Federal Tax Filing

By: Sandi Lattin

With Congress enacting six new tax laws in 2010, compared to only two in 2009, U.S. Taxpayers have never needed more help from their tax professionals then they do this tax season.

Clients are understandably confused by the profusion of tax law changes designed to stimulate the economy, improve access to health care, and incentive consumer and business behavior. For their part, tax professionals have never had a better year to demonstrate their value to clients, if they can get up to speed now on the rush of updates coming out of Washington, DC.

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New Medicare Tax Interestingly, one of the hottest questions for the 2010 season is about the Medicare tax change that takes effect in 2013. According to tax expert Vern Hoven, by far the most common question CPA's ask him about is how the new 3.8 percent Medicare tax will affect their clients.

The tax kicks in at an adjusted gross income of $250,000, and it applies to unearned income, which includes interest, dividends, royalties, annuities, rents, and most capital gains. Profit on the sale of a principal home above $250,000 for individuals or $500,000 for couples is also subject to tax.

"When clients come in during the upcoming tax season, they will want to know how to minimize and maximize income sources to avoid the tax. It's essential that CPA's and EA s be prepared to help with strategies," said Hoven. These strategies include maximizing income from tax-exempt municipal bonds, Roth IRA and retirement plan distributions, and the sale of business property, while minimizing passive income and non-business capital gains. Family limited partnerships will be part of the mix, Hoven added.

More Tax Breaks for Families Congress passed some tax relief measures especially for families in 2010. One change extended the adoption tax credit to more parents. Parents who adopt children this year may be entitled to the full adoption tax credit of $13,170. Those who owe less than $13,170 in federal tax won't have to defer part of the credit to the following year. "Those who owe no tax at all will also receive a check for the entire amount of the adoption credit," explained Hoven.

In another change that parents may not know about, Congress made deductible medical insurance premiums paid to qualified plans for adult children up to age 27. "The children do not have to be dependents-so that's hot," said Hoven.

Medical Insurances for Employees Small businesses receive a break on medical insurance too. The Patient Protection and Affordable Care Act signed into law in March gives a tax credit on a sliding scale to small businesses that provide health insurance to employees. Under certain circumstances, a company that pays half the cost of an employee health plan can get as much as 35% of it back. It is estimated that 4 million small businesses could qualify for a tax credit under PPACA.

"This credit is effective already. I can't imagine being a CPA and not taking advantage of it right now," said Hoven.

Sandi Lattin Free 1040 Russellville, Arkansas http://free1040.com

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Filing Taxes Online

By: Sandi Lattin

For tax planning, the only certainty is uncertainty. Below are the current updates to the 2010-2011 Tax season that effective for 2010. At this time there is uncertainty as to what other tax law changes may be enacted for 2010. Congress has been discussing and debating whether the "Bush tax cuts" should be allowed to expire as provided by current law or whether the "Bush tax cuts" should be allowed to expire as provided by current law or whether they should be extended (either in full or in part) to 2010 due to continued sluggishness in the U.S. Economy.

The following are the newest tax law items effective for 2010: Self-Employed Health Insurance Premium deductions for 2010 A self-employed person may deduct on Form 1040, Schedule C, the amount paid for health insurance. Such deduction is used in determining self-employment income. "Earned income" for retirement plan contribution purposes will not be reduced by health insurance premium.

Section 179 expensing election: For tax years beginning in 2010 or 2011: 1)the dollar limitation on the expense deduction is $500,000; and 2)the reduction in the dollar limitation starts to take effect when property place in service in a tax year exceeds $2,000,000 (beginning-of-phase-out amount). For property placed in service in tax years beginning in 2010 or 2011, the deduction won't phase-out completely until the cost of expensing-eligible property exceeds $2,500,000 ($2,000,000 (beginning-of-phase-out amount) + $500,000 (dollar limitation).

"Qualified real property" is eligible for Code Sec. 179 expensing in tax years beginning in 2010 and 2011. The 2010 Small Business Act temporarily expands the definition of property qualifying for a deduction to include certain real property-i.e., qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property.

November 2010

Bonus First-Year Depreciation Extended Through 2010 The 2010 Small Business Act extends 50% bonus first-year depreciation for one year, i.e.,makes it available for qualifying property acquired and placed in service in 2010 ( as well as 2011, for certain long-lived property).

