|THINGS TO DO & REMEMBER: B. Joe Rosa, CPA 707-843-5597
As excerpted from Kiplinger and the IRS.
Make energy saving improvements to your home this year by Dec. 31 to qualify
for a 30% tax credit, for a primary residence.
Including: skylights, outside doors, windows, pigmented or special asphalt
roofs plus high efficiency furnaces, water heaters and central air conditioners.
The maximum credit available for 2010 is $1,500,
but the ceiling is reduced dollar for dollar by any credit that you claimed last
A reminder for seniors in the Medicare Part D prescription drug program:
The $250 they get this year for entering the “doughnut hole” is tax free.
Seniors in the Part D program start paying 100% of their drug costs once the
total exceeds $2,830.
Coinsurance doesn’t resume until their out-of-pocket expenses
top $4,550. When someone hits the $2,830 threshold, plans will notify
Medicare, triggering a $250 check. The supplemental payment is just for this
year. Next year, those in the doughnut hole will get a 50% discount on the cost
of brand-name drugs.
Be careful transferring S company debt to a firm you are incorporating:
The transfer can trigger tax, as this case shows.
The owners of an S firm advanced money to it. The firm’s losses exceeded the
owners’ basis in its stock.
They deducted the excess loss and had to reduce their income tax basis in the
To consolidate their holdings, they later decided to transfer the S company’s
stock and the advances made to it, along with their other enterprises, to a new
corporation in what they thought was a tax free transaction.
But they had to recognize income because the advances were deemed to be
repaid on the transfer date, and their basis in the advances was lower
because they deducted excess losses (Russell, 8th Cir.).
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PAYROLL TAX BREAK
The Social Security tax break for hiring the unemployed is giving IRS fits.
Its computers are cranking out erroneous penalty notices to employers.
Employers don’t have to pay their 6.2% share of Social Security tax on the
wages of folks hired after Feb. 3, 2010 who worked less than 40 hours in the
past 60 days.
The problem affects firms that paid wages to eligible employees from March
19 through March 31, the end of the first quarter. The exemption for those
wages was taken on the second quarter 941. However, firms could trim their
tax deposits anytime in the quarter by the amount of the exemption.
IRS computers failed in some cases and didn’t pick up that the deposit
shortfall was due to the exemption.
IRS will eliminate use of federal tax deposit coupons after 2010.
Thus, firms will have to wire deposits of all taxes to IRS...payroll taxes,
corporate income taxes and estimates, excise taxes and the like.
Currently, employers can use paper coupons if their annual deposits don’t
exceed $200,000. Only very small firms will be exempted from depositing
electronically employers with $2,500 or less in quarterly employment taxes
that pay their liability when filing their returns. All other coupon users must
switch to making deposits by wire using Treasury’s Electronic Federal Tax
For information on enrolling for electronic deposits, go to www.eftps.gov or call
Filers who failed to claim a five-year loss carryback get a second
chance, the IRS says. If they timely filed their 2009 return, they get six months
after the unextended due date to elect a five-year carryback for net operating
losses they incurred for 2009. So for calendar year filers, the deadline is Oct.
Newly released IRS guidance spells out special rules for taxpayers with fiscal
years, interactions with elections by small firms for 2008 loss carrybacks and
Remember, too, that losses from investments in Ponzi schemes also qualify
for five-year carrybacks.
But there’s some bad news for companies that claim loss carrybacks:
The Service will offset any pending liabilities against the expected refund,
according to newly finalized regulations. This includes unresolved bills for
taxes that IRS agents have asserted for intervening tax years and any proofs of
claims the agency has filed in bankruptcy court. That can wipe out the refund
IRS will do this for carrybacks of capital losses, net operating losses and tax
A deadline is approaching for small nonprofits that didn’t file Form 990-N.
They have until Oct. 15 to e-file for 2009 or face the loss of their exemption.
Many small charities with average annual revenues of $25,000 or less didn’t
realize that they’d lose their exemption if they didn’t e-file the 990-N for three
2009 tax returns for calendar year organizations were originally due by May 17.
