Taxes are Not Increased for Next Year

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Congress passed the most far-reaching tax bill in a decade late Thursday, averting across-the-board tax increases, enacting new breaks for individuals and businesses.

 The House of Representatives on Thursday  passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, The bill now goes to President Barack Obama for his signature, which is expected soon.

The bill has provisions covering the estate tax, expiring tax cuts, expired tax provisions and an alternative minimum tax (AMT) patch. 

The bill postpones the scheduled sunset of the lower tax rates introduced in 2001 by the Economic Growth and Tax Relief Reconciliation Act (EGTRRA, PL 107-16); those rates will now continue through 2012. The bill also continues the lower capital gains tax rate introduced by the Jobs and Growth Tax Relief Reconciliation Act of 2003 (PL 108-27) through 2012. 

For 2011 only, the bill reduces the rate for the Social Security portion of payroll taxes to 10.4%, by reducing the employee rate from 6.2% to 4.2% (the employer’s portion remains at 6.2%).

 The bill includes an AMT patch for 2010 and 2011. For 2010, the AMT exemption amounts will be $47,450 for unmarried individuals and $72,450 for married individuals filing jointly. For 2011, the amounts will be $48,450 and $74,450, respectively. 

The bill extends the 100% bonus depreciation for business property acquired after Sept. 8, 2010, and before Jan. 1, 2012, and placed in service before Jan. 1, 2012. 

The bill temporarily reinstates the estate tax, with an estate tax rate of 35% and an estate tax exemption of $5 million (adjusted for inflation after 2011). 

The bill also extends a large number of expired or expiring provisions, including: 

  • The increased standard deduction for married taxpayers filing jointly, scheduled to expire after 2010, would continue for two years;
  • The $1,000 child tax credit amount would continue for two years, instead of reverting to $500;
  • The $3,000 amount for the child and dependent care credit, which is scheduled to revert to $2,400 after 2010, would continue for two years;
  • The American opportunity tax credit would continue for two years;
  • The temporary 100% exclusion of gain from the sale of certain small business stock under IRC § 1202, enacted by the Small Business Jobs Act of 2010, would be extended through 2011.

IRS has 164 million waiting for you!

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Are you still waiting for your 2009 tax refund? If so, you may be one of the 111,893 taxpayers to whom the IRS has been unable to deliver a refund check. The refunds total about $164 million.

Every year there are taxpayers who don’t update the IRS or the U.S. Postal Service when they move or change their mailing address. Checks are mailed to the last known address for taxpayers, and when the address isn’t current, the checks are returned as undeliverable.

To check on a missing refund, you can go to the IRS Web site at www.irs.gov and use the “Where’s My Refund?” tool. A reminder: The IRS doesn’t contact people by e-mail regarding pending refunds. So if you receive such an e-mail, it’s likely to be an identity theft scam. To check on a refund by phone, call 1-800-829-1954.

2010 Tax Planning

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Bookkeeping Services 

Tax planning for 2010 may require an understanding of one of the most complicated tax years in recent memory.  This year represents a critical time to ascertain and identify any tax traps while maximizing opportunities for dramatic tax savings. Next year may truly be too late …

 There have been no less than six tax Acts this year, and more changes are anticipated after this election cycle. As always, the key to effective tax planning is to estimate your anticipated income levels not only for 2010 – but also for the next couple of years.

 Although the typical tax planning wisdom has been to avoid paying any taxes for as long as possible, this strategy may have to be dramatically altered. Deductions may be worth a great deal more in a year or two.

 Any tax projections may require you to predict a series of unknown future events, and make educated guesses and reasonable assumptions. Remember, no tax strategy is cast in stone until the time for changing strategies has passed. Tax planning is a dynamic process, and the earlier you start, the better.

 Here are some basic principles that can help guide your overall thinking:

  •  If you expect your tax rate will be higher next year, you may want to accelerate income into this year and defer deductions into next year.
  •  If you think your tax rate might be lower in 2011, consider deferring income to next year and accelerating deductions into this year.
  •  Remember to pay careful attention to your marginal tax rate – the highest rate at which your last, or marginal, dollar of income will be taxed.
  •  Without additional legislation, overall tax rates are scheduled to rise in 2011. However, if your 2011 income will be substantially lower than 2010, your marginal tax rate may decrease.

