Tax Relief Blog

Articles Posted in US Taxes

The following is a summary of the most important tax developments that have occurred in the past three months that may affect you, your family, your investments, and your livelihood. Please contact us for more information about any of these developments and what steps you should implement to take advantage of favorable developments and to minimize the impact of those that are unfavorable.

IRS has issued detailed guidance on the 2010 Tax Relief Act’s 100% bonus depreciation rules for qualifying new property generally acquired and placed in service after Sept. 8, 2010 and before Jan. 1, 2012. Overall, the rules are quite generous. For example, they permit 100% bonus depreciation for components where work on a larger self-constructed property began before Sept. 9, 2010, allow a taxpayer to elect to “step down” from 100% to 50% bonus depreciation for property placed in service in a tax year that includes Sept. 9, 2010, permit 100% bonus depreciation for qualified restaurant property or qualified retail improvement property that also meets the definition of qualified leasehold improvement property, and provide an escape hatch for some business car owners who would otherwise be subject to a draconian depreciation result.

Under the 2010 Tax Relief Act, a taxpayer that buys and places in service a new heavy SUV after Sept. 8, 2010 and before Jan. 1, 2012, and uses it 100% for business, may write off its entire cost in the placed-in-service year. A heavy SUV is one with a GVW rating of more than 6,000 pounds.

Tax relief USA is for the American citizens who are dwelling in the foreign countries. The taxation phenomenon becomes multifaceted and complex as you become taxable under the laws of two different countries. Most of the US expats do not know their rights and obligations as there is not much awareness among the commoners regarding the Tax Relief USA. This article describes the key points related to this relief program.

Let us suppose, if an American citizen is residing and working in Canada, he is obliged to pay the IRS taxes just like other citizens inside the United States. The taxpayer needs to learn the filing requirements the way they are based on American laws. However, this does not mean that he is not bound to pay the taxes under Canadian laws. Fortunately, IRS offers tax relief USA to such individuals which can lessen considerable financial burden.

So what is tax relief USA actually? Though the taxpayer must pay the taxes in both the countries but if the IRS believes that he is eligible for tax relief USA, he will either be given credit for the taxes paid in the foreign country or he will be entitled to exclude a part or the whole income earned outside the US.

Relief for homeowners with corrosive drywall. The IRS is allowing individuals with corrosive drywall to apply a safe harbor formula to treat the costs of repairing the defective drywall as a casualty loss. The safe harbor applies for original and amended federal income tax returns filed after Sept. 29, 2010. Reported problems have occurred with certain imported drywall installed in homes between 2001 and 2008. Homeowners have reported blackening or corrosion of copper electrical wiring and copper components of household appliances, as well as the presence of sulfur gas odors. In the case of any individual who pays to repair damage to his personal residence or household appliances that results from corrosive drywall, the IRS won’t challenge his treatment of damage resulting from corrosive drywall as a casualty loss (which might otherwise be difficult to achieve under the regular rules) if the loss is determined and reported under the safe harbor rule. A taxpayer who does not have a pending claim for reimbursement may claim as a loss all unreimbursed amounts paid during the tax year to repair damage to his personal residence and household appliances resulting from corrosive drywall. A taxpayer who has a pending claim (or intends to pursue reimbursement) may claim a loss for 75% of the unreimbursed amount paid during the tax year to repair damage to the taxpayer’s personal residence and household appliances that resulted from corrosive drywall.

Over-the-counter drug costs will no longer be reimbursable. Effective Jan. 1, 2011, unless prescribed or insulin, the cost of over-the-counter medicines cannot be reimbursed from flexible spending arrangements (FSA), health reimbursement arrangements (HRA), Health Savings Accounts (HSA) and Archer Medical Savings Accounts (Archer MSA). The IRS has issued guidance explaining that an individual may be reimbursed for over-the counter medicines or drugs, so long as the individual obtains a prescription for the medicines or drugs. It also makes clear that expenses incurred for over-the-counter medicines or drugs purchased without a prescription before Jan. 1, 2011 may be reimbursed tax-free at any time by an employer-provided plan, including an FSA or HRA, under the terms of the employer’s plan.

Simplified per diem rates lowered effective Oct. 1, 2010. Reimbursements of an employee’s business travel costs (lodging, meal and incidental expenses (M&IE)) at a per diem rate are payroll-and income-tax free if simplified substantiation is provided and the daily rate doesn’t exceed the federal per diem rate (the maximum amount that the federal government reimburses its employees) for the locality of travel for that day. While the per diem rates vary by travel destination, employers can make reimbursements at the simplified “high-low” per diem rates, which assign one per diem rate to high-cost areas within the continental U.S., and another to non-high-cost areas. The IRS has issued the “high-low” simplified per diem rates for post-Sept. 30, 2010, travel. An employer may reimburse up to $233 for high-cost localities ($168 for lodging and $65 for M&IE) and $160 for other localities ($108 for lodging and $52 for M&IE). The list of high-cost areas is also updated.

The following is a summary of the most important tax developments that have occurred in the past three months that may affect you, your family, your investments, and your livelihood. Please contact us for more information about any of these developments and what steps you should implement to take advantage of favorable developments and to minimize the impact of those that are unfavorable.

New law gives tax breaks to small business. The Small Business Jobs Act of 2010, which was signed into law on September 27, 2010, includes a number of important tax provisions, including liberalized and expanded expensing for 2010 and 2011, revived bonus depreciation for 2010, five-year carryback of unused general business credits for eligible small businesses, removal of cell phones from the listed property category, and liberalized tax shelter penalty rules.

