IRS Notice

2010 Small Business Jobs Act : Important Points

September 28, 2010 | Mike Habib, EA

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).

Who said the IRS is not generous?

August 26, 2009 | Mike Habib, EA

IRS Sends $122,783 Check by Mistake

House Cleaner Sensed it was an Error and Returned Check; IRS won’t Comment

SOURCE: CBS

IRS Urgent Letters and Notices

July 23, 2009 | Mike Habib, EA

IRS Urgent Letters and Notices That YOU MUST ATTEND TO

Mike Habib, EA

IRS Audit & Examination Letters

Letter 525 – General 30 Day Letter

This letter accompanies a report giving you a computation of the proposed adjustments to your tax return. It informs you of the courses of action to take if you do not agree with the proposed adjustments. The letter explains that if you agree with the adjustment, you sign and return the agreement form. If you do not agree, you can submit a request for appeal/protest to the office/individual that sent you the letter. The letter or referenced publications explain how to file a protest. You need to file your protest within 30 days from the date of this letter in order to appeal the proposed adjustments with the Office of Appeals.

Cell phone taxability?

June 12, 2009 | Mike Habib, EA

Make any personal calls on that company cell phone? That’s a “fringe benefit” of your job, according to a 20-year-old law, and the IRS is looking to collect.

The Wall Street Journal reports that the IRS wants to step up enforcement of the 1989 law, which holds that employees who make personal calls on a company cell phone are getting a “fringe benefit” from their employers–a benefit that should count as taxable income.

The law has been “long ignored” by employees and employers alike, according to the Journal, namely because most companies don’t have the time or the inclination to tabulate exactly how many minutes you’re on the phone with clients versus how often you’re gabbing with friends and family.

Tax changes you should be aware of

March 2, 2009 | Mike Habib, EA

How individuals are affected by tax changes in the American Recovery and Reinvestment Act of 2009

Mike Habib, EA Tax Relief & Tax Problem Resolution

The American Recovery and Reinvestment Act of 2009 (commonly referred to as the Recovery Act), which was signed into law on Feb. 17, 2009, makes a number of beneficial tax changes for individuals. However, most of them are temporary in nature, that is, unless extended by future legislation, they apply for 2009 only or in some cases for 2009 and 2010. Here’s a review of the more widely applicable provisions that could have an impact on you and your family.

Form 5405 First-Time Homebuyer Credit

February 28, 2009 | Mike Habib, EA

Newly revised 2008 Form 5405, First-Time Homebuyer Credit, reflects Recovery Act IR 2009-14 Mike Habib, EA Tax Relief & Tax Problem Resolution In a news release issued on Feb. 25, 2009, IRS has announced that it has posted a revised version of the 2008 Form 5405, First-Time Homebuyer Credit, to reflect recent improvements to the credit made the American Recovery and Reinvestment Act of 2009 (Recovery Act, P.L. 111-5). Pre-Recovery Act credit. Under pre-Recovery Act law, for qualifying purchases of principal residences in the U.S. after Apr. 8, 2008 and before July 1, 2009, eligible first-time homebuyers may claim a refundable tax credit equal to the lesser of 10% of the purchase price of a principal residence or $7,500 ($3,750 for married individuals filing separately). A taxpayer is considered a first-time homebuyer if he (or spouse, if married) had no present ownership interest in a principal residence in the U.S. during the 3-year period before the purchase of the home to which the credit applies. Eligible first-time homebuyers who purchase a principal residence after Dec. 31, 2008, and before July 1, 2009, may elect to treat the purchase as made on Dec. 31, 2008. For eligible purchases in 2009, a taxpayer may elect to claim the credit for 2008 or 2009 by attaching Form 5405 to the taxpayer’s original or amended 2008 tax return or 2009 tax return. The first-time homebuyer credit phases out for individual taxpayers with modified AGI between $75,000 and $95,000 ($150,000-$170,000 for joint filers) for the year of purchase. The credit for new homebuyers is recaptured ratably over fifteen years, with no interest charge, beginning with the second tax year after the tax year in which the home is purchased. For each tax year of the 15-year recapture period, the credit is recaptured as an additional income tax amount equal to 6⅔% of the amount of the credit. This repayment obligation may be accelerated or forgiven under certain exceptions.

Observation: In other words, the credit for new homebuyers is the equivalent of a long-term interest-free loan from the government.