First-Year Depreciation Cap for 2010 Autos and Light Trucks or Vans Boosted by $8,000 For example, On January 15, 2010, T, a calendar year taxpayer, placed a new $40,000 passenger automobile into service in his business. Assume that the vehicle is "qualified property" (and an election to decline bonus depreciation and AMT depreciation relief doesn't apply to the vehicle). T is allowed first-year depreciation for 2010 of $11,060 ($3,060 general first allowance for 2010 plus $8,000). If the vehicle is a light truck or van, T is allowed first-year depreciation for 2010 of $11,160 (the $3,160 general first year allowance for 2010 plus $8,000).

Deduction for Start-up Expenses Increased For tax years beginning after December 31, 2009, and before January 1, 2011, the $5,000 amount for start-up expenditures is increased to $10,000, and the phase-out threshold is increased from $50,000 to $60,000 The following are some examples of tax law items that are being proposed to be extended for 2010 but currently are not in effect for 2010: 1.Extension of the deduction of State and local general sales taxes. 2.Extension of the additional standard deduction for real property taxes. 3.Extension of the above-the-line deduction for qualified tuition and related expenses. 4.Extension of the above-the-line deduction for certain expenses of elementary and secondary school teachers. 5.Alternative Minimum Tax for 2010 "Fix": In a November 9, 2010 letter to IRS Commissioner Douglas Shulman, bipartisan tax policy leaders have committed themselves to legislation that will: 1.Allow the personal credits against the alternative minimum tax (AMT) and 2.Set the AMT exemption amounts for 2010 at A. $47,450 for individuals and Head of Household B. $72,450 for married taxpayers filing jointly. C. $36,225 for married filing separately

Please check with your tax adviser at http://onlinetaxpros.com to discuss the best ways to save tax in these uncertain times and for the latest changes out of Washington. Filing your taxes online is easy with online tax pros.

Sandi Lattin Online Tax Pros Russellville, Arkansas http://onlinetaxpros.com

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More Tax Breaks

By: Sandi Lattin

The IRS has released instructions to help employers implement the 2011 cut in payroll taxes, along with new income-tax withholding tables that employers will used during 2011.

Millions of workers will see their take-home pay rise during 2011 because the Tax Relief, Unemployment Insurance Re-authorization, and Job Creation Act of 2010 provides a two percentage point payroll tax cut for employees, reducing their Social Security tax withholding rate from 6.2 % to 4.2 % of wages paid. This reduced Social Security withholding will have no effect on the employee's future Social Security benefits.

The new law also maintains the income-tax rates that have been in effect in recent years.

Employers should start using the withholding tables and reducing the amount of Social Security tax withheld as soon as possible in 2011 but no later than January 31, 2011. The notice contains the percentage method income tax withholding tables, the lower Social Security withholding rate, and related information that most employers need to implement these changes.

The IRS recognizes that the late enactment of these changes makes it difficult for many employers to quickly update their withholding systems. For that reason, the agency asks employers to adjust their payroll systems as soon as possible, but no later than January 31, 2011.

Employers and payroll companies will handle the withholding changes, so workers typically won't need to take any additional action, such as filling out a new W-4 withholding form.

As always, however, the IRS urges workers to review their withholding every year and, if necessary, fill out a new W-4 and give it to their employer. For example, individuals and couples with multiple jobs, people who are having children, getting married, getting divorced or buying a home, and those who typically wind up with a balance due or large refund at the end of the year may want to consider submitting revised W-4 forms.

Taxpayers will see a variety of benefits impacting several different tax years under new legislation signed into law on December 17, 2010. These include:

A Two Percent Employee Payroll Tax Cut – The legislation includes an employee-side payroll tax cut for over 155 million workers, providing tax relief of about $112 billion in 2011 paychecks. Extension of Unemployment Benefits – The legislation extends emergency unemployment benefits at their current level for 13 months, preventing an estimated 7 million workers from losing their benefits over the next year as they search for jobs. The Child Tax Credit – The $3,000 refund-ability threshold established in the Recovery Act for the Child Tax Credit will be extended,ensuring an ongoing tax cut to 10.5 million lower-income families with 18 million children. The Earned Income Tax Credit – The legislation continues a Recovery Act expansion of the Earned Income Tax Credit worth, on average, $600 for families with 3 or more children, and reduces the "marriage penalty" faced by working married families. Together, these enhancements to the EITC will help 6.5 million working families with 15 million children. The American Opportunity Tax Credit- The new American Opportunity Tax Credit – a partially refundable tax credit worth up to $2,500 per student per year that helps more than 8 million students and their families afford the cost of college – is continued. 100 % Expensing – The legislation temporarily allow businesses to expense 100% of certain investments in 2011, potentially generating more than $50 billion in additional investment in 2011, which will fuel job creation. 1603 Renewable Energy Grants – The agreement extends the 1603 program, which provides payment in lieu of renewable energy tax credits and is helping to support tens of thousands of jobs in the wind and solar industries.

