Tag: Federal Income Tax

Wikipedia vs Wikileaks

During tax prep time, a client was aghast that her husband had given money to Wikipedia since that was the organization that leaked confidential information.

These two organizations are not the same thing.  From Wikipedia:

WikiLeaks is not affiliated with Wikipedia or the Wikimedia Foundation.

WikiLeaks is an international self-described not-for-profit organisation that publishes submissions of private, secret, and classified media from anonymous news sources, news leaks, and whistleblowers.

I think that as often as we all use Wikipedia, we should support The Wikimedia Foundation.

Wikimedia Foundation Fundraises to Keep Wikipedia Going: Accounting Today.

Super committee: Let Bush tax cuts expire and your work will be done – CSMonitor.com

Super committee: Let Bush tax cuts expire and your work will be done – CSMonitor.com.

President Obama extended the Bush tax cuts through December 2012.  These tax cuts are costing the Treasury $11.6 million dollars PER HOUR.  The alternative view is that tax dollars are taxpayer dollars, not government dollars, and we need to cut spending.

However:

A record number of Americans — 49.1 million — are poor, based on a new census measure that for the first time takes into account rising medical costs and other expenses.

The numbers released Monday are part of a first-ever supplemental poverty measure aimed at providing a fuller picture of poverty. Although considered experimental, they promise to stir fresh debate over Social Security, Medicare and programs to help the poor as a congressional supercommittee nears a Nov. 23 deadline to make more than $1 trillion in cuts to the federal budget.  (Washington Post)

Sales Tax Deduction on Large Purchases-Easily Overlooked

Taxpayers that elect to deduct sales tax instead of income tax paid typically use the sales tax deduction calculator to calculate their deduction instead of saving receipts and totaling the sales tax paid.  An easily overlooked deduction is the sales tax paid on large purchases that may be added to the amount computed with the calculator.

Large purchases include:

  • A motor vehicle (car, motorcycle, motor home, recreational vehicle, sport utility vehicle, truck, van, and off-road vehicle) whether purchased or leased.
  • An aircraft or boat.
  • A home (including a mobile home or prefab home or a substantial addition to or major renovation of a home) with certain restrictions.

Small Employer Health Insurance Credit

Included in the health care reform legislation, the Patient Protection and Affordable Care Act, approved by Congress and signed by President Obama on March 23, 2010, the credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees.

The maximum credit goes to smaller employers — those with 10 or fewer FTEs — paying annual average wages of $25,000 or less.

Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011. For tax-exempt employers, the IRS will provide further information on how to claim the credit.

Here are answers to frequently asked questions about the credit.

Closing in on the Repeal of the 1099 Requirement

The Senate approved an amendment Wednesday to repeal the expanded 1099 information reporting requirements in the health care reform law.  The repeal of the 1099 reporting requirements enjoys broad bipartisan support.   The requirements, which were included in the Patient Protection and Affordable Care Act (commonly know as the “Health Care Reform Bill,”  would have required businesses to report to the Internal Revenue Service any purchases of goods and services over $600 a year from another business or individual.

In the past, the battle has ensued over how to pay for the measure and cover about $19 billion in estimated lost revenue.   To avoid adding to the budget deficit, the amendment authorizes the director of the Office of Management and Budget to cut unnecessary unobligated spending, but exempts the Social Security Administration’s administrative expenses from being cut.

Information Reporting for Rental Income

As of January 1, 2011,  persons receiving rental income from real property have to file information returns (Form 1099-MISC) to the Internal Revenue Service and to persons that provide services for which they receive payments of $600 or more during the year for rental property expenses such as repairs and maintenance.

Form W-9 is available to give to service providers.  I recommend obtaining the W-9 before paying the provider unless it is clearly obvious that payments will not exceed $600 for the year.  Hear’s a comprehensive article in the Journal of Accountancy.

Federal Tax Deposits

On December 27, IRS sent Notice CP-247 to inform employers that required federal deposits may not be made with Forms 8109/8109-B as of January 1, 2011.   Taxpayers are advised to check with their financial institution to find out its cut-off date for accepting Federal Tax Deposit coupons.

Employers that are using a payroll service have already been depositing electronically through that service.   Others must navigate to https://www.eftps.gov/eftps/ to enroll in the Electronic Federal Tax Payment System.

This system is available to both business and individual taxpayers.  Be sure to set up a business account for payroll taxes and a personal account if you would like to use this method for 1040-ES (estimated tax) payments.

If you’re stuck and need to make a payment and your financial institution turns you away, you can take the payment to the IRS.  In Austin:  825 E. Rundberg Ln.  (IH35 and Rundberg)

Paying for Health Care

On December 31, 2010, many of the products currently eligible for reimbursement through Flexible Spending Accounts will no longer be covered unless your physician provides you with a prescription.    That’s important to note since you can get your physician to write a prescription for the expensive OTC drugs that you use, and you will be eligible for reimbursement.  You will need to send in your prescription with your receipts for reimbursement, and you will not be able to use an FSA debit card.  That may be a good thing since many of the those debit cards are a nightmare to use.

Here’s a handy list of qualified and nonqualified expenditures post 12/31

heb.com/fsa

The Joint Committee on Taxation estimates that this will generate revenue in excess of $5 billion in the first ten years.

Here’s  a website that you can use to calculate your share of the $5 billion: Save Flexible Spending Plans.

Will the Bush Tax Cuts be Reinstated?

The problem:  how to tackle the deficit.    Not extending the cuts immediately raises taxes on everyone.  Spending cuts are difficult since Medicare, Social Security, and Medicaid represent 50% of our budget by 2015 (  Peter Orzag ).  The other half of our budget is split 50/50 between interest payments on US debt and discretionary spending.  The discretionary spending is 50% defense and 50% non-defense.

Here’s an opportunity  for you to try your hand at balancing the budget.  Especially pay attention to the revenue options:  you’ll find many of the tax effects you may face in 2010.

Get a Pencil.  You’re Tackling the Deficit.

Homebuyer Credit

On June 29, the House of Representatives by a vote of 409–5 approved H.R. 5623, the Homebuyer Assistance Improvement Act of 2010. This bill would provide first-time homebuyer credit relief to taxpayers who can’t meet a key June 30, 2010, closing date.

H.R. 5623 would amend Code Sec. 36(h)(2) to provide that if a written binding contract to purchase a principal residence was entered into before May 1, 2010, the credit may be claimed if the purchase is closed before Oct. 1, 2010. Thus, this extension would allow homebuyers who signed a contract no later than April 30th deadline to complete their closing by the end of September.

The three-month extension of the closing date is intended to provide tax relief for those who couldn’t close on time because of backlogs at lenders and federal programs involved in homebuyer loans. In the words of the bill’s supporters, the three-month extension “will give time for all the new mortgages to be processed and not punish those homeowners who have been delayed through no fault of their own.”

The Senate will likely vote on the bill by July 1.