NEWSLETTER

May 2010

 

 

 

New health care law includes tax provisions

The new health care legislation includes sweeping changes for both individuals and businesses. The two laws, the Patient Protection and Affordable Care Act of 2010 and the Health Care and Education Reconciliation Act of 2010, encourage universal health insurance coverage through options such as employer plans, state-operated exchanges, and private plans. Here are highlights of tax-related provisions included in these laws.

Insurance coverage

?  Small businesses. Starting this year, a small business with fewer than 25 employees and average annual wages of less than $50,000 may use a tax credit to partially offset the cost of employer-provided health insurance. The full credit is available to a business with ten or fewer employees and average annual wages of $25,000 or less per employee.

 

?  Individual coverage. Starting in 2014, an individual who doesn’t obtain at least “minimum essential coverage” may be assessed a nondeductible tax penalty. The monthly penalty is calculated using a percentage of the taxpayer’s income or a flat dollar amount.

?  Employer coverage. Beginning in 2014, an employer with at least 50 full-time employees may be assessed a nondeductible tax penalty if it doesn’t offer minimum essential coverage.

Tax increases on high-incomers

 ?  Medicare tax. Currently, the 1.45% Medicare tax applies to earned income like wages. Starting in 2013, two additional Medicare taxes may be imposed on high-income taxpayers:

 

–   A 0.9% Medicare surtax for joint filers on earned income above $250,000 ($200,000 for single filers).

–   A 3.8% Medicare tax on “net investment income” for joint filers with a modified adjusted gross income above $250,000 ($200,000 for single filers). Net investment income includes “unearned income” such as interest, dividends, royalties, rents, gains from dispositions of property not used in an active trade or business, and passive activity income (but not distributions from qualified retirement plans and IRAs).

Other tax changes

 ?  Adoption credit. The adoption credit is increased to $13,170 for 2010 (from $12,170) and extended through 2011. The credit is also made refundable.

 

?  Information reporting. Effective for 2011, employers must report the value of health insurance coverage on each employee’s Form W-2. Effective for 2012, a business must file information returns for annual payments totaling $600 or more to every corporate recipient (other than tax-exempt entities).

?  Medical deductions. Currently, you can deduct unreimbursed medical expenses in excess of 7.5% of adjusted gross income (AGI). Starting in 2013, the floor will be raised to 10%. Exception: Prior to 2017, individuals who are 65 or older are exempt from this increase.

?  Flexible spending accounts (FSAs). Beginning in 2013, the maximum amount that may be contributed to a health care FSA will be limited to $2,500 (adjusted for inflation thereafter).

The health care reform legislation will affect every taxpayer and every business. Contact us for more information on how the new rules will affect your taxes.

 

 IRS is conducting employment audits

The IRS has launched a three-year auditing project that will examine about 6,000 U.S. companies for compliance with employment tax obligations. The project is the first of its kind in 25 years, and its primary objective is to collect data to identify areas of noncompliance across all industry sizes and sectors, including nonprofits and governmental entities. This data will be used by the IRS to update its audit selection formulas in an area where noncompliance is considered a serious drain on the U.S. Treasury.

Among the issues the audits will look at:

?  Classification of workers as employees or independent contractors, including executives rehired as consultants, dual status employees, and employee leasing arrangements.

?  Fringe benefits, including expense reimbursement arrangements and noncash benefits.

?  Executive compensation and fringe benefits, executive retirement contracts, golden parachutes, and stock options.

Employers can take some steps to prepare for these payroll tax audits. For example, conduct a mock audit to check how your company handles the three focus areas – classification of workers as employees or independent contractors, fringe benefits, and executive compensation. Your company may not be selected for the research audit program, but you also need to be ready to face an audit following the three-year project.

For more information or assistance, give our office a call.

 

 HIRE Act certification form now available

The HIRE Act, passed in March, provided tax incentives for companies to hire unemployed workers. One of these incentives is an exemption from social security payroll taxes for every qualified worker hired after February 3, 2010, and before January 1, 2011.

A new IRS form is now available for employers to document this payroll tax exemption for hiring unemployed workers. Form W-11 (Hiring Incentives to Restore Employment Act Employee Affidavit) is to be filled out by the new hire, certifying under penalties of perjury that he or she was either unemployed or worked fewer than a total of 40 hours during the 60 days prior to taking the current job. The W-11 forms are not filed with the IRS; the employer must retain them along with other payroll records.

  

 This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

References, Citations, and Suggested Additional Readings
for Material in the May 2010 Monthly Newsletter

 

  We thought you would appreciate having references, citations, and additional reading sources on topics in each issue of the Monthly Newsletter. The typestyle used in the newsletter is 11 pt. Times New Roman with 13 pt. spacing. The headings are also in Times New Roman.

 

 

Article:       “New health care law includes tax provisions”

 

 

 

                  – Patient Protection and Affordable Care Act of 2010.

 

 

 

                  – Health Care and Education Reconciliation Act of 2010.

 

 

 

 Article:       “IRS is conducting employment audits”

 

 

 

                  – BNA Daily Tax Report, November 27, 2009; page G-4

 

 

 

                     and January 27, 2010; page G-12.