If you have any questions about online tax preparation or online tax help please contact us at onlinetaxpros.com.

Sandi Lattin Online Tax Pros Russellville, Arkansas http://onlinetaxpros.com

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Agricultural Tax Tips

By: Sandi Lattin

If your deductible loss from operating your farm is more than your other income for the year, you may have a net operating loss (NOL). You may also have an NOL if you had a personal or business-related casualty or theft loss that was more than your income.

Note: if you have an NOL this year, you can carry it to other years and deduct it. You may be able to get a refund of all or part of the income tax you paid for past years, or you may be able to reduce your tax in future years.

Carry-backs

Generally, you carry an NOL back to the two tax years before the NOL year and deduct it from income you had in those years. You can choose not to carry back an NOL and only carry it forward. These are rules for figuring how much of the NOL is used in each tax year and how much is carried to the next year.

Unless you choose to waive the carry-back period, as discussed later, you must first carry the entire NOL to the earliest carry-back year. If your NOL is not used up, you can carry the rest to the next earliest carry-back year, and so on.

Re-figured Tax

Re-figure your deductions, credits, and tax for each of the years to which you carried back and NOL. If your re-figured tax is less than the tax you originally paid, you can apply for a refund by filling Form 1040X, Amended U.S. Individual Income Tax Return, for each year affected, or by filing Form 1045. You will usually get a refund faster by filing Form 1045, and generally you can use one Form 1045 to apply an NOL to all carry-back years.

Exceptions to 2-Year Carry-back Rule

Eligible Losses

Eligible Losses qualify for longer carry-back periods. The carry-back period for an Eligible Loss is 3 years. An Eligible Loss is any part of an NOL that:

1.Is from a casualty or theft, or 2.Is attributable to a Presidentially declared disaster for a qualified small business

Note: An eligible loss does not include a farming loss.

Farming Loss

Farming Losses qualify for longer carry-back periods. The carry-back period for a Farming Loss is 5 years. A Farming Loss is the smaller of:

1.The amount which would be the NOL for the tax year if only income and deductions attributable to farming businesses were taken into account, or 2.The NOL for the tax year You can choose to treat a farming loss as if it were not a farming loss. If you make this choice, the loss is subject to the 2-year carry-back period.

Carryovers

If you do not use up the NOL in the carry-back years, carry forward what remains of it to the 20 tax years following the NOL year. Start by carrying it to the first tax year after the NOL year. If you do not use it up, carry over the unused part to the next year. Continue to carry over any unused part of the NOL until you use it up or complete the 20-year carry-forward period.

For an NOL occurring in a tax year beginning before August 6, 1997, the carry-forward period is 15 years.

Arbitration

Arbitration is available for certain cases within Appeals jurisdiction that meet the operational requirements of the program. Generally, this program is available for cases in which a limited number of factual issues unresolved following settlement discussion in Appeals. Appeals and the taxpayer will be bound by the arbitrator's findings. The arbitration procedure uses the services of an arbitrator either from Appeals or from an outside organization.

If you have any questions about where to file taxes online or free online tax preparation, please feel free to visit our site http://free1040.com.

Sandi Lattin Free 1040 Russellville, Arkansas http://free1040.com

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Top 20 Tips for H1B Tax, NRI Tax filing, Itemised Tax Return, Desi Tax consultants etc...

By: Sarath Alva

People are acutely aware of their fiscal obligation towards the Government, if only for the lure of ‘refunds’ that may be due to them. Every year IRS embarks on a major PR campaign to educate and inform the public of their fiscal responsibility.

Though many in America wait for the April 15th deadline for filing taxes, some - especially for those a big refund is due - begin the process right in earnest. Uncle Sam’s reach extends to everyone living and making money in the US, including Expatriates, Non Resident Indians (NRIs), and those on student, temporary and H1 Visas.  For residents and expatriates, one has to account for the ‘global income’ while filing taxes. Regular tax practitioners are overwhelmed by intricacies of tax filing when it comes to credits, accounting for global income etc.

