brisbois, Bisgaard & Smith, LLP. Ms. Powers will be discussing wage and hour lawsuits and exempt vs. non-exempt in relation to the construction industry. NAWIC offers a great support system for women who are in the construction industry. Through NAWIC, we have increased our knowledge of the industry by networking with other members employed in the construction industry. It has also enabled us to broaden valuable contacts for our firm and build lasting relationships. The NAWIC meetings are always educational and related to the construction industry. If you are interested in attending this meeting, learning more about our personal experiences, or how you can benefit from NAWIC please contact us and we will be happy to answer any questions you may have. Linda Martins - LMartins@ty-llp.com Lisa Silva - LSilva@ty-llp.com NAWIC Background: NAWIC is a professional Association comprised of women working in construction and related industries. It was established in 1955 by 16 founding members. Today, approximately 5,800 women in approximately 170 chapters across the United States are NAWIC members. Members of the Association are business owners/managers, executives, subcontractors, accountants and estimators. Members are also employed in construction trades, including welding, carpentry, plumbing and electrical work. You can visit the NAWIC website, www.nawic.org, for more detailed information.

Worker classification audits on the way

As we've posted before, the IRS is increasing enforcement efforts related to worker classification -- meaning the issue of treating a worker as an employee or an independent contractor. AccountingWeb provides an update on these efforts:

Beginning in February, 2010, the IRS is launching an examination of 6,000 randomly selected companies to focus on employment tax issues ranging from executive compensation to fringe benefits. The IRS will perform an examination of 2,000 random companies per year over the next three years. Companies targeted will be of varying sizes and include both for profit and non-profit employers. While these audits can target any reporting aspect of the tax return the IRS's primary focus will be on worker classification, executive compensation, fringe benefits, nonfilers and reimbursed expenses.

More information on this issue, including examples of worker classification for the construction industry, is available on the FAQ section of our website.

IRS Offers Tax Tips

With tax time approaching, the IRS offers a series of Tax Tips for 2010 on topics such as dependents, filing status, and tips for recently married or divorced taxpayers. The following are what the IRS called the Top Ten Tax Time Tips:

• Start gathering your records. Round up any documents or forms you’ll need when filing your taxes: receipts, canceled checks and other documents that support an item of income or a deduction you’re taking on your return.
• Be on the lookout. W-2s and 1099s will be coming soon from your employer; you’ll need these to file your tax return.
• Try e-file. When you file electronically, the software will handle the math calculations for you. If you use direct deposit, you will get your refund in about half the time it takes when you file a paper return. E-file is now the way the majority of returns are filed. In fact, last year, 2 out of 3 taxpayers used e-file.
• Check out Free File. If your income is $57,000 or less you may be eligible for free tax preparation software and free electronic filing. The IRS partners with 20 tax software companies to create this free service. Free File is for the cost conscious taxpayer who wants reliable question-and-answer software to help them prepare a return. Visit IRS.gov to learn more.
• Consider other filing options. There are many different options for filing your tax return. You can prepare it yourself or go to a tax preparer. You may be eligible for free face-to-face help at an IRS office or volunteer site. Give yourself time to weigh all the different options and find the one that best suits your needs.
• Consider Direct Deposit. If you elect to have your refund directly deposited into your bank account, you’ll receive it faster than waiting for a paper check.
• Visit IRS.gov again and again. The official IRS Web site is a great place to find everything you’ll need to file your tax return: forms, tips, answers to frequently asked questions and updates on tax law changes.
• Remember this number: 17. Check out Publication 17, Your Federal Income Tax on IRS.gov. It’s a comprehensive collection of information for taxpayers highlighting everything you’ll need to know when filing your return.
• Review! Review! Review! Don’t rush. We all make mistakes when we rush. Mistakes will slow down the processing of your return. Be sure to double-check all the Social Security Numbers and math calculations on your return as these are the most common errors made by taxpayers.
• Don’t panic! If you run into a problem, remember the IRS is here to help. Try IRS.gov or call our customer service number at 800-829-1040.

Another source for answers to FAQs is the FAQ section of our website.