IRS increases audits

As part of its plans to increase audit coverage, the IRS will be doing more correspondence audits – notices mailed to taxpayers that typically focus on a single item on the tax return. Correspondence exams can be as simple as asking about a tax return data discrepancy or requesting a missing form. But the IRS is also using these audits to focus on other issues, such as employee business expenses, the earned income credit, charitable deductions, and the tax credit for buying a home.

If you receive an IRS notice, don’t ignore it. Let us know about it right away. The problem can be resolved in less time and with less fuss if an experienced professional is involved right from the beginning.

Tax Rates Over the Years

Tax rates over the years

Tax rates are scheduled to go higher next year, with the top rate once again hitting 39.6%. For a look at tax rates over the years, here’s a partial history of our federal income tax rates for individuals since the income tax was created in 1913.

Federal Income Tax Rates Since 1913

Year              Lowest bracket    Top bracket

1913-1915               1%                   7%

1918                         6%                  73%

1923                         3%                  56%

1925-1928               1.5%                25%

1936-1939                4%                  79%

1944-1945               23%                 94%

1964                        16%                 77%

1971-1981               14%                 70%

1982-1986               12%                 50%

1988-1990               15%                 28%

1993-2000               15%                39.6%

2003-2010               10%                 35%

David Bradsher, CPA  is a Washington DC / Northern Virginia area CPA who works with small business owners and non profit leaders on a monthly basis to provide them with guidance and advice on how to grow their organizations, minimize their tax liabilities and increase their bottom line.

Will Congress cause your Paycheck to be incorrect?

Unless congress acts by December 10, your paycheck may or may not be correct. It all depends on the if the Bush-era tax cuts are extended. If they are extended to some degree, which most expect that they will be the IRS may not have enough time to update the information used by your payroll department to withhold the correct amount of tax from your paycheck.

See this for more infomation –

Senate tax-vote delay causes headaches for payroll departments

Will the kiddie tax apply to you?

Kiddie Tax - What you need to know

Got college-bound kids? Then you might have questions about the kiddie tax, since these federal rules can apply to the unearned income of full-time students up to age 24.

Here’s an overview of the rules.

* The basics. The kiddie tax affects how much you’ll pay on part of the investment income your child receives, such as interest or dividends. When the rules come into play, this “unearned income” is taxed using your rates.

* How the tax is applied. For 2010, the first $950 of your child’s unearned income is tax-free. Tax is calculated on the next $950 using your child’s federal tax rate, which can be as low as 5%. Unearned income over $1,900 is taxed at your federal income tax rate, when that rate is higher than your child’s.

For an 18-year-old, the kiddie tax applies when your child’s earned income â?? that is, money received from wages, salary, tips, commissions, and bonuses â?? is less than half the cost of providing necessities such as food, clothing, and shelter.

The same 50% support exception applies when your child is a full-time student and age 19 through 23.

* Planning tip. Consider hiring your college student in your family business. Wages are earned income and can lessen or eliminate the kiddie tax.

Still have questions about the kiddie tax? Give us a call. We have answers, information, and planning strategies.

David Bradsher, CPA  is a Washington DC / Northern Virginia area CPA who works with small business owners and non profit leaders on a monthly basis to provide them with guidance and advice on how to grow their organizations, minimize their tax liabilities and increase their bottom line.