Midsize groups also have until Oct. 15 to file. Those with gross receipts
of more than $25,000 but less than $500,000 will pay a small penalty for filing
FOREIGN EARNED INCOME EXCLUSION
IRS is doing a poor job policing claims for excluding income earned abroad,
Treasury inspectors say; even though the Service has opened five projects to
sniff out people and audit violators who are erroneously taking the foreign
earned income exclusion, many violators still fall through the cracks.
For 2010, U.S. citizens can exclude up to $91,500 of earnings abroad if they
are a bona fide resident of another country or the entire year or they were
outside of the U.S. for at least 330 complete days in a 12-month span.
FIRSTTIME HOMEBUYER’S CREDIT DATES
Eligible taxpayers who contracted to buy a home, qualifying for the first-time
homebuyer credit, before the end of April now have until Sept. 30, 2010 to
close the deal, according to the Internal Revenue Service.
The Homebuyer Assistance and Improvement Act of 2010, signed by the
President today, extended the closing deadline from June 30 to Sept. 30 for
any eligible homebuyer who entered into a binding purchase contract on or
before April 30 to close on the purchase of the home on or before June 30,
2010. The new law addresses concerns that many homebuyers might be
unable to meet the original June 30 closing deadline.
The IRS reminds taxpayers that special filing and documentation
requirements apply to anyone claiming the homebuyer credit. To avoid refund
delays, those who entered into a purchase contract on or before April 30, but
closed after that date, should attach to their return a copy of the pages from the
signed contract showing all parties' names and signatures if required by local
law, the property address, the purchase price, and the date of the contract.
Besides filling out Form 5405, First-Time Homebuyer Credit and Repayment
of the Credit, all eligible homebuyers must also include with their return one of
the following documents:
• A copy of the settlement statement showing all parties' names and
signatures if required by local law, property address, sales price, and date of
purchase. Normally, this is the properly executed Form HUD-1, Settlement
• For mobile home purchasers who are unable to get a settlement
statement, a copy of the executed retail sales contract showing all parties'
names and signatures, property address, purchase price and date of
• For a newly constructed home where a settlement statement is not
available, a copy of the certificate of occupancy showing the owner’s name,
property address and date of the certificate.
Besides providing a tax benefit to first-time homebuyers and purchasers who
haven’t owned homes in recent years, the law allows a long-time resident of
the same main home to claim the credit if they purchase a new principal
residence. To qualify, eligible taxpayers must show that they lived in their old
homes for a five-consecutive-year period during the eight-year period ending
on the purchase date of the new home. Homebuyers claiming this credit can
avoid refund delays by attaching documentation covering the five-consecutive-
• Form 1098, Mortgage Interest Statement, or substitute mortgage interest
• Property tax records or
• Homeowner’s insurance records.
There are three options for claiming the credit on a qualifying 2010 purchase:
• If a 2009 return has not yet been filed, claim it on Form 1040 for tax-year
2009. Though these returns cannot be filed electronically, taxpayers can still
use IRS Free File to prepare their return. The returns must be printed out and
sent to the IRS, along with all required documentation. The IRS urges
taxpayers claiming refunds to choose direct deposit.
• If a 2009 return has already been filed, claim it on an amended return
using Form 1040X.
• Whether or not a 2009 return has been filed, wait until next year and claim
it on a 2010 Form 1040.
TAXPREPARERS ETHICAL RULES EXTENDED
Currently, all lawyers, CPAs, enrolled retirement plan agents
and enrolled agents are subject under IRS rules to standards of ethical
Those charged with misconduct have a right to a hearing. Violators lose their
right to practice before the IRS.
Now similar rules will apply to unenrolled preparers.
Those who act unethically can be barred from doing returns, possibly
Unenrolled preparers also will have to meet continuing education rules
to remain qualified to do returns. They will have to complete 15 hours a year...
at least two hours on tax related ethics, three hours on federal tax law updates
and 10 hours on federal tax law topics. This will take effect no earlier than
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