 We believe proactive tax planning is the key to keeping more of your income.  Proactive tax planning means analyzing your income and expenses for every available deduction, credit, and opportunity, without the need for “aggressive” strategies, “gray areas” or “red flags.”

 We have recently implemented a new tax planning tool, that will help us more than ever before, to identify and explore opportunities with you to cut your tax bill.  Innovative analysis, combined with our years of experience, gives you the proactive advice you need.

 The critical step is to meet with us now, during the 2010 tax year, while there is still plenty of time to consider and implement appropriate planning strategies.

 Our tax planning and coaching services give you a plan for legally beating the IRS.  Please contact uswithin the next couple of weeks todetermine if 2010 tax planning makes sense for you. If you are ready to start planning, please call  to begin.

A review course on education tax credits

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As the fall semester starts up, so do questions about education tax credits. The interest is natural – credits are valuable tax breaks, because you can subtract them directly from the income tax you owe.

So what education credits can you claim on your 2010 federal income tax return? The Hope Scholarship/American Opportunity Credit and the Lifetime Learning Credit are available this year, and, as you may already know, have many similarities.

For instance, to be eligible for these credits, the qualified out-of-pocket education expenses you pay in 2010 must be for academic periods that begin this year or in the first three months of 2011. Tuition and fees are qualified education expenses for purposes of claiming the credits, while room and board are not.

How do the credits differ? One difference is the maximum available amount. Generally, you can claim up to $2,500 per eligible student when you qualify for the Hope Scholarship/American Opportunity Credit, while the most you can claim for the Lifetime Learning Credit is $2,000.

Another difference is the adjusted gross income level at which the credits begin to shrink. For 2010, the phase-out for the Hope Scholarship/American Opportunity Credit starts at $80,000 when you’re single ($160,000 for married filing jointly). For the Lifetime Learning Credit, the phase-out begins at $50,000 for singles ($100,000 when you’re married filing jointly).

Call for more information. We have a complete list of education tax benefits, including qualified savings bond interest, student loan deductions, and withdrawals from IRAs and college savings plans.

Some help? – Small business jobs bill becomes law

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A new law signed on September 27 will give small businesses some tax breaks and assistance in getting loans. The law provides a $30 billion fund to encourage community banks to lend to small companies.

 It extends 50% bonus depreciation for new business equipment purchased in 2010 and increases first-year expensing of new and used equipment purchased in 2010 and 2011 to $500,000.

The 2010 deduction for business start-up expenses doubles to $10,000, and self-employed individuals are allowed to deduct the cost of health insurance for themselves and their families in calculating self-employment taxes.

For more information, give us a call.

Tax Rates Over the Years

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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?

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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?

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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.

New Law saves education jobs

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On August 10, President Obama signed into law the “Education Jobs and Medicaid Assistance Act of 2010.” The law will fund the jobs of an estimated 140,000 teachers who would otherwise have lost their jobs, and it will help states with Medicaid costs.

To pay for these provisions, the law makes a number of changes to the foreign tax credit and eliminates the advance payment option for the earned income credit.

If you need details of provisions that affect you or your business, contact our office.

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.

IRS extends filing deadline for small charities

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All nonprofit organizations (except for churches and church-related groups) must file an annual return with the IRS. Failure to do so for three consecutive years results in the loss of the organization’s tax-exempt status. The filing deadline for the 2009 return was May 17, 2010, and thousands of small charities hit the three-year failure to file point on that date.

The IRS had conducted an extensive notification program to remind charities of their filing obligation, but large numbers still have not filed. Now the IRS has extended the filing deadline to October 15, 2010, hoping that small charities will bring their filings up to date and avoid losing their tax-exempt status.

If you are responsible for a nonprofit organization and need details or filing assistance, give our office a call.

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.

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