Recovery Act enhancements to the credit. For residences purchased after 2008, Sec. 1006 of the Recovery Act:

increases the maximum homebuyer credit to $8,000. (Code Sec. 36(b))
extends the credit so that it applies to purchases before Dec. 1, 2009. (Code Sec. 36(h))
correspondingly, for purposes of the election to treat the purchase of a principal residence as having been made on Dec. 31, 2008, extends the last date of purchase has until Nov. 30, 2009. (Code Sec. 36(g))
generally waives the recapture of the credit for qualifying home purchases after Dec. 31, 2008. However, if the taxpayer disposes of the home or the home otherwise ceases to be the principal residence of the taxpayer within 36 months from the date of purchase, the pre-Recovery Act rules for recapture of the credit apply. (Code Sec. 36(f)(4)(D))

Observation: Committee reports indicate that this waiver of the recapture applies without regard to whether the taxpayer elects to treat the purchase in 2009 as occurring on Dec. 31, 2008, which is allowed by Code Sec. 36(g).

Form 5405. Form 5405 is fairly straightforward. Part I A calls for the address of the home qualifying for the credit while Part I B asks for the date it was acquired. A box must be checked on Part I C if the taxpayer is choosing to claim the credit for a home bought in 2009.

Observation: Specifically, Part I C calls for the box to be checked “[i]f you are choosing to claim the credit on your 2008 return for a main home bought after December 31, 2008 and December 1, 2009.” Thus, Form 5405 reflects the Recovery Act change making this option available for a main home bought Dec. 31, 2008 and before Dec. 1, 2009.

Obama Business Tax Impact

February 28, 2009 | Mike Habib, EA

The American Recovery and Reinvestment Act of 2009 (commonly referred to as the Recovery Act), which was signed into law on Feb. 17, 2009, makes a number of beneficial changes for business. Here’s a review of the more widely applicable provisions that could have an impact on you and your enterprise.

Mike Habib, EA Tax Relief & Tax Problem Resolution

Liberal expensing limits continued for another year. The Recovery Act gave a one-year lease on life to enhanced expensing rules, which allow qualifying businesses the option to currently deduct the cost of business machinery and equipment, instead of recovering its cost via depreciation over a number of years. For tax years beginning in 2009, the maximum amount that a business may expense is $250,000, and the expensing election begins to phase out when a business buys more than $800,000 of expensing-eligible assets. These dollar limits are the same as those that were in effect for 2008. Had the Recovery Act not been passed and signed into law, the dollar limits would have dropped this year to $133,000 and $530,000 respectively.

Major Tax Changes

February 27, 2009 | Mike Habib, EA

President’s FY 2010 budget will propose many major tax changes for businesses and individuals

“A New Era of Responsibility: Renewing America‘s Promise,” the Administration’s preview of its FY 2010 budget, is available at http://www.omb.gov

Mike Habib, EA Tax Relief & Tax Problem Resolution

Energy tax incentives

February 25, 2009 | Mike Habib, EA

Energy tax incentives in the American Recovery and Reinvestment Act of 2009

Mike Habib, EA Tax Relief & Tax Problem Resolution The recently enacted “American Recovery and Reinvestment Act of 2009” (the 2009 economic stimulus act) includes a package of tax incentives to encourage investments in renewable energy projects or more-efficient technologies. I’m writing to give you an overview of these new provisions. Please call our offices for details of how the new changes may affect you, your investments, or your business.

Long-term extension and modification of renewable energy production tax credit. The new legislation extends the placed-in-service date for wind facilities for three years (through December 31, 2012). It also extends the placed-in-service date through December 31, 2013 for certain other qualifying facilities: closed-loop biomass; open-loop biomass; geothermal; small irrigation; hydropower; landfill gas; waste-to-energy; and marine renewable facilities.

Business tax changes

February 25, 2009 | Mike Habib, EA

Business tax changes in the American Recovery and Reinvestment Act of 2009

Mike Habib, EA Tax Relief & Tax Problem Resolution I’m writing to give you an overview of the key tax changes affecting business in the recently enacted “American Recovery and Reinvestment Act of 2009” (the 2009 economic stimulus act). Please call our offices for details of how the new changes may affect your specific business.

Extension of bonus depreciation. Last year, Congress temporarily allowed business to recover the costs of capital expenditures made in 2008 faster than the ordinary depreciation schedule would allow by permitting these businesses to immediately write off 50% of the cost of depreciable property acquired in 2008 for use in the United States. The new law extends this temporary benefit for qualifying property purchased and placed into service in 2009.