DIVIDENDS April 2011
The Tax Man Cometh...
It seems like there was something we needed to do this month…
Of course! We all know that April 15 is Tax Day. Is it a national holiday that should be capitalized? We think so. After all, far too many people will be part of the annual parade that lines up at the nation’s post offices at 11:30 p.m.
If you put-off your planning for the New Year back in January, consider this a wake-up call and a second chance. Look at your paperwork and your returns and really examine what can be done differently to put more dollars in your pocket next year. Be proactive! Take the bull by the horns! We’ll help you keep up with the latest developments in policy and in your business to ensure you are getting the most money for your buck.
Take a deep breath. Relax. Start fresh tomorrow – or April 16. We’ll be right there with you.
Small Business Jobs Act of 2010: Individual Tax Incentives
New laws and policies are going into effect all the time. It’s a full-time job just to read them, much less implement them and even harder to optimize.
But some of them hit the bottom line in a much more immediate and day-to-day way than others, such as the Small Business Jobs Act of 2010.
The new law is generally targeted to businesses but also includes some provisions impacting individuals, especially individual retirement savings. If you own rental property, if you are required to file information returns, if you pay self-employment tax, you may be impacted by this act. Some of the provisions are temporary; others are permanent, so careful planning is very important to maximize your tax benefits.
Retirement Savings
Individuals have a variety of savings vehicles for retirement. Many employers sponsor 401(k) plans, which are defined contribution plans where an employee can make contributions from his or her paycheck either before or after-tax, depending on the options offered in the plan. The contributions go into a 401(k) account, with the employee often choosing the investments based on options provided under the plan. In some plans, the employer also makes contributions such as, matching the employee’s contributions up to a certain percentage. Public schools and tax-exempt organizations may sponsor 403(b) plans and government employers may sponsor 457(b) plans, both of which are similar to 401(k) plans.
A plan may permit an employee to designate some or all of his or her elective contributions under the plan as designated Roth contributions. Under the new law, if a Code Sec. 401(k), 403(b) or governmental 457(b) plan has a qualified designated Roth contribution program, a distribution to an employee or surviving spouse from a non-designated Roth account may be rolled over to a designated Roth account under the plan. If an amount is rolled over in 2010, the amount is included ratably in income in equal amounts for 2011 and 2012 unless the taxpayer elects otherwise. The designated Roth provisions in the new law are effective for distributions made after the date of enactment. The new law also adds governmental 457(b) plans to the plans that are permitted to include a designated Roth program.
Additionally, the new law allows partial annuitization of a nonqualified annuity contract. Holders of nonqualified annuities (annuity contracts held outside of a tax-qualified retirement plan or IRA) may elect to receive a portion of the contract in the form of a stream of annuity contracts, leaving the remainder of the contract to accumulate income on a tax-deferred basis. Under the new law, only a portion of an annuity, endowment or life insurance contract may be annuitized while the balance is not annuitized. The annuitization period must be for 10 years or more, or for the lives of one or more individuals. This provision is effective for amounts received in tax years beginning after December 31, 2010.
Rental Property Expense Payments
Congress has enacted a number of provisions to enhance tax filing accuracy. The new small business act continues this trend by imposing information reporting requirements on certain recipients of rental income. Rental income recipients making payments of $600 or more to a service provider will file an information return with the IRS and the service provider. Service providers for purposes of the new law include electricians, painters, roofers, and others. The new rental property expense information reporting requirement applies to payments after December 31, 2010.
The new law permits the IRS to exclude individuals for whom reporting would be a hardship. Individuals who receive only minimal amounts of rental income may also be excluded from the requirement. Additionally, certain members of the military and intelligence services are also excluded.
Keep in mind that the new rental property expense information reporting requirement is distinct from another new information reporting requirement. The Patient Protection and Affordable Care Act of 2010 generally expanded reporting requirements to include a business’ payments related to goods and other property, and payments to most corporations. The expanded information reporting requirements under the PPACA apply to payments after December 31, 2011.
To further complicate reporting, the IRS has proposed that many business purchases made with credit or debit cards would be exempt from the new reporting requirement because they are already reported by banks and other payment processors. Congress has also considered excluding some small businesses from the expanded information reporting requirements.
Information Return Penalties
Along with imposing additional information reporting requirements, the new law revises the penalties for failing to file information returns.
The new law also revises the penalty for failing to furnish a payee statement to provide tiers and caps similar to the tiers and caps for failing to file the information return. The new penalty regime applies to information returns and payee statements required to be filed on or after January 1, 2011.
Self-employment Tax
Self-employment tax is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. Self-employed individuals may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for the taxpayer, his or her spouse, and dependents. However, for self-employment taxes, the self-employed individual cannot deduct any health insurance costs.
The new law allows the deduction for income tax purposes for the cost of health insurance in calculating net earnings from self-employment for purposes of self-employment taxes. The provision is temporarily and only applies to the self-employed taxpayer’s first tax year beginning after December 31, 2009.
Cell Phones & Other Telecommunications Devices
If your employer provides you with a cell phone or other telecommunications device for work-related calls, emails, and so on, the IRS generally treats these items as “listed property.” Employer-provided listed property subjects the employer and employee to strict IRS substantiation rules. For tax years starting with 2010, cell phones are no longer classified as listed property. This change affects both employees who use employer-provided cell phones and the businesses that provide them.
For the individual taxpayer, the change significantly reduces the strict recordkeeping requirements for cell phone users that previously applied. As a result, the fair market value (FMV) of an employee's personal use of an employer-provided cell phone may be excluded from the employee's income if the expense qualifies as an excludable working condition fringe benefit.
For the business, cell phones may be deducted or expensed under the regular rules for business property and are no longer subject to the special depreciation rules that apply to listed property.
A Consumer Alert from the IRS
Everyone has taxes on the brain this time of year, so an email from the IRS may not send up any scam or spam red flags.
However, the IRS does not send taxpayers unsolicited e-mails about their tax accounts, tax situations or personal tax issues. If you receive such an e-mail, most likely it's a scam.
IRS impersonation schemes flourish during filing season. These schemes may take place via phone, fax, Internet sites, social networking sites and particularly e-mail.
Many impersonations are identity theft scams that try to trick victims into revealing personal and financial information that can be used to access their financial accounts. Some e-mail scams contain attachments or links that, when clicked, download malicious code (virus) that infects your computer or direct you to a bogus form or site posing as a genuine IRS form or Web site.
Some impersonations may be commercial Internet sites that consumers unknowingly visit, thinking they're accessing the genuine IRS Web site, IRS.gov. However, such sites have no connection to the IRS.
Source: irs.gov
Upcoming Deadlines
April 15:
- File your return or extension.
- Estate, trust and gift returns are due.
April 30:
- First quarter payroll returns are due.