The big question that I get asked often: if I am an Expat in the US with additional income and assets in India, can I do my US taxes myself using tax software or online tools alone, or should I use a tax consultant? This question is especially relevant in current tough economic times when every penny counts. Here are the top 15 tips and facts to keep in mind:

1. If you are a U.S. citizen or resident, you are generally subject to U.S. income tax on your worldwide earnings. Those on temporary work visas including H1, L1 and Student visas are also subject to U.S Taxes.

2. U.S. Tax codes are complex. All the more if you want to ensure you take all deductions including credit for foreign taxes paid

3. Most Free Tax software packages cater to "simple" tax returns, like for those filing a 1040EZ. Tax package vendors make money on add-on’s: State tax package, international, mortgage and other deductions etc etc

4. Good tax consultants are expensive though some are worth the money they charge.

5. If you are planning to hire a tax consultant, do it as early as possible.  Between mid-March and April, even the best consultants may be swamped. They will not be able to dedicate as much time for each individual client

6. Not all tax consultants know of the intricacies of international income taxes.

7. Expats working for foreign companies, Software service firms, especially those employing a lot of H1 Visa holders and expats provision for lot of tax benefits and avoidance measures that they and employees can avail.

8. Making sure an individual foreign employee of avails of all these benefits is an art more than a precise science. Not all tax consultants are aware of these provisions.

9. If you had income in a foreign country you may have paid or been charged foreign income tax. The foreign income tax is normally withheld in the source country from payments and distributions. Make sure you are not a victim of double taxation.

10. Expat chat-groups and discussion forums and blogs may have helpful tips. However, some of those can be misleading since each individual’s situation is different. Use such references with caution.


Global Value Add, Inc. (GVA) was founded by professionals and alumni from Infosys, Jackson Hewitt, KPMG, and other reputable consulting companies with a combined industry experience of greater than 50 years in finance, book keeping, taxation and business consulting. My taxfiler also provide the services like Business Tax Return Preparation, US Tax Planning, ITIN Preparation, PAN NRI, NRI Tax Filing, India US Tax etc... http://www.mytaxfiler.com

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I Own and Operate a Small Business – Does the AMT Apply to Me?

By: George Bauernfeind

Among the many paperwork burdens small business owners must endure is the filing and paying of income taxes for the business. Even if no taxes currently are due because of losses, accurately computing and tracking of tax losses is a must. And, as if the Regular Tax weren’t enough to contend with, the Alternative Minimum Tax also must be considered. The purpose of this article is to discuss those specific aspects of the AMT that can apply to small business owners.

Who is responsible for the AMT – the small business itself or the individual owner?

The answer to this basic question depends on the legal structure of the business - i.e., how it is organized under state law. Listed below are the common forms of doing business, with an explanation in each case of who is responsible for the AMT.

Sole proprietorship – if no separate legal entity is formed, the business and the individual owner are one and the same. In this case, taxes are reported on a schedule attached to the individual’s personal tax return (Schedule C), and the individual is responsible for computing and paying the Alternative Minimum Tax.

Limited Liability Company (LLC) – this type of entity is formed under state law, but for income tax purposes it is treated as a "disregarded entity." If there is only one owner of the LLC, its tax reporting is the same as if it were a sole proprietorship. If there are multiple owners, the entity is treated for tax purposes the same as a partnership (described below).

Partnership – a partnership is another form of entity created under state law. For tax purposes, its income and losses – along with its AMT items – "pass through" directly to the partners. The partnership files a tax return, but it as an entity does not pay any taxes because of this pass-through treatment.

Corporation – unless a corporation makes a "Subchapter S" election (see below) the corporate entity itself is the taxpayer. These tax-paying corporations are referred to as "C corporations." This is the one type of business entity that pays its own Alternative Minimum Tax, separate and distinct from its owners. This is done on Form 4626 – Alternative Minimum Tax—Corporations.

Subchapter S corporation – while formed as a corporation under state law just like a regular corporation, for income tax purposes if the shareholders make a "Sub S" election the entity is treated the same as a partnership for tax purposes. As such, the AMT items pass through and are picked up by the individual shareholders.

What are the AMT items that apply to small business owners?

Set forth below are brief explanations of the more common AMT items affecting small businesses.

Depreciation – property used in a business can be depreciated for tax purposes, and there are choices to be made as to which depreciation method to use. Some depreciation methods result in an AMT item while others do not, so this is an important consideration for the small business owner.