 

 

 

 Article:       “HIRE Act certification form now available”

 

 

 

                  – IR-2010-43.

 

 

 

 

Second estimated tax payment due June 15

June 15, 2009, is the due date for making your second installment of 2009 individual estimated tax. Your check to the United States Treasury should be accompanied by Form 1040-ES. June 15 is also the due date for calendar-year corporations to make their second quarter 2009 estimated tax payment.

New law gives options for 2008 operating loss carryback 

A net operating loss (NOL) is generated when a business has more deductions than income. Under prior rules, a business that had an NOL could carry that loss back only two years for a refund of taxes paid in those earlier years. (The business could also choose to carry the loss forward for up to 20 years.)

The American Recovery and Reinvestment Act of 2009 changed the carryback period to as many as five years. The new rule applies only to 2008 net operating losses in companies with average annual gross receipts over the last three years of $15 million or less.

Planning opportunities

The carryback periods of three, four, or five years are elective. That means that the taxpayer can choose how long to carry back the NOL as long as it doesn’t exceed five years.   

 

This opens up many tax planning opportunities, especially if taxable income has fluctuated significantly over the years. Not only that, it’s a terrific benefit to taxpayers with NOLs larger than could be absorbed over the traditional two-year period.

As an alternative to carrying the loss back to prior years, you can still elect to forgo the carryback altogether and simply carry your losses forward to reduce future taxes.

Remember that the new NOL rules are elective, and you may choose to carry losses back as you see fit for up to five years. There are filing and time restrictions on this tax break for businesses, so contact us if you need details and filing assistance.

Consider energy-saving home improvements to cut your taxes

President Obama signed the American Recovery and Reinvestment Act of 2009 into law on February 17, 2009. Among the various provisions in the law are new energy tax credits that can really add up to savings for the homeowner. Making energy-saving improvements to your home will help to save on utility bills, enhance your efforts to go “green,” add value to the home, and perhaps reduce your tax bill for 2009. These residential energy tax credits fall into two main categories: energy efficiency improvements and renewable energy systems. In many cases, the Recovery Act adjusts or extends similar energy credits previously available. 

 

 

 

 

Energy efficiency

The Recovery Act adjusts the residential energy property credits previously allowed, increasing the tax credit to 30% and the maximum aggregate cap to $1,500. The credit applies to eligible property placed into service in your principal residence during 2009 and 2010. Qualifying improvements for this energy credit include insulation; exterior windows and doors; central air conditioning systems; water heaters and furnaces burning natural gas, propane, or oil; stoves using renewable biomass fuel such as wood, pellets, and plants; hot water boilers; electric heat pump water heaters; certain metal roofs; and advanced main air circulating fans. 

Installation of these items as part of a newly constructed home does not qualify for the credit. For certain eligible items, the credit can be calculated based only on the cost of materials; for other items, the cost of installation also can be included. This credit is not subject to income phase-outs, and the credit is allowed under the alternative minimum tax.

Renewable energy

The 2009 law also generally removes the tax credit dollar limits for renewable energy systems. Such property includes solar hot water heaters, geothermal heat pumps, and wind energy systems. The tax credit, available through 2016, is up to 30% of the cost, including both labor and materials. Primary residences, second homes, and rental units qualify for this credit; existing and newly constructed structures are eligible.

 

Now may be the right time to upgrade the energy efficiency of your home. To discuss the tax breaks available for the improvements you have in mind, give us a call. We can help you sort through the details.

IRS releases 2009 vehicle deductions

Each year the IRS publishes depreciation limits for business vehicles first placed in service that year. Because 50% bonus depreciation is allowed only for new vehicles, these limits are different for new and used vehicles.

For new business cars purchased in 2009, the first-year limit is $10,960; for used cars, it’s $2,960. After year one, the depreciation limits are the same for both new and used vehicles purchased in 2009: $4,800 in year two, $2,850 in year three, and $1,775 in all following years.

The 2009 first-year depreciation limit for trucks and vans is $11,060 for new vehicles and $3,060 for used vehicles. Limits for both new and used vehicles in year two are $4,900, in year three $2,950, and in each succeeding year $1,775.

For details relating to your 2009 business vehicle purchases, contact us.

Make time for midyear tax planning

Don’t forget to put a little tax planning on your busy summer agenda. A midyear tax review is a great way to save tax dollars and time. To get together for a check of your 2009 tax situation, give us a call.

References, Citations, and Suggested Additional Readings
for Material in the April 2009 Monthly Newsletter

We thought you would appreciate having references, citations, and additional reading sources on topics in each issue of the Monthly Newsletter. The typestyle used in the newsletter is 11 pt. Times New Roman with 13 pt. spacing. The headings are also in Times New Roman.  

     Article:       “New law gives options for 2008 operating loss carryback”   

                   – American Recovery and Reinvestment Act of 2009.

       Article:       “Consider energy-saving home improvements to cut your taxes”

                   – American Recovery and Reinvestment Act of 2009.

      Article:       “IRS releases 2009 vehicle deductions”

                   – Rev. Proc. 2009-24.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year End Tax Review