Take new depreciation rules into account in your business planning

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The tax law changes so often that it’s easy to lose track of current rules. As you make business purchasing decisions this year, keep these facts in mind.

* Bonus depreciation is available only for NEW equipment purchases. 50% bonus depreciation can be taken on purchases made in 2010 through September 8. On purchases made from September 9, 2010, through December 31, 2011, 100% bonus depreciation can be taken. In 2012, bonus depreciation reverts to 50%.

* First-year expensing under Section 179 is available for both NEW and USED equipment purchases. The expensing limit for 2010 and 2011 is $500,000, with a reduction once purchases exceed $2,000,000. In 2012, the expensing limit is scheduled to revert to $125,000, with a dollar for dollar reduction once purchases exceed $500,000.

* Effective for 2010 and 2011, certain leasehold and retail improvements and restaurant buildings and improvements qualify for 15-year depreciation. Some may also qualify for bonus depreciation and/or first-year Section 179 expensing. The rules determining eligibility are complex.

For help in deciding how to maximize the tax benefits available for your business purchases, give us a call.

Tax Return Mistakes can be corrected

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Has this ever happened to you? You rush to get your income tax return in the mail only to discover a deduction you overlooked. Or you receive a corrected year-end statement for one of your investments a week after you dropped your return in the mail. Well, the good news is that you can correct your return for up to three years after you file your original return.

Oversights and errors are not uncommon, so the IRS provides a way for you to correct them. You need to tell the IRS why you are correcting the return, and include the appropriate attachments, such as a corrected Form W-2, with your amended return.

Filing an amended return doesn’t extend the time the IRS has to examine your returns unless your original or amended returns were fraudulently filed. The IRS generally has three years from the date your original tax return was due or from the time it was filed to examine your returns (both original and amended) and to adjust your tax. If your amended return is properly prepared, your chances of being audited are probably no greater than they were on your original return.

You should consider the size of the refund or balance due before you rush to amend your return. In other words, a $25 refund would probably waste more of your time than it is worth.

If you’ve discovered income or deductions that you should have reported on your income tax return, give us a call. We can help you set the record straight and pay only the tax actually due.

The IRS targets worker classification – Employees vs Independant Contractors

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If you have people working for your business, you may have to decide how to classify them. Are they employees or independent contractors?

Classifying your workers as independent contractors generally saves you money. That’s because you avoid paying employment taxes and benefits on their behalf.

In most instances, however, very few of your workers actually qualify as independent contractors. If the IRS determines that you misclassified your employees as contractors, you could end up paying back all of the employment taxes and benefits that should have been paid over the years. Depending on the size of your workforce, the cost to you could be substantial, potentially bankrupting your business.

How can you ensure that you properly classify your workers? Start with the factors listed by the IRS to determine a worker’s classification. If you maintain control over your workers through hiring, training and supervision, scheduling the work to be done, and by providing them with tools and materials, your workers are most likely your employees. The same holds true if you pay your workers a set salary or an hourly wage and have the right to let them go at any time.

As a general rule, if you only have the right to control or direct the result of the work and not the means and methods of accomplishing the result, the individual may qualify as an independent contractor.

If your business employs independent contractors, take steps to protect yourself and your business. Be consistent with how you classify your workers, and follow how other businesses in your industry classify their workers. And don’t forget to send a Form 1099-MISC to contractors who earn $600 or more from you during the year.

The proper classification of workers has become a priority issue for the IRS. Make sure that your workers are classified correctly. For assistance, give us a call.

Extension Time!

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April 18 is the due date for filing your 2010 tax return. If you won’t have all your tax information assembled in time to meet the filing deadline, getting an extension will give you an extra six months – until October 17, 2011 – to file your return.

Over the years, the IRS has made requesting an extension easier. The extension is automatic; you simply have to file Form 4868 with the IRS by the April 18 filing deadline. Be aware, however, that an extension to file does not extend your time to pay. The IRS will still assess interest on any unpaid tax balance. In addition, unless you pay at least 90% of your estimated tax liability by April 18, you may be hit with a late-payment penalty.

If you are a U.S. citizen living abroad, you have until June 15, 2011, to file your 2010 return. This does not require the filing of an extension form. This two-month extension does not apply to taxpayers who are just traveling outside the U.S. on April 18. When you file your tax return, you must attach a statement showing that you qualified for the extension. If additional time beyond June 15 is needed, Form 2350 should be filed to obtain an automatic extension until October 17, 2011. Interest will be calculated on any balance due from the April 18 due date.

Military personnel serving in combat qualify for an extension for filing returns and paying tax for the period of combat service plus 180 days.

For additional information or filing assistance, contact our office.

Plan for a smaller refund this year from the IRS

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Did you receive a big refund check from last year’s taxes? If so, you’re not alone. Many of us deliberately pay extra taxes throughout the year so we can enjoy a nice bonus early the next year. Sometimes it’s insurance against having to come up with extra cash when you file your return. That’s a valid concern. But sometimes it’s just a form of enforced saving. Or perhaps you’ve simply never bothered to adjust your withholding. Those aren’t such good reasons. After all, when you overpay your taxes, you’re making an interest-free loan to the government.

Should you adjust your withholding? Reducing your withholding is as simple as filing a new Form W-4 with your employer. The form comes with a worksheet to figure out how many allowances you should claim. Don’t forget to allow for your other taxable income besides wages, such as dividends or investment gains.

If you’re worried about underpaying tax, there are a couple of rules you should know. Generally, you’ll escape a penalty if you pay, through withholding or quarterly estimated payments, at least 100% of last year’s taxes (110% if your adjusted gross income is over $150,000), or if you pay at least 90% of what you owe for this year.

If you reduce withholding, here are some ideas on how to use your extra take-home pay.
 
* Contribute more to your employer’s 401(k) plan, especially if your company matches contributions. You’ll enjoy a double benefit because the extra contributions will reduce the tax on your wages as well as provide tax-deferred savings.
 
* Pay down balances you’re carrying on your credit cards. That’s equivalent to earning interest on your extra payments, often at double-digit rates.
 
* Put the money in a tax-favored Coverdell IRA or Section 529 plan for your child’s education.

Contact our office if you’d like help figuring out your withholding level for 2011.