Schedule UTP for reporting uncertain tax positions finalized and liberalized. The IRS has released a final Schedule UTP (Form 1120), Uncertain Tax Position Statement, and an announcement detailing many liberalizations to the reporting requirements, which initially apply only to large corporations. In addition, the agency has taken steps to protect taxpayer communications with practitioners and to ensure that the program is properly applied by its own personnel. The key changes include: a five-year phase-in of the reporting requirement based on a corporation’s asset size; no reporting of a maximum tax adjustment; no reporting of the rationale and nature of uncertainty in the concise description of the position; and no reporting of administrative practice tax positions.

The recently enacted 2010 Small Business Jobs Act includes a wide-ranging assortment of tax breaks and incentives for businesses. Here’s a brief overview of the tax changes in the Small Business Jobs Act.

Enhanced small business expensing (Section 179 expensing). To help small businesses quickly recover the cost of capital outlays, small business taxpayers can elect to write off these expenditures in the year they are made instead of recovering them through depreciation. Under the old rules, taxpayers could generally expense up to $250,000 of qualifying property–generally, machinery, equipment and software–placed in service in during the tax year. This annual limit was reduced by the amount by which the cost of property placed in service exceeded $800,000. Under the Small Business Jobs Act, for tax years beginning in 2010 and 2011, the $250,000 limit is increased to $500,000 and the investment limit to $2,000,000. The Small Business Jobs Act also makes certain real property eligible for expensing. Thus, for property placed in service in any tax year beginning in 2010 or 2011, the $500,000 amount can include up to $250,000 of qualified leasehold improvement, restaurant and retail improvement property.

Extension of 50% bonus first-year depreciation. Before the Small Business Jobs Act, Congress already allowed businesses to more rapidly deduct capital expenditures of most new tangible personal property placed in service in 2008 or 2009 by permitting the first-year write-off of 50% of the cost. The Small Business Jobs Act extends the first-year 50% write-off to apply to qualifying property placed in service in 2010 (as well as 2011 for certain aircraft and long production period property).

Employee vs. Independent Contractor – Ten Tips for Business Owners

IRS Tax Tip

If you are a small business owner, whether you hire people as independent contractors or as employees will impact how much taxes you pay and the amount of taxes you withhold from their paychecks. Additionally, it will affect how much additional cost your business must bear, what documents and information they must provide to you, and what tax documents you must give to them.

Construction Industry Tax Issues

Accumulated Earnings Tax

Closely held C corporations are more likely to accumulate earnings and profits beyond the reasonable needs of the business in order to avoid income taxes on its shareholders than are large C corporations. Each accumulated earnings case is unique. No pro forma guide for calculating a taxpayer’s reasonable needs can be prepared. Reasonable needs that would usually be considered in any accumulated earnings case are the need for sufficient net liquid assets to pay reasonably anticipated, normal operating costs through one business cycle and sufficient net liquid assets to pay reasonably anticipated, extraordinary expenses and capital improvement financing.

In addition, the following represents a non-exclusive list of specific items that should be considered for construction contractors:

Getting to Grips with Wage Garnishment

Have you ever heard of a wage garnishment? If you haven’t, and you are responsible for paying the IRS what you owe them, then you should read on! If you’re in a position where you owe the IRS money already, then you shouldn’t just read on, but take note because wage garnishment is something that could very easily be in your future!

Every taxpayer knows that Uncle Sam needs his pound of flesh (or at least roll of dollars), regardless how many mouths you have to feed, and how high your mortgage payments are now that the financial world is in crisis, or how your income has changed. Uncle Sam doesn’t care if you’ve lost your job, or had to take unpaid leave because of health reasons. If you owe Uncle Sam money, he wants it; and in the form of wage garnishments, he’s going to make sure that he gets it.

There are strict procedural guidelines that the IRS must adhere to before they can attach a wage garnishment to your salary, and the first of these is to warn you that it’s about to happen. If you haven’t defaulted on your tax payments, then you need to immediately contact them because they need you in default in order to proceed! If you’re not in default, then they can’t put a wage garnishment onto your salary. You should get about 30 days warning of the wage garnishment going into effect so check the date that it is due to begin and use your time wisely.

IRS to seek more regulation of tax preparers

The IRS reported that it is working on new rules that will require paid tax preparers to be licensed. This will improve tax compliance and reduce tax preparer fraud; IRS Commissioner Doug Shulman announced that on June 4, 2009.

A whopping eighty percent of taxpayers get help with their returns, either from paid tax preparers or tax software programs, Shulman told a congressional subcommittee. Surprisingly, tax preparers currently don’t have to be licensed, unless they represent clients in proceedings before the Internal Revenue Service.

How small businesses can take maximum advantage of the new longer 2008 NOL carryback

Mike Habib, EA Tax Relief & Tax Problem Resolution

The American Recovery and Reinvestment Act of 2009, signed into law on Feb. 17, 2009 ( P.L. 111-5 , the “Recovery Act”) allows qualifying small business to choose a three- four- or five-year net operating loss (NOL) carryback period for certain losses instead of the usual two-year period. This article explains the details of this new provision and the planning that should be undertaken to ensure that a qualifying business chooses the carryback period that will yield maximum tax benefits for the business, taking into account the carryback itself and its tax picture for this year and previous years.