Gain or loss on sale of business property – when business property is sold or otherwise disposed of, at this point taxable gain or loss must be computed. Depending on the depreciation method that was used (see above), gain or loss for purposes of the AMT may be different from what it is for the Regular Tax.

Net operating loss (NOL) – when a business has a tax loss, in certain cases that loss may be used to generate a refund of prior years’ taxes paid, and/or it may be carried forward to be used as a deduction against future years’ taxable income. The AMT requires that the NOL be calculated differently than it is for the Regular Tax.

Qualified small business stock – a Regular Tax break applies to gain realized from the sale of stock of certain small businesses. For the AMT, this break is less favorable than it is for the Regular Tax.

Special industries – businesses in certain industries are allowed favorable tax treatment under the Regular Tax, while the Alternative Minimum Tax denies some or all of these benefits. Any of the following items in the businesses indicated can result in the AMT being paid:

• Depletion allowances, mining costs, intangible drilling costs (oil and gas, mineral extraction)
• Circulation costs (publishing)
• Long-term contracts (construction)
• Research & development/R&D (any business engaged in research)

Summary

In addition to the Alternative Minimum Tax rules that apply to everyone, small business owners have an extra set of concerns to deal with. The key to effectively planning to minimize a business’ AMT burden is: 1) knowledge of the choices of tax treatment that are available, and; 2) access to computer software to model out the resulting AMT impact of each of the choices.

George Bauernfeind is with AMTIndividual, providing analysis, customized strategies, and an online dual tax calculator / planner to help you reduce your Alternative Minimum Tax. Visit www.amtindividual.com or www.amtblog.com to read more tax planning articles or to access this tax software on the Alternative Minimum Tax.

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Unemployment Taxes

By: Sandi Lattin

Businesses hit hard by the recession during the past two years are in for the tax system's version of a follow-up sucker punch in 2010. In 35 states, the rate for unemployment taxes will rise (automatically, in most cases) due to the heavy toll absorbed by the state trust funds for the payment of unemployment benefits. Their trust fund balances and current rates of tax are insufficient to cover their ongoing costs for unemployment compensation (UC). Because the UC benefits constitute a legal entitlement, the states must continue to pay the benefits even if they don't have the money.

The states collected an aggregate of $31.0 billion in state unemployment taxes in federal fiscal year 2009. During the same time period they spent more than double the amount – approximately $75.0 billion on regular UC benefits and $4.1 billion on extended UC benefits.

To meet their UC benefit obligations, half the states are already borrowing from the Federal Unemployment Account (FUA) within the federal government's Unemployment Trust Fund (UTF). These states owe more than $26 billion to the account as of December 29, 2009. They will continue to rack-up more debt in 2010, and several additional states will join them in borrowing from the FUA during the coming year. States with loan balances outstanding as of December 29, 2009 are: Alabama, Arkansas, California, Connecticut, Florida, Georgia, Idaho, Illinois, Indiana, Kentucky, Michigan, Minnesota, Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, South Dakota, Texas, Virgin Islands, Virginia, and Wisconsin.

Increase in state unemployment tax rates. Ultimately the states will have to pay the piper. Not only will the state have to repay the FUA, they must continue to pay ongoing UC benefits, too. Increasing the state unemployment tax on employers is the only way to achieve this. The Congressional Research Service reports that a recent survey conducted by the National Association of Workforce Agencies found that 35 states expect an unemployment tax increase in 2010. In most states, the tax increases automatically as a result of the reduced trust fund balances. The higher rates will remain in effect (in most cases for a number of years) until the federal funds are paid back and the state trust funds have been adequately replenished.

Increases due to experience rating. Some businesses will fell the effects of a double-whammy. In addition to an across-the-board increase in the state rate, they will be hit with an experience rating adjustment that will increase their taxes even more. State unemployment tax rates are "experience-rated," meaning that employers pay a higher or lower tax rate based on the experience they have with former employees making UC claims. The employers attributed with a higher percentage of UC claimants relative to the number of employees they have are subject to the higher rates. If a business has laid-off a higher than normal percentage of its employees in the recent past, it is likely to be socked with an experience rating increase. The rate ranges vary from state to state, with minimums ranging between 0 and 1.9 percent and maximums ranging from 5.4 to 10.96 percent. In many states, an employer can have a dramatic increase in the rate of unemployment tax as the result of a bad year in which layoffs were made.


Sandi Lattin Online Tax Pros Russellville, Arkansas http://onlinetaxpros.com

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