Expanded 1099 Reporting is Repealed

Expanded reporting rules for 2011 and 2012 have been retroactively repealed, as if they were never enacted.

• You'll no longer need to plan to report payments you make in the course of your business for purchases of goods and merchandise of more than $600 from a single provider.
• Certain exceptions to the filing requirements have been reinstated. That means you will not be required to report payments to corporations (except for attorneys and some health care services).
• If you own rental property that's not considered a trade or business, you won't have to issue Forms 1099 for amounts you pay for your expenses.

What stays the same

The general rule remains — as a business owner, you need to file Forms 1099-MISC when you pay for non-employee services in excess of $600 during a calendar year.

In addition, increased penalties that took effect as of January 1, 2011, are still in place.

Call us for answers to your questions about these changes and others, including the updated optional W-2 reporting rules for employer-sponsored health insurance coverage.

May 2011

Guidance on 100% bonus depreciation allowance

The IRS has issued detailed guidance on the 2010 Tax Relief Act's 100% bonus depreciation rules for qualifying new property generally acquired and placed in service after Sept. 8, 2010 and before Jan. 1, 2012.  Overall, the rules are quite generous. 

For example, they permit 100% bonus depreciation for components where work on a larger self-constructed property began before Sept. 9, 2010, allow a taxpayer to elect to "step down" from 100% to 50% bonus depreciation, authorize 100% bonus depreciation for qualified restaurant property or qualified retail improvement property that also meets the definition of qualified leasehold improvement property, and provide an escapte hatch for some business car owners who would otherwise be subject to a draconian depreciation result. 

Contact our office if you want additional information on how these rules apply to your specific situation.

April 2011

 

Small Business Jobs Act - benefits more than just small businesses

• New five-year carryback of the general business credit,
• Increase in the start-up expenditures deduction,
• Shortening of the S corporation built-in gains period, and
• Removal of cell phones from the definition of "listed property" that's subject to tighter substantiation requirements and special depreciation rules.

 

Claiming Payroll Tax Exemption for Hiring New Workers

The Internal Revenue Service has posted on its website the newly-revised payroll tax form that most eligible employers can use to claim the special payroll tax exemption that applies to many new workers hired during 2010.

Designed to encourage employers to hire and retain new workers, the payroll tax exemption and the related new hire retention credit were created by the Hiring Incentives to Restore Employment (HIRE) Act.

Employers who hired unemployed workers after Feb. 3, 2010, and before Jan. 1, 2011 may qualify for a 6.2-percent payroll tax incentive, in effect exempting them from the employer's share of Social Security tax on wages paid to these workers. This reduction will have no effect on the employee's future Social Security benefits. The employee's 6.2 percent share of Social Security tax and the employer and employee's shares of Medicare tax still apply to all wages.

In addition, for each qualified employee retained for at least a year whose wages did not significantly decrease in the second half of the year, businesses may claim a new hire retention credit of up to $1,000 per worker on their income tax return. Further details on both the tax credit and the payroll tax exemption can be found in a recently-expanded list of answers to frequently-asked questions about the new law now posted on IRS.gov.

How to Claim the Payroll Tax Exemption

Form 941, Employer's QUARTERLY Federal Tax Return, revised for use beginning with the second calendar quarter of 2010, will be filed by most employers claiming the payroll tax exemption for wages paid to qualified employees. The HIRE Act does not allow employers to claim the exemption for wages paid in the first quarter but provides for a credit in the second quarter. The instructions for the new Form 941 explain how this credit for wages paid from March 19 through March 31 can be claimed on the second quarter return. The form and instructions are now available for download on IRS.gov.

The HIRE Act requires that employers get a signed statement from each eligible new hire, certifying under penalties of perjury, that he or she was not employed for more than 40 hours during the 60 days before beginning employment with that employer. Employers can use new Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, released last month, to meet this requirement. Though employers need this certification to claim both the payroll tax exemption and the new hire retention credit, they do not file these statements with the IRS. Instead, they must retain them along with other payroll and income tax records.

These two tax benefits are especially helpful to employers who are adding positions to their payrolls. New hires filling existing positions also qualify as long as they are replacing workers who left voluntarily or who were terminated for cause and otherwise are qualified employees. Family members and other relatives do not qualify for either of these tax benefits.

Businesses, agricultural employers, tax-exempt organizations, tribal governments and public colleges and universities all qualify to claim the payroll tax exemption for eligible newly-hired employees. Household employers and federal, state and local government employers, other than public colleges and universities, are not eligible.

   

Advantages of Converting a Traditional IRA to a Roth

Beginning in 2010, taxpayers were able to convert a traditional IRA (and funds that have been rolled over from a qualified plan) to a Roth IRA, regardless of income level or filing status.   Further, the tax on the taxable income generated from a 2010 conversion can be deferred until 2011 and 2012.  

An IRA conversion is treated as a taxable distribution, taxed as ordinary income at your marginal tax rate.   In effect, this accelerates the taxable income that you would eventually pay on distributions from a traditional IRA once you retire, but does so in exchange for never taxing any future appreciation in the value of your account. This can result in a significant tax advantage.   Also, unlike a regular IRA withdrawal, a conversion does not trigger an early withdrawal penalty.

Although conversion to a Roth IRA triggers immediate taxable income, Congress provided a special incentive to jumpstart Roth conversions under the new rules: In 2010, individuals had the choice of recognizing their conversion income in that year, or averaging it over 2011 and 2012.   This allowed you to pay taxes on the converted amount over two years instead of recognizing it all as income in one year.

An IRA to Roth IRA conversion should be considered by individuals who:

• Can afford the tax on the converted amounts;
• Anticipate being in a higher tax bracket in the future; and
• Have sufficient time before reaching retirement to allow assets to grow tax-free and recoup dollars that may have been lost due to the conversion tax.

There are a significant number of tax and financial considerations that come into play when determining whether to convert your traditional IRA to a Roth.   We are available to discuss with you your options and answer any questions regarding traditional IRA to Roth IRA conversions and new planning opportunities, or any other tax planning concerns.  

 

Use this link to get the most current information on new tax legislation:

2010 Tax Legislation